Equifax, Inc. · NYSE:EFX
Equifax — Q2 2020 Earnings Presentation
61 slides from Equifax's earnings presentation, Jul 23, 2020
Slide 1: Q2 2020 Earnings Presentation
Q2 2020 Earnings Presentation July 23rd, 2020
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains certain forward-looking information to help you understand Equifax and its business environment. All statements that address operating performance and events or developments that we expect or anticipate will occur in the future, including stateme
Slide 3: Non-GAAP Disclosure Statement
Non-GAAP Disclosure Statement This presentation contains certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which reflect adjustments for certain items that affect the comparability of our underlying operational performance. •Adjusted EPS attributab
Slide 4: Very Strong 2Q2020 Results
Slide 4 Very Strong 2Q2020 Results +13% $983M Second straight quarter of double digit revenue growth LOCAL CURRENCY REVENUE Strongest 1H performance since 2016 REVENUE GROWTH US Mortgage, EWS Unemployment Claims revenue powering results $1.60 35.9% EWS strongest revenue growth and highest Adjusted E
Slide 5: EWS and USIS Very Strong, Int'l Improving
Slide 5 EWS and USIS Very Strong, Int’l Improving USIS EWS INTL GCS Revenue Growth +10% (As reported) +53% (As reported) -15% (Local currency) -5% (Local currency) ADJUSTED EBITDA 44.1% 56.3% 21.7% 20.8% MARGIN -150bps +710bps -690bps -210bps Highest 1H revenue Highest revenue growth Revenue trends
Slide 6: Most challenging consumer environment in our lifetime
Slide 6 Most challenging consumer environment in our lifetime Macro-economic environment: 2008-09 vs. 2020 Customers impacted in most profitable segments and almost blind on risk predictiveness Unemployment claims Consumers with Wage (peak) reduction (peak) Significant performance deterioration of pri
Slide 7: EFX Stronger in COVID Recession than 08/09
Slide 7 EFX Stronger in COVID Recession than 08 / 09 Recession mix Revenue growth * (% of revenue) (% vs. previous year) $3.5B EWS 64% 73% US Mortgage 53% EFX Recession-impacted 32% $1.8B 13% Counter-cyclical 12% 0% ~55% Recession-growth <40% 2008-09 2020 Global financial crisis COVID Strong mix of r
Slide 8: Strong Balance Sheet and Liquidity
Slide 8 Strong Balance Sheet and Liquidity June 30, 2020 Cash $1.35B Available Borrowing Capacity1 $1.32B Total Liquidity $2.67B Leverage ratio for 2Q202 2.9x / 4.5x covenant BBB / Negative (S&P) Credit Ratings Baa2 / Stable (Moody’s) Next debt maturity: June 2021 1. Credit Facility and Receivables
Slide 9: July 2020 US B2B Revenue Trends
Slide 9 July 2020 US B2B Revenue Trends* 1. USIS Online + USIS Mortgage Solutions + EWS Verification Services April May June³ 2. Based on 1H20 revenue 3. June has two more working days than 2019 % BU Rev² 1Q vs 2019 vs 2019 2Q vs 2019 Mid July benefiting growth by ~3% Online ~85% 18% 0% 11% 23% 12% ~1
Slide 10: July 2020 Revenue Trends
Slide 10 July 2020 Revenue Trends* April May June³ % BU Rev² 1Q vs 2019 vs 2019 2Q vs 2019 Mid July APAC ~34% 3% (13%) (18%) 4% (9%) ~(5%) LatAm ~19% 9% (17%) (15%) (11%) (14%) ~(15%) INTL Canada ~18% 2% (25%) (13%) (1%) (13%) ~(10%) (~20% Europe ~29% (1%) (26%) (30%) (20%) (25%) ~(15%) EFX - CRA ~1
Slide 11: Mortgage market fundamentals positive for 2H20
Mortgage market fundamentals positive for 2H20 Slide 11 2008-10 2013-14 2020 Q1-Q2 Q3-Q4 Conditions for Mortgage Key metrics Best / Worst Best / Worst Estimate Estimate in 2H 2020 vs Past Refi potential (# mortgages)¹ ~7.8M (Q1-09) ~9.0M (Q1-13) ~10 - 18.5M 30-yr MTG rate (%)² 4.9% (Q4-09) 3.5% (Q1-1
Slide 12: 3Q20 Illustrative Framework
Slide 12 3Q20 Illustrative Framework Based on July 2020 Trends* 3Q20 $ vs 3Q19 % vs 3Q19 Revenue 1 $930M - $950M $34M - $54M 4% - 6%2 Adjusted EPS1 $1.30 - $1.40 / share ($0.18 - $0.08 / share) (12% - 6%) Adjusted EPS bridge Revenue $34M $54M 3Q20 vs. 3Q19 Variable Margin (~75%) Impact of $26M $41M
Slide 13: Cloud Technology and Data Transformation Cost and Cash Benefits
