Equifax(EFX) - 2024 Q3 - Quarterly Results

Executive Summary Equifax reported strong Q3 2024 revenue growth, driven by non-mortgage local currency revenue and strategic Cloud and AI/ML initiatives Third Quarter 2024 Highlights Equifax reported Q3 2024 revenue growth of 9% to $1.442 billion, driven by non-mortgage local currency revenue and strong Verification Services performance | Metric | Q3 2024 | Growth (YoY) | | :----- | :------ | :----------- | | Total Revenue | $1.442 billion | 9% | | Non-Mortgage Local Currency Revenue Growth | - | 10% | | Workforce Solutions Non-Mortgage Revenue Growth | - | 9% | | Verification Services Non-Mortgage Revenue Growth | - | 19% | | USIS Mortgage Revenue Growth | - | 36% | | Overall U.S. Mortgage Revenue Growth | - | 17% | | International Local Currency Revenue Growth | - | 18% | | New Product Vitality Index | - | 13% | | New Models/Scores built with AI/ML | - | 100% | CEO Commentary CEO Mark W. Begor highlighted strong Q3 performance, emphasizing non-mortgage revenue growth, Cloud migrations, and AI/ML-driven product innovation - Equifax's non-mortgage business, comprising 80% of Q3 revenue, achieved 10% local currency revenue growth, supported by a 13% New Product Vitality Index and 100% of new models built using AI and ML[3] - The company is confident in its long-term 8-12% revenue growth framework, anticipating higher margins and accelerating free cash flow, driven by Cloud migrations, new product roll-outs, and investments in AI/ML capabilities[4] Consolidated Financial Results This section details Equifax's Q3 2024 consolidated financial performance, covering revenue, net income, balance sheet, and cash flow Overall Company Performance Equifax reported Q3 2024 revenue of $1,441.8 million, a 9% increase, but net income attributable to Equifax decreased by 13% to $141.3 million | Metric | Q3 2024 | Q3 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | Revenue | $1,441.8 million | $1,319.1 million | 9% | | Local Currency Revenue Growth | - | - | 11% | | Net Income Attributable to Equifax | $141.3 million | $162.2 million | (13)% | | Diluted EPS Attributable to Equifax | $1.13 | $1.31 | (14)% | Consolidated Statements of Income (GAAP) Q3 2024 operating revenue increased to $1,441.8 million, but higher expenses and income tax provision led to a decrease in consolidated net income | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | | :----- | :----------------- | :----------------- | | Operating Revenue | $1,441.8 | $1,319.1 | | Total Operating Expenses | $1,194.7 | $1,072.7 | | Operating Income | $247.1 | $246.4 | | Interest Expense | $(56.3) | $(62.8) | | Provision for Income Taxes | $(51.1) | $(26.4) | | Consolidated Net Income | $142.7 | $164.3 | | Net Income Attributable to Equifax | $141.3 | $162.2 | | Diluted EPS | $1.13 | $1.31 | | Dividends per Common Share | $0.39 | $0.39 | Consolidated Balance Sheets (GAAP) As of September 30, 2024, total assets increased due to higher cash and capitalized software, while total liabilities decreased, boosting shareholders' equity | Metric | Sep 30, 2024 (Millions) | Dec 31, 2023 (Millions) | | :----- | :---------------------- | :---------------------- | | Total Assets | $12,344.3 | $12,280.0 | | Cash and Cash Equivalents | $468.2 | $216.8 | | Capitalized Internal-Use Software and System Costs | $2,789.7 | $2,541.0 | | Total Liabilities | $7,297.7 | $7,592.5 | | Total Equifax Shareholders' Equity | $4,909.0 | $4,534.1 | Consolidated Statements of Cash Flows (GAAP) Net cash from operating activities significantly increased for the nine months ended September 30, 2024, while investing activities used less cash | Metric | Nine Months Ended Sep 30, 2024 (Millions) | Nine Months Ended Sep 30, 2023 (Millions) | | :----- | :---------------------------------------- | :---------------------------------------- | | Cash Provided by Operating Activities | $999.7 | $794.7 | | Cash Used in Investing Activities | $(392.6) | $(724.7) | | Cash (Used in) Provided by Financing Activities | $(345.0) | $63.5 | | Increase in Cash and Cash Equivalents | $251.4 | $127.4 | | Cash and Cash Equivalents, End of Period | $468.2 | $412.6 | Segment Performance This section analyzes the individual financial performance of Equifax's Workforce Solutions, USIS, and International segments for Q3 2024 Workforce Solutions Workforce Solutions reported a 7% revenue increase to $620.0 million, driven by Verification Services, with improved operating and Adjusted EBITDA margins | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | | Total Revenue | $620.0 | $577.2 | 7% | | Verification Services Revenue | $524.9 | $459.3 | 14% | | Employer Services Revenue | $95.1 | $117.9 | (19)% | | Operating Margin | 43.2% | 41.8% | +1.4 pp | | Adjusted EBITDA Margin | 51.6% | 50.9% | +0.7 pp | USIS (U.S. Information Solutions) USIS achieved 12% revenue