Equifax Releases Fourth Quarter 2020 Results
ATLANTA, Feb. 10, 2021 /PRNewswire/ -- Equifax Inc. (NYSE: EFX) today announced financial results for the quarter and full year ended December 31, 2020.
"Equifax delivered its fourth consecutive quarter of strong double-digit growth and margin expansion, concluding a record year in which we delivered over $4 billion in revenue for the first time. Workforce Solutions and U.S. Information Services outperformance fueled our 23% revenue growth in the fourth quarter by leveraging our new Equifax Cloud capabilities, new product roll-outs, new data assets, and customer growth," said Mark W. Begor, Equifax Chief Executive Officer. "We are entering a new chapter at Equifax as we leverage our expanding cloud native data, analytics and technology infrastructure to accelerate innovation, new products and growth. Our strong performance in these challenging times reflects the strength and resiliency of our business model as we look to build upon our momentum and focus on growth in 2021 and beyond. We are increasing our focus on acquisitions that will accelerate our growth including our acquisition of Kount in Identity and Fraud. Based on our confidence in the future we plan to restart our share repurchase program at an expected level over $100 million in 2021, to offset dilution from employee benefit plans."
Financial Results Summary
The Company reported revenue of $1,118.5 million in the fourth quarter of 2020, a 23 percent increase from the fourth quarter of 2019 on both a reported and local currency basis.
Fourth quarter 2020 diluted EPS attributable to Equifax was $0.61 per share, up from $0.13 per share in the fourth quarter of 2019.
Net income attributable to Equifax of $74.5 million was up from $15.8 million in the fourth quarter of 2019.
In the fourth quarter, Equifax incurred a $31.9 million charge related to right sizing the organization as investments in technology transformation are reduced in 2021 relative to 2020.
For the full year 2020, revenue was $4,127.5 million, an 18 percent increase from 2019 on both a reported and local currency basis. Diluted EPS attributable to Equifax was $4.24 per share, up from a loss of $3.15 per share for the full year 2019. Net income attributable to Equifax was $520.1 million, up compared to a net loss of $384.1 million for the full year 2019.
As further discussed in the attached Common Questions and Answers, our pension accounting method has changed to mark-to-market during the fourth quarter of 2020. The change in accounting method has been applied retrospectively for the periods presented in this earnings release. The mark-to-market adjustment for 2020 resulted in a $32.2 million loss.
USIS fourth quarter results
-- Total revenue was $387.5 million in the fourth quarter of 2020, an
increase of 17 percent from the fourth quarter of 2019. Operating margin
for USIS was 29.6 percent in the fourth quarter of 2020, compared to
33.6 percent in the fourth quarter of 2019. Adjusted EBITDA margin for
USIS was 43.5 percent in the fourth quarter of 2020, compared to 45.1
percent in the fourth quarter of 2019.
-- Online Information Solutions revenue was $267.5 million, an increase of
18 percent from the fourth quarter of 2019.
-- Mortgage Solutions revenue was $50.4 million, an increase of 55 percent
from the fourth quarter of 2019.
-- Financial Marketing Services revenue was $69.6 million, a decrease of 2
percent when compared to the fourth quarter of 2019.
Workforce Solutions fourth quarter results
-- Total revenue was $406.5 million in the fourth quarter of 2020, a 62
percent increase from the fourth quarter of 2019. Operating margin for
Workforce Solutions was 49.2 percent in the fourth quarter of 2020
compared to 39.2 percent in the fourth quarter of 2019. Adjusted EBITDA
margin for Workforce Solutions was 56.2 percent in the fourth quarter of
2020, compared to 47.0 percent in the fourth quarter of 2019.
-- Verification Services revenue was $330.0 million, up 70 percent when
compared to the fourth quarter of 2019.
-- Employer Services revenue was $76.5 million, up 35 percent when compared
to the fourth quarter of 2019.
International fourth quarter results
-- Total revenue was $247.5 million in the fourth quarter of 2020, a 5
percent increase from the fourth quarter of 2019 and an increase of 3
percent on a local currency basis. Operating margin for International
was 13.0 percent in the fourth quarter of 2020, compared to 15.3 percent
in the fourth quarter of 2019. Adjusted EBITDA margin for International
was 34.0 percent in the fourth quarter of 2020 compared to 36.4 percent
in the fourth quarter of 2019.
-- Asia Pacific revenue was $81.4 million, up 10 percent from the fourth
quarter of 2019 and up 4 percent on a local currency basis.
-- Europe revenue was $82.5 million, up 8 percent from the fourth quarter
of 2019 and up 4 percent on a local currency basis.
-- Latin America revenue was $42.5 million, down 8 percent from the fourth
quarter of 2019 and down 1 percent on a local currency basis.
-- Canada revenue was $41.1 million, up 4 percent from the fourth quarter
of 2019 and up 3 percent on a local currency basis.
Global Consumer Solutions fourth quarter results
-- Revenue was $77.0 million, a 13 percent decrease from the fourth quarter
of 2019 on a reported and local currency basis. Operating margin was 4.7
percent compared to 13.8 percent in the fourth quarter of 2019. Adjusted
EBITDA margin was 20.8 percent compared to 26.9 percent in the fourth
quarter of 2019.
Adjusted EPS and Adjusted EBITDA Margin
-- Adjusted EPS attributable to Equifax was $2.00 for the fourth quarter of
2020, up 28 percent compared to the fourth quarter of 2019. The
financial measure for both 2020 and 2019 excludes acquisition-related
amortization expense of certain acquired intangibles, costs related to
the 2017 cybersecurity incident, pension mark-to-market fair value
adjustment and income tax effects of stock awards recognized upon
vesting or settlement. The financial measure for 2020 also excludes a
fair market value adjustment of an equity investment, income tax effects
of the Q1 2020 gain on fair market value adjustment of an equity
investment, foreign currency impact of certain intercompany loans and
costs associated with the realignment of internal resources. The
financial measure for 2019 also excludes an accrual of legal matters
related to the 2017 cybersecurity incident and the foreign currency
impacts of Argentina being a highly inflationary economy. All
adjustments are net of tax, with a reconciling item with the aggregated
tax impact of the adjustments. The adjustments affect the comparability
of the underlying operational performance and are described more fully
in the attached Q&A.
-- Adjusted EBITDA margin was 37.8 percent for the fourth quarter of 2020,
compared to 35.6 percent in the fourth quarter of 2019. These financial
measures for 2020 and 2019 have been adjusted for certain items,
including costs related to the 2017 cybersecurity incident, which affect
the comparability of the underlying operational performance and are
described more fully in the attached Q&A.
-- Full year adjusted EPS attributable to Equifax was $6.97, up 22 percent
from the prior year period. Full year adjusted EBITDA margin was 36.2
percent compared to 33.8 percent in 2019. These financial measures for
2020 and 2019 have been adjusted for certain items, including costs
related to the 2017 cybersecurity incident, which affect the
comparability of the underlying operational performance and are
described more fully in the attached Q&A.
-- Adjusted EPS, adjusted EBITDA and adjusted EBITDA margin are non-GAAP
financial measures which are explained under "Non-GAAP Financial
Measures" below and are reconciled to the most directly comparable GAAP
financial measures in the attached Q&A.
Liquidity and Capital Resources
At December 31, 2020, the Company had approximately $1.7 billion in cash and $1.1 billion available to borrow under its revolving credit facility, which matures in September 2023. We amended our credit facility in the second quarter of 2020 to increase the maximum leverage ratio through 2021 to provide us with additional financial flexibility.
2021 First Quarter and Full Year Guidance
-- For the first quarter of 2021, we expect reported revenue to be between
$1,105 and $1,125 million, reflecting growth as compared to the first
quarter of 2020 of 15.3% to 17.4%, with an expected 1.9% positive impact
of foreign exchange. Adjusted EPS is expected to be between $1.45 and
$1.55 per share. Impacting first quarter 2021 revenue and adjusted EPS
is an expectation of a 24% increase in U.S. mortgage market inquiries
impacting our USIS and EWS units.
-- We expect full year 2021 reported revenue to be between $4.350 and
$4.450 billion, reflecting local currency growth compared to 2020 of
5.4% to 7.8%, with an expected 1.5% positive impact of foreign exchange.
Adjusted EPS is expected to be between $6.20 and $6.50 per share. We
expect to engage in share repurchases for a total amount to exceed $100
million. U.S. mortgage market inquiries are expected to decline by 5% in
2021 versus 2020, with growth in inquiries in the first half of 2021,
offset by a decline in inquiries in the second half of 2021.
About Equifax
At Equifax (NYSE: EFX), we believe knowledge drives progress. As a global data, analytics, and technology company, we play an essential role in the global economy by helping financial institutions, companies, employees, and government agencies make critical decisions with greater confidence. Our unique blend of differentiated data, analytics, and cloud technology drives insights to power decisions to move people forward. Headquartered in Atlanta and supported by more than 11,000 employees worldwide, Equifax operates or has investments in 25 countries in North America, Central and South America, Europe, and the Asia Pacific region. For more information, visit Equifax.com.
