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, 2024 compared to the three and nine months ended September 30, 2023. 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 information and solutions used in payroll-related and human resource management business process services in the U.S. as well as e-commerce fraud and charge back protection services in North America. 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 Chile, Costa Rica, India and Ireland. We also have investments in consumer and/or commercial credit information companies through joint ventures in Brazil, Cambodia, Malaysia and Singapore.
Recent Events and Company Outlook
As further described in our 2023 Form 10-K, we operate in the U.S., which represented 77% of our revenue in 2023, and internationally in 20 countries. 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 and small business commercial credit decisioning and portfolio review, marketing, identity validation and fraud protection activity, employee hiring and onboarding activity, and activity in provisioning support services in the U.S. by government agencies. Demand is also enhanced by our initiatives to expand our products, capabilities and markets served.
For 2024, we expect that U.S. economic activity, as measured by GDP, will grow but at a slower rate of growth than experienced in 2023. Our forecast assumes the U.S. mortgage market, as measured by credit inquiries, is expected to decline by about 7% in 2024 versus 2023. 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 impact mortgage rates available to consumers. In Australia, the U.K., Canada, and Brazil, our forecast assumes economic activity, as measured by GDP, to grow in 2024 but at slower rates than in 2023.
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, Affordable Care Act compliance management, tax credits and incentives and other complementary employment-based transaction services. Workforce Solutions has established operations in Canada, Australia and the U.K.
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 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 U.K., Uruguay and the U.S. We also have investments in consumer and/or commercial credit information companies through joint ventures in Brazil, Cambodia, Malaysia and Singapore. Approximately 76% of our revenue was generated in the U.S. during the three months ended September 30, 2024 and 2023. Approximately 76% and 77% of our revenue was generated in the U.S. during the nine months ended September 30, 2024 and 2023, 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 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, 2024 and 2023 were as follows:
| Key Performance Indicators | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||||||||
| Operating revenue | $ | 1,441.8 | $ | 1,319.1 | $ | 4,261.7 | $ | 3,938.7 | ||||||||||||||||||
| Operating revenue change | 9 | % | 6 | % | 8 | % | — | % | ||||||||||||||||||
| Operating income | $ | 247.1 | $ | 246.4 | $ | 754.0 | $ | 688.5 | ||||||||||||||||||
| Operating margin | 17.1 | % | 18.7 | % | 17.7 | % | 17.5 | % | ||||||||||||||||||
| Net income attributable to Equifax | $ | 141.3 | $ | 162.2 | $ | 430.1 | $ | 412.9 | ||||||||||||||||||
| Diluted earnings per share | $ | 1.13 | $ | 1.31 | $ | 3.44 | $ | 3.34 | ||||||||||||||||||
| Cash provided by operating activities | $ | 479.5 | $ | 381.7 | $ | 999.7 | $ | 794.7 | ||||||||||||||||||
| Capital expenditures* | $ | (123.2) | $ | (145.7) | $ | (378.9) | $ | (448.6) |
*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 2024 and 2023. At September 30, 2024, $520.2 million was available for future purchases of common stock under our share repurchase authorization.
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We paid out $144.8 million, or $1.17 per share, in dividends to our shareholders during the first nine months of 2024.
RESULTS OF OPERATIONS—THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
Consolidated Financial Results
Operating Revenue
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Operating Revenue | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Workforce Solutions | $ | 620.0 | $ | 577.2 | $ | 42.8 | 7 | % | $ | 1,835.6 | $ | 1,756.3 | $ | 79.3 | 5 | % | ||||||||||||||||||||||||||||||||||
| U.S. Information Solutions | 476.9 | 426.0 | 50.9 | 12 | % | 1,420.5 | 1,292.7 | 127.8 | 10 | % | ||||||||||||||||||||||||||||||||||||||||
| International | 344.9 | 315.9 | 29.0 | 9 | % | 1,005.6 | 889.7 | 115.9 | 13 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated operating revenue | $ | 1,441.8 | $ | 1,319.1 | $ | 122.7 | 9 | % | $ | 4,261.7 | $ | 3,938.7 | $ | 323.0 | 8 | % |
Revenue increased by $122.7 million, or 9%, and $323.0 million, or 8%, for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Total revenue was negatively impacted by foreign exchange rates, which decreased revenue by $26.7 million, or 2%, and $79.0 million, or 2%, for the third quarter and first nine months of 2024, compared to the same periods in 2023.