growth to $476.9 million, boosted by Mortgage Solutions and Financial Marketing Services, despite slight margin decreases | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | | Total Revenue | $476.9 | $426.0 | 12% | | Online Information Solutions Revenue | $381.1 | $348.2 | 9% | | Mortgage Solutions Revenue | $38.0 | $27.3 | 39% | | Financial Marketing Services Revenue | $57.8 | $50.5 | 14% | | Operating Margin | 20.6% | 21.1% | (0.5) pp | | Adjusted EBITDA Margin | 33.9% | 34.2% | (0.3) pp | International International segment revenue grew 9% reported (18% local currency) to $344.9 million, with strong growth in Latin America and improved operating margins | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | Reported Change (%) | Local Currency Change (%) | | :----- | :----------------- | :----------------- | :------------------ | :------------------------ | | Total Revenue | $344.9 | $315.9 | 9% | 18% | | Latin America Revenue | $96.7 | $80.1 | 21% | 58% | | Europe Revenue | $94.9 | $85.2 | 11% | 9% | | Asia Pacific Revenue | $88.5 | $85.5 | 4% | 2% | | Canada Revenue | $64.8 | $65.1 | 0% | 1% | | Operating Margin | 13.9% | 12.7% | +1.2 pp | - | | Adjusted EBITDA Margin | 27.7% | 26.2% | +1.5 pp | - | Financial Guidance This section provides Equifax's financial outlook for Q4 and full year 2024, including revenue, EPS, and U.S. mortgage market credit inquiry volume projections Fourth Quarter and Full Year 2024 Outlook Equifax projects Q4 2024 reported revenue between $1.438 billion and $1.458 billion, with full year reported revenue guided to $5.700 billion to $5.720 billion | Metric | Q4 2024 Low-End | Q4 2024 High-End | FY 2024 Low-End | FY 2024 High-End | | :----- | :-------------- | :--------------- | :-------------- | :--------------- | | Reported Revenue | $1.438 billion | $1.458 billion | $5.700 billion | $5.720 billion | | Reported Revenue Growth | 8.4% | 9.9% | 8.3% | 8.6% | | Local Currency Growth | 9.5% | 11.0% | 10.1% | 10.4% | | Organic Local Currency Growth | 9.5% | 11.0% | 8.1% | 8.4% | | Adjusted Earnings Per Share | $2.08 per share | $2.18 per share | $7.25 per share | $7.35 per share | U.S. Mortgage Market Credit Inquiry Volume Equifax anticipates a 9% increase in U.S. mortgage market credit inquiries for Q4 2024, but projects an overall 7% decline for the full year - U.S. mortgage market credit inquiry volume increased by 1% in Q3 2024[27] - Guidance for Q4 2024 assumes a 9% increase in U.S. mortgage market credit inquiries year-over-year[27] - Full year 2024 guidance assumes a decline of about 7% in U.S. mortgage market credit inquiries[27] Company Information This section provides an overview of Equifax as a global data, analytics, and technology company, and details for its Q3 2024 earnings conference call About Equifax Equifax is a global data, analytics, and technology company providing critical decision-making insights across 24 countries, leveraging differentiated data and AI - Equifax is a global data, analytics, and technology company that helps various entities make critical decisions with confidence[12] - The company operates in 24 countries and employs nearly 15,000 people worldwide, leveraging differentiated data, analytics, and cloud technology[12] Earnings Conference Call and Audio Webcast Equifax will host a conference call and live audio webcast on October 17, 2024, at 8:30 a.m. (ET) to discuss Q3 2024 earnings - Equifax will host a conference call and live audio webcast on October 17, 2024, at 8:30 a.m. (ET) for Q3 2024 earnings[13] - Webcast and related presentation materials are accessible via the Investor Relations section of www.equifax.com, with a replay available shortly after[13] Non-GAAP Financial Measures & Reconciliations This section defines and reconciles Equifax's non-GAAP financial measures, providing a clearer view of underlying performance by excluding certain items Explanation of Non-GAAP Measures This section defines non-GAAP measures like adjusted EPS and EBITDA, clarifying their exclusion of specific items for a more comparable performance view - Adjusted EPS excludes acquisition-related amortization, legal/regulatory accruals, fair market value adjustments, foreign currency impacts, acquisition costs, stock award tax effects, Argentina highly inflationary adjustments, realignment costs, and deferred tax adjustments[14] - Adjusted EBITDA excludes net interest expense, income taxes, depreciation and amortization, and certain one-time items[14] - Local currency revenue change and organic local currency revenue growth are used to assess performance by conforming results using prior year exchange rates and adjusting for acquired companies' revenue[14] Adjusted EPS and Adjusted EBITDA Margin Summary Equifax reported an Adjusted EPS of $1.85 in Q3 2024, a 5% increase, while Adjusted EBITDA margin slightly decreased to 32.7% | Metric | Q3 2024 | Q3 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | Adjusted EPS Attributable to Equifax | $1.85 | $1.76 | 5% | | Adjusted EBITDA Margin | 32.7% | 33.1% | (0.4) pp | Reconciliation of Net Income to Adjusted EPS This section details the reconciliation from GAAP net income to adjusted diluted EPS, outlining key adjustments for acquisition-related and realignment costs | Adjustment Item | Q3 2024 (Millions) | Q3 2023 (Millions) | | :----- | :----------------- | :----------------- | | Net Income Attributable to Equifax | $141.3 | $162.2 | | Acquisition-related amortization expense | $64.6 | $64.4 | | Accrual for legal and regulatory matters (2017 cybersecurity incident) | $0.1 | $14.2 | | Acquisition-related costs other than acquisition amortization | $15.9 | $24.4 | | Realignment of resources and other costs | $41.6 | $(2.3) | | Tax impact of adjustments | $(29.0) | $(16.7) | | Net Income Attributable to Equifax, Adjusted | $231.8 | $217.9 | | Diluted EPS Attributable to Equifax, Adjusted | $1.85 | $1.76 | Reconciliation of Net Income to Adjusted EBITDA This section reconciles GAAP net income to Adjusted EBITDA, adding back taxes, interest, depreciation, amortization, and other non-GAAP adjustments | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | | Net Income Attributable to Equifax | $141.3 | $162.2 | (13)% | | Income Taxes | $51.1 | $26.4 | 94% | | Interest Expense, Net | $52.4 | $56.6 | (7)% | | Depreciation and Amortization | $169.1 | $154.4 | 10% | | Accrual for legal and regulatory matters (2017 cybersecurity incident) | $0.1 | $14.2 | (99)% | | Acquisition-related amounts other than acquisition amortization | $15.9 | $24.4 | (35)% | | Realignment of resources and other costs | $41.6 | $(2.3) | nm | | Adjusted EBITDA | $471.9 | $436.1 | 8% | Reconciliation of Operating Income by Segment to Adjusted EBITDA This section reconciles operating income to Adjusted EBITDA for each segment, showing Workforce Solutions, USIS, and International contributions to total Adjusted EBITDA | Segment | Q3 2024 Adjusted EBITDA (Millions) | Q3 2024 Adjusted EBITDA Margin | Q3 2023 Adjusted EBITDA (Millions) | Q3 2023 Adjusted EBITDA Margin | | :----- | :--------------------------------- | :----------------------------- | :--------------------------------- | :----------------------------- | | Workforce Solutions | $319.9 | 51.6% | $293.7 | 50.9% | | U.S. Information Solutions | $161.6 | 33.9% | $145.8 | 34.2% | | International | $95.6 | 27.7% | $82.9 | 26.2% | | General Corporate Expense | $(105.2) | nm | $(86.3) | nm | | Total Adjusted EBITDA | $471.9 | 32.7% | $436.1 | 33.1% | Notes to Non-GAAP Reconciliations This section explains each adjustment in the non-GAAP reconciliations, clarifying why items like acquisition amortization and realignment costs are excluded for comparability - Acquisition-related amortization expense is excluded to allow investors to evaluate performance on a more comparable basis and reflect cash income tax savings[46] - Accruals for legal and regulatory matters related to the 2017 cybersecurity incident are excluded as they are not comparable across periods and are non-recurring[47] - Realignment of resources and other costs, predominantly related to technology transformation, are excluded to provide meaningful supplemental information due to their non-comparable nature across periods[53] Forward-Looking Statements and Risk Factors This section outlines Equifax's forward-looking statements and the various risk factors that could cause actual results to differ materially from projections Forward-Looking Statements Forward-looking statements are based on assumptions regarding economic conditions and strategic initiatives, but actual results may differ due to various internal and external factors - Forward-looking statements are based on factors and assumptions regarding foreign exchange rates, revenue growth, strategic initiatives, and economic conditions[16] - Actual results may differ due to factors such as restructuring actions, cloud technology transformation, and changes in the U.S. mortgage market and general economic conditions[17] Risk Factors Equifax identifies numerous risks, including security breaches, operational disruptions, regulatory changes, and the impact of AI/ML model use, that could affect future results - Key risk factors include security breaches, failure to realize anticipated benefits of cloud technology transformation, operational disruptions, and the ability to meet customer requirements for system availability[18] - Other risks involve maintaining access to data, impact of competition, regulatory changes (e.g., CFPB, FCA), privacy laws, international sales risks, and risks associated with AI/ML model use[18] - Additional risks and uncertainties are detailed in the Annual Report on Form 10-K for the year ended December 31, 2023[19]