Slide 13 Cloud Technology and Data Transformation Cost and Cash Benefits Illustrative Savings at 2019 Cost / Cost of Goods Sold (COGS) Capital Spending Levels ~ +15% savings in Technology cost (excl. D&A) ~$90M • ~ Tech costs in 2019 or 45% of COGS Development Expense ~ 25% reduction in Product Devel
Slide 14: Investing in New Products
Slide 14 Investing in New Products New products launched per year 2Q Product Summary Adding Product talent… new Global and USIS product leaders 100+ ~90 Rolling out new products to address recession environment • 7 new recession specific products to assist customers ~60 • USIS “Response Now” premium
Slide 15: Strong business model delivering for the future
Slide 15 Strong business model delivering for the future + Strong team in place… deep domain, adding talent + Delivered very strong financial results… double digit revenue growth ... expanded margins +200 bps… investing + EWS is a franchise business delivering record results… exceptionally strong rev
Slide 16: Investor Relations
Investor Relations July 2020
Slide 17: Index
Index EFX Overview p. 18-28 Security Program p. 29-31 Technology Transformation p. 32-44 Financial Information p. 45-57 Glossary p. 58-61 PROPRIETARY | 17
Slide 18: Equifax Imperatives – EFX2020
Equifax Imperatives – EFX2020 CULTURE INDUSTRY DRIVE CLOUD-FIRST MARKET-LEADING CONSUMER-FRIEN OF CUSTOMER LEADER IN GROWTH TECHNOLOGY D&A DLY CRA CENTRICITY SECURITY ▪ Leverage global data ▪ Standardize ▪ Exceed customer ▪ Ongoing data perfection ▪ Provide consumer-centric ▪ Build security deep int
Slide 19: Equifax Competitive Advantage
Unique Data Assets Advanced Analytics 25 Countries | 5 Continents ACRO Trended Data The Work Number® Configurable Scores DIFFERENTIATED DATA & United States NCTUE+ NDT IXI Attributes ANALYTICS Canada GLOBAL Australia & New Zealand RELEVANCE Latin America Europe India Equifax Russia STRONG Innovation
Slide 20: Dramatically Stronger Insights Through a Vast Array of Direct, Verified Data
Dramatically Stronger Insights Through a Vast Array of Direct, Verified Data Consumer Telco, Cable Employment Credit & Utility & Income Reliable, Fast, Accounts Verified, High-Quality Exclusive, Direct from Superior Employers Coverage Asset & Property & Consumer Single-Source Wealth Valuation Demogr
Slide 21: Real Time Integration of Data from Multiple Sources and Analytics
Real Time Integration of Data from Multiple Sources and State-of-the-Art Analytics Drives Unique Insights Big Data Wide Range of Data, Population-based Analysis Analytics and Insights Varied new data constantly gathered from diverse sources and at large volumes VARIABLES & METHODS Strongest models w
Slide 22: Our Business Model is Robust and Resilient
Our Business Model is Robust and Resilient Data Analytics Technology Customer Solutions Broad-based and + Value-added + Software Integrating = Customized High Value Decisioning Solutions Unique Data Assets Analytical Insights Data and Insights • Credit • Scores and Models • Optimization • Banks • Al
Slide 23: Broadening Our Global Presence in Important Growth Markets
Broadening Our Global Presence in Important Growth Markets RUSSIA UNITED KINGDOM (50% interest) CANADA Consumer Consumer Consumer Commercial Commercial Debt Mgmt. UNITED STATES Consumer Commercial IBERIA Spain Consumer MEXICO Portugal Consumer Debt Mgmt. SaaS INDIA Active Start-up Other LATAM Peru B
Slide 24: A Strong Portfolio of Businesses
A Strong Portfolio of Businesses 2019 Business Mix 2019 Vertical Mix 2019 Adjusted 2019 Resellers Revenue Growth Adjusted EBITDA 6% Margin Other (Constant $) Healthcare 8% 1% 3% 30.4% International Financial 24% Corporate Global Consumer Solutions (Employers) GCS (3%) 24.6% 9% Telco Workforce Soluti
Slide 25: US Information Solutions (USIS)
US Information Solutions (USIS) Strengthen our foundation of assets and capabilities while investing in solutions and adjacencies that accelerate sustainable growth in existing and new markets 2019 Revenue Mix Government Insurance 3% Focus Areas 3% STRENGTHEN & BUILD EMERGING EXTEND CORE BUSINESSES
