filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Equifax Inc. MD&A is provided as a supplement to and should be read in conjunction with our consolidated financial statements and the accompanying Notes to Financial Statements in Item 1 of this Form 10-Q. This section discusses the results of our operations for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. All percentages have been calculated using unrounded amounts for each of the periods presented.
As used herein, the terms Equifax, the Company, we, our and us refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.
All references to earnings per share data in 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
Equifax Inc. is a global data, analytics and technology company. We provide information solutions for businesses, governments and consumers and we provide human resources business process automation and outsourcing services for employers. We have a large and diversified group of clients, including financial institutions, corporations, government agencies and individuals. Our services are based on comprehensive databases of consumer and business information derived from numerous sources including credit, financial assets, telecommunications and utility payments, employment, income, educational history, criminal justice data, healthcare professional licensure and sanctions, demographic and marketing data. We use advanced statistical techniques, machine learning and proprietary software tools to analyze available data to create customized insights, decision-making and process automation solutions and processing services for our clients. We are a leading provider of e-commerce fraud and charge back protection services in North America as well as information and solutions used in payroll-related and human resource management business process services in the U.S. For consumers, we provide products and services to help people understand, manage and protect their personal information and make more informed financial decisions. Additionally, we also provide information, technology and services to support debt collections and recovery management.
We currently operate in four global regions: North America (U.S. and Canada), Asia Pacific (Australia, New Zealand and India), Europe (the U.K., Spain and Portugal) and Latin America (Argentina, Brazil, Chile, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru and Uruguay). We maintain support operations in the Republic of Ireland, Chile, Costa Rica and India. We also have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia and Singapore.
Recent Events and Company Outlook
As further described in our 2022 Form 10-K, we operate in the U.S., which represented 78% of our revenue in 2022. Our products and services span a wide variety of vertical markets including financial services, mortgage, talent solutions, federal, state and local governments, automotive, telecommunications, e-commerce and many others.
Demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity, small business commercial credit, marketing activity, identity and fraud, and employee hiring and onboarding activity. Demand is also enhanced by our initiatives to expand our products, capabilities and markets served.
For 2023, we expect that U.S. economic activity, as measured by GDP, to grow, but at a slower rate of growth than experienced in 2022. Our forecast assumes the U.S. mortgage market, as measured by credit inquiries, is expected to decline by about 34% in 2023 versus 2022. The U.S. mortgage market, particularly the mortgage refinance portion of the U.S. mortgage market, can be significantly impacted by U.S. interest rates which therefore impacts mortgage rates available to consumers. In the International markets in which we operate, in particular in Australia, the U.K. and Canada, our forecast also assumes economic activity, as measured by GDP, to grow in 2023 but at slower rates than in 2022.
Segment and Geographic Information
Segments. 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, as well as criminal justice data. Employer Services revenue is 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, I-9 and onboarding services and other complementary employment-based transaction services.
The USIS segment 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, modeling services and consumer credit monitoring services. USIS also markets certain decisioning software services which facilitate and automate a variety of consumer and commercial credit-oriented decisions. Online Information Solutions also includes our U.S. consumer credit monitoring solutions business. 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 International segment consists of Asia Pacific, Europe, Canada and Latin America. Canada’s services are similar to our USIS offerings. Asia Pacific, Europe and Latin America are made up of varying mixes of service lines that are generally
consistent with those in our USIS reportable segment. We also provide information and technology services to support lenders and other creditors in the collections and recovery management process.
Geographic Information. We currently have operations in the following countries: Argentina, Australia, Brazil, Canada, Chile, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, India, Ireland, Mexico, New Zealand, Paraguay, Peru, Portugal, Spain, the United Kingdom, or U.K., Uruguay and the United States of America, or U.S. We also have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia and Singapore. Approximately 76% and 77% of our revenue was generated in the U.S. during the three months ended September 30, 2023 and 2022, respectively. Approximately 77% and 78% of our revenue was generated in the U.S. during the nine months ended September 30, 2023 and 2022, respectively.
Seasonality. We experience seasonality in certain of our revenue streams. Revenue generated by the online consumer information services component of our USIS operating segment is typically the lowest during the first quarter, when consumer lending activity is at a seasonal low. Revenue generated from the Employer Services business unit within the Workforce Solutions operating segment is generally higher in the first quarter due primarily to the provision of Form W-2 and 1095-C services that occur in the first quarter each year. Revenue generated from our financial wealth asset products and data management services in our Financial Marketing Services business is generally higher in the fourth quarter each year due to the significant portion of our annual renewals and deliveries which occur then. Mortgage related revenue is generally higher in the second and third quarters of the year due to the increase in consumer home purchasing during the summer in the U.S. Any change in the U.S. mortgage market has a corresponding impact on revenue and operating profit for our business within the Workforce Solutions and USIS operating segments.
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 and nine months ended September 30, 2023 and 2022 were as follows:
| Key Performance Indicators | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||||||||
| Operating revenue | $ | 1,319.1 | $ | 1,244.3 | $ | 3,938.7 | $ | 3,924.3 | ||||||||||||||||||
| Operating revenue change | 6 | % | 2 | % | — | % | 7 | % | ||||||||||||||||||
| Operating income | $ | 246.4 | $ | 242.9 | $ | 688.5 | $ | 880.0 | ||||||||||||||||||
| Operating margin | 18.7 | % | 19.5 | % | 17.5 | % | 22.4 | % | ||||||||||||||||||
| Net income attributable to Equifax | $ | 162.2 | $ | 165.7 | $ | 412.9 | $ | 588.0 | ||||||||||||||||||
| Diluted earnings per share | $ | 1.31 | $ | 1.34 | $ | 3.34 | $ | 4.77 | ||||||||||||||||||
| Cash provided by operating activities | $ | 381.7 | $ | 354.9 | $ | 794.7 | $ | 431.7 | ||||||||||||||||||
| Capital expenditures* | $ | (145.7) | $ | (160.9) | $ | (448.6) | $ | (454.2) |
*Amounts include accruals for capital expenditures.
