ATLANTA, July 24, 2019 /PRNewswire/ -- Equifax Inc. (NYSE:
EFX) today announced financial results for the quarter ended
June 30, 2019.
"The second quarter was a positive step forward for Equifax as
we delivered solid financial results while continuing significant
investments in our multi-year $1.25
billion EFX 2020 cloud technology and security
transformation program." said Mark W.
Begor, Chief Executive Officer of Equifax. "During the
quarter, we announced the acquisition of PayNet, a leader in
commercial lending data and insights as a part of our focus on
expanding our differentiated data assets. Earlier this week, we
announced a comprehensive resolution of significant U.S.
consumer-related litigation and regulatory investigations arising
from the 2017 cybersecurity incident. The settlement is an
important step for consumers and Equifax as we move forward from
the 2017 cybersecurity incident and focus on investing in our
future as a leading data, analytics, and technology company."
Financial Results Summary
The company reported revenue of $880.0
million in the second quarter of 2019, up slightly compared
to the second quarter of 2018 and up 3 percent on a local currency
basis.
Net income attributable to Equifax of $66.8 million was down compared to net income
attributable to Equifax of $144.8
million in the second quarter of 2018.
Second quarter diluted EPS attributable to Equifax was
$0.55, down compared to $1.19 in the second quarter of 2018.
USIS second quarter results
- Total revenue was up 2 percent at $332.7
million in the second quarter of 2019 compared to
$324.6 million in the second quarter
of 2018. Operating margin for USIS was 35.4 percent in the second
quarter of 2019 compared to 38.9 percent in the second quarter of
2018. Adjusted EBITDA margin for USIS was 45.6 percent in the
second quarter of 2019 compared to 47.7 percent in the second
quarter of 2018.
- Online Information Solutions revenue was $246.1 million, up 10 percent compared to the
second quarter of 2018.
- Mortgage Solutions revenue was $35.6
million, down 22 percent compared to the second quarter of
2018.
- Financial Marketing Services revenue was $51.0 million, down 7 percent compared to the
second quarter of 2018.
International second quarter results
- Total revenue was $229.0 million
in the second quarter of 2019, down 9 percent and up slightly
compared to the second quarter of 2018 on a reported and local
currency basis, respectively. Operating margin for International
was 9.9 percent in the second quarter of 2019, compared to 14.8
percent in the second quarter of 2018. Adjusted EBITDA margin for
International was 28.6 percent in the second quarter of 2019,
compared to 30.5 percent in the second quarter of 2018.
- Asia Pacific revenue was
$75.9 million, down 12 percent
compared to the second quarter of 2018 and down 5 percent on a
local currency basis.
- Europe revenue was
$66.0 million, down 9 percent
compared to the second quarter of 2018 and down 3 percent on a
local currency basis.
- Latin America revenue was
$47.6 million, down 12 percent
compared to the second quarter of 2018 and up 8 percent on a local
currency basis.
- Canada revenue was
$39.5 million, up 5 percent compared
to the second quarter of 2018 and up 9 percent on a local currency
basis.
Workforce Solutions second quarter results
- Total revenue was $230.1 million
in the second quarter of 2019, an 11 percent increase compared to
the second quarter of 2018. Operating margin for Workforce
Solutions was 41.6 percent in the second quarter of 2019 compared
to 40.4 percent in the second quarter of 2018. Adjusted EBITDA
margin for Workforce Solutions was 49.3 percent in the second
quarter of 2019 compared to 47.6 percent in the second quarter of
2018.
- Verification Services revenue was $172.3
million, up 15 percent compared to the second quarter of
2018.
- Employer Services revenue was $57.8
million, down 1 percent compared to the second quarter of
2018.
Global Consumer Solutions second quarter results
- Revenue was $88.2 million in the
second quarter of 2019, down 7 percent and 6 percent compared to
the second quarter of 2018 on a reported and local currency basis,
respectively. Operating margin was 14.5 percent in the second
quarter of 2019 compared to 20.1 percent in the second quarter of
2018. Adjusted EBITDA margin was 22.9 percent compared to 31.0
percent in the second quarter of 2018.
Adjusted EPS and Adjusted EBITDA Margin
- Adjusted EPS attributable to Equifax was $1.40 in the second quarter of 2019, down 10
percent compared to the second quarter of 2018. This financial
measure for 2019 excludes the foreign currency impacts of
Argentina being a highly
inflationary economy, PayNet acquisition-related amounts other than
acquisition-related amortization, and an accrual for legal matters
related to the 2017 cybersecurity incident. The financial measure
for both 2019 and 2018 excludes cybersecurity incident related
costs, acquisition-related amortization expense, net of associated
tax impacts, and income tax effects of stock awards recognized upon
vesting or settlement. The financial measure for 2018 excludes
adjustments from uncertain tax positions resulting from a
settlement with tax authorities, which effect the comparability of
the underlying operational performance and are described more fully
in the attached Q&A.
- Adjusted EBITDA margin was 33.7 percent in the second quarter
of 2019 compared to 35.0 percent in the second quarter of 2018.
This financial measure has been adjusted to exclude certain items,
including costs related to the cybersecurity incident, PayNet
acquisition-related amounts other than acquisition-related
amortization, and an accrual for legal matters related to the 2017
cybersecurity incident, which affect the comparability of the
underlying operational performance and are described more fully in
the attached Q&A.
Third Quarter and Full Year Guidance
- For the third quarter of 2019, we expect reported revenue to be
between $865 and $880 million, reflecting local currency growth of
4.5% to 6.0%, as compared to the third quarter of 2018, partially
offset by an expected almost 1.5% negative impact of foreign
exchange. Adjusted EPS is expected to be between $1.41 and $1.46 per
share. The impact of foreign exchange on adjusted EPS compared to
the third quarter of 2018 is expected to be negative $0.02 per share.