Slide 26: Workforce Solutions (WS)
Workforce Solutions (WS) Accelerating growth through Work Number expansion, advanced analytical solutions, and vertical expertise across direct and indirect channels 2019 Revenue Mix Focus Areas Healthcare 4% Commercial RECORD GROWTH DIGITAL Financial 1% 11% • Enhance partnerships and connector • Em
Slide 27: International (INTL)
International (INTL) Address customer needs through unique data assets to drive insights delivered via strategic technology platforms complemented by M&A for geographic and domain expansion. 2019 Revenue Mix Focus Areas INSIGHTS ID & FRAUD ▪ New data & exchanges ▪ Build ID & Fraud exchanges ▪ Analyt
Slide 28: Global Consumer Solutions (GCS)
Global Consumer Solutions (GCS) Giving consumers more control over personal credit data 2019 Revenue Mix Focus Areas CONSUMER CONTROL PARTNERS • Meet consumer interest in • Co-innovating new solutions increased transparency and with existing strategic partners Direct to control for their credit data
Slide 29: Security Transformation
Security Transformation PROPRIETARY | 29
Slide 30: We have completed the second year of our 3-act security transformation
Equifax Security Transformation ACT 1 ACT 2 ACT 3 We have completed the BUILD | 2018 MATURE | 2019 LEAD | 2020 • Talent • Cloud • Risk Awareness second year of our 3-act • Capabilities • Expand Coverage • Capability Automation security transformation. • Compensating Controls • Certifications • Contro
Slide 31: Transformation Highlights
Transformation Highlights CULTURE CONTROLS Continued to hire a significant number of Prioritized and implemented fit-for-purpose controls security employees tailored to the specific threats we face 2020 Priorities Achieved a technical to non-technical talent ratio Launched the new Equifax Global Securi
Slide 32: Technology Transformation
Technology Transformation PROPRIETARY | 32
Slide 33: Equifax will spend over $1.25B between 2018–2020 to transform Data Security and Technology
Equifax will spend over $1.25B between 2018 – 2020 to transform our Data Security and Technology. This is a technology and business transformation. •Become an industry leader in Data Security; • Rebuild global decisioning, delivery and analytical platforms in the cloud – Interconnect, Ignite; •Rebui
Slide 34: $1.25B+ Cloud Transformation Will Accelerate Revenue Growth and Reduce Costs and Capex
$1.25B+ Cloud Transformation Will Accelerate Revenue Growth and Reduce Costs and Capex Growth enablers Technology Cloud Product NPI Focus on Delivery & Global revenue Transformation financial Innovation Velocity customers market reach synergies benefits benefits Always-on • Broader • Easier customer S
Slide 35: Our Technology Transformation Is Empowered by the Following Focus Areas
Our Technology Transformation Is Empowered by the Following Focus Areas People Discipline Culture of innovation and Standardized platforms and collaboration, with a strong applications that reduce developer-first mindset complexity and enable innovation. Data Cloud Data that is highly Technologies t
Slide 36: Always on and available
Always on and available • Default deployment on multiple availability zones or It’s about harnessing multiple regions that enables “Always On” technology to better anticipate and Ready and agile • Predicting customer behavior and reacting quickly to their deliver on our needs customers’ needs. Empow
Slide 37: Our transformation is harnessing technology to anticipate customers' needs
Our transformation is harnessing technology to anticipate and deliver on our customers’ needs. NOW 2020 Always on Always-on customer 99% Up-time and Available experience Ready Months & Years Weeks ⇢ Days ⇢ Self Service and Agile Empowered Few platforms – with more Many Platforms and Innovative capab
Slide 38: How are we putting this approach into action?