Operational and Financial Highlights
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We did not repurchase any shares from public market transactions during the first nine months of 2023 and 2022. At September 30, 2023, $520.2 million was available for future purchases of common stock under our share repurchase authorization.
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We paid out $143.7 million or $1.17 per share in dividends to our shareholders during the first nine months of 2023.
RESULTS OF OPERATIONS—THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
Consolidated Financial Results
Operating Revenue
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Operating Revenue | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Workforce Solutions | $ | 577.2 | $ | 558.9 | $ | 18.3 | 3 | % | $ | 1,756.3 | $ | 1,817.1 | $ | (60.8) | (3) | % | ||||||||||||||||||||||||||||||||||
| U.S. Information Solutions | 426.0 | 397.4 | 28.6 | 7 | % | 1,292.7 | 1,251.8 | 40.9 | 3 | % | ||||||||||||||||||||||||||||||||||||||||
| International | 315.9 | 288.0 | 27.9 | 10 | % | 889.7 | 855.4 | 34.3 | 4 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated operating revenue | $ | 1,319.1 | $ | 1,244.3 | $ | 74.8 | 6 | % | $ | 3,938.7 | $ | 3,924.3 | $ | 14.4 | — | % |
Revenue increased by $74.8 million, or 6%, and increased by $14.4 million, or remained flat, for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. Total revenue was negatively impacted by foreign exchange rates, which decreased revenue by $6.2 million, or 1%, and $45.1 million, or 1%, for the third quarter and first nine months of 2023, compared to the same periods in 2022.
Revenue in the third quarter increased due to growth in USIS, International, and Workforce Solutions. Revenue in the first nine months of 2023 increased primarily due to growth in USIS and International, partially offset by declines in Workforce Solutions.
Operating Expenses
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Operating Expenses | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated cost of services | $ | 585.2 | $ | 542.5 | $ | 42.7 | 8 | % | $ | 1,753.5 | $ | 1,638.0 | $ | 115.5 | 7 | % | ||||||||||||||||||||||||||||||||||
| Consolidated selling, general and administrative expenses | 333.1 | 318.0 | 15.1 | 5 | % | 1,042.3 | 988.5 | 53.8 | 5 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated depreciation and amortization expense | 154.4 | 140.9 | 13.5 | 10 | % | 454.4 | 417.8 | 36.6 | 9 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated operating expenses | $ | 1,072.7 | $ | 1,001.4 | $ | 71.3 | 7 | % | $ | 3,250.2 | $ | 3,044.3 | $ | 205.9 | 7 | % |
Cost of services increased $42.7 million and $115.5 million in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increases for both periods were primarily due to higher royalty costs, people costs and production costs, which include third party cloud usage fees and software costs. The impact of changes in foreign exchange rates on costs of services led to a decrease of $0.3 million and $17.1 million in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.
Selling, general and administrative expenses increased $15.1 million and $53.8 million for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in the third quarter was primarily due to an accrual for a penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. FCA, which was partially offset by a decrease in people costs. The increase in the first nine months was primarily due to an accrual for a penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. FCA, as well as higher incentive plans and severance costs. The impact of changes in foreign currency exchange rates led to a decrease in selling, general and administrative expenses of $2.5 million and $13.6 million for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.
Depreciation and amortization expense increased $13.5 million and $36.6 million for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increases were due to the increased amortization of capitalized internal-use software and system costs from technology transformation capital spending incurred previously, as well as higher amortization of purchased intangible assets related to recent acquisitions. The impact of changes in foreign currency
exchange rates led to an increase in depreciation and amortization expense of $0.6 million for the third quarter of 2023 and a decrease in depreciation and amortization expense of $2.5 million for the first nine months of 2023, compared to the same periods in 2022.
Operating Income and Operating Margin
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Operating Income | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating revenue | $ | 1,319.1 | $ | 1,244.3 | $ | 74.8 | 6 | % | $ | 3,938.7 | $ | 3,924.3 | $ | 14.4 | — | % | ||||||||||||||||||||||||||||||||||
| Consolidated operating expenses | 1,072.7 | 1,001.4 | 71.3 | 7 | % | 3,250.2 | 3,044.3 | 205.9 | 7 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated operating income | $ | 246.4 | $ | 242.9 | $ | 3.5 | 1 | % | $ | 688.5 | $ | 880.0 | $ | (191.5) | (22) | % | ||||||||||||||||||||||||||||||||||
| Consolidated operating margin | 18.7 | % | 19.5 | % | (0.8) | pts | 17.5 | % | 22.4 | % | (4.9) | pts |
Total company operating margin decreased by 0.8 percentage points and 4.9 percentage points in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The margin decreases were due to the aforementioned increased operating expenses and amortization expenses during the periods, partially offset by the higher reported revenue during the periods.