- We expect full year 2019 reported revenue to be between
$3.425 and $3.525 billion, reflecting local currency growth
of 2% to 5% compared to 2018, partially offset by an expected 2%
negative impact of foreign exchange. Our adjusted EPS guidance
range is being adjusted by ($0.03)
per share for interest expense related to legal and regulatory
settlements, and is now expected to be between $5.57 and $5.77 per
share. The impact of foreign exchange on adjusted EPS compared to
2018 is expected to be negative $0.12
per share. We expect revenue to be above the mid-point of the
range, and Adjusted EPS to be toward the bottom of the range.
About Equifax
Equifax is a global data, analytics, and technology company and
believes knowledge drives progress. The Company blends unique data,
analytics, and technology with a passion for serving customers
globally, to create insights that power decisions to move people
forward.
Headquartered in Atlanta, Equifax operates or has
investments in 24 countries in North America, Central
and South America, Europe and the Asia
Pacific region. It is a member of Standard & Poor's
(S&P) 500® Index, and its common stock is traded on the New
York Stock Exchange (NYSE) under the symbol EFX. Equifax employs
approximately 11,000 employees worldwide.
Earnings Conference Call and Audio Webcast
In conjunction with this release, Equifax will host a conference
call on July 25, 2019 at 8:30 a.m.
(ET) via a live audio webcast. To access the webcast, go to
the Investor Relations section of our website at www.equifax.com.
The discussion will be available via replay at the same site
shortly after the conclusion of the webcast. This press release is
also available at that website.
Non-GAAP Financial Measures
This earnings release presents adjusted EPS attributable to
Equifax which is diluted EPS attributable to Equifax adjusted (to
the extent noted above for different periods) for costs related to
the 2017 cybersecurity incident, acquisition-related amortization
expense, net of tax, the foreign exchange impact resulting from
accounting for Argentina as a
highly inflationary economy, accruals for legal matters related to
the 2017 cybersecurity incident, PayNet acquisition-related amounts
other than acquisition-related amortization, and the income tax
effects of stock awards that are recognized upon vesting or
settlement. This earnings release also presents adjusted EBITDA and
adjusted EBITDA margin which is defined as consolidated net income
attributable to Equifax plus net interest expense, income taxes,
depreciation and amortization, and also excludes certain one-time
items. These are important financial measures for Equifax but are
not financial measures as defined by GAAP.
These non-GAAP financial measures should be reviewed in
conjunction with the relevant GAAP financial measures and are not
presented as an alternative measure of net income or EPS as
determined in accordance with GAAP.
Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures and related notes are
presented in the Q&A. This information can also be found under
"Investor Relations/Financial Information/Non-GAAP Financial
Measures" on our website at www.equifax.com.
Forward-Looking Statements
This release contains forward-looking statements and
forward-looking information. These statements can be identified by
expressions of belief, expectation or intention, as well as
statements that are not historical fact. These statements are based
on certain factors and assumptions including with respect to
foreign exchange rates, expected growth, results of operations,
performance, the outcome of legal proceedings, business prospects
and opportunities and effective tax rates. While the company
believes these factors and assumptions to be reasonable based on
information currently available, they may prove to be
incorrect.
Several factors could cause actual results to differ materially
from those expressed or implied in the forward-looking statements,
including, but not limited to, actions taken by us, including
restructuring or strategic initiatives (including our EFX2020
technology and security transformation program, capital investments
and asset acquisitions or dispositions), as well as developments
beyond our control, including, but not limited to, changes in
worldwide and U.S. economic conditions that materially impact
consumer spending, consumer debt and employment and the demand for
Equifax's products and services. Other risk factors include the
impact of the 2017 cybersecurity incident and the resulting
government investigations, litigation and other impacts on our
business and results of operations; potential adverse developments
in new and pending legal proceedings or government investigations,
including the failure to obtain final approval of our
recently-announced agreements to settle our U.S. consumer class
action litigation related to the 2017 cybersecurity incident and
the investigations of the Federal Trade Commission, the Consumer
Financial Protection Bureau ("CFPB"), the Attorneys General of 48
states, the District of Columbia
and Puerto Rico, and the New York
Department of Financial Services; impact of our technology and
security transformation and improvements in our information
technology and data security infrastructure; changes in tax
regulations; adverse or uncertain economic conditions and changes
in credit and financial markets; uncertainties regarding the
ultimate amount and timing of payments for the legal proceedings or
government investigations related to the 2017 cybersecurity
incident; limitations on our ability to access the capital markets
and corresponding effects on our ability to finance our
obligations; economic, political and other risks associated with
international sales and operations; risks relating to unauthorized
access to data or breaches of confidential information due to
criminal conduct, attacks by hackers, employee or insider
malfeasance and/or human error; changes in, and the effects of,
laws and regulations and government policies governing or affecting
our business, including, without limitation, our examination and
supervision by the CFPB, a federal agency that holds primary
responsibility for the regulation of consumer protection with
respect to financial products and services in the U.S., oversight
by the U.K. Financial Conduct Authority ("FCA") and Information
Commissioner's Office of our debt collections services and core
credit reporting businesses in the U.K., oversight by the Office of
Australian Information Commission, the Australian Competition and
Consumer Commission ("ACCC") and other regulatory entities of our
credit reporting business in Australia and the impact of privacy laws and
regulations, including the European General Data Protection
Regulation and the California Consumer Privacy Act; federal or
state responses to identity theft concerns; our ability to
successfully develop and market new products and services, respond
to pricing and other competitive pressures, complete and integrate
acquisitions and other investments and achieve targeted cost
efficiencies; timing and amount of capital expenditures; changes in
capital markets and corresponding effects on the company's
investments and benefit plan obligations; foreign currency exchange
rates and earnings repatriation limitations; and the decisions of
taxing authorities which could affect our effective tax rates. A
summary of additional risks and uncertainties can be found in our
Annual Report on Form 10-K for the year ended December 31,
2018, including without limitation under the captions "Item 1.