Earnings Conference Call and Audio Webcast
In conjunction with this release, Equifax will host a conference call on February 11, 2021 at 8:30 a.m. (ET) via a live audio webcast. To access the webcast, go to the Investor Relations section of our website at www.equifax.com. The discussion will be available via replay at the same site shortly after the conclusion of the webcast. In addition, we are now posting certain supplemental financial information in the February 2021 Investor Presentation available in the Investor Relations section of our website. This press release is also available at that website.
Non-GAAP Financial Measures
This earnings release presents adjusted EPS attributable to Equifax which is diluted EPS attributable to Equifax adjusted (to the extent noted above for different periods) for acquisition-related amortization expense, costs related to the 2017 cybersecurity incident, accrual for legal matters related to the 2017 cybersecurity incident, fair market value adjustment of equity investments, pension mark-to-market fair value adjustment, income tax effects related to the Q1 2020 gain on fair market value adjustment of equity investment, foreign currency impact of certain intercompany loans, valuation allowance for certain deferred tax assets, tax benefit on legal settlement related to the 2017 cybersecurity incident, settlements with commercial customers, realignment of internal resources, income tax effects of stock awards that are recognized upon vesting or settlement, the foreign exchange impact resulting from accounting for Argentina as a highly inflationary economy, PayNet acquisition-related amounts other than acquisition-related amortization and the income tax impact of these adjustments. All adjustments are net of tax, with a reconciling item with the aggregated tax impact of the adjustments. This earnings release also presents adjusted EBITDA and adjusted EBITDA margin which is defined as consolidated net income attributable to Equifax plus net interest expense, income taxes, depreciation and amortization, and also excludes certain one-time items. Additionally, this earnings release presents adjusted revenue which is defined as GAAP revenue adjusted for a charge related to settlements with commercial customers. These are important financial measures for Equifax but are not financial measures as defined by GAAP.
These non-GAAP financial measures should be reviewed in conjunction with the relevant GAAP financial measures and are not presented as an alternative measure of net income or EPS as determined in accordance with GAAP.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures and related notes are presented in the Q&A. This information can also be found under "Investor Relations/Financial Information/Non-GAAP Financial Measures" on our website at www.equifax.com.
Forward-Looking Statements
This release contains forward-looking statements and forward-looking information. These statements can be identified by expressions of belief, expectation or intention, as well as statements that are not historical fact. These statements are based on certain factors and assumptions including with respect to foreign exchange rates, expected growth, results of operations, performance, the outcome of legal proceedings, business prospects and opportunities and effective tax rates. While the Company believes these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect.
Several factors could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including, but not limited to, actions taken by us, including restructuring or strategic initiatives (including our EFX2020 cloud technology, data and security transformation program, capital investments and asset acquisitions or dispositions), as well as developments beyond our control, including, but not limited to, the impact of COVID-19 and changes in U.S. and worldwide economic conditions that materially impact consumer spending, consumer debt and employment and the demand for Equifax's products and services. The extent to which the COVID-19 pandemic could negatively impact our operations will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, the actions taken to control the spread of COVID-19 or treat its impact, and changes in U.S. and worldwide economic conditions. Further deteriorations in economic conditions, as a result of COVID-19 or otherwise, could lead to a further or prolonged decline in demand for our products and services and negatively impact our business. It may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing. We cannot at this time predict the extent of the impact of the COVID-19 pandemic and resulting economic impact, but it could have a material adverse effect on our business, financial position, results of operations and cash flows. Other risk factors include the impact of our technology and security transformation and improvements in our information technology and data security infrastructure; changes in tax regulations; adverse or uncertain economic conditions and changes in credit and financial markets; uncertainties regarding the ultimate amount and timing of payments for the legal proceedings and government investigations related to the 2017 cybersecurity incident; potential adverse developments in new and pending legal proceedings or government investigations; risks associated with our ability to comply with business practice commitments and similar obligations under settlement agreements and consent orders entered into in connection with the 2017 cybersecurity incident; economic, political and other risks associated with international sales and operations; risks relating to unauthorized access to data or breaches of confidential information due to criminal conduct, attacks by hackers, employee or insider malfeasance and/or human error; changes in, and the effects of, laws and regulations and government policies governing or affecting our business, including, without limitation, our examination and supervision by the Consumer Financial Protection Bureau, a federal agency that holds primary responsibility for the regulation of consumer protection with respect to financial products and services in the U.S., oversight by the U.K. Financial Conduct Authority ("FCA") and Information Commissioner's Office of our debt collections services and core credit reporting businesses in the U.K., oversight by the Office of Australian Information Commission, the Australian Competition and Consumer Commission ("ACCC") and other regulatory entities of our credit reporting business in Australia and the impact of current privacy laws and regulations, including the European General Data Protection Regulation and the California Consumer Privacy Act, or any future privacy laws and regulations; federal or state responses to identity theft concerns; our ability to successfully develop and market new products and services, respond to pricing and other competitive pressures, complete and integrate acquisitions and other investments and achieve targeted cost efficiencies; timing and amount of capital expenditures; changes in capital markets and corresponding effects on the Company's investments and benefit plan obligations; foreign currency exchange rates and earnings repatriation limitations; and the decisions of taxing authorities which could affect our effective tax rates. A summary of additional risks and uncertainties can be found in our Annual Report on Form 10-K for the year ended December 31, 2019, including without limitation under the captions "Item 1. Business -- Governmental Regulation" and "-- Forward-Looking Statements" and "Item 1A. Risk Factors," and in our other filings with the U.S. Securities and Exchange Commission. Forward-looking statements are given only as at the date of this release and the Company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Contact:
Dorian Hare
Ben Sheidler
Investor Relations
Media Relations
(404) 885-8210
404-885-8332
dorian.hare@equifax.com
Mediainquiries@equifax.com
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EQUIFAX
CONSOLIDATED STATEMENTS OF INCOME
---
Three Months Ended
December 31,
2020 2019
(In millions, except per share amounts) (revised)
Operating revenue $
1,118.5 $
905.8
Operating expenses:
Cost of services (exclusive of depreciation and amortization below) 480.9 382.9
Selling, general and administrative expenses 366.5 389.0
Depreciation and amortization 101.6 86.9
Total operating expenses 949.0 858.8
Operating income 169.5 47.0
Interest expense (36.9) (29.3)
Other (expense) income, net (38.1) 14.6
Consolidated income before income taxes 94.5 32.3
Provision for income taxes (16.8) (14.9)
Consolidated net income 77.7 17.4
Less: Net income attributable to noncontrolling interests including redeemable noncontrolling interests (3.2) (1.6)
Net income attributable to Equifax $
74.5 $
15.8
Basic earnings per common share:
Net income attributable to Equifax $
0.61 $
0.13
Weighted-average shares used in computing basic earnings per share 121.7 121.1
Diluted earnings per common share:
Net income attributable to Equifax $
0.61 $
0.13
Weighted-average shares used in computing diluted earnings per share 123.1 122.3
Dividends per common share $
0.39 $
0.39
EQUIFAX
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
---
Twelve Months Ended
December 31,
2020 2019
(In millions, except per share amounts) (revised)
Operating revenue $
4,127.5 $
3,507.6
Operating expenses:
Cost of services (exclusive of depreciation and amortization below) 1,737.4 1,521.7
Selling, general and administrative expenses 1,322.5 1,990.2
Depreciation and amortization 391.0 331.1
Total operating expenses 3,450.9 3,843.0
Operating income (loss) 676.6 (335.4)
Interest expense (141.6) (111.7)
Other income, net 150.2 33.3
Consolidated income (loss) before income taxes 685.2 (413.8)
(Provision) benefit for income taxes (159.0) 35.7
Consolidated income (loss) from continuing operations 526.2 (378.1)
Less: Net income attributable to noncontrolling interests including redeemable noncontrolling interests (6.1) (6.0)
Net income (loss) attributable to Equifax $
520.1 $
(384.1)
Basic earnings per common share:
Net income (loss) attributable to Equifax $
4.28 $
(3.18)
Weighted-average shares used in computing basic earnings per share 121.5 120.9
Diluted earnings per common share:
Net income (loss) attributable to Equifax $
4.24 $
