10-QPeriod: Q3 FY2007

EQUIFAX INC Quarterly Report for Q3 Ended Sep 30, 2007

Filed October 30, 2007For Securities:EFX

Summary

Equifax Inc. (EFX) reported a decrease in net income for the third quarter of 2007 to $67.9 million, down from $78.9 million in the same period of 2006. This decline was primarily influenced by higher interest expenses related to increased debt for the TALX acquisition and share buyback programs, as well as less favorable one-time items in the prior year. Despite the net income dip, operating revenue saw a significant increase of 25% to $492.5 million, largely driven by the recent acquisition of TALX, which contributed $70.4 million in revenue, and robust double-digit growth in the International, North America Personal Solutions, and North America Commercial Solutions segments. While operating income grew by 7% to $129.2 million, the operating margin compressed to 26.2% from 30.6% year-over-year, reflecting increased operating expenses, including those related to the TALX integration and higher depreciation and amortization. For the first nine months of 2007, net income was $207.0 million, a slight decrease from $211.4 million in the prior year. Operating revenue, however, increased by 17% to $1,352.2 million, also propelled by the TALX acquisition and growth across various segments. The company's liquidity remains strong, with cash provided by operating activities increasing, though investments in capital expenditures and acquisitions significantly impacted cash flow from investing activities.

Key Highlights

  • 1Operating revenue increased by 25% to $492.5 million for Q3 2007, primarily due to the acquisition of TALX and growth in International, North America Personal Solutions, and North America Commercial Solutions segments.
  • 2Net income decreased by 14% to $67.9 million for Q3 2007, compared to $78.9 million in Q3 2006, impacted by higher interest expenses and the absence of favorable one-time items from the prior year.
  • 3Acquisition of TALX Corporation on May 15, 2007, significantly contributed to revenue ($70.4 million in Q3) and operating expenses, including amortization of acquired intangibles.
  • 4Operating margin for Q3 2007 declined to 26.2% from 30.6% in Q3 2006, due to increased operating expenses, including cost of services, SG&A, and depreciation/amortization, partly driven by the TALX acquisition.
  • 5For the nine months ended September 30, 2007, operating revenue grew 17% to $1,352.2 million, while net income slightly decreased by 2% to $207.0 million.
  • 6Cash flow from operations increased by 7% to $271.8 million for the nine months ended September 30, 2007, supporting investments and financing activities.
  • 7Significant increase in debt and long-term debt on the balance sheet, largely due to financing the TALX acquisition and other capital activities.

Frequently Asked Questions

The primary driver for the 25% increase in operating revenue to $492.5 million in Q3 2007 was the acquisition of TALX Corporation on May 15, 2007, which contributed $70.4 million in revenue. Additionally, double-digit growth in the International, North America Personal Solutions, and North America Commercial Solutions segments also contributed.

Net income decreased by 14% to $67.9 million for Q3 2007 due to several factors. Higher interest expenses resulted from increased debt taken on to finance the TALX acquisition and share repurchase programs. Furthermore, the prior year's third quarter benefited from favorable one-time items, such as the reversal of income tax reserves and a litigation provision, which did not recur in 2007, thus creating a tougher year-over-year comparison.

The TALX acquisition, completed in May 2007, significantly impacted the financial statements. It drove a substantial portion of the revenue increase, but also led to higher operating expenses, including cost of services, selling, general, and administrative expenses, and depreciation and amortization, particularly due to the amortization of acquired intangible assets. The acquisition also increased the company's debt load.

Equifax's liquidity remains a strength, supported by consistent cash flow from operations. The company has access to various financing instruments, including a revolving credit facility and a commercial paper program. While investments in acquisitions and capital expenditures have been significant, the company expects its sources of funds to be sufficient for its projected cash requirements. However, the company has taken on substantial new debt, primarily related to the TALX acquisition, which increases interest expenses and financial leverage.