Business -- Governmental Regulation" and "-- Forward-Looking
Statements" and "Item 1A. Risk Factors," and in our other filings
with the U.S. Securities and Exchange Commission. Forward-looking
statements are given only as at the date of this release and the
company disclaims any obligation to update or revise the
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
EQUIFAX
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
|
|
|
|
Three Months Ended
June 30,
|
|
|
2019
|
|
2018
|
(In millions, except per share amounts)
|
|
(Unaudited)
|
Operating
revenue
|
|
$
|
880.0
|
|
|
$
|
876.9
|
|
Operating
expenses:
|
|
|
|
|
Cost of services
(exclusive of depreciation and amortization below)
|
|
376.9
|
|
|
348.6
|
|
Selling, general and
administrative expenses
|
|
306.8
|
|
|
257.5
|
|
Depreciation and
amortization
|
|
82.5
|
|
|
77.2
|
|
Total operating
expenses
|
|
766.2
|
|
|
683.3
|
|
Operating
income
|
|
113.8
|
|
|
193.6
|
|
Interest
expense
|
|
(27.6)
|
|
|
(26.4)
|
|
Other income,
net
|
|
2.8
|
|
|
2.2
|
|
Consolidated income
before income taxes
|
|
89.0
|
|
|
169.4
|
|
Provision for income
taxes
|
|
(20.7)
|
|
|
(23.3)
|
|
Consolidated net
income
|
|
68.3
|
|
|
146.1
|
|
Less: Net income
attributable to noncontrolling interests including redeemable
noncontrolling interests
|
|
(1.5)
|
|
|
(1.3)
|
|
Net income
attributable to Equifax
|
|
$
|
66.8
|
|
|
$
|
144.8
|
|
Basic earnings per
common share:
|
|
|
|
|
Net income
attributable to Equifax
|
|
$
|
0.55
|
|
|
$
|
1.20
|
|
Weighted-average
shares used in computing basic earnings per share
|
|
120.8
|
|
|
120.3
|
|
Diluted earnings per
common share:
|
|
|
|
|
Net income
attributable to Equifax
|
|
$
|
0.55
|
|
|
$
|
1.19
|
|
Weighted-average
shares used in computing diluted earnings per share
|
|
122.0
|
|
|
121.4
|
|
Dividends per common
share
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
EQUIFAX
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
(In millions,
except par values)
|
|
(Unaudited)
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
135.8
|
|
|
$
|
223.6
|
|
Trade accounts
receivable, net of allowance for doubtful accounts of $13.3 and
$10.9 at June 30, 2019 and December 31, 2018,
respectively
|
|
502.6
|
|
|
469.1
|
|
Prepaid
expenses
|
|
97.9
|
|
|
100.0
|
|
Other current
assets
|
|
77.5
|
|
|
109.6
|
|
Total current
assets
|
|
813.8
|
|
|
902.3
|
|
Property and
equipment:
|
|
|
|
|
Capitalized
internal-use software and system costs
|
|
837.1
|
|
|
684.1
|
|
Data processing
equipment and furniture
|
|
342.4
|
|
|
344.6
|
|
Land, buildings and
improvements
|
|
231.2
|
|
|
216.1
|
|
Total property and
equipment
|
|
1,410.7
|
|
|
1,244.8
|
|
Less accumulated
depreciation and amortization
|
|
(538.2)
|
|
|
(480.0)
|
|
Total property and
equipment, net
|
|
872.5
|
|
|
764.8
|
|
Goodwill
|
|
4,282.5
|
|
|
4,129.7
|
|
Indefinite-lived
intangible assets
|
|
94.9
|
|
|
94.8
|
|
Purchased intangible
assets, net
|
|
1,104.1
|
|
|
1,099.2
|
|
Other assets,
net
|
|
305.7
|
|
|
162.4
|
|
Total
assets
|
|
$
|
7,473.5
|
|
|
$
|
7,153.2
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Short-term debt and
current maturities of long-term debt
|
|
$
|
32.3
|
|
|
$
|
4.9
|
|
Accounts
payable
|
|
156.9
|
|
|
175.7
|
|
Accrued
expenses
|
|
213.4
|
|
|
213.2
|
|
Accrued salaries and
bonuses
|
|
98.6
|
|
|
131.0
|
|
Deferred
revenue
|
|
97.1
|
|
|
98.0
|
|
Other current
liabilities
|
|
899.6
|
|
|
204.0
|
|
Total current
liabilities
|
|
1,497.9
|
|
|
826.8
|
|
Long-term
debt
|
|
2,833.3
|
|
|
2,630.6
|
|
Deferred income tax
liabilities, net
|
|
249.9
|
|
|
316.2
|
|
Long-term pension and
other postretirement benefit liabilities
|
|
134.4
|
|
|
139.3
|
|
Other long-term
liabilities
|
|
170.1
|
|
|
84.6
|
|
Total
liabilities
|
|
4,885.6
|
|
|
3,997.5
|
|
Preferred stock,
$0.01 par value: Authorized shares - 10.0; Issued shares -
none
|
|
—
|
|
|
—
|
|
Common stock, $1.25
par value: Authorized shares - 300.0;
Issued shares - 189.3 at June 30, 2019 and December 31, 2018;
Outstanding shares - 120.9 and 120.6 at June 30, 2019 and December
31, 2018, respectively
|
|
236.6
|
|
|
236.6
|
|
Paid-in
capital
|
|
1,381.5
|
|
|
1,356.6
|
|
Retained
earnings
|
|
4,135.5
|
|
|
4,717.8
|
|
Accumulated other
comprehensive loss
|
|
(640.0)
|
|
|