(3.15)
Weighted-average shares used in computing diluted earnings per share 122.8 122.0
Dividends per common share $
1.56 $
1.56
EQUIFAX
CONDENSED CONSOLIDATED BALANCE SHEET
---
December 31,
2020 2019
(In millions, except par values) (revised)
ASSETS
Current assets:
Cash and cash equivalents $
1,684.6 $
401.3
Trade accounts receivable, net of allowance for doubtful accounts of $12.9 and $11.2 at December 31, 2020 and 2019, respectively 630.6 532.1
Prepaid expenses 104.1 88.1
Other current assets 59.0 187.9
Total current assets 2,478.3 1,209.4
Property and equipment:
Capitalized internal-use software and system costs 1,374.5 979.4
Data processing equipment and furniture 299.9 325.1
Land, buildings and improvements 239.1 236.3
Total property and equipment 1,913.5 1,540.8
Less accumulated depreciation and amortization (774.1) (593.2)
Total property and equipment, net 1,139.4 947.6
Goodwill 4,495.8 4,308.3
Indefinite-lived intangible assets 94.9 94.9
Purchased intangible assets, net 997.8 1,044.6
Other assets, net 405.6 304.2
Total assets $
9,611.8 $
7,909.0
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $
1,101.1 $
3.1
Accounts payable 159.1 148.3
Accrued expenses 251.8 163.5
Accrued salaries and bonuses 250.3 156.1
Deferred revenue 108.3 104.0
Other current liabilities 612.5 784.1
Total current liabilities 2,483.1 1,359.1
Long-term debt 3,277.3 3,379.5
Deferred income tax liabilities, net 332.3 248.0
Long-term pension and other postretirement benefit liabilities 130.7 118.9
Other long-term liabilities 178.1 180.6
Total liabilities 6,401.5 5,286.1
Equifax shareholders' equity:
Preferred stock, $0.01 par value: Authorized shares - 10.0; Issued shares - none
Common stock, $1.25 par value: Authorized shares -300.0; Issued shares -189.3 at December 31, 2020 and 2019; Outstanding shares -121.8 and 121.2 at December 31, 2020 and 2019,
respectively 236.6 236.6
Paid-in capital 1,470.7 1,405.1
Retained earnings 4,185.4 3,854.6
Accumulated other comprehensive loss (171.4) (354.4)
Treasury stock, at cost, 66.9 shares and 67.5 shares at December 31, 2020 and 2019, respectively (2,547.0) (2,557.4)
Stock held by employee benefits trusts, at cost, 0.6 shares at December 31, 2020 and 2019, respectively (5.9) (5.9)
Total Equifax shareholders' equity 3,168.4 2,578.6
Noncontrolling interests including redeemable noncontrolling interests 41.9 44.3
Total shareholders' equity 3,210.3 2,622.9
Total liabilities and equity $
9,611.8 $
7,909.0
EQUIFAX
CONSOLIDATED STATEMENTS OF CASH FLOWS
---
Twelve Months Ended
December 31,
2020 2019
(In millions) (revised)
Operating activities:
Consolidated net income (loss) $
526.2 $
(378.1)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization 399.3 337.3
Stock-based compensation expense 54.7 49.7
Deferred income taxes 66.5 (82.7)
Gain on fair market value adjustment of equity investments (149.5)
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable, net (93.7) (61.3)
Other assets, current and long-term 35.8 (78.8)
Current and long-term liabilities, excluding debt 106.9 527.7
Cash provided by operating activities 946.2 313.8
Investing activities:
Capital expenditures (421.3) (399.6)
Acquisitions, net of cash acquired (61.4) (272.9)
Investment in unconsolidated affiliates, net (10.0) (25.0)
Cash used in investing activities (492.7) (697.5)
Financing activities:
Net short-term repayments (0.7) (1.8)
Payments on long-term debt (125.0) (250.0)
Proceeds from issuance of long-term debt 1,123.3 998.3
Dividends paid to Equifax shareholders (189.5) (188.7)
Dividends paid to noncontrolling interests (4.6) (6.6)
Proceeds from exercise of stock options and employee stock purchase plan 41.7 22.3
Payment of taxes related to settlement of equity awards (15.9) (10.5)
Purchase of redeemable noncontrolling interests (9.0)
Debt issuance costs (9.8) (5.1)
Other 0.3
Cash provided by financing activities 810.8 557.9
Effect of foreign currency exchange rates on cash and cash equivalents 19.0 3.5
Increase in cash and cash equivalents 1,283.3 177.7
Cash and cash equivalents, beginning of period 401.3 223.6
Cash and cash equivalents, end of period $
1,684.6 $
401.3
Common Questions & Answers (Unaudited)
(Dollars in millions)
1. Can you provide a further analysis of operating revenue for the fourth quarter and adjusted revenue for the full year by operating segment?
Operating and adjusted revenue consists of the following components:
(In millions) Three Months Ended
December 31,
---
Local Currency
Operating revenue: 2020 2019
$ Change % Change % Change*
Online Information Solutions $
267.5 $
227.3 $
40.2 18
%
Mortgage Solutions 50.4 32.5 17.9 55
%
Financial Marketing Services 69.6 71.1 (1.5) (2)
%
Total U.S. Information Solutions 387.5 330.9 56.6 17
%
Verification Services 330.0 193.6 136.4 70
%
Employer Services 76.5 56.9 19.6 35
%
Total Workforce Solutions 406.5 250.5 156.0 62
%
Asia Pacific 81.4 73.7 7.7 10 4
% %
Europe 82.5 76.3 6.2 8 4
% %
Latin America 42.5 46.4 (3.9) (8)
%
% (1)
Canada 41.1 39.5 1.6 4 3
% %
Total International 247.5 235.9 11.6 5 3
% %
Global Consumer Solutions 77.0 88.5 (11.5) (13)
%
% (13)
Total operating revenue $
1,118.5 $
905.8 $
212.7 23 23
% %
(In millions) Twelve Months Ended
December 31,
---
Local Currency
Adjusted revenue**: 2020 2019
$ Change % Change % Change*
Online Information Solutions $
1,067.7 $
939.1 $
128.6 14
%
Mortgage Solutions 199.8 136.9 62.9 46
%
Financial Marketing Services 215.0 221.4 (6.4) (3)
%
Total U.S. Information Solutions 1,482.5 1,297.4 185.1 14
%
Verification Services 1,103.2 700.1 403.1 58
%
Employer Services 334.7 249.6 85.1 34
%
Total Workforce Solutions 1,437.9 949.7 488.2 51
%
Asia Pacific 296.5 300.1 (3.6) (1)
%
% (1)
Europe 255.7 275.6 (19.9) (7)
%
% (8)
Latin America 160.3 190.5 (30.2) (16)
%
% (3)
Canada 149.6 154.4 (4.8) (3)
%
% (2)
Total International 862.1 920.6 (58.5) (6)
%
% (4)
Global Consumer Solutions 345.0 359.9 (14.9) (4)
%
% (4)
Total adjusted revenue $
4,127.5 $
3,527.6 $
599.9 17 18
% %
*Reflects percentage change in
revenue conforming 2020 results
using 2019 exchange rates.
**Adjusted revenue is defined as
GAAP revenue adjusted for a
charge related to settlements
with commercial customers in the
third quarter of 2019. See Non-
GAAP reconciliation D for a
reconciliation of operating
revenue to adjusted revenue.
2. What is the breakdown of costs related to the 2017 cybersecurity incident?
Costs related to the 2017 cybersecurity incident are defined as incremental costs to transform our information technology infrastructure and data security; legal fees and professional services costs to investigate the 2017 cybersecurity incident and respond to legal, government and regulatory claims; as well as costs to provide free product and related support to the consumer.
We recorded $112.6 million ($82.3 million, net of tax) and $181.6 million ($147.0 million, net of tax) for the fourth quarter of 2020 and 2019, respectively, for costs related to the 2017 cybersecurity incident. We recorded $365.0 million ($270.5 million, net of tax) and $1,138.2 million ($938.4 million, net of tax) for the twelve months ended December 31, 2020 and 2019, respectively, for costs associated with the 2017 cybersecurity incident. The components of the costs are as follows:
(in millions) Three Months Ended Twelve Months Ended
December 31, December 31,
2020 2019 2020 2019
Accrual for legal matters, net of directors and officers insurance
recoveries, related to the 2017 cybersecurity incident
$ $
99.6
$ $
800.9
2017 cybersecurity incident related costs:
Technology and data security 111.5 75.9 358.5 292.1
Legal and investigative fees 1.1 6.1 6.5 41.3
Product liability 3.9
Total $
112.6 $
181.6 $
365.0 $
1,138.2
The $111.5 million and $358.5 million of technology and data security costs include incremental costs to transform our technology infrastructure and improve application, network, and data security. These include, but are not limited to, costs for people, professional and contracted services, technical services and products, and other costs added either directly or indirectly to manage, execute, and support the implementation of these plans. The $1.1 million and $6.5 million of legal and investigative fees include legal fees and professional services costs to investigate the 2017 cybersecurity incident and respond to legal, government, and regulatory investigations and claims related to the 2017 cybersecurity incident.
3. What is the impact of the pension accounting change?
In the fourth quarter of 2020, we voluntarily changed our method of accounting for recognizing actuarial gains and losses and expected return on plan assets for our defined benefit pension and other postretirement benefit plans. Under the accounting method change, remeasurement of projected benefit obligation and plan assets are immediately recognized in earnings through net periodic benefit cost within Other Income (Expense) on the Consolidated Statements of Income (Loss), with pension and postretirement plans to be remeasured annually in the fourth quarter or on an interim basis as triggering events require remeasurement. In addition, we changed our accounting for measuring the market-related value of plan assets from a calculated amount to fair value, no longer recognizing the difference between expected return on assets and actual return on assets over a five year period. Prior to this accounting method change, unrecognized actuarial gains and losses were included in Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet and were amortized into earnings over the average remaining service period of active employees expected to receive benefits under the plan. We also determined the market-related value of plan assets based on a calculated market adjustment to reflect investment gains and losses during each of the last five years, with differences between expected and actual return on plan assets recognized at a rate of 20% per year. While the historical accounting principle was acceptable, we believe that the current accounting policies provide a better representation of the operating results of the Company and the economic performance of plan assets in relation to the measurement of its benefit obligations for the period. The changes in accounting will more clearly reflect the current period impact of the Company's pension asset investment strategy to readers of the financial statements.