How are we putting this approach into action? We’re performing a cloud and data We are re-architecting our platforms, migration, which is critical for high including developing a standardized velocity product innovation that Data Fabric for data consistency, fuels customer growth and powered by the
Slide 39: Our common Data Fabric, built on Google Cloud Platform
Our common Data Fabric, built on the standard Google Cloud Platform will enable seamless, real time integration and data access across our unique data sources PROPRIETARY | 39
Slide 40: Our Network Fabric, cloud enabled through GCP, AWS and Azure
Our Network Fabric, cloud enabled through GCP, AWS and Azure, is integrated with our Data Fabric to enable faster delivery and increased uptimes Equifax Network Fabric Virtual Private Cloud Data Protection B2B B2C VPC Presentation API Stream Batch Metering Framework Framework Framework Framework Mon
Slide 41: Our InterConnect ecosystem built in Ignite
Our InterConnect® ecosystem, is a prime example of delivering innovative solutions, built in Ignite, to our customers on an end-to-end, standalone cloud-based architecture Customer Portal B2B Provisioning Reports Rules Editor Client Underwriter Presentation API Stream Batch Framework Framework Frame
Slide 42: Why the Cloud?
It provides security — at scale It has a more scalable infrastructure It offers a faster network Why the Cloud? It has engineering services around data (that align with our targets) It provides the data fabric It has regional availability Enhanced innovation through AI / ML PROPRIETARY | 42
Slide 43: Cloud delivers cost savings
Reduce maintenance on global consolidated, cloud native platforms Reduce costs to build, deploy and maintain cloud native products Cloud delivers Leverage cloud provider scale cost savings Eliminate redundant hardware to support on premise stability Reduce technology COGS by ~+15% Reduce product dev
Slide 44: Cloud Technology and Data Transformation 2020 Impacts
Cloud Technology and Data Transformation 2020 Impacts As transformed cloud native systems go into production, we are incurring increased and redundant costs until legacy systems are decommissioned. Increased costs reflect the following: • Depreciation & Amortization on new systems • Cloud and Other O
Slide 45: Financial Information
Financial Information PROPRIETARY | 45
Slide 46: 2Q 2020 Equifax Results
2Q 2020 Equifax Results Dollars in millions (except per share amounts) 2Q20 2Q19 Reported Revenue $982.8 $880.0 Growth % 11.7% 0.4% Local Currency Revenue $996.5 $902.7 Growth % 13.2% 2.9% GAAP Net Income $95.9 $66.8 Growth % 43.5% (53.9%) Adjusted EBITDA Margin 35.9% 33.7% Growth % 230 bps (130 bps
Slide 47: 2Q20 Business Unit Performance
2Q20 Business Unit Performance Reported Local Currency Adj. EBITDA Margin Adj. EBITDA Margin Revenue Growth Revenue Growth Growth / (Decline) USIS 10% 10% 44.1% (150 bps) Online 7% 7% N/A N/A Mortgage Solutions 44% 44% N/A N/A Financial Marketing 1% 1% N/A N/A Workforce Solutions 53% 53% 56.3% 710 b
Slide 48: Cash Flow and Other Metrics
Cash Flow and Other Metrics Dollars in millions 2Q20 2Q19 FY 2019 FY 2018 Operating Cash Flow* $251.2 $217.0 $313.8 $672.2 Capital Expenditures (Cash) ($104.8) ($93.7) ($399.6) ($321.9) Free Cash Flow $146.4 $123.3 ($85.8) $350.3 Dollars in millions 2Q20 2Q19 FY 2019 FY 2018 Cash Capex as a % Revenu
Slide 49: Cybersecurity Related Costs and Other Items