(626.3)
|
|
Treasury stock, at
cost, 67.8 shares and 68.1 shares at June 30, 2019 and December 31,
2018, respectively
|
|
(2,564.3)
|
|
|
(2,571.0)
|
|
Stock held by
employee benefit trusts, at cost, 0.6 shares at June 30, 2019 and
December 31, 2018
|
|
(5.9)
|
|
|
(5.9)
|
|
Total Equifax
shareholders' equity
|
|
2,543.4
|
|
|
3,107.8
|
|
Noncontrolling
interests including redeemable noncontrolling interests
|
|
44.5
|
|
|
47.9
|
|
Total
equity
|
|
2,587.9
|
|
|
3,155.7
|
|
Total liabilities and
equity
|
|
$
|
7,473.5
|
|
|
$
|
7,153.2
|
|
EQUIFAX
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
(In
millions)
|
|
(Unaudited)
|
Operating
activities:
|
|
|
|
|
Consolidated net
(loss) income
|
|
$
|
(486.1)
|
|
|
$
|
240.0
|
|
Adjustments to
reconcile consolidated net (loss) income to net cash provided by
operating activities:
|
|
|
|
|
Depreciation and
amortization
|
|
163.1
|
|
|
157.5
|
|
Stock-based
compensation expense
|
|
29.8
|
|
|
20.7
|
|
Deferred income
taxes
|
|
(84.6)
|
|
|
(10.0)
|
|
Changes in assets and
liabilities, excluding effects of acquisitions:
|
|
|
|
|
Accounts receivable,
net
|
|
(30.2)
|
|
|
(36.3)
|
|
Other assets, current
and long-term
|
|
34.8
|
|
|
64.5
|
|
Current and long term
liabilities, excluding debt
|
|
621.2
|
|
|
(81.6)
|
|
Cash provided by
operating activities
|
|
248.0
|
|
|
354.8
|
|
Investing
activities:
|
|
|
|
|
Capital
expenditures
|
|
(208.5)
|
|
|
(118.7)
|
|
Acquisitions, net of
cash acquired
|
|
(234.8)
|
|
|
(30.7)
|
|
Investment in
unconsolidated affiliates, net
|
|
(25.0)
|
|
|
—
|
|
Cash used in
investing activities
|
|
(468.3)
|
|
|
(149.4)
|
|
Financing
activities:
|
|
|
|
|
Net short-term
borrowings (repayments)
|
|
27.2
|
|
|
(960.2)
|
|
Payments on long-term
debt
|
|
(50.0)
|
|
|
(100.0)
|
|
Borrowings on
long-term debt
|
|
250.0
|
|
|
994.8
|
|
Dividends paid to
Equifax shareholders
|
|
(94.2)
|
|
|
(93.9)
|
|
Dividends paid to
noncontrolling interests
|
|
(4.7)
|
|
|
(8.7)
|
|
Proceeds from exercise
of stock options
|
|
6.1
|
|
|
5.7
|
|
Payment of taxes
related to settlement of equity awards
|
|
(4.6)
|
|
|
(12.6)
|
|
Purchase of redeemable
noncontrolling interests
|
|
—
|
|
|
(21.3)
|
|
Debt issuance
costs
|
|
—
|
|
|
(7.3)
|
|
Payment of contingent
consideration
|
|
—
|
|
|
(1.5)
|
|
Cash provided by
(used in) financing activities
|
|
129.8
|
|
|
(205.0)
|
|
Effect of foreign
currency exchange rates on cash and cash equivalents
|
|
2.7
|
|
|
(9.4)
|
|
Decrease in cash and
cash equivalents
|
|
(87.8)
|
|
|
(9.0)
|
|
Cash and cash
equivalents, beginning of period
|
|
223.6
|
|
|
336.4
|
|
Cash and cash
equivalents, end of period
|
|
$
|
135.8
|
|
|
$
|
327.4
|
|
Common Questions
& Answers (Unaudited) (Dollars in millions)
|
|
1. Can
you provide a further analysis of operating revenue by operating
segment?
|
|
Operating revenue
consists of the following components:
|
|
(In
millions)
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
Currency
|
Operating
revenue:
|
|
2019
|
|
2018
|
|
$
Change
|
|
%
Change
|
|
%
Change*
|
Online Information
Solutions
|
|
$
|
246.1
|
|
|
$
|
224.1
|
|
|
$
|
22.0
|
|
|
10
|
%
|
|
|
Mortgage
Solutions
|
|
35.6
|
|
|
45.5
|
|
|
(9.9)
|
|
|
(22)
|
%
|
|
|
Financial Marketing
Services
|
|
51.0
|
|
|
55.0
|
|
|
(4.0)
|
|
|
(7)
|
%
|
|
|
Total U.S.
Information Solutions
|
|
332.7
|
|
|
324.6
|
|
|
8.1
|
|
|
2
|
%
|
|
|
Asia
Pacific
|
|
75.9
|
|
|
86.1
|
|
|
(10.2)
|
|
|
(12)
|
%
|
|
(5)
|
%
|
Europe
|
|
66.0
|
|
|
72.3
|
|
|
(6.3)
|
|
|
(9)
|
%
|
|
(3)
|
%
|
Latin
America
|
|
47.6
|
|
|
54.2
|
|
|
(6.6)
|
|
|
(12)
|
%
|
|
8
|
%
|
Canada
|
|
39.5
|
|
|
37.7
|
|
|
1.8
|
|
|
5
|
%
|
|
9
|
%
|
Total
International
|
|
229.0
|
|
|
250.3
|
|
|
(21.3)
|
|
|
(9)
|
%
|
|
—
|
%
|
Verification
Services
|
|
172.3
|
|
|
149.3
|
|
|
23.0
|
|
|
15
|
%
|
|
|
Employer
Services
|
|
57.8
|
|
|
58.3
|
|
|
(0.5)
|
|
|
(1)
|
%
|
|
|
Total Workforce
Solutions
|
|
230.1
|
|
|
207.6
|
|
|
22.5
|
|
|
11
|
%
|
|
|
Global Consumer
Solutions
|
|
88.2
|
|
|
94.4
|
|
|
(6.2)
|
|
|
(7)
|
%
|
|
(6)
|
%
|
Total operating
revenue
|
|
$
|
880.0
|
|
|
$
|
876.9
|
|
|
$
|
3.1
|
|
|
—
|
%
|
|
3
|
%
|
|
*Reflects
percentage change in revenue conforming 2019 results using 2018
exchange rates.
|
2. What drove the fluctuation in the
effective tax rate?