This accounting change has been applied on a retrospective basis for all prior years presented. Due to the nature of the accounting change, it has impacted both our GAAP and adjusted results. The following tables reflect the effects of the change in accounting method on amounts previously reported in prior periods:
GAAP FY 2018 FY 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020
Other income (expense), net (previously reported) $
11.8 $
14.1 $
6.2 $
45.3 $
(7.5) $
133.4
Impact of change on pension expense 22.3 14.4 3.6 5.7 5.7 5.7
Mark to market fair value adjustment (8.2) 4.8 4.8
Other income (expense), net (revised) $
25.9 $
33.3 $
14.6 $
51.0 $
(1.8) $
139.1
Provision for income taxes (previously reported) $
(50.0) $
40.2 $
(13.1) $
(36.0) $
(26.6) $
(75.4)
Impact of change on pension expense (5.4) (3.6) (0.9) (1.4) (1.4) (1.4)
Mark to market fair value adjustment 2.0 (0.9) (0.9)
Provision for income taxes (revised) $
(53.4) $
35.7 $
(14.9) $
(37.4) $
(28.0) $
(76.8)
Net income attributable to EFX (previously reported) $
299.8 $
(398.8) $
9.2 $
112.6 $
95.9 $
224.2
Impact of change on pension expense 16.9 10.8 2.7 4.3 4.3 4.3
Mark to market fair value adjustment (6.2) 3.9 3.9
Net income attributable to EFX (revised) $
310.5 $
(384.1) $
15.8 $
116.9 $
100.2 $
228.5
Diluted earnings per common share (previously reported) $
2.47 $
(3.27) $
0.07 $
0.92 $
0.78 $
1.82
Impact of change on pension expense 0.14 0.09 0.02 0.04 0.04 0.04
Mark to market fair value adjustment (0.05) 0.03 0.03
Diluted earnings per common share (revised)** $
2.56 $
(3.15) $
0.13 $
0.95 $
0.82 $
1.86
Adjusted* FY 2018 FY 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020
Adjusted net income (previously reported) $
702.2 $
685.7 $
187.5 $
171.0 $
196.2 $
230.4
Impact of change on pension expense 16.9 10.8 2.7 4.3 4.3 4.3
Adjusted net income (revised) $
719.1 $
696.5 $
190.2 $
175.3 $
200.5 $
234.7
Adjusted EPS (previously reported) $
5.79 $
5.62 $
1.53 $
1.40 $
1.60 $
1.87
Impact of change on pension expense 0.14 0.09 0.02 0.04 0.04 0.04
Adjusted EPS (revised)** $
5.93 $
5.71 $
1.55 $
1.43 $
1.63 $
1.91
Adjusted EBITDA (previously reported) $
1,149.9 $
1,177.7 $
319.1 $
310.8 $
353.2 $
391.1
Impact of change on pension expense 22.3 14.4 3.6 5.7 5.7 5.7
Adjusted EBITDA (revised) $
1,172.2 $
1,192.1 $
322.7 $
316.5 $
358.9 $
396.8
* For updated non-GAAP reconciliations, see the Investor
Relations page at www.investor.equifax.com
** Per share amounts may not equal totals due to rounding
For the twelve months ended December 31, 2020, the pension accounting change resulted in a $9.2 million ($6.9 million, net of tax) decrease to Other Income (Expense). The $9.2 million ($6.9 million, net of tax) decrease in Other Income (Expense) consists of the $32.2 million loss ($24.3 million, net of tax) related to the mark-to-market fair value adjustment of our pension and postretirement benefit plans, partially offset by a $23.0 million ($17.4 million, net of tax) increase in Other Income (Expense) due to the impact of the accounting change on the calculation of pension expense.
Additional information around the impact of the pension accounting change will be included within our upcoming Form 10-K for the year ended December 31, 2020.
Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Financial Measures (Unaudited)
(Dollars in millions, except per share amounts)
A. Reconciliation of net income attributable to Equifax to diluted EPS attributable to Equifax, defined as net income adjusted for acquisition-related amortization expense, costs related to the 2017 cybersecurity incident, accrual for legal matters related to the 2017 cybersecurity incident, fair value adjustment of equity investments, pension mark-to-market fair value adjustments, income tax effects of Q1 2020 gain on fair market value adjustment of equity investment, foreign currency impact of certain intercompany loans, valuation allowance for certain deferred tax assets, tax benefit on legal settlement related to the 2017 cybersecurity incident, settlements with commercial customers, realignment of internal resources and other costs, the income tax effect of stock awards recognized upon vesting or settlement, Argentina highly inflationary foreign currency impacts, PayNet acquisition-related amounts other than acquisition-related amortization, and income tax adjustments:
Three Months Ended
December 31,
2020 2019
(In millions, except per share amounts) (revised)
$ Change % Change
Net income attributable to Equifax $
74.5 $
15.8 $
58.7 372
%
Acquisition-related amortization expense of certain acquired intangibles (1) 36.0 35.3 0.7 2
%
2017 cybersecurity incident related costs (2) 112.6 82.0 30.6 37
%
Accrual for legal matters related to the 2017 cybersecurity incident (3) 99.6 (99.6) (100)
%
Fair market value adjustment of equity investment (4) 13.3 13.3 nm
Pension mark-to-market fair value adjustment (5) 32.2 (4.8) 37.0 (771)
%
Income tax effects of Q1 2020 gain on fair market value adjustment of equity investment (6) (1.4) (1.4) nm
Foreign currency impact of certain intercompany loans (7) 3.3 3.3 nm
Realignment of internal resources and other costs (11) 31.9 31.9 nm
Income tax effects of stock awards that are recognized upon vesting or settlement (12) (3.2) 1.1 (4.3) (391)
%
Argentina highly inflationary foreign currency adjustment (13) 0.2 (0.2) nm
Tax impact of adjustments (15) (53.6) (39.0) (14.6) 37
%
Net income attributable to Equifax, adjusted for items listed above $
245.6 $
190.2 $
55.4 29
%
Diluted EPS attributable to Equifax, adjusted for items listed above $
2.00 $
1.55 $
0.45 28
%
Weighted-average shares used in computing diluted EPS 123.1 122.3
Twelve Months Ended
December 31,
(In millions, except per share amounts) 2020 2019
(revised)
$ Change % Change
Net income attributable to Equifax $
520.1 $
(384.1) $
904.2 (235)
%
Acquisition-related amortization expense of certain acquired intangibles (1) 141.8 140.2 1.6 1
%
2017 cybersecurity incident related costs (2) 365.0 337.3 27.7 8
%
Accrual for legal matters related to the 2017 cybersecurity incident (3) 800.9 (800.9) (100)
%
Fair market value adjustment of equity investments (4) (149.5) (149.5) nm
Pension mark-to-market fair value adjustment (5) 32.2 (4.8) 37.0 nm
Income tax effects of Q1 2020 gain on fair market value adjustment of equity investment (6) (5.4) (5.4) nm
Foreign currency impact of certain intercompany loans (7) 6.2 6.2 nm
Valuation allowance for certain deferred tax assets (8) 7.0 7.0 nm
Tax benefit on legal settlement related to the 2017 cybersecurity incident (9) (4.8) (4.8) nm
Settlements with commercial customers (10) 20.0 (20.0) (100)
%
Realignment of internal resources and other costs (11) 31.9 11.5 20.4 177
%
Income tax effects of stock awards that are recognized upon vesting or settlement (12) (6.1) (3.0) (3.1) 103
%
Argentina highly inflationary foreign currency adjustment (13) 0.5 1.0 (0.5) (50)
%
PayNet acquisition-related amounts other than acquisition-related amortization (14) 6.3 (6.3) (100)
%
Tax impact of adjustments (15) (82.8) (228.8) 146.0 (64)
%
Net income attributable to Equifax, adjusted for items listed above $
856.1 $
696.5 $
159.6 23
%
Diluted EPS attributable to Equifax, adjusted for items listed above $
6.97 $
5.71 $
1.26 22
%
Weighted-average shares used in computing diluted EPS 122.8 122.0
(1) During the fourth quarter of 2020, we
recorded acquisition-related amortization
expense of certain acquired intangibles of
$36.0 million ($30.5 million, net of tax).
We calculate this financial measure by
excluding the impact of acquisition-
related amortization expense and including
a benefit to reflect the significant cash
income tax savings resulting from the
income tax deductibility of amortization
for certain acquired intangibles. The $5.5
million of tax is comprised of $9.5
million of tax expense net of $4.0 million
of a cash income tax benefit. During the
fourth quarter of 2019, we recorded
acquisition-related amortization expense
of certain acquired intangibles of $35.3
million ($30.0 million net of tax). The
$5.3 million of tax is comprised of $9.3
million of tax expense net of $4.0 million
of a cash income tax benefit.