Cybersecurity Related Costs and Other Items Dollars in millions FY18 1Q19 2Q19 3Q19 4Q19 FY19* 1Q20 2Q20 CYBERSECURITY RELATED Technology and Data Security¹ $307.2 $82.8 $68.9 $64.5 $75.9 $292.1 $78.6 $85.2 Product Liability $20.4 $1.5 $0.2 $2.2 $- $3.9 $- $- Legal and Investigative Fees $73.6 $12.5
Slide 50: 2020 Estimates – General Corporate Expense, Interest Expense and Tax Rate
2020 Estimates – General Corporate Expense, Interest Expense and Tax Rate General Corporate Expense, excluding non-recurring costs, was $284 million in 2019 and is expected to increase by approximately $46 million in 2020 versus 2019. • Security, Risk Management,Technology, and Equity Compensation e
Slide 51: Effective Income Tax Rate
Effective Income Tax Rate • The effective tax rate used in calculating our GAAP and Adjusted EPS is as follows: GAAP EPS Adjusted EPS FY 2018 14.0% 22.6% 1Q 2019 13.7% 24.1% 2Q 2019 23.3% 24.6% 3Q 2019 14.5% 21.2% 4Q 2019 54.8% 22.7% FY 2019 9.3% 23.1% 1Q 2020 23.9% 25.3% 2Q 2020 21.7% 24.4% 3Q 2020
Slide 52: 2019 by the Numbers
2019 by the Numbers +5.6% $3.53B 33.4% CONSTANT DOLLAR ADJUSTED ADJUSTED REVENUE ADJUSTED REVENUE EBITDA MARGIN GROWTH $ $ 5.62 292M $1.18B TRANSFORMATION ADJUSTED EPS INVESTMENT ADJUSTED EBITDA (CONTINUING OPS) PROPRIETARY | 52
Slide 53: Broad Based Execution to Strengthen Equifax
Broad Based Execution to Strengthen Equifax USIS WS INTL GCS Adj. Revenue: +4% Revenue: +15% C$ Revenue: +3% Revenue: -3% + Acquired PayNet (commercial + Grew TWN records to over + Over 100 customer instances of + Launched myEquifax.com credit data) 100M Ignite across multiple regions consumer porta
Slide 54: We see all inquiry transactions in our Mortgage business
We see all inquiry transactions in our Mortgage business. 2019 2018 2017 2016 2015 Full Year 6 ½% -8% -6% 12% 15% PROPRIETARY | 54
Slide 55: Recession mix in 2008 vs. 2019
Recession mix in 2008 vs. 2019 % of total EFX revenue Key business components Counter-cyclical • EWS and INTL Debt Management Recession-resistant <40% • EWS Unemployment Insurance Claims ~55% • US Mortgage • US and INTL Government Recession-impacted • GCS Consumer Direct • USIS, EWS, INTL Offline Po
Slide 56: BU Revenue from 2008 - 2019
BU Revenue from 2008 - 2019 Revenue from Divested Operations is excluded from the charts above. PROPRIETARY | 56
Slide 57: Customer Segment Revenue from 2008 - 2019
Customer Segment Revenue from 2008 - 2019 * Includes revenue from government, marketing services, insurance, healthcare (if not broken our explicitly) and other misc. markets PROPRIETARY | 57
Slide 58: Glossary
Glossary PROPRIETARY | 58
Slide 59: Glossary
Term Our Definition GLOSSARY A give-to-get model where data providers determine the content of the database, utilization requirements/obligations, and governance Closed Exchange philosophy; generally, all data providers contribute the same amount/type of data in return for their access to the consol
Slide 60: Technology Glossary
Term Our Definition TECHNOLOGY GLOSSARY A method of project management used in software development that is characterized by the division of tasks into short phases of work and Agile frequent reassessment and adaptation of plans. API – Application A software intermediary that allows two applications
Slide 61: Technology Glossary
Term Our Definition TECHNOLOGY GLOSSARY Data Gateway A system that connects to multiple data sources and provides a single and central point of access to connect to each data source. Data Governance The overall management of the availability, usability, integrity and security of data used in an Ente