Our effective income tax rate is 23.3% for the three months
ended June 30, 2019 compared to 13.7%
for the three months ended June 30,
2018. Our effective tax rate was higher during the second
quarter of 2019 as compared to 2018 due to permanent tax
differences resulting from the accrual for losses associated with
certain legal proceedings and investigations related to the 2017
cybersecurity incident. We computed income taxes for the second
quarter of 2019 using the discrete method, applying the actual
year-to-date effective tax rate to our pre-tax loss. We believe
that this method yields a more reliable income tax calculation for
the period due to the uncertainty associated with the estimate of
our annual domestic pre-tax book income due to the ongoing
litigation, claims, and government investigations related to the
2017 cybersecurity incident.
3. What is the breakdown of the costs
related to the September 2017
cybersecurity incident?
Costs related to the 2017 cybersecurity incident are defined as
incremental costs to transform our information technology
infrastructure and data security; legal fees and professional
services costs to investigate the 2017 cybersecurity incident and
respond to legal, government and regulatory claims; as well as
costs to provide the free product and related support to the
consumer.
In the second quarter of 2019, the Company recorded an accrual
of $11.3 million in addition to the
$690.0 million recorded in the first
quarter of 2019 for losses associated with certain legal
proceedings and government investigations related to the 2017
cybersecurity incident, exclusive of our legal and professional
services expenses. While it is reasonably possible that losses
exceeding the amount accrued will 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 related to the 2017 cybersecurity
incident based on a number of factors, such as the various stages
of these proceedings and investigations, 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.
We recorded $92.8 million
($69.6 million, net of tax) and
$36.3 million ($27.3 million, net of tax) for the second quarter
of 2019 and 2018, respectively, for costs related to the 2017
cybersecurity incident, incremental information technology and data
security costs, and the accrual for legal matters related to the
2017 cybersecurity incident. The components of the costs are as
follows:
(In
millions)
|
|
Three Months
Ended
June 30,
2019
|
|
Three Months
Ended
June 30,
2018
|
Accrual for legal
matters related to the 2017 cybersecurity incident
|
|
$
|
11.3
|
|
|
$
|
—
|
|
2017 cybersecurity
incident related costs:
|
|
|
|
|
Technology and data
security
|
|
68.9
|
|
|
54.9
|
|
Legal and
investigative fees
|
|
12.4
|
|
|
16.4
|
|
Product
liability
|
|
0.2
|
|
|
—
|
|
Insurance
recoveries
|
|
—
|
|
|
(35.0)
|
|
Total
|
|
$
|
92.8
|
|
|
$
|
36.3
|
|
The $68.9 million and $54.9 million of technology and data security
costs include incremental costs to transform our technology
infrastructure and improve application, network, data security, and
the costs of development and launch of Lock and Alert™.
These include, but are not limited to, costs for people,
professional and contracted services, technical services and
products, and other costs added either directly or indirectly to
manage, execute, and support the implementation of these plans. The
$12.4 million and $16.4 million of legal and investigative fees
include legal fees and professional services costs to investigate
the 2017 cybersecurity incident and respond to legal, government,
and regulatory investigations and claims related to the 2017
cybersecurity incident. The $0.2
million of product liability costs include the expected
costs of fulfillment of TrustedID® Premier and
support of consumers using TrustedID® Premier.
Additionally, in 2018, the Company extended the free credit file
monitoring services for impacted consumers using the free
TrustedID® Premier service by providing them the
opportunity to enroll in Experian®
IDNotify™ at no cost for an additional twelve
months.
Since the announcement of the cybersecurity incident in
September 2017, we have incurred a
total of $1,444.8 million of costs
related to the incident, incremental technology and data security
costs, and an accrual for losses associated with legal proceedings
and government investigations related to the 2017 cybersecurity
incident.
We expect 2017 cybersecurity incident related costs for the
remainder of 2019 to be less than the levels incurred in 2018. 2017
cybersecurity incident related costs do not include the accrual for
legal proceedings and government investigations related to the 2017
cybersecurity incident, as further described in the Notes to the
reconciliations of this release.
At the time of the 2017 cybersecurity incident, we
had $125.0 million of cybersecurity insurance coverage, above
a $7.5 million deductible, to limit
our exposure to losses such as those related to this incident.
Since the announcement of the 2017 cybersecurity incident, we have
received the maximum reimbursement under the insurance policy of
$125.0 million, all of which was
received prior to 2019.
