As used herein, the terms Equifax, the Company, we, our and us refer to
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
Recent Events and Company Outlook
OnMarch 11, 2020 , theWorld Health Organization designated the novel coronavirus disease ("COVID-19") as a global pandemic. In March of 2020, the impact of COVID-19 and related actions to attempt to control its spread began to impact our consolidated operating results. Through the end ofFebruary 2020 , consolidated revenue showed significant growth versus the same two-month period in 2019. Principally beginning in the second half of March, however, year-over-year consolidated revenue trends materially weakened. We expect consolidated revenue to be negatively impacted in the second quarter of 2020, and for negative impacts to continue until economic conditions improve. As further described in our 2019 Form 10-K, we operate inthe 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. Sincemid-March 2020 , we have experienced significant declines in most vertical markets, including financial services, automotive and telecommunications. The exception, particularly inthe United States , is primarily in the mortgage market and our unemployment cost management business in which we are seeing significant growth, and in certain government services and our consumer direct businesses which are seeing far smaller impacts. Due to this dynamic, at present, our revenue inthe United States is being impacted substantially less than our revenue internationally. We are unable to determine the severity or duration of the impact of COVID-19 on Equifax, or how the impact on the individual markets in the countries we serve will change with time. 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: (i)the health and safety of our employees and their families; (ii)providing support to consumers; 24
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(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. Since March, our employees have been working 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. For employees working at our 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 theU.S. Centers for Disease Control andthe World Health Organization , and state and local governments. We cannot predict when or how we will begin to lift the actions put in place as part of our business continuity plans, including work from home requirements and travel restrictions. As of the date of this filing, we do not believe our work from home protocol has 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 meaningful 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. 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. AtMarch 31, 2020 , we had approximately$370 million in cash and$1.2 billion available to borrow under our revolving credit facility that matures inSeptember 2023 and receivables funding facility that matures inDecember 2022 . We recently 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 coronavirus outbreak."
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
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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 related to these
initiatives. We expect to continue to incur significant expenses and capital
expenditures in 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, we expect that the level of legal and professional service
expenses related to these matters will be significantly lower in 2020 due to the
settlement of all of the significant matters in the
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
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
Geographic Information. We currently have operations in the following
countries:
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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 months ended
Key Performance Indicators Three Months Ended March 31, 2020 2019 (In millions, except per share data) Operating revenue $ 957.9$ 846.1 Operating revenue change 13 % (2) % Operating income (loss) $ 135.9$ (617.9) Operating margin 14.2 % (73.0) % Net income (loss) attributable to Equifax $ 112.6$ (555.9) Diluted earnings (loss) per share $ 0.92$ (4.57) Cash provided by operating activities $ 30.8$ 31.0 Capital expenditures* $ (89.4)$ (94.7)
*Amounts include accruals for capital expenditures.
Operational and Financial Highlights
•We did not repurchase shares of our common stock during the first three months
of 2020. At
•We paid out
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