Interest Expense and Other Income, net
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Interest Expense and Other Income, net | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated interest expense | $ | (62.8) | $ | (47.1) | $ | (15.7) | 33 | % | $ | (181.1) | $ | (128.5) | $ | (52.6) | 41 | % | ||||||||||||||||||||||||||||||||||
| Consolidated other income, net | 7.1 | 23.9 | (16.8) | (70) | % | 27.7 | 36.8 | (9.1) | (25) | % | ||||||||||||||||||||||||||||||||||||||||
| Average cost of debt | 4.3 | % | 3.2 | % | 4.1 | % | 3.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total consolidated debt, net, at quarter end | $ | 6,001.4 | $ | 5,882.1 | $ | 119.3 | nm | $ | 6,001.4 | $ | 5,882.1 | $ | 119.3 | nm |
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Interest expense increased by $15.7 million and $52.6 million in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase for the third quarter and first nine months of 2023 was due to higher interest rates attributable to debt agreements entered into during 2022 and 2023, as well as higher debt balances in 2023 when compared to the same periods of 2022 due to the issuance of 5.1% Senior Notes in the second quarter of 2023 and borrowings on our commercial paper program used to fund the BVS acquisition.
Other income, net, decreased by $16.8 million and $9.1 million in the third quarter of 2023 and in the first nine months of 2023, respectively, as compared to the same periods in 2022. The decrease for the third quarter and for the first nine months of 2023 was due to the gains associated with the sales of equity method investments and higher fair value adjustments of our investment in BVS in 2022 that did not recur in 2023.
Income Taxes
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Provision for Income Taxes | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated provision for income taxes | $ | (26.4) | $ | (52.8) | $ | 26.4 | (50) | % | $ | (117.9) | $ | (197.2) | $ | 79.3 | (40) | % | ||||||||||||||||||||||||||||||||||
| Effective income tax rate | 13.9 | % | 24.0 | % | 22.0 | % | 25.0 | % |
Our effective income tax rate was 13.9% for the three months ended September 30, 2023, compared to 24.0% for the three months ended September 30, 2022. Our effective income tax rate was 22.0% for the nine months ended September 30, 2023, compared to 25.0% for the nine months ended September 30, 2022. Our effective tax rate was lower for the third quarter and the first nine months of 2023 as compared to the same periods in 2022 due to the write off of a deferred tax liability related to our original investment in BVS which was no longer necessary given the acquisition of the company in the third quarter of 2023, partially offset by the tax impact of the penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. FCA which is not tax deductible.
Net Income
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Net Income | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | (In millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating income | $ | 246.4 | $ | 242.9 | $ | 3.5 | 1 | % | $ | 688.5 | $ | 880.0 | $ | (191.5) | (22) | % | ||||||||||||||||||||||||||||||||||
| Consolidated interest expense and other income (expense), net | (55.7) | (23.2) | (32.5) | 140 | % | (153.4) | (91.7) | (61.7) | 67 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated provision for income taxes | (26.4) | (52.8) | 26.4 | (50) | % | (117.9) | (197.2) | 79.3 | (40) | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated net income | 164.3 | 166.9 | (2.6) | (2) | % | 417.2 | 591.1 | (173.9) | (29) | % | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (2.1) | (1.2) | (0.9) | 75 | % | (4.3) | (3.1) | (1.2) | 39 | % | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Equifax | $ | 162.2 | $ | 165.7 | $ | (3.5) | (2) | % | $ | 412.9 | $ | 588.0 | $ | (175.1) | (30) | % | ||||||||||||||||||||||||||||||||||
| Diluted earnings per common share: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Equifax | $ | 1.31 | $ | 1.34 | $ | (0.03) | (2) | % | $ | 3.34 | $ | 4.77 | $ | (1.43) | (30) | % | ||||||||||||||||||||||||||||||||||
| Weighted-average shares used in computing diluted earnings per share | 123.9 | 123.3 | 123.6 | 123.3 |
Consolidated net income decreased by $2.6 million and $173.9 million for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The decreases were due to higher interest expense and lower levels of operating income in the first nine months of 2023, partially offset by the decrease in the effective tax rate for the three and nine months ended September 30, 2023.
Segment Financial Results
Workforce Solutions
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Workforce Solutions | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Verification Services | $ | 459.3 | $ | 454.5 | $ | 4.8 | 1 | % | $ | 1,389.1 | $ | 1,472.4 | $ | (83.3) | (6) | % | ||||||||||||||||||||||||||||||||||
| Employer Services | 117.9 | 104.4 | 13.5 | 13 | % | 367.2 | 344.7 | 22.5 | 7 | % | ||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | $ | 577.2 | $ | 558.9 | $ | 18.3 | 3 | % | $ | 1,756.3 | $ | 1,817.1 | $ | (60.8) | (3) | % | ||||||||||||||||||||||||||||||||||
| % of consolidated revenue | 44 | % | 45 | % | 45 | % | 46 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 241.2 | $ | 231.0 | $ | 10.2 | 4 | % | $ | 734.6 | $ | 820.6 | $ | (86.0) | (10) | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 41.8 | % | 41.3 | % | 0.5 | pts | 41.8 | % | 45.2 | % | (3.4) | pts |
Workforce Solutions revenue increased by 3% and decreased by 3% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in the third quarter was due to growth in both Employer Services, driven primarily by I-9 and onboarding services and revenue from recently acquired companies, and growth in Verification Services, driven primarily by growth in the government and talent verticals, partially offset by a decrease in mortgage revenue. The decrease in revenue in the first nine months was driven by a decline in Verification Services, due to declines in mortgage revenue, partially offset by growth in the government and talent verticals, as well as by growth in Employer Services due to revenue from recently acquired companies and growth in I-9 and onboarding services.