For the year ended December 31, 2020, we
recorded acquisition-related amortization
expense of certain acquired intangibles of
$141.8 million ($120.6 million net of
tax). The $21.2 million of tax is
comprised of $37.3 million of tax expense
net of $16.1 million of a cash income tax
benefit. For the year ended December 31,
2019, we recorded acquisition-related
amortization expense of certain acquired
intangibles of $140.2 million ($119.4
million net of tax). The $20.8 million of
tax is comprised of $36.9 million of tax
expense net of $16.1 million of a cash
income tax benefit. See the Notes to this
reconciliation for additional detail.
(2) During the fourth quarter of 2020 we
recorded pre-tax expenses related to the
2017 cybersecurity incident of $112.6
million ($82.3 million, net of tax),
$112.4 million of cybersecurity incident
related costs were in operating income,
with the remaining $0.2 million being
recorded to depreciation and amortization.
For the year ended December 31, 2020 we
recorded pre-tax expenses related to the
2017 cybersecurity incident of $365.0
million ($270.5 million, net of tax),
$364.8 million of cybersecurity incident
related costs were in operating income,
with the remaining $0.2 million being
recorded to depreciation and amortization.
During the fourth quarter of 2019 and for
year ended December 31, 2019, we recorded
pre-tax expenses of $82.0 million ($63.5
million, net of tax) and $337.3 million
($252.3 million, net of tax),
respectively, for expenses related to the
2017 cybersecurity incident. See the Notes
to this reconciliation for additional
detail.
(3) During the fourth quarter of 2019 and for
the year ended December 31, 2019, we
recorded expenses, net of directors and
officers insurance recoveries, of $99.6
million ($83.5 million, net of tax) and
$800.9 million ($686.1 million, net of
tax) for losses associated with certain
legal proceedings and government
investigations related to the 2017
cybersecurity incident, exclusive of our
legal professional services expenses. See
the Notes to this reconciliation for
additional detail.
(4) During the fourth quarter of 2020 we
recorded a $13.3 million ($11.0 million,
net of tax) loss on the fair market value
adjustment of an equity investment. For
the year ended December 31, 2020, we
recorded a $149.5 million ($101.1 million,
net of tax) gain on the fair market value
adjustment of equity investments. The
changes in fair value were recorded to
Other Income, net line item within the
Consolidated Statements of Income. See the
Notes to this reconciliation for
additional details.
(5) During the fourth quarter of 2020 we
recorded a $32.2 million loss ($24.3
million, net of tax) related to the mark-
to-market fair value adjustment of our
pension and postretirement benefit plans.
During the fourth quarter of 2019 we
recorded a $4.8 million gain ($3.9
million, net of tax) related to the mark-
to-market fair value adjustment of our
pension and postretirement benefit plans.
See the Notes to this reconciliation for
additional detail.
(6) During the fourth quarter of 2020 and the
year ended December 31, 2020, we recorded
income tax effects of the Q1 2020 gain on
fair market value adjustment of an equity
investment of $1.4 million and $5.4
million, respectively. See the Notes to
this reconciliation for additional detail.
(7) During the fourth quarter of 2020 and for
the year ended December 31, 2020, we
recorded foreign currency loss related to
certain intercompany loans of $3.3 million
and $6.2 million, respectively. The impact
was recorded to the Other Income, net line
item within the Consolidated Statements of
Income. See the Notes to this
reconciliation for additional detail.
(8) During the first quarter of 2020, we
recorded a valuation allowance for certain
deferred tax assets of $7.0 million. See
the Notes to this reconciliation for
additional detail.
(9) During the first quarter of 2020, we
recorded a $4.8 million tax benefit on
legal settlements related to the 2017
cybersecurity incident, as finalization of
the settlement terms in the first quarter
have caused us to conclude the tax
treatment has changed from the time we
recorded the initial loss. See the Notes
to this reconciliation for additional
detail.
(10) During the third quarter of 2019, we
recorded a $20.0 million ($15.1 million,
net of tax) charge to revenue related to
settlements with commercial customers. See
the Notes to this reconciliation for
additional detail.
(11) During the fourth quarter of 2020 and the
first quarter of 2019, we recorded $31.9
million ($24.3 million, net of tax) and
$11.5 million ($8.8 million, net of tax),
respectively, of restructuring charges for
the realignment of internal resources and
other costs, which predominantly relates
to the reduction of headcount and the
realignment of our internal resources to
support the Company's strategic objectives
and increase the integration of our global
operations. See the Notes to this
reconciliation for additional detail.
(12) During the fourth quarter and for the year
ended December 31, 2020, we recorded tax
benefit of $3.2 million and $6.1 million,
respectively, related to the tax effects
of deductions for stock compensation in
excess of amounts recorded for
compensation costs. During the fourth
quarter and for the year ended December
31, 2019, we recorded a tax expense of
$1.1 million and tax benefit of $3.0
million, respectively, related to the tax
effects of deductions for stock
compensation in excess of amounts recorded
for compensation costs. See the Notes to
this reconciliation for additional detail.
(13) 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 in 2018. For the year ended
December 31, 2020, we recorded a foreign
currency loss of $0.5 million related to
the impact of remeasuring the peso
denominated monetary assets and
liabilities as a result of Argentina being
a highly inflationary economy. During the
fourth quarter of 2019 and for the year
ended December 31, 2019, we recorded a
foreign currency loss of $0.2 million and
$1.0 million, respectively, related to the
impact of remeasuring the peso denominated
monetary assets and liabilities as a
result of Argentina being a highly
inflationary economy. See the Notes to
this reconciliation for additional detail.
(14) During the second quarter of 2019, we
recorded $6.3 million ($4.8 million, net
of tax) for PayNet acquisition related
amounts other than acquisition-related
amortization which was primarily related
to transaction costs resulting from the
acquisition and was recorded in operating
income. See the Notes to this
reconciliation for additional detail.
(15) During the fourth quarter of 2020, we
recorded the tax impact of adjustments of
$53.6 million comprised of (i)
acquisition-related amortization expense
of certain acquired intangibles of $5.5
million ($9.5 million of tax expense net
of $4.0 million of a cash income tax
benefit), (ii) tax adjustment of $30.3
million related to the 2017 cybersecurity
incident related costs, (iii) a tax
adjustment of $2.3 million related to the
fair market value adjustment of an equity
investment. (iv) a tax adjustment of $7.9
million related to the fourth quarter
mark-to-market fair value adjustment of
our pension and postretirement benefit
plans and (v) a tax adjustment of $7.6
million related to the realignment of
internal resources. During the fourth
quarter of 2019, we recorded the tax
impact of adjustments of $39.0 million
comprised of (i) acquisition-related
amortization expense of certain acquired
intangibles of $5.3 million ($9.3 million
of tax expense net of $4.0 million of a
cash income tax benefit), (ii) tax
adjustment of $16.1 million related to the
2017 cybersecurity incident related legal
matters, (iii) a tax adjustment of $18.5
million related to expenses for the 2017
cybersecurity incident and (iv) a $0.9
million tax adjustment related to the
fourth quarter mark-to-market fair value
adjustment of our pension and
postretirement benefit plans.
For the year ended December 31, 2020, we
recorded the tax impact of adjustments of
$82.8 million comprised of (i)
acquisition-related amortization expense
of certain acquired intangibles of $21.2
million ($37.3 million of tax expense net
of $16.1 million of a cash income tax
benefit), (ii) a tax adjustment of $94.5
million related to expenses for the 2017
cybersecurity incident, (iii) a tax
adjustment of $48.4 million related to the
gain on fair market value adjustment of
equity investments, (iv) a tax adjustment
of $7.9 million related to the fourth
quarter mark-to-market fair value
adjustment of our pension and
postretirement benefit plans and (v) a tax
adjustment of $7.6 million related to the
realignment of internal resources. For the
year ended December 31, 2019, we recorded
the tax impact of adjustments of $228.8
million comprised of (i) acquisition-
related amortization expense of certain
acquired intangibles of $20.8 million
($36.9 million of tax expense net of $16.1
million of a cash income tax benefit),
(ii) a tax adjustment of $85.0 million
related to expenses for the 2017
cybersecurity incident, (iii) a tax
adjustment of $114.8 million related to
cybersecurity incident related legal
matters, (iv) a $0.9 million tax
adjustment related to the fourth quarter
mark-to-market fair value adjustment of
our pension and postretirement benefit
plans, (v) a tax adjustment of $4.9
million related to the settlement with
commercial customers, (vi) a tax
adjustment of $2.7 million related to the
realignment of internal resources and
(vii) a tax adjustment of $1.5 million for
PayNet acquisition related amounts other
than acquisition-related amortization.
Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Financial Measures (Unaudited)
(Dollars in millions, except per share amounts)
B. Reconciliation of adjusted revenue, defined as GAAP revenue adjusted for a charge related to settlements with commercial customers, and net income attributable to Equifax to adjusted EBITDA, defined as net income excluding income taxes, interest expense, net, depreciation and amortization, costs related to the 2017 cybersecurity incident, accrual for legal matters related to the 2017 cybersecurity incident, fair value adjustment of equity investments, pension mark-to-market fair value adjustments, foreign currency impact of certain intercompany loans, settlements with commercial customers, realignment of internal resources and other costs, Argentina highly inflationary foreign currency impacts, PayNet acquisition-related amounts other than acquisition-related amortization, and presentation of adjusted EBITDA margin:
Three Months Ended
December 31,
(In millions) 2020 2019
(revised)
$ Change % Change
Revenue $
1,118.5 $
905.8 $
212.7 23
%
Net income attributable to Equifax $
74.5 $
15.8 $
58.7 372
%
Income taxes 16.8 14.9 1.9 13
%
Interest expense, net* 36.4 28.1 8.3 30
%
Depreciation and amortization 101.6 86.9 14.7 17
%
2017 cybersecurity incident related costs (2) 112.4 82.0 30.4 37
%
Accrual for legal matters related to the 2017 cybersecurity incident (3) 99.6 (99.6) nm
Fair market value adjustment of equity investment (4) 13.3 13.3 nm
Pension mark-to-market fair value adjustment (5) 32.2 (4.8) 37.0 nm
Foreign currency impact of certain intercompany loans (6) 3.3 3.3 nm
Realignment of internal resources and other costs (7) 31.9 31.9 nm
Argentina highly inflationary foreign currency adjustment (8) 0.2 (0.2) nm
Adjusted EBITDA, excluding the items listed above $
422.4 $
322.7 $
99.7 31
%
Adjusted EBITDA margin 37.8 35.6
% %
Twelve Months Ended
December 31,
(In millions) 2020 2019
(revised)
$ Change % Change
Revenue $
4,127.5 $
3,507.6 $
619.9 18
%
Settlements with commercial customers (1)
$ $
20.0 $
(20.0) nm
Adjusted revenue $
4,127.5 $
3,527.6 $
599.9 17
%
Net income attributable to Equifax $
520.1 $
(384.1) $
904.2 (235)
%
Income taxes 159.0 (35.7) 194.7 (545)
%
Interest expense, net* 138.5 108.6 29.9 28
%
Depreciation and amortization 391.0 331.1 59.9 18
%
2017 cybersecurity incident related costs (2) 364.8 337.3 27.5 8
%
Accrual for legal matters related to the 2017 cybersecurity incident (3) 800.9 (800.9) nm
Fair market value adjustment of equity investments (4) (149.5) (149.5) nm
Pension mark-to-market fair value adjustment (5) 32.2 (4.8) 37.0 nm
Foreign currency impact of certain intercompany loans (6) 6.2 6.2 nm
Settlements with commercial customers (1) 20.0 (20.0) nm
Realignment of internal resources and other costs (7) 31.9 11.5 20.4 nm
Argentina highly inflationary foreign currency adjustment (8) 0.5 1.0 (0.5) nm
PayNet acquisition-related amounts other than acquisition-related amortization (9) 6.3 (6.3) nm
Adjusted EBITDA, excluding the items listed above $
1,494.7 $
1,192.1 302.6 25
%
Adjusted EBITDA margin 36.2 33.8
% %
*Excludes interest income of
$0.5 million and $1.2 million
for the fourth quarter of 2020
and 2019, respectively. Also,
excludes interest income of
$3.1 million for the years
ended December 31, 2020 and
2019, respectively.
(1) During the third quarter of 2019, we
recorded a $20.0 million ($15.1 million,
net of tax) charge to revenue related to
settlements with commercial customers. See
the Notes to this reconciliation for
additional detail.
(2) During the fourth quarter of 2020 we
recorded pre-tax expenses related to the
2017 cybersecurity incident of $112.6
million ($82.3 million, net of tax), $112.4
million of cybersecurity incident related
costs were in operating income, with the
remaining $0.2 million being recorded to
depreciation and amortization. For the year
ended December 31, 2020 we recorded pre-
tax expenses related to the 2017
cybersecurity incident of $365.0 million
($270.5 million, net of tax), $364.8
million of cybersecurity incident related
costs were in operating income, with the
remaining $0.2 million being recorded to
depreciation and amortization. During the
fourth quarter of 2019 and for year ended
December 31, 2019, we recorded pre-tax
expenses of $82.0 million ($63.5 million,
net of tax) and $337.3 million ($252.3
million, net of tax), respectively, for
expenses related to the 2017 cybersecurity
incident. See the Notes to this
reconciliation for additional detail.
(3) During the fourth quarter of 2019 and for
the year ended December 31, 2019, we
recorded expenses, net of directors and
officers insurance recoveries, of $99.6
million ($83.5 million, net of tax) and
$800.9 million ($686.1 million, net of tax)
for losses associated with certain legal
proceedings and government investigations
related to the 2017 cybersecurity incident,
exclusive of our legal professional
services expenses. See the Notes to this
reconciliation for additional detail.
(4) During the fourth quarter of 2020 we
recorded a $13.3 million ($11.0 million,
net of tax) loss on the fair market value
adjustment of an equity investment. For the
year ended December 31, 2020, we recorded a
$149.5 million ($101.1 million, net of tax)
gain on the fair market value adjustment of
equity investments. The changes in fair
value were recorded to Other Income, net
line item within the Consolidated
Statements of Income. See the Notes to this
reconciliation for additional details.
(5) During the fourth quarter of 2020 we
recorded a $32.2 million loss ($24.3
million, net of tax) related to the mark-
to-market fair value adjustment of our
pension and postretirement benefit plans.
During the fourth quarter of 2019 we
recorded a $4.8 million gain ($3.9 million,
net of tax) related to the mark-to-market
fair value adjustment of our pension and
postretirement benefit plans. See the Notes
to this reconciliation for additional
detail.
(6) During the fourth quarter of 2020 and for
the year ended December 31, 2020, we
recorded foreign currency loss related to
certain intercompany loans of $3.3 million
and $6.2 million, respectively. The impact
was recorded to the Other Income, net line
item within the Consolidated Statements of
Income. See the Notes to this
reconciliation for additional detail.
(7) During the fourth quarter of 2020 and the
first quarter of 2019, we recorded $31.9
million ($24.3 million, net of tax) and
$11.5 million ($8.8 million, net of tax),
respectively, of restructuring charges for
the realignment of internal resources and
other costs, which predominantly relates to
the reduction of headcount and the
realignment of our internal resources to
support the Company's strategic objectives
and increase the integration of our global
operations. See the Notes to this
reconciliation for additional detail.
(8) 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 in 2018. For the year ended
December 31, 2020, we recorded a foreign
currency loss of $0.5 million related to
the impact of remeasuring the peso
denominated monetary assets and liabilities
as a result of Argentina being a highly
inflationary economy. During the fourth
quarter of 2019 and for the year ended
December 31, 2019, we recorded a foreign
currency loss of $0.2 million and $1.0
million, respectively, related to the
impact of remeasuring the peso denominated
monetary assets and liabilities as a result
of Argentina being a highly inflationary
economy. See the Notes to this
reconciliation for additional detail.
(9) During the second quarter of 2019, we
recorded $6.3 million ($4.8 million, net of
tax) for PayNet acquisition related amounts
other than acquisition-related
amortization which was primarily related to
transaction costs resulting from the
acquisition and was recorded in operating
income. See the Notes to this
reconciliation for additional detail.
C. Reconciliation of adjusted revenue, defined as GAAP revenue adjusted for a charge related to settlements with commercial customers, and net income attributable to Equifax to adjusted EBITDA, defined as net income excluding income taxes, interest expense, net, depreciation and amortization, costs related to the 2017 cybersecurity incident, accrual for legal matters related to the 2017 cybersecurity incident, fair value adjustment of equity investments, pension mark-to-market fair value adjustments, foreign currency impact of certain intercompany loans, settlements with commercial customers, realignment of internal resources and other costs, Argentina highly inflationary foreign currency impacts, PayNet acquisition-related amounts other than acquisition-related amortization, and presentation of adjusted EBITDA margin for each of the segments:
(In millions)
Three Months Ended December 31, 2020
---
U.S. Workforce International Global General Total
Information Solutions Consumer Corporate
Solutions Solutions Expense
Revenue $
387.5 $
406.5 $
247.5 $
77.0 $
1,118.5
Operating Income 114.6 199.8 32.2 3.6 (180.7) 169.5
Depreciation and Amortization 29.1 17.5 35.3 5.2 14.5 101.6
Other income/(expense), net* 0.6 (8.9) (30.3) (38.6)
Noncontrolling interest (3.2) (3.2)
Adjustments (1) 24.4 11.2 28.8 7.2 121.5 193.1
Adjusted EBITDA $
168.7 $
228.5 $
84.2 $
16.0 $
(75.0) $
422.4
Operating Margin 29.6 49.2 13.0 4.7 nm 15.2
% % % % %
Adjusted EBITDA Margin 43.5 56.2 34.0 20.8 nm 37.8
% % % % %
(In millions)
Twelve Months Ended December 31, 2020
--- ---
U.S. Workforce International Global General Total
Information Solutions Consumer Corporate
Solutions Solutions Expense
Revenue $
1,482.5 $
1,437.9 $
862.1 $
345.0 $
4,127.5
Operating Income 463.9 700.7 66.7 37.0 (591.7) 676.6
Depreciation and Amortization 114.4 69.7 131.6 18.6 56.7 391.0
Other income/(expense), net* 2.6 133.4 (0.1) 11.2 147.1
Noncontrolling interest (6.1) (6.1)
Adjustments (1) 79.9 29.9 (70.9) 21.9 225.3 286.1
Adjusted EBITDA $
660.8 $
800.3 $
254.7 $
77.4 $
(298.5) $
1,494.7
Operating Margin 31.3 48.7 7.7 10.7 nm 16.4
% % % % %
Adjusted EBITDA Margin 44.6 55.7 29.5 22.4 nm 36.2
% % % % %
*Excludes interest income of $0.5 million in the fourth quarter and $3.1 million for the year ended December 31, 2020.