Revenue in both periods increased due to growth in USIS, International, and Workforce Solutions. USIS revenue growth in both periods is primarily due to growth in mortgage related online services. International revenue growth for both periods is driven by growth in Latin America from the Boa Vista Serviços S.A. ("BVS") acquisition, completed in August 2023, as well as local currency growth in Argentina and growth in Europe. Workforce Solutions revenue growth for both periods is primarily due to growth in Verification Services, partially offset by declines in Employer Services.
Operating Expenses
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Operating Expenses | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated cost of services | $ | 645.2 | $ | 585.2 | $ | 60.0 | 10 | % | $ | 1,903.7 | $ | 1,753.5 | $ | 150.2 | 9 | % | ||||||||||||||||||||||||||||||||||
| Consolidated selling, general and administrative expenses | 380.4 | 333.1 | 47.3 | 14 | % | 1,105.7 | 1,042.3 | 63.4 | 6 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated depreciation and amortization expense | 169.1 | 154.4 | 14.7 | 10 | % | 498.3 | 454.4 | 43.9 | 10 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated operating expenses | $ | 1,194.7 | $ | 1,072.7 | $ | 122.0 | 11 | % | $ | 3,507.7 | $ | 3,250.2 | $ | 257.5 | 8 | % |
Cost of services increased $60.0 million and $150.2 million in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in both periods is primarily due to higher royalty and revenue share costs. The increase in the first nine months is also due to costs from BVS, which was acquired in the third quarter of 2023. The impact of changes in foreign exchange rates on costs of services led to a decrease of $6.1 million and $21.5 million in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
Selling, general and administrative expenses increased $47.3 million and $63.4 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in the third quarter is due to an increase in people costs primarily due to restructuring charges in the third quarter of 2023, partially offset by decreased litigation expense from an accrual in the third quarter of 2023 for a penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. Financial Conduct Authority ("U.K. FCA") that did not recur in the same period of 2024. The increase in the first nine months is primarily due to increased people costs and costs from BVS which was acquired in the third quarter of 2023. The increased people costs for the first nine months, excluding the impact of costs from BVS, is primarily due to higher restructuring charges and incentive plan costs. The impact of changes in foreign currency exchange rates led to a decrease in selling, general and administrative expenses of $8.8 million and $29.6 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
Depreciation and amortization expense increased $14.7 million and $43.9 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase for both periods is primarily due to increased amortization of capitalized internal-use software costs from technology transformation capital spending incurred previously. The increase in the first nine months is also due to higher amortization of purchased intangible assets related to the BVS acquisition. The impact of changes in foreign currency exchange rates led to a decrease in depreciation and amortization expense of $0.7 million for the third quarter of 2024 and $1.3 million for the first nine months of 2024, respectively, compared to the same periods in 2023.
Operating Income and Operating Margin
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Operating Income | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating revenue | $ | 1,441.8 | $ | 1,319.1 | $ | 122.7 | 9 | % | $ | 4,261.7 | $ | 3,938.7 | $ | 323.0 | 8 | % | ||||||||||||||||||||||||||||||||||
| Consolidated operating expenses | 1,194.7 | 1,072.7 | 122.0 | 11 | % | 3,507.7 | 3,250.2 | 257.5 | 8 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated operating income | $ | 247.1 | $ | 246.4 | $ | 0.7 | — | % | $ | 754.0 | $ | 688.5 | $ | 65.5 | 10 | % | ||||||||||||||||||||||||||||||||||
| Consolidated operating margin | 17.1 | % | 18.7 | % | (1.6) | pts | 17.7 | % | 17.5 | % | 0.2 | pts |
Total company operating margin decreased by 1.6 percentage points and increased by 0.2 percentage points in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The margin decrease for the third quarter is due to increased operating expenses, partially offset by higher reported revenue. The margin increase for the first nine months is due to the aforementioned higher reported revenue, partially offset by increased operating expenses and amortization expenses during the period.