Verification Services
Revenue increased by 1% and decreased 6% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in revenue in the third quarter was due to growth in non-mortgage verticals, most notably the government and talent solutions verticals, partially offset by a decrease in mortgage revenue. The decrease in the first nine months was due to declines in the mortgage vertical, partially offset by an increase in the government and talent solutions verticals.
Employer Services
Revenue increased by 13% and 7% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in revenue for both periods was due to revenue from recently acquired companies and I-9 and onboarding services. The increase in the first nine months was partially offset by a decrease in unemployment claims revenue and lower tax credit revenue.
Workforce Solutions Operating Margin
Operating margin increased to 41.8% for the third quarter of 2023 from 41.3% for the third quarter of 2022, and decreased to 41.8% for the first nine months of 2023 from 45.2% for the first nine months of 2022. The increased margin for the third quarter is due to revenue growth and lower people costs, offset by increased royalty costs. The decreased margin for the first nine months is due to the decline in revenue, as well as increased royalty costs.
USIS
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Information Solutions | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Online Information Solutions | $ | 348.2 | $ | 314.4 | $ | 33.8 | 11 | % | $ | 1,047.8 | $ | 987.5 | $ | 60.3 | 6 | % | ||||||||||||||||||||||||||||||||||
| Mortgage Solutions | 27.3 | 32.1 | (4.8) | (15) | % | 90.8 | 112.3 | (21.5) | (19) | % | ||||||||||||||||||||||||||||||||||||||||
| Financial Marketing Services | 50.5 | 50.9 | (0.4) | (1) | % | 154.1 | 152.0 | 2.1 | 1 | % | ||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | $ | 426.0 | $ | 397.4 | $ | 28.6 | 7 | % | $ | 1,292.7 | $ | 1,251.8 | $ | 40.9 | 3 | % | ||||||||||||||||||||||||||||||||||
| % of consolidated revenue | 32 | % | 32 | % | 33 | % | 32 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 89.7 | $ | 82.0 | $ | 7.7 | 9 | % | $ | 271.1 | $ | 315.4 | $ | (44.3) | (14) | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 21.1 | % | 20.6 | % | 0.5 | pts | 21.0 | % | 25.2 | % | (4.2) | pts |
USIS revenue increased by 7% and 3% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in the third quarter was due to growth in online non-mortgage and online mortgage revenue. This was partially offset by declines in Mortgage Solutions. The increase in the first nine months was due to growth in online non-mortgage revenue and revenue from acquisitions, partially offset by declines in both online mortgage and Mortgage Solutions due to significant declines in mortgage credit inquiry volumes.
Online Information Solutions
Revenue increased by 11% and 6% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increases for both periods were driven by continued growth in revenue from acquisitions, online non-mortgage services, commercial risk, and consumer services. During the third quarter of 2023, online mortgage contributed to the increase in revenue. During the first nine months of 2023, online mortgage revenue declined due to significantly lower mortgage credit inquiry volumes.
Mortgage Solutions
Revenue decreased by 15% and 19% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The decreases in both periods were due to significantly lower mortgage credit inquiry volumes in 2023 compared to the prior year.
Financial Marketing Services
Revenue decreased by 1% and increased by 1% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The decrease for the third quarter was driven by a decline in credit marketing services, partially offset by growth in risk and data services. The increase in the first nine months was driven by growth in risk and data services, partially offset by a decline in credit marketing services.
USIS Operating Margin
USIS operating margin increased to 21.1% for the third quarter of 2023 from 20.6% for the third quarter of 2022 and decreased to 21.0% for the first nine months of 2023 from 25.2% for the first nine months of 2022. The margin increase for the third quarter was due to an increase in revenue, partially offset by an increase in operating expenses and depreciation expense. The margin decrease for the first nine months was due to an increase in operating expenses and depreciation expense, partially offset by an increase in revenue. The increase in operating expenses for both periods is due to increased royalty and production expenses, salary and incentive expenses and cloud production costs.
International
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| International | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | $ | 85.5 | $ | 87.1 | $ | (1.6) | (2) | % | $ | 263.1 | $ | 263.7 | $ | (0.6) | — | % | ||||||||||||||||||||||||||||||||||
| Europe | 85.2 | 80.7 | 4.5 | 6 | % | 239.6 | 246.3 | (6.7) | (3) | % | ||||||||||||||||||||||||||||||||||||||||
| Canada | 65.1 | 66.2 | (1.1) | (2) | % | 194.7 | 191.8 | 2.9 | 2 | % | ||||||||||||||||||||||||||||||||||||||||
| Latin America | 80.1 | 54.0 | 26.1 | 48 | % | 192.3 | 153.6 | 38.7 | 25 | % | ||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | $ | 315.9 | $ | 288.0 | $ | 27.9 | 10 | % | $ | 889.7 | $ | 855.4 | $ | 34.3 | 4 | % | ||||||||||||||||||||||||||||||||||
| % of consolidated revenue | 24 | % | 23 | % | 22 | % | 22 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 40.2 | $ | 42.5 | $ | (2.3) | (5) | % | $ | 107.2 | $ | 111.9 | $ | (4.7) | (4) | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 12.7 | % | 14.8 | % | (2.1) | pts | 12.0 | % | 13.1 | % | (1.1) | pts |
International revenue increased by 10% and 4% in the third quarter and the first nine months of 2023, respectively, compared to the same periods in 2022. On a local currency basis, revenue increased by 12% and 9% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022, driven by revenue from the BVS acquisition and growth in our credit reporting business across all geographies. This increase was partially offset by volume declines in our debt services business in Europe. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $6.2 million, or 2%, for the third quarter of 2023, and by $45.1 million, or 5%, for the first nine months of 2023.
