EQUIFAX INC.

EFX
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EQUIFAX : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/23/2020 | 04:18pm


As used herein, the terms Equifax, the Company, we, our and us refer to Equifax
Inc.
, a Georgia corporation, and its consolidated subsidiaries as a combined
entity, except where it is clear that the terms mean only Equifax Inc.

All references to earnings per share data in Management's Discussion and
Analysis, or MD&A, are to diluted earnings per share, or EPS, unless otherwise
noted. Diluted EPS is calculated to reflect the potential dilution that would
occur if stock options or other contracts to issue common stock were exercised
and resulted in additional common shares outstanding.


BUSINESS OVERVIEW




Equifax Inc. is a global data, analytics and technology company. We provide
information solutions and human resources business process outsourcing services
for businesses, governments and consumers. We have a large and diversified group
of clients, including financial institutions, corporations, governments and
individuals. Our services are based on comprehensive databases of consumer and
business information derived from numerous sources including credit, financial
assets, telecommunications and utility payments, employment, income, demographic
and marketing data. We use advanced statistical techniques, machine learning and
proprietary software tools to analyze available data to create customized
insights, decision-making solutions and processing services for our clients. We
also provide information, technology and services to support debt collections
and recovery management. Additionally, we are a leading provider of
payroll-related and human resource management business process outsourcing
services in the United States of America, or U.S. For consumers, we provide
products and services to help people understand, manage and protect their
personal information and make more informed financial decisions.
We currently operate in four global regions: North America (U.S. and Canada),
Asia Pacific (Australia, New Zealand and India), Europe (the United Kingdom, or
U.K., Spain and Portugal) and Latin America (Argentina, Chile, Costa Rica,
Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru and Uruguay). We maintain
support operations in the Republic of Ireland, Chile, Costa Rica and India. We
also offer Equifax branded credit services in Russia through a joint venture,
have investments in consumer and/or commercial credit information companies
through joint ventures in Cambodia, Malaysia, Singapore and the United Arab
Emirates
, and have an investment in a consumer and commercial credit information
company in Brazil.
Recent Events and Company Outlook
As further described in our 2019 Form 10-K, we operate in the United States,
which represented 73% of our revenue in 2019, and internationally in 24
countries. Our products and services span a wide variety of vertical markets
including financial services, mortgage, federal, state and local governments,
automotive, telecommunications and many others.
On March 11, 2020, the World Health Organization designated the novel
coronavirus disease ("COVID-19") as a global pandemic. As previously disclosed
in March 2020, the impact of COVID-19 and related actions to attempt to control
its spread began to impact our consolidated operating results in March 2020. The
impact on the operating results in each country in which we operate differed
based on the conditions and the vertical markets we serve in that country. In
the United States, consolidated revenue grew during the three months ended June
30, 2020
, compared to the three months ended June 30 2019, reflecting very
strong mortgage market related revenue in both USIS and Workforce Solutions, and
very strong revenue growth in our Workforce Solutions unemployment claims
management business. However, in the US, we experienced year-over-year revenue
declines in most other vertical markets including commercial, financial services
and telecommunications. Internationally, all countries in which we operate
experienced revenue declines, across most vertical markets. The year-over-year
reductions in countries and vertical markets referenced were most pronounced in
April, and generally lessened in May and June. Due to the strong revenue growth
in the U.S., total Equifax consolidated operating results improved in the second
quarter of 2020, as compared to both the first quarter of 2020 and the second
quarter of 2019. We are unable to determine the severity or duration of the
impact of the COVID-19 pandemic on Equifax or how the impact on the individual
markets in the countries we serve will change with time. Although consolidated
revenue has grown during the first half of 2020 when compared to 2019, due to
the uncertain effects of the global economy caused by the impact of COVID-19,
there can be no assurances that revenues will continue to grow in the second
half of 2020.
We expect that the global COVID-19 pandemic will continue to adversely impact
our business and results of operations. During this uncertain time, our critical
priorities are:
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(i)the health and safety of our employees and their families;
(ii)providing support to consumers;
(iii)helping our customers execute their changing business plans by providing
innovative solutions combining our unique data assets and leading analytical and
technology capabilities; and
(iv)executing on our EFX2020 cloud technology, data and security transformation
per our previously stated plans.
In the first quarter of 2020, we executed on our business continuity plans and
formed a crisis management team to address the challenges related to the ongoing
COVID-19 pandemic. In March and April 2020, our employees worked from home in
each country where we operate, with only essential employees in customer support
and data center operations working on site at our facilities. Beginning in May,
in jurisdictions where local restrictions implemented to prevent the further
spread of the virus were lifted, our employees began to return to their assigned
offices, with limits placed on the number of employees on site at one time. For