(In millions)
Three Months Ended December 31, 2019 (revised)
--- ---
U.S. Workforce International Global General Total
Information Solutions Consumer Corporate
Solutions Solutions Expense
Revenue $
330.9 $
250.5 $
235.9 $
88.5 $
905.8
Operating Income 111.2 98.3 36.2 12.2 (210.9) 47.0
Depreciation and Amortization 21.7 14.2 30.2 3.6 17.2 86.9
Other income/(expense), net* 0.7 (4.2) 16.9 13.4
Noncontrolling interest (1.6) (1.6)
Adjustments (3) 15.7 5.1 25.3 8.0 122.9 177.0
Adjusted EBITDA $
149.3 $
117.6 $
85.9 $
23.8 $
(53.9) $
322.7
Operating Margin 33.6 39.2 15.3 13.8
% % % % nm 5.2
%
Adjusted EBITDA Margin 45.1 47.0 36.4 26.9 nm 35.6
% % % % %
(In millions)
Twelve Months Ended December 31, 2019 (revised)
--- ---
U.S. Workforce International Global General Total
Information Solutions Consumer Corporate
Solutions Solutions Expense
Revenue $
1,277.4 $
949.7 $
920.6 $
359.9 $
3,507.6
Adjustments (2) 20.0 20.0
Adjusted revenue 1,297.4 949.7 920.6 359.9 3,527.6
Operating Income 423.4 389.7 96.1 48.4 (1,293.0) (335.4)
Depreciation and Amortization 81.8 53.6 117.8 15.0 62.9 331.1
Other income/(expense), net* 2.6 6.6 21.0 30.2
Noncontrolling interest (6.0) (6.0)
Adjustments (3) 70.4 17.9 65.8 25.2 992.9 1,172.2
Adjusted EBITDA $
578.2 $
461.2 $
280.3 $
88.6 $
(216.2) $
1,192.1
Operating Margin 33.1 41.0 10.4 13.4 nm (9.6)
% % % % %
Adjusted EBITDA Margin 44.6 48.6 30.4 24.6 nm 33.8
% % % % %
*Excludes interest income $1.2 million in the fourth quarter and $3.1 million for the year ended December 31, 2019.
(1) During the fourth quarter of 2020 we
recorded pre-tax expenses of
$112.4 million for expenses related
to the 2017 cybersecurity incident,
$13.3 million for a loss on the
fair market value adjustment of an
equity investment, a $32.2 million
charge related to the mark-to-
market fair value adjustment of our
pension and postretirement benefit
plans, $3.3 million for the foreign
currency impact related to certain
intercompany loans and $31.9
million of restructuring charges
for the realignment of internal
resources and other costs.
For the year ended December 31,
2020, we recorded pre-tax expenses
of $364.8 million, for expenses
related to the 2017 cybersecurity
incident, a $149.5 million gain
related to the fair value
adjustment of equity investments, a
$32.2 million charge related to the
mark-to-market fair value
adjustment of our pension and
postretirement benefit plans, $6.2
million for the foreign currency
impact related to certain
intercompany loans, $31.9 million
of restructuring charges for the
realignment of internal resources
and other costs and a foreign
currency loss of $0.5 million
related to the impact of
remeasuring the peso denominated
monetary assets and liabilities as
a result of Argentina being a
highly inflationary economy.
(2) During the third quarter of 2019, we
recorded a $20.0 million ($15.1
million, net of tax) charge to
revenue related to settlements with
commercial customers.
(3) During the fourth quarter of 2019 we
recorded pre-tax expenses of $82.0
million for expenses related to the
2017 cybersecurity incident,
expenses, net of directors and
officers insurance recoveries, of
$99.6 million for losses associated
with certain legal proceedings and
government investigations related
to the 2017 cybersecurity incident,
a $4.8 million gain related to the
mark-to-market fair value
adjustment of our pension and
postretirement benefit plans and a
$0.2 million foreign currency loss
related to the impact of
remeasuring the peso denominated
monetary assets and liabilities as
a result of Argentina being a
highly inflationary economy.
For year ended December 31, 2019, we
recorded pre-tax expenses of
$337.3 million for expenses related
to the 2017 cybersecurity incident,
expenses, net of directors and
officers insurance recoveries, of
$800.9 million for losses
associated with certain legal
proceedings and government
investigations related to the 2017
cybersecurity incident, a $4.8
million gain related to the mark-
to-market fair value adjustment of
our pension and postretirement
benefit plans, a $20.0 million
charge to revenue related to
settlements with commercial
customers, charge to revenue
related to settlements with
commercial customers, $11.5 million
of restructuring charges for the
realignment of internal resources
and other costs, a $1.0 million
foreign currency loss related to
the impact of remeasuring the peso
denominated monetary assets and
liabilities as a result of
Argentina being a highly
inflationary economy and $6.3
million of PayNet acquisition
related amounts other than
acquisition-related amortization.
D. Reconciliation of adjusted revenue, defined as GAAP revenue adjusted for a charge related to settlements with commercial customers and adjusted revenue growth for each of the segments for the twelve months ended December 31, 2019**:
(In millions)
Twelve Months Ended December 30,
---
Operating Operating Adjustments Adjusted Local
revenue revenue (1) revenue Currency
Operating revenue: 2020 2019 2019
$ Change % Change % Change*
Online Information Solutions $
1,067.7 $
924.1 $
15.0 $
939.1 128.6 14
%
Mortgage Solutions 199.8 136.9 136.9 62.9 46
%
Financial Marketing Services 215.0 216.4 5.0 221.4 (6.4) (3)
%
Total U.S. Information Solutions 1,482.5 1,277.4 20.0 1,297.4 185.1 14
%
Verification Services 1,103.2 700.1 700.1 403.1 58
%
Employer Services 334.7 249.6 249.6 85.1 34
%
Total Workforce Solutions 1,437.9 949.7 949.7 488.2 51
%
Asia Pacific 296.5 300.1 300.1 (3.6) (1) (1)
% %
Europe 255.7 275.6 275.6 (19.9) (7) (8)
% %
Latin America 160.3 190.5 190.5 (30.2) (16) (3)
% %
Canada 149.6 154.4 154.4 (4.8) (3) (2)
% %
Total International 862.1 920.6 920.6 (58.5) (6) (4)
% %
Global Consumer Solutions 345.0 359.9 359.9 (14.9) (4) (4)
% %
Total $
4,127.5 $
3,507.6 $
20.0 $
3,527.6 $
599.9 17 18
% %
*Reflects percentage change in
revenue conforming 2020
results using 2019 exchange
rates.
** We did not have any
adjustments to revenue for the
three and twelve months ended
December 31, 2020 or the three
months ended December 31,
2019.
(1) During the third quarter of 2019,
we recorded a $20.0 million ($15.1
million, net of tax) charge to
revenue related to settlements
with commercial customers. See the
Notes to this reconciliation for
additional detail.
Notes to Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Financial Measures
Acquisition-related amortization expense, net of tax - During the fourth quarter of 2020, we recorded acquisition-related amortization expense of certain acquired intangibles of $36.0 million ($30.5 million, net of tax). For the year ended December 31, 2020, we recorded acquisition-related amortization expense of certain acquired intangibles of $141.8 million ($120.6 million net of tax)
We calculate this financial measure by excluding the impact of acquisition-related amortization expense and including a benefit to reflect the material cash income tax savings resulting from the income tax deductibility of amortization for certain acquired intangibles. These financial measures are not prepared in conformity with GAAP. Management believes excluding the impact of amortization expense is useful because excluding acquisition-related amortization, and other items that are not comparable allows investors to evaluate our performance for different periods on a more comparable basis. Certain acquired intangibles result in material cash income tax savings which are not reflected in earnings. Management believes that including a benefit to reflect the cash income tax savings is useful as it allows investors to better value Equifax. Management makes these adjustments to earnings when measuring profitability, evaluating performance trends, setting performance objectives and calculating our return on invested capital.