Asia Pacific
On a local currency basis, revenue increased by 2% and 5% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in the third quarter of 2023 was driven by stronger volumes within fraud, consumer and employment verification services, partially offset by a decline in commercial. The increase in the first nine months of 2023 was driven by growth in the commercial, identity and fraud, and consumer businesses. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $3.4 million, or 4%, and $14.9 million, or 5%, for the third quarter and first nine months of 2023, respectively. Reported revenue decreased by 2% and remained flat for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.
Europe
On a local currency basis, revenue decreased by 2% for both the third quarter and first nine months of 2023, compared to the same periods in 2022. The decreases in both periods were driven by lower debt placements within our debt services business, partially offset by growth in the consumer business in our credit reporting businesses in Europe. Local currency fluctuations against the U.S. dollar positively impacted revenue by $6.1 million, or 8%, and negatively impacted revenue by
$0.6 million, or 1%, for the third quarter and first nine months of 2023, respectively. Reported revenue increased by 6% and decreased by 3% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.
Canada
On a local currency basis, revenue was flat and increased by 5% in the third quarter and first nine months of 2023, compared to the same periods in 2022. Revenue in the first nine months of 2023 reflected increases in consumer and fraud products. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $1.4 million, or 2%, and $7.5 million or 3%, for the third quarter and first nine months of 2023, respectively. Reported revenue decreased by 2% and increased by 2% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.
Latin America
On a local currency basis, revenue increased by 62% and 40% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increases in both periods reflect revenue from the BVS acquisition in the third quarter of 2023 and local currency growth in Argentina, Chile and across Central America, primarily related to stronger pricing. The increase in the first nine months of 2023 is also due to growth in revenue from an acquired company in the Dominican Republic, as well as growth in Chile, partially offset by a decline in Mexico. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $7.5 million, or 14%, and $22.1 million, or 15%, for the third quarter and first nine months of 2023, respectively. Reported revenue increased by 48% and 25% for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022.
International Operating Margin
Operating margin decreased to 12.7% for the third quarter of 2023 from 14.8% for the third quarter of 2022 and decreased to 12.0% for the first nine months of 2023 from 13.1% for the first nine months of 2022. The decreased margin for both periods is mainly due to increased salary and incentive costs, higher cloud production costs, and increased depreciation expense related to technology transformation project spending. The increase in operating expenses was partially offset by the increase in revenue for both periods.
General Corporate Expense
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| General Corporate Expense | 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| General corporate expense | $ | 124.7 | $ | 112.6 | $ | 12.1 | 11 | % | $ | 424.4 | $ | 367.9 | $ | 56.5 | 15 | % |
Our general corporate expenses are unallocated costs that are incurred at the corporate level and include those expenses impacted by corporate direction, including shared services, technology, security, data and analytics, administrative, legal, restructuring, and the portion of management incentive compensation determined by total company-wide performance.
General corporate expense increased by $12.1 million and $56.5 million for the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. The increase in the third quarter was due to a penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. FCA, offset by a decrease in people costs. The increase in the first nine months was due to increased people costs, primarily due to restructuring charges and incentive plans, as well as an accrual for a penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. FCA.
LIQUIDITY AND FINANCIAL CONDITION
Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We continue to generate substantial cash from operating activities, remain in a strong financial position and manage our capital structure to meet short- and long-term objectives including reinvestment in existing businesses and completing strategic acquisitions.
Funds generated by operating activities, our Revolver and related CP program, more fully described below, are our most significant sources of liquidity. At September 30, 2023, we had $412.6 million in cash and cash equivalents, as well as $1,016.1 million available to borrow under our Revolver.
Sources and Uses of Cash
We believe that our existing cash balance, liquidity available from our CP and Revolver, cash generated from ongoing operations and continued access to public or private debt markets will be sufficient to satisfy cash requirements over the next 12 months and beyond. While there was no significant change in our cash requirements as of September 30, 2023 compared to December 31, 2022, we have utilized existing CP and Revolver capacity, together with cash from operating activities, to meet our current obligations. During the first quarter of 2023, we borrowed $175.0 million on our Revolver to pay down CP. We subsequently repaid the Revolver in full during the second quarter of 2023.
Fund Transfer Limitations. The ability of certain of our subsidiaries and associated companies to transfer funds to the U.S. may be limited, in some cases, by certain restrictions imposed by foreign governments. These restrictions do not, individually or in the aggregate, materially limit our ability to service our indebtedness, meet our current obligations or pay dividends. As of September 30, 2023, we held $400.1 million of cash in our foreign subsidiaries.
Information about our cash flows, by category, is presented in the Consolidated Statements of Cash Flows. The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash provided by (used in): | 2023 | 2022 | 2023 vs. 2022 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Operating activities | $ | 794.7 | $ | 431.7 | $ | 363.0 | ||||||||||||||
| Investing activities | $ | (724.7) | $ | (807.1) | $ | 82.4 | ||||||||||||||
| Financing activities | $ | 63.5 | $ | 416.5 | $ | (353.0) |
Operating Activities
Cash provided by operating activities in the nine months ended September 30, 2023 increased by $363.0 million compared to the prior year period primarily due to the $345.0 million consumer class action settlement payment that was made in January 2022 related to the U.S. Consumer MDL Litigation settlement that became effective on January 11, 2022 that did not recur in 2023.
Investing Activities
Capital Expenditures
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash used in: | 2023 | 2022 | 2023 vs. 2022 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Capital expenditures* | $ | (455.6) | $ | (468.4) | $ | 12.8 |
*Amounts above are total cash outflows for capital expenditures.