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 | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated interest expense | $ | (56.3) | $ | (62.8) | $ | 6.5 | (10) | % | $ | (173.4) | $ | (181.1) | $ | 7.7 | (4) | % | ||||||||||||||||||||||||||||||||||
| Consolidated other income, net | 3.0 | 7.1 | (4.1) | (58) | % | 4.3 | 27.7 | (23.4) | (84) | % | ||||||||||||||||||||||||||||||||||||||||
| Average cost of debt | 4.1 | % | 4.3 | % | 4.1 | % | 4.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total consolidated debt, net, at quarter end | $ | 5,471.6 | $ | 6,001.4 | $ | (529.8) | (9) | % | $ | 5,471.6 | $ | 6,001.4 | $ | (529.8) | (9) | % |
Interest expense decreased by $6.5 million and $7.7 million in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The decrease for both periods is due to lower debt balances in 2024 when compared to the same periods of 2023 due to repayments of commercial paper during 2024. The decrease for the third quarter is also due to a lower weighted average cost of debt when compared to the third quarter of 2023.
Other income, net, decreased by $4.1 million and $23.4 million in the third quarter of 2024 and in the first nine months of 2024, respectively, as compared to the same periods in 2023. The decrease for the third quarter is primarily due to lower interest income from investments and a loss on foreign currency transactions. The decrease for the first nine months is primarily due to the gain on fair market value adjustment of our investment in BVS due to our acquisition of BVS in the third quarter of 2023 that did not recur in the same period of 2024, as well as the sale of an investment in 2023 that did not recur in 2024 and a loss on foreign currency transactions.
Income Taxes
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Provision for Income Taxes | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated provision for income taxes | $ | (51.1) | $ | (26.4) | $ | (24.7) | 94 | % | $ | (151.0) | $ | (117.9) | $ | (33.1) | 28 | % | ||||||||||||||||||||||||||||||||||
| Effective income tax rate | 26.4 | % | 13.9 | % | 25.8 | % | 22.0 | % |
Our effective income tax rate was 26.4% for the three months ended September 30, 2024, compared to 13.9% for the three months ended September 30, 2023. Our effective income tax rate was 25.8% for the nine months ended September 30, 2024, compared to 22.0% for the nine months ended September 30, 2023. Our effective tax rate was higher for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 due to the write off in the third quarter of 2023 of a deferred tax liability related to our original investment in BVS which was no longer necessary given the acquisition of BVS in August 2023.
Net Income
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Net Income | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | (In millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating income | $ | 247.1 | $ | 246.4 | $ | 0.7 | — | % | $ | 754.0 | $ | 688.5 | $ | 65.5 | 10 | % | ||||||||||||||||||||||||||||||||||
| Consolidated interest expense and other income, net | (53.3) | (55.7) | 2.4 | (4) | % | (169.1) | (153.4) | (15.7) | 10 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated provision for income taxes | (51.1) | (26.4) | (24.7) | 94 | % | (151.0) | (117.9) | (33.1) | 28 | % | ||||||||||||||||||||||||||||||||||||||||
| Consolidated net income | 142.7 | 164.3 | (21.6) | (13) | % | 433.9 | 417.2 | 16.7 | 4 | % | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (1.4) | (2.1) | 0.7 | (33) | % | (3.8) | (4.3) | 0.5 | (12) | % | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Equifax | $ | 141.3 | $ | 162.2 | $ | (20.9) | (13) | % | $ | 430.1 | $ | 412.9 | $ | 17.2 | 4 | % | ||||||||||||||||||||||||||||||||||
| Diluted earnings per common share: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Equifax | $ | 1.13 | $ | 1.31 | $ | (0.18) | (14) | % | $ | 3.44 | $ | 3.34 | $ | 0.10 | 3 | % | ||||||||||||||||||||||||||||||||||
| Weighted-average shares used in computing diluted earnings per share | 125.2 | 123.9 | 124.9 | 123.6 |
Consolidated net income decreased by $21.6 million and increased by $16.7 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The decrease in the third quarter is primarily due to higher income tax expense. The increase in the first nine months is due to higher levels of operating income, partially offset by higher income tax expense and lower levels of other income, net.