employees working at our offices and facilities, we have instituted social
distancing protocols, increased the level of cleaning and sanitizing in those
facilities and undertaken other actions to make these sites safer. We have also
substantially reduced employee travel to only essential business needs. As part
of our business continuity plans, we are generally following the requirements
and protocols published by the U.S. Centers for Disease Control and the World
Health Organization
, and state and local governments. If public health
authorities dictate further measures to limit further spread of the virus, we
may need to reinstate our business continuity plans in certain countries or
regions in which we operate. As of the date of this filing, we do not believe
our work from home and return to office protocol have materially adversely
impacted our internal controls, financial reporting systems or our operations.
Our data and analytics, product and sales teams are focused on how to refine
existing products and services, as well as generate new products and services,
to meet changing needs of our customer in this environment. Our technology teams
continue to execute on our EFX2020 cloud technology, data and security
transformation, including the continued migration of our technology to cloud
native environments. To date, the change in working environment has not caused
material disruptions in the execution of this plan.
As a response to the ongoing COVID-19 pandemic, we have implemented plans to
manage our costs. We have significantly limited the addition of new employees
and third party contracted services, eliminated all travel except where
necessary to meet customer or regulatory needs, and acted to limit discretionary
spending. To the extent the business disruption continues for an extended
period, additional cost management actions will be considered. Recovery from the
COVID-19 induced recession remains highly uncertain and may require several
years to return to economic levels experienced prior to the pandemic and may
affect certain markets or regions we serve differently. Any future asset
impairment charges, increase in allowance for doubtful accounts, or
restructuring charges could be more likely and will be dependent on the severity
and duration of this crisis.
At June 30, 2020, we had approximately $1.3 billion in cash and $1.3 billion
available to borrow under our revolving credit facility that matures in
September 2023 and receivables funding facility that matures in December 2022.
In the second quarter of 2020, we amended our revolving credit facility to
increase the maximum leverage ratio through 2021 to provide us with additional
financial flexibility.
In light of the evolving health, social, economic and business environment,
governmental regulations or mandates, and business disruptions that could occur,
the potential impact that COVID-19 could have on our financial condition and
operating results remains highly uncertain.
For more information, see "Item 1A. Risk Factors-Our business has been and will
continue to be negatively impacted by the recent COVID-19 outbreak," in our
March 31, 2020 Form 10-Q.
2017 Cybersecurity Incident
Litigation, Claims and Government Investigations. As a result of the 2017
cybersecurity incident, we are subject to a significant number of proceedings
and investigations as described in Part II, "Item 1. Legal Proceedings" in this
Form 10-Q.
We believe it is probable that we will incur losses associated with certain of
the proceedings and investigations related to the 2017 cybersecurity incident.
In 2019, we recorded expenses, net of insurance recoveries, of $800.9 million in
other current liabilities and selling, general, and administrative expenses in
our Consolidated Balance Sheets and Statements of Income (Loss), respectively,
exclusive of our legal and professional services expenses. The amount accrued
represents our best estimate of the liability related to these matters. The
Company will continue to evaluate information as it becomes known and
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adjust accruals for new information and further developments in accordance with
ASC 450-20-25. While it is reasonably possible that losses exceeding the amount
accrued may be incurred, it is not possible at this time to estimate the
additional possible loss in excess of the amount already accrued that might
result from adverse judgments, settlements, penalties or other resolution of the
proceedings and investigations described below based on a number of factors,
such as the various stages of these proceedings and investigations, including
matters on appeal, that alleged damages have not been specified or are
uncertain, the uncertainty as to the certification of a class or classes and the
size of any certified class, as applicable, and the lack of resolution on
significant factual and legal issues. The ultimate amount paid on these actions,
claims and investigations in excess of the amount already accrued could be
material to the Company's consolidated financial condition, results of
operations, or cash flows in future periods.
Future Costs. We are currently executing substantial initiatives in security and
consumer support, and a company-wide transformation of our technology
infrastructure, which we refer to as our technology transformation, and incurred
substantial increased expenses and capital expenditures in 2019 and the first
half of 2020 related to these initiatives. We expect to continue to incur
significant expenses and capital expenditures in the second half of 2020 related
to these initiatives, at similar levels as those incurred in 2019.
We incurred significant legal and professional services expenses related to the
lawsuits, claims and government investigations to which we were a party in 2019,
and expect to continue to incur these expenses until all matters are fully
resolved. However, due to the settlement of all significant matters in the U.S.
in 2019, the level of legal and professional service expenses related to these
matters was significantly lower in the first half of 2020 compared to the same
period in 2019, and we expect that these expenses will continue to be
significantly lower in the second half of 2020.