Our capital expenditures are used for developing, enhancing and deploying new and existing software in support of our expanding product set, replacing or adding equipment, updating systems for regulatory compliance, the licensing of certain software applications, investing in system reliability, security and disaster recovery enhancements, and updating or expanding our office facilities.
Capital expenditures in the first nine months of 2023 were slightly lower than in 2022.
Acquisitions, Divestitures and Investments
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash (used in) provided by: | 2023 | 2022 | 2023 vs. 2022 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Acquisitions, net of cash acquired | $ | (276.0) | $ | (437.5) | $ | 161.5 | ||||||||||||||
| Cash received from divestitures | $ | 6.9 | $ | 98.8 | $ | (91.9) | ||||||||||||||
During the first nine months of 2023, we completed the acquisition of BVS and a Canadian company within our International segment and completed the sale of an equity investment. During the first nine months of 2022, we acquired Efficient Hire and LawLogix within our Workforce Solutions segment, Midigator within our USIS segment and Data Crédito within our International segment. During the first nine months of 2022, we reported $98.8 million of cash inflows from investing activities associated with cash received from the sale of multiple equity investments.
Financing Activities
Borrowings and Credit Facility Availability
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash (used in) provided by: | 2023 | 2022 | 2023 vs. 2022 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Net short-term borrowings | $ | (83.6) | $ | (162.1) | $ | 78.5 | ||||||||||||||
| Payments on long-term debt | $ | (575.0) | $ | — | $ | (575.0) | ||||||||||||||
| Borrowings on long-term debt | $ | 872.9 | $ | 749.3 | $ | 123.6 |
Credit Facilities Availability
We have access to a $1.5 billion five-year unsecured revolving credit facility (the “Revolver”) and a five-year unsecured Revolver as well as a $700.0 million delayed draw Term Loan (collectively, the “Senior Credit Facilities”), both of which mature in August 2026. Borrowings under the Senior Credit Facilities may be used for working capital, for capital expenditures, to refinance existing debt, to finance acquisitions and for other general corporate purposes. The Revolver includes an option to request a maximum of three one-year extensions of the maturity date any time after the first anniversary of the closing date of the Revolver. Availability of the Revolver is reduced by the outstanding principal balance of our commercial paper notes and by any letters of credit issued under the Revolver.
Our $1.5 billion CP program has been established to allow for borrowing through the private placement of CP with maturities ranging from overnight to 397 days. We may use the proceeds of CP for general corporate purposes. The CP program is supported by our Revolver and the total amount of CP which may be issued is reduced by the amount of any outstanding borrowings under our Revolver.
As of September 30, 2023, there were $0.4 million of letters of credit outstanding, no outstanding borrowings under the Revolver, $700.0 million outstanding under the Term Loan and $483.5 million of outstanding CP notes. Availability under the Revolver was $1,016.1 million at September 30, 2023.
At September 30, 2023, 80% of our debt was fixed-rate debt and 20% was variable debt. Our variable-rate debt consists of our outstanding term loan and CP. The interest rates reset periodically, depending on the terms of the respective financing agreements. At September 30, 2023, the interest rate on our variable-rate debt ranged from 5.45% to 6.67%.
Borrowing and Repayment Activity
We primarily borrow under our CP program and Revolver as needed and as availability allows.
Net short-term borrowings primarily represent net borrowings or repayments of outstanding amounts under our CP program.
Borrowings on long-term debt represent $175.0 million of borrowings on our Revolver during the first quarter of 2023 and the issuance of $700.0 million of 5.1% Senior Notes in the second quarter of 2023. Repayments on long-term debt represent $175.0 million of repayments on our Revolver and repayment of our $400.0 million 3.95% Senior Notes during the second quarter of 2023.
Debt Covenants. A downgrade in our credit ratings would increase the cost of borrowings under our CP program, Revolver and Term Loan, and could limit or, in the case of a significant downgrade, preclude our ability to issue CP. Our outstanding indentures and comparable instruments also contain customary covenants including, for example, limits on mortgages, liens, sale/leaseback transactions, mergers and sales of assets.
In March 2023, we amended the Senior Credit Facilities, resulting in a modification of our required maximum leverage ratio, among other changes. As amended, the Senior Credit Facilities require a maximum leverage ratio, defined as consolidated funded debt divided by consolidated EBITDA, of (i) 4.25 to 1.0 commencing with the fourth quarter of 2022 through the fourth quarter of 2023 and (ii) 3.75 to 1.0 commencing with the first quarter of 2024 and for each fiscal quarter ending thereafter through the remaining term of the Senior Credit Facilities. We may also elect to increase the maximum leverage ratio by 0.5 to 1.0 (subject to a maximum leverage ratio of 4.75 to 1.0) in connection with certain material acquisitions if we satisfy certain requirements. The Senior Credit Facilities also permit cash in excess of $175 million to be netted against debt in the calculation of the leverage ratio, subject to certain restrictions.
As of September 30, 2023, we were in compliance with all of our debt covenants.
We do not have any credit rating triggers that would accelerate the maturity of a material amount of the outstanding debt; however, our 2.6% senior notes due 2024, 2.6% senior notes due 2025, 3.25% senior notes due 2026, 5.1% senior notes due 2027, 5.1% senior notes due 2028, 3.1% senior notes due 2030, 2.35% senior notes due 2031 and 7.0% senior notes due 2037 (collectively, the “Senior Notes”) contain change in control provisions. If the Company experiences a change of control or publicly announces the Company’s intention to effect a change of control and the rating on the Senior Notes is lowered by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”) below an investment grade rating within 60 days of such change of control or notice thereof, then the Company will be required to offer to repurchase the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest.