Segment Financial Results
Workforce Solutions
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Workforce Solutions | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Verification Services | $ | 524.9 | $ | 459.3 | $ | 65.6 | 14 | % | $ | 1,517.2 | $ | 1,389.1 | $ | 128.1 | 9 | % | ||||||||||||||||||||||||||||||||||
| Employer Services | 95.1 | 117.9 | (22.8) | (19) | % | 318.4 | 367.2 | (48.8) | (13) | % | ||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | $ | 620.0 | $ | 577.2 | $ | 42.8 | 7 | % | $ | 1,835.6 | $ | 1,756.3 | $ | 79.3 | 5 | % | ||||||||||||||||||||||||||||||||||
| % of consolidated revenue | 43 | % | 44 | % | 43 | % | 45 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 267.6 | $ | 241.2 | $ | 26.4 | 11 | % | $ | 795.4 | $ | 734.6 | $ | 60.8 | 8 | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 43.2 | % | 41.8 | % | 1.4 | pts | 43.3 | % | 41.8 | % | 1.5 | pts |
Workforce Solutions revenue increased by 7% and 5% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in revenue for the third quarter is due to an increase in both non-mortgage and mortgage verticals within Verification Services. The increase for the first nine months is due to an increase in non-mortgage verticals within Verification Services, partially offset by declines in mortgage revenue. The increase for both periods is partially offset by declines in Employer Services.
Verification Services
Revenue increased by 14% and 9% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in revenue for both periods is primarily due to growth in the government and talent verticals. The increase in the first nine months of 2024 is partially offset by declines in the mortgage vertical.
Employer Services
Revenue decreased by 19% and 13% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The decrease in revenue for both periods is primarily due to lower Employee Retention Credit ("ERC") revenue and declines in I-9 and onboarding services. The ERC revenue decrease is driven by the wind down of the program, accelerated by the IRS pausing new claims processing during the third quarter of 2023.
Workforce Solutions Operating Margin
Operating margin increased to 43.2% for the third quarter of 2024 from 41.8% for the third quarter of 2023, and increased to 43.3% for the first nine months of 2024 from 41.8% for the first nine months of 2023. The increased margin for both periods is due to the aforementioned increase in revenue.
USIS
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Information Solutions | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Online Information Solutions | $ | 381.1 | $ | 348.2 | $ | 32.9 | 9 | % | $ | 1,139.1 | $ | 1,047.8 | $ | 91.3 | 9 | % | ||||||||||||||||||||||||||||||||||
| Mortgage Solutions | 38.0 | 27.3 | 10.7 | 39 | % | 116.4 | 90.8 | 25.6 | 28 | % | ||||||||||||||||||||||||||||||||||||||||
| Financial Marketing Services | 57.8 | 50.5 | 7.3 | 14 | % | 165.0 | 154.1 | 10.9 | 7 | % | ||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | $ | 476.9 | $ | 426.0 | $ | 50.9 | 12 | % | $ | 1,420.5 | $ | 1,292.7 | $ | 127.8 | 10 | % | ||||||||||||||||||||||||||||||||||
| % of consolidated revenue | 33 | % | 32 | % | 33 | % | 33 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 98.1 | $ | 89.7 | $ | 8.4 | 9 | % | $ | 289.3 | $ | 271.1 | $ | 18.2 | 7 | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 20.6 | % | 21.1 | % | (0.5) | pts | 20.4 | % | 21.0 | % | (0.6) | pts |
USIS revenue increased by 12% and 10% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase for both periods is due to growth in mortgage related online services, as well as growth in Mortgage Solutions, consumer solutions revenue, and Financial Marketing Services. Growth in mortgage related online services and Mortgage Solutions is due to both product pricing as well as higher mortgage credit inquiries.