We will recognize the expenses and capital expenditures referenced herein as
they are incurred.



Segment and Geographic Information




Segments. The USIS segment, the largest of our four segments, consists of three
service lines: Online Information Solutions; Mortgage Solutions; and Financial
Marketing Services. Online Information Solutions and Mortgage Solutions revenue
is principally transaction-based and is derived from our sales of products such
as consumer and commercial credit reporting and scoring, identity management,
fraud detection and modeling services. USIS also markets certain decisioning
software services, which facilitate and automate a variety of consumer and
commercial credit-oriented decisions. Financial Marketing Services revenue is
principally project and subscription based and is derived from our sales of
batch credit and consumer wealth information such as those that assist clients
in acquiring new customers, cross selling to existing customers and managing
portfolio risk.

The Workforce Solutions segment consists of the Verification Services and
Employer Services business lines. Verification Services revenue is
transaction-based and is derived primarily from employment and income
verification. Employer Services revenues are derived from our provision of
certain human resources business process outsourcing services that include both
transaction and subscription based product offerings. These services include
unemployment claims management, employment-based tax credit services and other
complementary employment-based transaction services.

The International segment consists of Asia Pacific, Europe, Latin America and
Canada. Canada's services are similar to our USIS offerings, while Asia Pacific,
Europe and Latin America are made up of varying mixes of service lines that are
generally in our USIS segment. We also provide information and technology
services to support lenders and other creditors in the collections and recovery
management process.

Global Consumer Solutions revenue is both transaction and subscription based and
is derived from the sale of credit monitoring and identity theft protection
products, which we deliver electronically to consumers primarily via the
internet in the U.S., Canada, and the U.K. We also sell consumer and credit
information to resellers who combine our information with other information to
provide direct-to-consumer monitoring, reports and scores.

Geographic Information. We currently have operations in the following
countries: Argentina, Australia, Canada, Chile, Costa Rica, Ecuador, El
Salvador
, Honduras, India, Mexico, New Zealand, Paraguay, Peru, Portugal, the
Republic of Ireland, Spain, the U.K., Uruguay and the U.S. We also offer Equifax
branded credit services in Russia through a joint venture, have investments in
consumer and/or commercial credit information companies through joint ventures
in Cambodia, Malaysia, Singapore, and the United Arab Emirates, have an
investment in a consumer and commercial credit information company in Brazil,
and have an investment in an identity authentication company in Canada.
Approximately 80% and 73% of our revenue was generated in the U.S. during the
three months ended June 30, 2020 and 2019, respectively. Approximately 78% and
72% of our revenue was generated in the U.S. during the six months ended
June 30, 2020 and 2019, respectively.
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Key Performance Indicators. Management focuses on a variety of key indicators
to monitor operating and financial performance. These performance indicators
include measurements of operating revenue, change in operating revenue,
operating income, operating margin, net income, diluted earnings per share, cash
provided by operating activities and capital expenditures. The key performance
indicators for the three and six months ended June 30, 2020 and 2019 were as
follows:

Key Performance Indicators
Three Months Ended June 30, Six months ended June 30,
2020 2019 2020 2019
(In millions, except per
(In millions, except per share data) share data)
Operating revenue $ 982.8 $ 880.0 $ 1,940.8 $ 1,726.1
Operating revenue change 12 % - % 12 % (1) %
Operating income (loss) $ 166.8 $


113.8 $ 302.7 $ (504.0)
Operating margin


17.0 % 12.9 % 15.6 % (29.2) %
Net income (loss) attributable to
Equifax $ 95.9 $


66.8 $ 208.5 $ (489.1)




Diluted earnings (loss) per share $ 0.78 $ 0.55 $ 1.70 $ (4.02)
Cash provided by operating
activities $ 251.2 $ 217.0 $ 282.0 $ 248.0
Capital expenditures* $ (107.9) $


(103.5) $ (197.3) $ (198.2)



*Amounts include accruals for capital expenditures.



Operational and Financial Highlights




•We did not repurchase shares of our common stock during the first six months of
2020. At June 30, 2020, $590.1 million was available for future purchases of
common stock under our share repurchase authorization.


•We paid out $94.6 million or $0.78 per share in dividends to our shareholders
during the first six months of 2020.



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