Reconciliations of Non-GAAP Financial Measures to the
Comparable GAAP Financial Measures (Unaudited)
(Dollars in millions, except per share amounts)
A. Reconciliation of net income
attributable to Equifax to diluted EPS attributable to Equifax,
defined as net income adjusted for acquisition-related amortization
expense, an accrual for legal matters related to the 2017
cybersecurity incident, costs related to the 2017 cybersecurity
incident, PayNet acquisition-related amounts other than
acquisition-related amortization, the income tax effect of stock
awards recognized upon vesting or settlement, adjustments for
uncertain tax positions, and income tax adjustments:
|
|
Three Months Ended
June 30,
|
|
|
|
|
(In millions,
except per share amounts)
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
Net income
attributable to Equifax
|
|
$
|
66.8
|
|
|
$
|
144.8
|
|
|
$
|
(78.0)
|
|
|
(54)
|
%
|
Acquisition-related
amortization expense of certain acquired intangibles
(1)
|
|
35.7
|
|
|
39.2
|
|
|
(3.5)
|
|
|
(9)
|
%
|
Accrual for legal
matters related to the 2017 cybersecurity incident
(2)
|
|
11.3
|
|
|
—
|
|
|
11.3
|
|
|
nm
|
|
2017 cybersecurity
incident related costs (3)
|
|
81.5
|
|
|
36.3
|
|
|
45.2
|
|
|
125
|
%
|
PayNet
acquisition-related amounts other than acquisition-related
amortization (4)
|
|
6.3
|
|
|
—
|
|
|
6.3
|
|
|
nm
|
|
Adjustments for
uncertain tax positions (5)
|
|
—
|
|
|
(14.1)
|
|
|
14.1
|
|
|
(100)
|
%
|
Income tax effects of
stock awards that are recognized upon vesting or settlement
(6)
|
|
(0.8)
|
|
|
(1.9)
|
|
|
1.1
|
|
|
(100)
|
%
|
Tax impact of
adjustments (7)
|
|
(30.0)
|
|
|
(15.2)
|
|
|
(14.8)
|
|
|
97
|
%
|
Net income
attributable to Equifax, adjusted for items listed above
|
|
$
|
170.8
|
|
|
$
|
189.1
|
|
|
$
|
(18.3)
|
|
|
(10)
|
%
|
|
|
$
|
1.40
|
|
|
$
|
1.56
|
|
|
$
|
(0.16)
|
|
|
(10)
|
%
|
Weighted-average
shares used in computing diluted EPS
|
|
122.0
|
|
|
121.4
|
|
|
|
|
|
nm - not
meaningful
|
(1) During the second quarter of 2019, we recorded
acquisition-related amortization expense of certain acquired
intangibles of $35.7 million
($30.4 million, net of tax). We
calculate this financial measure by excluding the impact of
acquisition-related amortization expense and including a benefit to
reflect the significant cash income tax savings resulting from the
income tax deductibility of amortization for certain acquired
intangibles. The $5.3 million of tax
is comprised of $9.3 million of tax
expense net of $4.0 million of a cash
income tax benefit. During the second quarter of 2018, we recorded
acquisition-related amortization expense of certain acquired
intangibles of $39.2 million
($33.0 million, net of tax). The
$6.2 million of tax is comprised of
$10.1 million of tax expense net of
$3.9 million of a cash income tax
benefit. See the Notes to this reconciliation for additional
detail.
(2) During the second quarter of 2019, we recorded an
accrual of $11.3 million
($9.9 million, net of tax) for
estimated losses associated with certain legal proceedings and
government investigations related to the 2017 cybersecurity
incident, exclusive of our legal professional services expenses.
See the Notes to this reconciliation for additional detail.
(3) During the second quarter of 2019, we recorded pre-tax
expenses related to the 2017 cybersecurity incident of $81.5 million ($59.7
million, net of tax). During the second quarter of 2018, we
recorded $36.3 million ($27.3 million, net of tax) for costs related to
the 2017 cybersecurity incident. See the Notes to this
reconciliation for additional detail.
(4) During the second quarter of 2019, we
recorded $6.3 million ($4.8
million, net of tax) for PayNet acquisition related amounts
other than acquisition-related amortization which was primarily
related to transaction costs resulting from the acquisition and was
recorded in operating income. See the Notes to this reconciliation
for additional detail.
(5) During the second quarter of 2018, we recorded a tax
benefit of $14.1 million related to
adjustments from uncertain tax positions resulting from a
settlement with tax authorities for the 2016 and 2017 tax years.
See the Notes to this reconciliation for additional detail.
(6) During the second quarter of 2019, we recorded a tax
benefit of $0.8 million related to
the tax effects of deductions for stock compensation in excess of
amounts recorded for compensation costs. During the second quarter
of 2018, we recorded a tax benefit of $1.9
million related to the tax effects of deductions for stock
compensation expense in excess of amounts recorded for compensation
costs. See the Notes to this reconciliation for additional
detail.
(7) During the second quarter of 2019, we recorded the tax
impact of adjustments of $30.0
million comprised of (i) acquisition-related amortization
expense of certain acquired intangibles of $5.3 million ($9.3
million of tax expense net of $4.0
million of cash income tax benefit), (ii) a tax adjustment
of $1.4 million related to a legal
matter, (iii) a tax adjustment of $21.8
million related to expenses for the 2017 cybersecurity
incident, and (iv) a tax adjustment of $1.5
million for PayNet acquisition-related amounts other than
acquisition-related amortization.
During the second quarter of 2018, we recorded the tax impact of
adjustments of $15.2 million
comprised of (i) acquisition-related amortization expense of
certain acquired intangibles of $6.2
million ($10.1 million of tax
expense net of $3.9 million of cash
income tax benefit) and (ii) a tax adjustment of $9.0 million related to expenses for the 2017
cybersecurity incident.
B. Reconciliation of net income
attributable to Equifax to adjusted EBITDA, defined as net income
excluding income taxes, interest expense, net, depreciation and
amortization expense, an accrual for legal matters related to the
2017 cybersecurity incident, costs related to the 2017
cybersecurity incident, PayNet acquisition-related amounts other
than acquisition-related amortization, and presentation of adjusted
EBITDA margin:
|
|
Three Months Ended
June 30,
|
|
|
|
|
(in
millions)
|
|
2019
|
|
2018
|
|
$
Change
|
|
%
Change
|
Revenue
|
|
$
|
880.0
|
|
|
$
|
876.9
|
|
|
$
|
3.1
|
|
|
—
|
%
|
Net income
attributable to Equifax
|
|
$
|
66.8
|
|
|
$
|
144.8
|
|
|
$
|
(78.0)
|
|
|
(54)
|
%
|
Income
taxes
|
|
20.7
|
|
|
23.3
|
|
|
(2.6)
|
|
|
(11)
|
%
|
Interest expense,
net*
|
|
27.1
|
|
|
25.3
|
|
|
1.8
|
|
|
7
|
%
|
Depreciation and
amortization
|
|
82.5
|
|
|
77.2
|
|
|
5.3
|
|
|
7
|
%
|
Accrual for legal
matters related to the 2017 cybersecurity incident
(1)
|
|
11.3
|
|
|
—
|
|
|
11.3
|
|
|
nm
|
|
2017 cybersecurity
incident related costs (2)
|
|
81.5
|
|
|
36.3
|
|
|
$
|
45.2
|
|
|
125
|
%
|
PayNet
acquisition-related amounts other than acquisition-related
amortization (3)
|
|
6.3
|
|
|
—
|
|
|
6.3
|
|
|
nm
|
|
Adjusted EBITDA,
excluding the items listed above
|
|
$
|
296.2
|
|
|
$
|
306.9
|
|
|
$
|
(10.7)
|
|
|
(3)
|
%
|
Adjusted EBITDA
margin
|
|
33.7
|
%
|
|
35.0
|
%
|
|
|
|
|
|
nm
- not meaningful
|
*Excludes interest income of $0.5 million in 2019 and $1.1 million
in 2018.