Online Information Solutions
Revenue increased by 9% for both the third quarter and first nine months of 2024 compared to the same periods in 2023. The increase for both periods is driven by higher mortgage related online services due to product pricing and higher mortgage credit inquiries, as well as continued growth of consumer solutions revenue.
Mortgage Solutions
Revenue increased by 39% and 28% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in both periods is due to both product pricing and higher mortgage credit inquiries.
Financial Marketing Services
Revenue increased by 14% and 7% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase for both periods is driven by growth in credit marketing services and risk and data services.
USIS Operating Margin
USIS operating margin decreased to 20.6% for the third quarter of 2024 from 21.1% for the third quarter of 2023 and decreased to 20.4% for the first nine months of 2024 from 21.0% for the first nine months of 2023. The margin decrease for both periods is due to an increase in operating expenses, partially offset by an increase in revenue. The increase in operating expenses in both periods is primarily due to increased royalty expenses, particularly in the mortgage vertical, higher costs of purchased data, and increased amortization of capitalized internal-use software from technology transformation capital spending incurred previously.
International
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| International | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Latin America | $ | 96.7 | $ | 80.1 | $ | 16.6 | 21 | % | $ | 285.1 | $ | 192.3 | $ | 92.8 | 48 | % | ||||||||||||||||||||||||||||||||||
| Europe | 94.9 | 85.2 | 9.7 | 11 | % | 269.3 | 239.6 | 29.7 | 12 | % | ||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 88.5 | 85.5 | 3.0 | 4 | % | 251.4 | 263.1 | (11.7) | (4) | % | ||||||||||||||||||||||||||||||||||||||||
| Canada | 64.8 | 65.1 | (0.3) | — | % | 199.8 | 194.7 | 5.1 | 3 | % | ||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | $ | 344.9 | $ | 315.9 | $ | 29.0 | 9 | % | $ | 1,005.6 | $ | 889.7 | $ | 115.9 | 13 | % | ||||||||||||||||||||||||||||||||||
| % of consolidated revenue | 24 | % | 24 | % | 24 | % | 22 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 48.1 | $ | 40.2 | $ | 7.9 | 20 | % | $ | 120.4 | $ | 107.2 | $ | 13.2 | 12 | % | ||||||||||||||||||||||||||||||||||
| Operating margin | 13.9 | % | 12.7 | % | 1.2 | pts | 12.0 | % | 12.0 | % | — | pts |
International revenue increased by 9% and 13% in the third quarter and the first nine months of 2024, respectively, compared to the same periods in 2023. On a local currency basis, revenue increased by 18% and 22% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in both periods is driven by Latin America, primarily due to revenue from the BVS acquisition and local currency growth in Argentina, as well as growth in Europe. The increase in the first nine months of 2024 is also due to growth in Canada, partially offset by a decline in Australia. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $26.7 million, or 9%, for the third quarter of 2024, and by $79.0 million, or 9%, for the first nine months of 2024.
Latin America
On a local currency basis, revenue increased by 58% and 90% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in both periods is primarily due to revenue from the BVS acquisition, which occurred in August of 2023, as well as local currency growth in Argentina. Revenue from the BVS acquisition was $38.1 million and $120.4 million in the third quarter and first nine months of 2024, respectively, compared to $23.4 million in the third quarter and first nine months of 2023. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $29.6 million, or 37%, and $80.1 million, or 42%, for the third quarter and first nine months of 2024, respectively, primarily in Argentina and Brazil. Reported revenue increased by 21% and 48% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
Europe
On a local currency basis, revenue increased by 9% and 10% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase for both periods is primarily due to growth in the debt services and credit reporting businesses in the U.K. Local currency fluctuations against the U.S. dollar positively impacted revenue by $2.4 million, or 2%, and $5.9 million, or 2%, for the third quarter and first nine months of 2024, respectively.
