10-QPeriod: Q1 FY2019

EQUIFAX INC Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 10, 2019For Securities:EFX

Summary

Equifax Inc. reported a significant net loss of $555.9 million for the first quarter of 2019, a sharp decline from a net income of $90.9 million in the same period of 2018. This loss was primarily driven by a substantial increase in selling, general, and administrative expenses, largely due to a $690.0 million accrual for losses related to the 2017 cybersecurity incident and ongoing legal proceedings. Revenue also saw a slight decrease of 2% to $846.1 million, impacted by challenges in the U.S. Information Solutions and International segments, though offset by growth in Workforce Solutions. Despite the net loss, the company's operating cash flow remained positive, although significantly lower than the prior year. Capital expenditures increased, reflecting ongoing investments in technology and data security enhancements. The company maintained its quarterly dividend and has a substantial repurchase authorization available. The ongoing legal and cybersecurity-related costs continue to be a major factor influencing financial performance and liquidity, with a significant accrual already in place.

Financial Highlights

52 data points
Beta

Revenue

$846.10M

Net Income

-$553.20M

-65.4% Net Margin

EPS (Diluted)

$-4.55

Total Assets

$7.34B

Cash & Equivalents

$133.20M

Free Cash Flow

$31.00M

Financial Statements
Beta
Revenue$846.10M
SG&A Expenses$998.90M
Operating Expenses$1.46B
Operating Income-$617.90M
Interest Expense$26.70M
Net Income-$553.20M
EPS (Basic)$-4.58
EPS (Diluted)$-4.55
Shares Outstanding (Basic)120.70M
Shares Outstanding (Diluted)121.60M

Key Highlights

  • 1Reported a net loss of $555.9 million in Q1 2019, compared to a net income of $90.9 million in Q1 2018, largely due to a significant legal accrual.
  • 2Operating revenue decreased by 2% to $846.1 million, primarily driven by lower performance in the U.S. Information Solutions and International segments.
  • 3Selling, general, and administrative expenses surged by 232% to $998.9 million, largely due to a $690 million accrual for cybersecurity incident-related litigation and investigations.
  • 4Workforce Solutions segment showed strong performance with an 8% increase in revenue, driven by Verification Services.
  • 5Cash provided by operating activities decreased significantly to $31.0 million from $119.6 million in the prior year period.
  • 6Capital expenditures increased by $58.6 million to $114.8 million, reflecting investments in technology and data security.
  • 7The company maintained its quarterly dividend of $0.39 per share.

Frequently Asked Questions

The primary driver of the net loss of $555.9 million in the first quarter of 2019 was a substantial increase in operating expenses, specifically selling, general, and administrative expenses. This increase was largely attributable to a $690 million accrual for estimated losses related to ongoing legal proceedings and investigations stemming from the 2017 cybersecurity incident. This significantly overshadowed the revenue generated during the period.

Total operating revenue for the first quarter of 2019 decreased by 2% to $846.1 million, down from $865.7 million in the first quarter of 2018. This decline was influenced by weaker performance in the U.S. Information Solutions (down 3%) and International (down 8%) segments, partly due to market conditions and foreign exchange impacts. However, the Workforce Solutions segment demonstrated robust growth, increasing revenue by 8%.

Equifax continues to incur significant expenses related to the 2017 cybersecurity incident, including legal, consulting, and technology transformation costs aimed at enhancing data security. The company has accrued $690 million for estimated losses from legal proceedings and investigations, and notes that it is possible that actual losses could exceed this amount. These costs are expected to continue impacting financial performance through 2019 and potentially beyond, although at levels anticipated to be slightly below those incurred in 2018.

Equifax maintains positive operating cash flow, although it was significantly lower in Q1 2019. The company has access to liquidity through its operating cash flows, a $1.1 billion revolving credit facility, and a commercial paper program. As of March 31, 2019, the company had $1.0 billion available under its revolving credit facility and $133.2 million in cash and cash equivalents. The company was in compliance with its debt covenants, and its credit ratings were BBB (negative outlook) from S&P and Baa1 (stable outlook) from Moody's.