|
(1) During the second quarter of 2019, we recorded a
$11.3 million ($9.9 million, net of tax) for estimated losses
associated with certain legal proceedings and government
investigations related to the 2017 cybersecurity incident,
exclusive of our legal professional services expenses. See the
Notes to this reconciliation for additional detail.
(2) During the second quarter of 2019, we recorded
pre-tax expenses related to the 2017 cybersecurity incident of
$81.5 million ($59.7 million, net of tax). During the second
quarter of 2018, we recorded $36.3
million ($27.3 million, net of
tax) for expenses related to the 2017 cybersecurity incident. See
the Notes to this reconciliation for additional detail
(3) During the second quarter of 2019, we
recorded $6.3 million ($4.8
million, net of tax) for PayNet acquisition related amounts
other than acquisition-related amortization which was primarily
related to transaction costs resulting from the acquisition and was
recorded in operating income. See the Notes to this reconciliation
for additional detail.
C. Reconciliation of operating income to
Adjusted EBITDA, excluding depreciation and amortization expense,
other income, net, noncontrolling interest, an accrual for legal
matters related to the 2017 cybersecurity incident, costs related
to the 2017 cybersecurity incident, realignment of internal
resources, and presentation of adjusted EBITDA margin for each of
the segments:
(In
millions)
|
|
Three Months Ended
June 30, 2019
|
|
|
|
U.S. Information
Solutions
|
|
International
|
|
Workforce
Solutions
|
|
Global Consumer
Solutions
|
|
General Corporate
Expense*
|
|
Total
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
332.7
|
|
|
$
|
229.0
|
|
|
$
|
230.1
|
|
|
$
|
88.2
|
|
|
—
|
|
|
$
|
880.0
|
|
|
Operating
Income
|
|
117.9
|
|
|
22.7
|
|
|
95.6
|
|
|
12.8
|
|
|
(135.2)
|
|
|
113.8
|
|
|
Depreciation and
Amortization
|
|
20.5
|
|
|
29.3
|
|
|
13.7
|
|
|
3.6
|
|
|
15.4
|
|
|
82.5
|
|
|
Other
income/(expense), net**
|
|
0.8
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|
(2.3)
|
|
|
2.3
|
|
|
Noncontrolling
interest
|
|
—
|
|
|
(1.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.5)
|
|
|
Adjustments
(1)
|
|
12.6
|
|
|
11.3
|
|
|
4.0
|
|
|
3.7
|
|
|
67.5
|
|
|
99.1
|
|
|
Adjusted
EBITDA
|
|
$
|
151.8
|
|
|
$
|
65.6
|
|
|
$
|
113.3
|
|
|
$
|
20.1
|
|
|
$
|
(54.6)
|
|
|
$
|
296.2
|
|
|
Operating
Margin
|
|
35.4
|
%
|
|
9.9
|
%
|
|
41.6
|
%
|
|
14.5
|
%
|
|
nm
|
|
|
12.9
|
%
|
|
Adjusted EBITDA
Margin
|
|
45.6
|
%
|
|
28.6
|
%
|
|
49.3
|
%
|
|
22.9
|
%
|
|
nm
|
|
|
33.7
|
%
|
|
|
nm - not
meaningful
*General Corporate Expense includes non-recurring adjustments of
$67.5 million.
**Excludes interest income of $0.4 million in International and
$0.1 million in General Corporate Expense.
|
|
|
(In
millions)
|
|
Three Months Ended
June 30, 2018
|
|
|
|
U.S. Information
Solutions
|
|
International
|
|
Workforce
Solutions
|
|
Global Consumer
Solutions
|
|
General Corporate
Expense*
|
|
Total
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
324.6
|
|
|
$
|
250.3
|
|
|
$
|
207.6
|
|
|
$
|
94.4
|
|
|
—
|
|
|
$
|
876.9
|
|
|
Operating
Income
|
|
126.3
|
|
|
37.0
|
|
|
83.9
|
|
|
19.0
|
|
|
(72.6)
|
|
|
193.6
|
|
|
Depreciation and
Amortization
|
|
20.7
|
|
|
29.1
|
|
|
11.1
|
|
|
3.7
|
|
|
12.6
|
|
|
77.2
|
|
|
Other
income/(expense), net**
|
|
0.9
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
(2.5)
|
|
|
1.1
|
|
|
Noncontrolling
interest
|
|
—
|
|
|
(1.3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
Adjustments
(1)
|
|
7.0
|
|
|
8.9
|
|
|
3.8
|
|
|
6.5
|
|
|
10.1
|
|
|
36.3
|
|
|
Adjusted
EBITDA
|
|
$
|
154.9
|
|
|
$
|
76.4
|
|
|
$
|
98.8
|
|
|
$
|
29.2
|
|
|
$
|
(52.4)
|
|
|
$
|
306.9
|
|
|
Operating
Margin
|
|
38.9
|
%
|
|
14.8
|
%
|
|
40.4
|
%
|
|
20.1
|
%
|
|
nm
|
|
|
22.1
|
%
|
|
Adjusted EBITDA
Margin
|
|
47.7
|
%
|
|
30.5
|
%
|
|
47.6
|
%
|
|
31.0
|
%
|
|
nm
|
|
|
35.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nm - not
meaningful
*General Corporate Expense includes non-recurring adjustments of
$10.1 million.