Reported revenue increased by 11% and 12% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
Asia Pacific
On a local currency basis, revenue increased by 2% and decreased by 3% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase in the third quarter is primarily driven by growth in the Australia commercial and consumer credit reporting businesses. The decrease in the first nine months is primarily driven by Australia due to declines in the commercial, direct to consumer, and consumer credit reporting businesses in the first half of the year. Local currency fluctuations against the U.S. dollar positively impacted revenue by $1.6 million, or 2% for the third quarter, and negatively impacted revenue by $2.6 million, or 1%, for the first nine months of 2024, respectively. Reported revenue increased by 4% and decreased by 4% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
Canada
On a local currency basis, revenue increased by 1% and 4% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. Revenue growth in both periods is driven by growth in the direct to consumer business. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $1.1 million, or 1%, and $2.2 million or 1%, for the third quarter and first nine months of 2024, respectively. Reported revenue was flat and increased by 3% for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
International Operating Margin
Operating margin increased to 13.9% for the third quarter of 2024 from 12.7% for the third quarter of 2023 and was flat at 12.0% for the first nine months of 2024 and 2023. The increased margin for the third quarter is due to the aforementioned increase in revenue. Margin was flat for the first nine months due to the aforementioned increase in revenue, offset by amortization costs, principally due to higher amortization of purchased intangible assets related to the BVS acquisition.
General Corporate Expense
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| General Corporate Expense | 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||
| General corporate expense | $ | 166.7 | $ | 124.7 | $ | 42.0 | 34 | % | $ | 451.1 | $ | 424.4 | $ | 26.7 | 6 | % |
Our general corporate expenses are unallocated costs that are incurred at the corporate level and include those expenses impacted by the overall management and strategic choices of the company, including shared services overhead, 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 $42.0 million and $26.7 million for the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. The increase for both periods is primarily due to an increase in people costs, partially offset by a decrease in consulting services and lower litigation expense as a result of a penalty associated with resolution of the investigation of the 2017 cybersecurity incident by the U.K. FCA that was accrued in the third quarter of 2023. The increase in people costs for both periods is primarily due to restructuring charges and higher incentive plan costs.
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 $1.5 billion five-year unsecured revolving credit facility ("Revolver") and related commercial paper ("CP") program, more fully described below, are our most significant sources of liquidity. At
September 30, 2024, we had $468.2 million in cash and cash equivalents, as well as $1,498.6 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, 2024 compared to December 31, 2023, we have utilized cash from operating activities to meet our current obligations.
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, 2024, we held $180.5 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, 2024 and 2023:
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash provided by (used in): | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Operating activities | $ | 999.7 | $ | 794.7 | $ | 205.0 | ||||||||||||||
| Investing activities | $ | (392.6) | $ | (724.7) | $ | 332.1 | ||||||||||||||
| Financing activities | $ | (345.0) | $ | 63.5 | $ | (408.5) |
Operating Activities
Cash provided by operating activities in the nine months ended September 30, 2024 increased by $205.0 million compared to the prior year period primarily due to changes in our working capital position.
Investing Activities
Capital Expenditures
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash used in: | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Capital expenditures* | $ | (392.6) | $ | (455.6) | $ | 63.0 |
*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 paid in the first nine months of 2024 decreased by $63.0 million from the same period in 2023 due to lower capitalized software costs and lower spending on technology infrastructure as compared to the first nine months of 2023 as we continue to make progress toward completion of our technology transformation.
Acquisitions, Divestitures and Investments
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash (used in) provided by: | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Acquisitions, net of cash acquired | $ | — | $ | (276.0) | $ | 276.0 | ||||||||||||||
| Cash received from divestitures | $ | — | $ | 6.9 | $ | (6.9) | ||||||||||||||
During the first nine months of 2024, we did not complete any acquisitions. 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.