Costs related to the 2017 cybersecurity incident - During the fourth quarter of 2020 and for the year ended December 31, 2020, we recorded pre-tax expenses of $112.6 million ($82.3 million, net of tax) and $365.0 million ($270.5 million, net of tax), respectively, and during the fourth quarter of 2019 and for year ended December 31, 2019, we recorded pre-tax expenses of $82.0 million ($63.5 million, net of tax) and $337.3 million ($252.3 million, net of tax), respectively, associated with the costs to investigate the 2017 cybersecurity incident, legal fees to respond to subsequent litigation and government investigations, costs to deliver the free product offering made to all U.S. consumers and incremental costs to transform our information technology, data security, and infrastructure. Management believes excluding these charges is useful as it allows investors to evaluate our performance for different periods on a more comparable basis. Management makes these adjustments to net income when measuring profitability, evaluating performance trends, setting performance objectives and calculating our return on invested capital. This is consistent with how management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods. Costs related to the 2017 cybersecurity incident do not include losses accrued for certain legal proceedings and government investigations related to the 2017 cybersecurity incident.
Accrual for legal matters related to the 2017 cybersecurity incident - During the fourth quarter of 2019 and for the year ended December 31, 2019, we recorded expenses, net of directors and officers insurance recoveries, of $99.6 million ($83.5 million, net of tax) and $800.9 million ($686.1 million, net of tax) for losses associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident, exclusive of our legal professional services expenses. Management believes excluding these charges from certain financial results provides meaningful supplemental information regarding our financial results for 2020, since a charge of such an amount is not comparable among the periods. This is consistent with how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Fair market value adjustment of equity investments - During the first quarter of 2020, we recorded a $32.9 million ($26.3 million, net of tax) gain related to adjusting our equity method investment in India, in conjunction with the purchase of the remaining interest of our joint venture. Prior to the purchase of the remaining interest, Equifax did not have control over the joint venture. As a result of the transaction, Equifax recognized a gain related to the remeasurement of the preexisting equity interest in the India joint venture at the acquisition-date fair value of the business combination.
In addition, during the third quarter of 2020, our investment in Brazil underwent an initial public offering. The investment had previously been recorded on our books at cost less impairment, as it did not have a readily determinable fair value. Subsequent to the initial public offering, our investment in Brazil has been adjusted to fair value, and will continue to be adjusted to fair value at the end of each reporting period, with unrealized gains or losses to be recorded within the Consolidated Statements of Income in Other income, net. For the fourth quarter of 2020 and for the year ended December 31, 2020, we recorded a $13.3 million ($11.0 million, net of tax) loss and a $116.6 million ($74.8 million, net of tax) gain, respectively, on the fair market value adjustment of our equity investment in Brazil. Management believes excluding these charges from certain financial results provides meaningful supplemental information regarding our financial results, since the non-operating gains and losses are not comparable among the periods. This is consistent with how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Pension mark-to-market fair value adjustment - Effective in the fourth quarter of 2020, we voluntarily changed our method of accounting for recognizing actuarial gains and losses and expected return on plan assets for our defined benefit pension and other postretirement benefit plans. Under the accounting method change, remeasurement of projected benefit obligation and plan assets are immediately recognized in earnings through net periodic benefit cost within Other Income (Expense) on the Consolidated Statements of Income (Loss), with pension and postretirement plans to be remeasured annually in the fourth quarter, or on an interim basis as triggering events require remeasurement. This change has been applied on a retrospective basis for all prior periods presented. During the fourth quarter of 2020 and for the year ended December 31, 2020, we recorded a $32.2 million loss ($24.3 million, net of tax) related to the fourth quarter mark-to-market fair value adjustment of our pension and postretirement benefit plans. During the fourth quarter of 2019 and for the year ended December 31, 2019, we recorded a $4.8 million gain ($3.9 million, net of tax) related to the fourth quarter mark-to-market fair value adjustment of our pension and postretirement benefit plans. Management believes excluding these charges from certain financial results provides meaningful supplemental information regarding our financial results, since the non-operating gains and losses are not comparable among the periods. This is consistent with how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Income tax effects of Q1 2020 gain on fair market value adjustment of equity investment - During the first quarter of 2020, we recorded a gain related to adjusting our equity method investment in India, in conjunction with the purchase of the remaining interest of our joint venture. Prior to the purchase of the remaining interest, Equifax did not have control over the joint venture. As a result of the transaction, Equifax recognized a gain related to the remeasurement of the preexisting equity interest in the India joint venture at the acquisition-date fair value of the business combination. Additional income tax effects related to this transaction were recorded each quarter of 2020. Management believes excluding this gain and related income tax effects from certain financial results provides meaningful supplemental information regarding our financial results for 2020, since the non-operating gain is not comparable among the periods. This is consistent with how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Foreign currency impact of certain intercompany loans - During the fourth quarter of 2020 and for the year ended December 31, 2020, we recorded foreign currency loss related to certain intercompany loans of $3.3 million and $6.2 million, respectively. The impact was recorded to the Other Income, net line item within the Consolidated Statements of Income. Management believes excluding this charge is useful as it allows investors to evaluate our performance for different periods on a more comparable basis. This is consistent with how management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Valuation allowance for certain deferred tax assets - During the first quarter of 2020, we recorded a $7.0 million valuation allowance adjustment for deferred tax assets where the benefit is not expected to be realized. Management believes excluding this tax effect from financial results provides meaningful supplemental information regarding our financial results for 2020 because this amount is not comparable among the periods. This is consistent with how management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Tax benefit on a legal settlement related to the 2017 cybersecurity incident - During the first quarter of 2020, we recorded a $4.8 million tax benefit on legal settlements related to the 2017 cybersecurity incident, as finalization of the settlement terms in the first quarter caused us to conclude the tax treatment has changed from the time we recorded the initial loss. Management believes excluding this charge is useful as it allows investors to evaluate our performance for different periods on a more comparable basis. This is consistent with how management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Settlements with commercial customers - During the third quarter of 2019, we recorded a $20.0 million ($15.1 million, net of tax) charge to revenue related to settlements with commercial customers. Management believes this adjustment to revenue provides meaningful information regarding our revenue and provides a basis to compare revenue between periods and to net income when measuring profitability, evaluating performance trends, setting performance objectives and calculating our return on invested capital. Management considers these adjustments when assessing historical performance and is useful when planning, forecasting and analyzing future periods.
Charge related to the realignment of internal resources and other costs - During the fourth quarter of 2020 and the first quarter of 2019, we recorded $31.9 million ($24.3 million, net of tax) and $11.5 million ($8.8 million, net of tax), respectively, of restructuring charges for the realignment of internal resources and other costs, which predominantly relates to the reduction of headcount and the realignment of our internal resources to support the Company's strategic objectives and increase the integration of our global operations. Management believes excluding this charge from certain financial results provides meaningful supplemental information regarding our financial results for the years ended December 31, 2020 and 2019, since the charges are not comparable among the periods. This is consistent with how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Income tax effects of stock awards that are recognized upon vesting or settlement - During the fourth quarter and for the year ended December 31, 2020, we recorded tax benefit of $3.2 million and $6.1 million, respectively, related to the tax effects of deductions for stock compensation in excess of amounts recorded for compensation costs. During the fourth quarter and for the year ended December 31, 2019, we recorded a tax expense of $1.1 million and tax benefit of $3.0 million, respectively, related to the tax effects of deductions for stock compensation in excess of amounts recorded for compensation costs. Management believes excluding this tax effect from financial results provides meaningful supplemental information regarding our financial results for the three and twelve months ended December 31, 2020, as compared to the corresponding period in 2019, because this amount is non-operating and relates to income tax benefits or deficiencies for stock awards recognized when tax amounts differ from recognized stock compensation cost. This is consistent with how management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
Argentina highly inflationary foreign currency adjustment - 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 in 2018. For the year ended December 31, 2020, we recorded a foreign currency loss of $0.5 million, related to the impact of remeasuring the peso denominated monetary assets and liabilities as a result of Argentina being a highly inflationary economy. During the fourth quarter of 2019 and for the year ended December 31, 2019, we recorded a foreign currency loss of $0.2 million and $1.0 million, respectively. Management believes excluding this charge is useful as it allows investors to evaluate our performance for different periods on a more comparable basis. This is consistent with how management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods.
PayNet acquisition related amounts for transaction expenses incurred as a direct result of the acquisition - During the second quarter of 2019, we recorded $6.3 million ($4.8 million, net of tax) for PayNet acquisition related amounts other than acquisition-related amortization which was primarily related to transaction costs resulting from the acquisition and was recorded in operating income. Management believes excluding this charge from certain financial results provides meaningful supplemental information regarding our financial results, since a charge of such amount is not comparable among the periods. This is consistent with how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting, and analyzing future periods.
Adjusted EBITDA and EBITDA margin - Management defines adjusted EBITDA as consolidated net income attributable to Equifax plus net interest expense, income taxes, depreciation and amortization, and also excludes certain one-time items. Management believes the use of adjusted EBITDA and adjusted EBITDA margin allows investors to evaluate our performance for different periods on a more comparable basis.
Adjusted revenue - Management defines adjusted revenue as GAAP revenue adjusted for a non-recurring charge related to settlements with commercial customers. Management believes the use of adjusted revenue in this instance allows investors to evaluate our performance for different periods on a more comparable basis.
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SOURCE Equifax Inc.