**Excludes interest income of $1.1 million in
International.
|
(1) During the second quarter of 2019, we recorded pre-tax
expenses related to the 2017 cybersecurity incident of $81.5 million ($59.7
million, net of tax), $11.3
million ($9.9 million, net of
tax) for an accrual for losses associated with certain legal
proceedings and government investigations related to the 2017
cybersecurity incident, exclusive of our legal professional
services expenses, and $6.3 million
($4.8 million, net of tax) for
integration costs for acquisitions.
During the second quarter of 2018, we recorded $36.3 million ($27.3
million, net of tax) for expenses related to the 2017
cybersecurity incident.
Notes to Reconciliations of Non-GAAP Financial Measures to
the Comparable GAAP Financial Measures
Diluted EPS attributable to Equifax is adjusted for the
following items:
Acquisition-related amortization expense - We calculate
this financial measure by excluding the impact of
acquisition-related amortization expense and including a benefit to
reflect the material cash income tax savings resulting from the
income tax deductibility of amortization for certain acquired
intangibles. These financial measures are not prepared in
conformity with GAAP. Management believes excluding the impact of
amortization expense is useful because excluding
acquisition-related amortization, and other items that are not
comparable allows investors to evaluate our performance for
different periods on a more comparable basis. Certain acquired
intangibles result in material cash income tax savings which are
not reflected in earnings. Management believes that including a
benefit to reflect the cash income tax savings is useful as it
allows investors to better value Equifax. Management makes these
adjustments to earnings when measuring profitability, evaluating
performance trends, setting performance objectives and calculating
our return on invested capital.
Costs related to the 2017 cybersecurity incident - We
recorded $81.5 million ($59.7 million, net of tax) and $36.3 million ($27.3
million, net of tax) during the second quarter of 2019 and
2018, respectively, associated with the costs to investigate the
2017 cybersecurity incident, legal fees to respond to subsequent
litigation and government investigations, costs to deliver the free
product offering made to all U.S. consumers and incremental costs
to transform our information technology, data security, and
infrastructure. Management believes excluding these charges is
useful as it allows investors to evaluate our performance for
different periods on a more comparable basis. Management makes
these adjustments to net income when measuring profitability,
evaluating performance trends, setting performance objectives and
calculating our return on invested capital. This is consistent with
how management reviews and assesses Equifax's historical
performance and is useful when planning, forecasting and analyzing
future periods. Costs related to the 2017 cybersecurity incident
does not include losses accrued for certain legal proceedings and
government investigations related to the 2017 cybersecurity
incident, which is described below under "accrual for legal matters
related to the 2017 cybersecurity incident."
PayNet acquisition related amounts for transaction expenses
incurred as a direct result of the acquisition - During the
second quarter of 2019, we recorded $6.3 million ($4.8 million, net of tax) for PayNet acquisition
related amounts other than acquisition-related amortization which
was primarily related to transaction costs resulting from the
acquisition and was recorded in operating income. Management
believes excluding this charge from certain financial results
provides meaningful supplemental information regarding our
financial results for the three months ended June 30, 2019,
since a charge of such amount is not comparable among the periods.
This is consistent with how our management reviews and assesses
Equifax's historical performance and is useful when planning,
forecasting, and analyzing future periods.
Income tax effects of stock awards that are recognized upon
vesting or settlement - During the second quarter of 2019, we
recorded a tax benefit of $0.8
million related to the tax effects of deductions for stock
compensation in excess of amounts recorded for compensation costs.
During the second quarter of 2018, we recorded a tax benefit of
$1.9 million related to the tax
effects of deductions for stock compensation expense in excess of
amounts recorded for compensation costs. Management believes
excluding this tax effect from financial results provides
meaningful supplemental information regarding our financial results
for the three months ended June 30, 2019 because this amount
is non-operating and relates to income tax benefits or deficiencies
for stock awards recognized when tax amounts differ from recognized
stock compensation cost. This is consistent with how management
reviews and assesses Equifax's historical performance and is useful
when planning, forecasting and analyzing future periods.
Accrual for legal matters related to the 2017 cybersecurity
incident - During the second quarter of 2019, we recorded an
accrual of $11.3 million
($9.9 million, net of tax) accrual
for losses associated with certain legal proceedings and government
investigations related to the 2017 cybersecurity incident,
exclusive of our legal and professional services expenses. While it
is reasonably possible that losses exceeding the amount accrued
will 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 related to
the 2017 cybersecurity incident. 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.
Management believes excluding this charge from certain financial
results provides meaningful supplemental information regarding our
financial results for the three months ended June 30, 2019,
since a charge of such an amount is not comparable among the
periods. This is consistent with how our management reviews and
assesses Equifax's historical performance and is useful when
planning, forecasting and analyzing future periods.
Adjustments for uncertain tax positions - During the
second quarter of 2018, we recorded a tax benefit of $14.1 million related to adjustments from
uncertain tax positions resulting from a settlement with tax
authorities for the 2016 and 2017 tax years. Management believes
excluding this tax effect from certain financial results provides
meaningful supplemental information regarding our financial results
for the three months ended June 30,
2018 because a benefit of such an amount is not comparable
among the periods. This is consistent with how management reviews
and assesses Equifax's historical performance and is useful when
planning, forecasting, and analyzing future periods.
Adjusted EBITDA and EBITDA margin - Management defines
adjusted EBITDA as consolidated net income attributable to Equifax
plus net interest expense, income taxes, depreciation and
amortization, and also excludes certain one-time items. Management
believes the use of adjusted EBITDA and adjusted EBITDA margin
allows investors to evaluate our performance for different periods
on a more comparable basis.
Contact:
|
|
|
|
Trevor
Burns
|
Wyatt
Jefferies
|
Investor
Relations
|
Media
Relations
|
(404)
885-8804
|
(404)
885-8907
|
trevor.burns@equifax.com
|
wyatt.jefferies@equifax.com
|
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SOURCE Equifax Inc.