For additional information about our debt, including the terms of our financing arrangements, basis for variable interest rates and debt covenants, see Note 5 of the Notes to Consolidated Financial Statements in our 2022 Form 10-K.
Equity Transactions
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash (used in) provided by: | 2023 | 2022 | 2023 vs. 2022 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Dividends paid to Equifax shareholders | $ | (143.7) | $ | (143.3) | $ | (0.4) | ||||||||||||||
| Dividends paid to noncontrolling interests | $ | (2.8) | $ | (2.5) | $ | (0.3) | ||||||||||||||
| Proceeds from exercise of stock options and employee stock purchase plan | $ | 18.6 | $ | 13.5 | $ | 5.1 | ||||||||||||||
| Payment of taxes related to settlement of equity awards | $ | (16.9) | $ | (33.0) | $ | 16.1 | ||||||||||||||
Sources and uses of cash related to equity during the nine months ended September 30, 2023 and 2022 were as follows:
- During the first nine months of 2023 and 2022, we did not repurchase any shares of our common stock on the open market.
- We maintained our quarterly dividend of $0.39 per share in the third quarter of 2023. We paid cash dividends to Equifax shareholders of $143.7 million and $143.3 million, or $1.17 per share, during the nine months ended September 30, 2023 and 2022, respectively.
- We received cash of $18.6 million and $13.5 million during the first nine months of 2023 and 2022, respectively, from the exercise of stock options and the employee stock purchase plan.
At September 30, 2023, the Company had $520.2 million remaining for stock repurchases under the existing authorization from the board of directors.
Contractual Obligations, Commercial Commitments and Other Contingencies
Our contractual obligations and commercial commitments have not changed materially from those reported in our 2022 Form 10-K. For additional information about certain obligations and contingencies, see Note 6 of the Notes to Consolidated Financial Statements in this Form 10-Q.
Off-Balance Sheet Arrangements
There have been no material changes with respect to our off-balance sheet arrangements from those presented in our 2022 Form 10-K.
Benefit Plans
At December 31, 2022, our U.S. Retirement Income Plan met or exceeded ERISA’s minimum funding requirements. In the future, we expect to make minimum funding contributions as required and may make discretionary contributions, depending on certain circumstances, including market conditions and our liquidity needs. We believe additional funding contributions, if any, would not prevent us from continuing to meet our liquidity needs, which are primarily funded from cash flows generated by operating activities, available cash and cash equivalents, our CP program and our Revolver.
For our non-U.S., tax-qualified retirement plans, we fund an amount sufficient to meet minimum funding requirements but no more than allowed as a tax deduction pursuant to applicable tax regulations. For our non-qualified supplementary retirement plans, we fund the benefits as they are paid to retired participants, but accrue the associated expense and liabilities in accordance with U.S. GAAP.
For additional information about our benefit plans, see Note 9 of the Notes to Consolidated Financial Statements in our 2022 Form 10-K.
Foreign Currency
Argentina experienced multiple periods of increasing inflation rates, devaluation of the peso, and increasing borrowing rates. As such, Argentina was deemed a highly inflationary economy by accounting policymakers. Beginning in the third quarter of 2018, we have accounted for Argentina as a highly inflationary economy which resulted in the recognition of a $0.4 million foreign currency loss and a $0.2 million foreign currency gain that was recorded in other income, net in our Consolidated Statements of Income during the three months ended September 30, 2023 and 2022 respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
For information about new accounting pronouncements and the potential impact on our Consolidated Financial Statements, see Note 1 of the Notes to Consolidated Financial Statements in this Form 10-Q and Note 1 of the Notes to Consolidated Financial Statements in our 2022 Form 10-K.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s Consolidated Financial Statements are prepared in conformity with U.S. GAAP. This requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our Consolidated Financial Statements and the Notes to Consolidated Financial Statements. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates and assumptions about the effects of matters that are inherently uncertain. The “Application of Critical Accounting Policies and Estimates” section in the MD&A, and Note 1 of the Notes to Consolidated Financial Statements, in our 2022 Form 10-K describe the significant accounting estimates and policies used in the preparation of our Consolidated Financial Statements. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
Goodwill
We review goodwill for impairment annually (as of September 30) and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance or trends, competition, or sale or disposition of a significant portion of a reporting unit. We have six reporting units comprised of Workforce Solutions (which includes Verification Services and Employer Services), USIS (which includes Online Information Solutions, Mortgage Solutions and Financial Marketing Services), Asia Pacific, Europe, Latin America, and Canada.
The goodwill balance at September 30, 2023, for our six reporting units was as follows:
| September 30, | |||||
| Workforce Solutions | 2023 | ||||
| (In millions) | |||||
| Workforce Solutions | $ | 2,520.1 | |||
| USIS | 2,006.2 | ||||
| Asia Pacific | 1,299.8 | ||||
| Latin America | 639.4 | ||||
| Europe | 170.7 | ||||
| Canada | 94.6 | ||||
| Total goodwill | $ | 6,730.8 |
Valuation Techniques
We performed a quantitative assessment for each of our reporting units to determine whether impairment exists. In determining the fair value of the reporting units, we used the market approach, when available and appropriate, or a combination of the income and market approaches to estimate the reporting units' business enterprise value. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately. We engaged a third party specialist to assist in developing these estimates and valuation approaches.