Financing Activities
Borrowings and Credit Facility Availability
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash (used in) provided by: | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Net short-term payments | $ | (195.9) | $ | (83.6) | $ | (112.3) | ||||||||||||||
| Payments on long-term debt | $ | (695.6) | $ | (575.0) | $ | (120.6) | ||||||||||||||
| Proceeds from issuance of long-term debt | $ | 649.8 | $ | 872.9 | $ | (223.1) |
Credit Facility Availability
We have access to a $1.5 billion five-year unsecured revolving credit facility ("Revolver"), which matures in August 2027. Borrowings under the Revolver 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. In May 2024, we exercised our first option to extend the maturity date by one year, from August 2026 to August 2027, and amended the Revolver agreement to replace a discontinued reference rate for Canadian Dollar-denominated commitments. Availability of the Revolver is reduced by the outstanding principal balance of our CP 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 that may be issued is reduced by the amount of any outstanding borrowings under our Revolver and by any letters of credit issued under the facility.
As of September 30, 2024, there were no outstanding CP notes, $1.4 million of letters of credit outstanding, and no outstanding borrowings under the Revolver. Availability under the Revolver was $1,498.6 million at September 30, 2024.
At September 30, 2024, 100% of our debt was fixed-rate debt. Our variable-rate debt consists of outstanding amounts under the Revolver and CP program, both of which were undrawn at September 30, 2024.
Borrowing and Repayment Activity
We primarily borrow under our CP program and Revolver as needed and as availability allows.
Net short-term payments primarily represent net borrowings or repayments of outstanding amounts under our CP program.
Borrowings on long-term debt in 2024 represent the issuance of $650.0 million of 4.8% senior notes in the third quarter of 2024. Borrowings on long-term debt in 2023 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.
Payments on long-term debt in 2024 represent $695.6 million of payments on the Term Loan during the first nine months of 2024. Payments on long-term debt in 2023 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 and our Revolver, 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.
The Revolver requires a maximum leverage ratio, defined as consolidated funded debt divided by consolidated EBITDA, of 3.75 to 1.0. We may also elect to increase the maximum leverage ratio by 0.5 to 1.0 (subject to a maximum leverage ratio of 4.25 to 1.0) in connection with certain material acquisitions if we satisfy certain requirements. The Revolver also permits 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, 2024, 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, 4.8% senior notes due 2029, 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 an 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 2023 Form 10-K.
Equity Transactions
| Nine Months Ended September 30, | Change | |||||||||||||||||||
| Net cash (used in) provided by: | 2024 | 2023 | 2024 vs. 2023 | |||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Dividends paid to Equifax shareholders | $ | (144.8) | $ | (143.7) | $ | (1.1) | ||||||||||||||
| Distributions paid to noncontrolling interests | $ | (4.4) | $ | (2.8) | $ | (1.6) | ||||||||||||||
| Proceeds from exercise of stock options and employee stock purchase plan | $ | 67.5 | $ | 18.6 | $ | 48.9 | ||||||||||||||
| Payment of taxes related to settlement of equity awards | $ | (16.4) | $ | (16.9) | $ | 0.5 | ||||||||||||||
Sources and uses of cash related to equity during the nine months ended September 30, 2024 and 2023 were as follows:
- During the first nine months of 2024 and 2023, 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 2024. We paid cash dividends to Equifax shareholders of $144.8 million and $143.7 million, or $1.17 per share, during the nine months ended September 30, 2024 and 2023, respectively.
- We received cash of $67.5 million and $18.6 million during the first nine months of 2024 and 2023, respectively, from the exercise of stock options and the employee stock purchase plan.
- We paid taxes of $16.4 million and $16.9 million related to the settlement of equity awards during the first nine months of 2024 and 2023, respectively.
At September 30, 2024, 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 2023 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 2023 Form 10-K.
Benefit Plans
At December 31, 2023, 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 2023 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 foreign currency loss of $0.3 million and $0.4 million that was recorded in Other income, net in our Consolidated Statements of Income during the three months ended September 30, 2024 and 2023, 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 2023 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 2023 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.
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