10-QPeriod: Q3 FY2017

EQUIFAX INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 9, 2017For Securities:EFX

Summary

Equifax Inc. reported its third-quarter and nine-month financial results for the period ending September 30, 2017. For the third quarter, revenue increased by 4% to $834.8 million, while net income attributable to Equifax decreased significantly by 27% to $96.3 million, or $0.79 per diluted share. This decline was primarily driven by substantial expenses related to the cybersecurity incident announced during the quarter, impacting operating income which fell 28%. The nine-month period saw an 8% increase in revenue to $2.52 billion and a 13% increase in net income attributable to Equifax to $415.0 million, or $3.41 per diluted share, benefiting from the Veda acquisition and strong performance in International and Workforce Solutions segments. However, the significant cybersecurity incident overshadowed these positive top-line trends, leading to increased operating expenses and a substantial hit to profitability in the third quarter. The company disclosed a significant cybersecurity incident that potentially impacted approximately 145.5 million U.S. consumers, along with some Canadian and U.K. consumers. This incident has led to increased expenses for investigation, remediation, and offering free credit monitoring services, as well as significant legal and regulatory scrutiny. The company has accrued $27.3 million in expenses in the third quarter related to the incident and estimated additional costs for consumer services between $56 million and $110 million. The ongoing investigations, litigation, and potential for future IT security investments represent significant ongoing risks and potential costs for the company.

Financial Highlights

53 data points
Beta

Revenue

$834.80M

Net Income

$96.30M

11.5% Net Margin

EPS (Diluted)

$0.79

Total Assets

$7.12B

Cash & Equivalents

$315.40M

Free Cash Flow

$279.60M

Financial Statements
Beta
Revenue$834.80M
SG&A Expenses$310.40M
Operating Expenses$680.10M
Operating Income$154.70M
Interest Expense$21.40M
Net Income$96.30M
EPS (Basic)$0.80
EPS (Diluted)$0.79
Shares Outstanding (Basic)120.10M
Shares Outstanding (Diluted)121.40M

Key Highlights

  • 1For the three months ended September 30, 2017, revenue grew 4% to $834.8 million, while net income attributable to Equifax decreased 27% to $96.3 million ($0.79 per diluted share).
  • 2For the nine months ended September 30, 2017, revenue increased 8% to $2.52 billion, and net income attributable to Equifax rose 13% to $415.0 million ($3.41 per diluted share).
  • 3A major cybersecurity incident was announced in the third quarter of 2017, potentially affecting approximately 145.5 million U.S. consumers.
  • 4The company incurred $27.3 million in pre-tax expenses related to the cybersecurity incident in Q3 2017, and estimates additional costs for consumer services between $56 million and $110 million.
  • 5Operating income for the third quarter decreased 28% due to the cybersecurity incident expenses and impacts, despite revenue growth.
  • 6The International segment showed strong revenue growth of 12% in Q3 and 16% for the nine months, partly driven by the Veda acquisition.
  • 7The company ended the quarter with $315.4 million in cash and cash equivalents and had $234.2 million available under its revolving credit facility.

Frequently Asked Questions

The primary driver of the significant decrease in net income for the third quarter of 2017 was the impact of a cybersecurity incident. The company incurred substantial expenses related to investigating and remediating the incident, as well as providing free credit monitoring services to affected consumers. These costs led to a significant increase in operating expenses and a decrease in operating income, thereby reducing net income.

Beyond immediate expenses, the cybersecurity incident had a broader impact. It led to a decline in revenue for the U.S. Information Solutions (USIS) segment, as some customers deferred new contracts due to concerns about data security. The incident also resulted in significant legal and regulatory scrutiny, with numerous class-action lawsuits and investigations from governmental agencies. The company also anticipates increased future costs for IT security enhancements, compliance, and insurance.

The company anticipates that the cybersecurity incident will negatively impact revenue in 2017 and 2018, particularly in its U.S. businesses, and to a lesser extent in Canada and the U.K. However, the company still expects modest growth in overall economic activity and consumer credit. The International segment is expected to continue its strong growth trajectory, driven by broad-based organic growth and the Veda acquisition. Other segments like Workforce Solutions are also expected to contribute positively.

The company generated $608.7 million in cash from operating activities for the first nine months of 2017, an increase from the prior year. While the Veda acquisition in 2016 involved significant debt financing, the company has been managing its debt structure and has a revolving credit facility of $900 million, with $234.2 million available at the end of the third quarter. Management expects operating cash flows and available credit to be sufficient to cover its anticipated cash requirements, including those related to the cybersecurity incident and ongoing operations.