Under the income approach, we calculate the fair value of a reporting unit based on estimated future discounted cash flows which require assumptions about short and long-term revenue growth rates, operating margins for the reporting unit, discount rates, foreign currency exchange rates and estimates of capital expenditures. The assumptions we use are based on what we believe a hypothetical marketplace participant would use in estimating fair value. Under the market approach, we estimate the fair value based on market multiples of earnings before income taxes, depreciation and amortization, for benchmark companies or guideline transactions. We believe the benchmark companies used for each of our reporting units serve as an appropriate input for calculating a fair value for the reporting unit as those benchmark companies have similar risks, participate in similar markets, provide similar services for their customers and compete with us directly. The companies we use as benchmarks are principally outlined in our discussion of Competition in our 2022 Form 10-K and have not significantly changed since the date of our last annual impairment test. Competition for each of our reporting units generally includes global consumer credit reporting companies, such as Experian and TransUnion, which offer a product suite similar to the reporting unit's credit reporting solutions. Valuation multiples were selected based on a financial benchmarking analysis that compared the reporting unit’s operating result with the comparable companies’ information. In addition to these financial considerations, qualitative factors such as variations in growth opportunities and overall risk among the benchmark companies were considered in the ultimate selection of the multiple.
The estimated fair value of the reporting units are derived from the valuation techniques described above incorporating the related projections and assumptions. Impairment occurs when the estimated fair value of the reporting unit is below the carrying value of its equity. The estimated fair value for all of our reporting units exceeded its related carrying value as of September 30, 2023. As a result, no goodwill impairment was recorded.
Given the lower historical cushion of concluded fair value in excess of carrying value for our Asia Pacific reporting unit, we used a combination of the income and market approaches to estimate our Asia Pacific reporting unit's business enterprise value. The values separately derived from each of the income and market approach valuation techniques were used to develop an overall estimate of the Asia Pacific reporting unit’s fair value. This approach relies more heavily on the calculated fair value derived from the income approach with 70% of the value coming from the income approach. We believe this approach is consistent with that of a market participant in valuing prospective purchase business combinations. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value.
We have not made any material changes to the valuation methodology we use to assess goodwill impairment since the date of our last annual impairment test.
The following commentary relates to the reporting unit for which we determined the fair value of the reporting unit utilizing a combination of the income and market approaches, Asia Pacific.
Growth Assumptions
The assumptions for our future cash flows begin with our historical operating performance, the details of which are described in our Management’s Discussion & Analysis of operating performance. Additionally, we consider the impact that known economic, industry and market trends, including the impact of rising interest rates and inflation, will have on our future forecasts, as well as the impact that we expect from planned business initiatives including new product initiatives, client service and retention standards, and cost management programs. At the end of the forecast period, the long-term growth rate we used to determine the terminal value of our Asia Pacific reporting unit was between 3.0% and 4.0% based on management’s assessment of the minimum expected terminal growth rate of the reporting unit, as well as broader economic considerations such as GDP, inflation and the maturity of the markets we serve.
We projected revenue growth in 2024 for our Asia Pacific reporting unit in completing our 2023 impairment testing based on expected continued economic recovery from the negative impact the COVID-19 pandemic had on these regions in previous years and planned business initiatives and prevailing trends exhibited by this reporting unit. The anticipated revenue growth in this reporting unit, however, is partially offset by assumed increases in expenses and capital expenditures for the reporting unit which reflects the additional level of investment needed in order to achieve the planned revenue growth and completion of our technology transformation initiatives.
Discount Rate Assumptions
We utilize a weighted average cost of capital, or WACC, in our impairment analysis that makes assumptions about the capital structure that we believe a market participant would make and include a risk premium based on an assessment of risks related to the projected cash flows for the reporting unit. We believe this approach yields a discount rate that is consistent with an implied rate of return that a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed. To calculate the WACC, the cost of equity and cost of debt are multiplied by the assumed capital structure of the reporting unit as compared to industry trends and relevant benchmark company structures. The cost of equity was computed using the Capital Asset Pricing Model which considers the risk-free interest rate, beta, equity risk premium and specific company risk premium related to a particular reporting unit. The cost of debt was computed using a benchmark rate and the Company’s tax rate. For the 2023 annual goodwill impairment evaluation, the discount rate used to develop the estimated fair value of the Asia Pacific reporting unit was higher than the discount rate used in 2022 and ranged between 10.0% and 11.5%.
Estimated Fair Value and Sensitivities
The estimated fair value of the Asia Pacific reporting unit is highly sensitive to changes in these projections and assumptions; therefore, in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value. For example, an increase in the discount rate and decline in the projected cumulative cash flow of a reporting unit could cause the fair value of certain reporting units to be below its carrying value. We perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. Ultimately, future potential changes in these assumptions may impact the estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below its carrying value. Due to the lower cushion when compared to other reporting units, Asia Pacific is more sensitive to changes in the assumptions noted above that could result in a fair value that is less than its carrying value. The excess of fair value over carrying value for the Asia Pacific reporting unit was greater than 10% as of September 30, 2023.
Given the relatively smaller excess of fair value over carrying value for the Asia Pacific reporting unit, we believe that it is at risk of a possible future goodwill impairment. The excess of fair value for the Asia Pacific reporting unit is equivalent in 2023 with the fair valuation determination from 2022. The future impact of changes in economic conditions, including rising interest rates and inflation, remains uncertain. Avoidance of a future impairment will be dependent on continued growth during current economic conditions and our ability to execute on initiatives to grow revenue and operating margin and manage expenses prudently. We will continue to monitor the performance of this reporting unit to ensure no interim indications of possible impairment have occurred before our next annual goodwill impairment assessment in September 2024.
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