Equifax Shares Skid On Mortgage Slowdown, Breach Costs Mount

The headlines may have focused on the 14.7 percent drop in Equifax’s stock, on missed top and bottom lines vs. expectations and guidance. But beyond that, the numbers show mixed results as the company strives to move past an epic data breach.

To sum: for the third quarter, earnings were a penny below consensus, coming in at $1.41 and below the $1.53 last year. Revenue was flat at $834 million and below the consensus of $857 million.

Cybersecurity costs (tied of course to new initiatives and to the widely-reported data breach of 2017) were up 33 percent year on year to $116.5 million and where the total to date stands at $220 million.

International sales were down two percent to $235 million year on year though up mid single digits in local terms year on year.

Delving into the data by segment, USIS was $308.3 million compared to last year’s $307 million. CEO Mark W. Begor said on the call that this marks the first time since the aforementioned breach that there had been positive revenue growth in the segment.

Global consumer solutions revenue plummeted to $88.7 million, off 12 percent year on year, and where operating margins were shaved nearly in half to 13.8 percent.

During the conference call held Thursday (October 25) with the investment community, Begor stated that revenue growth overall had been below expectations, with impact from weaker than expected mortgage markets in the U.S. and weaker credit markets in Australia and what he termed “well-known economic conditions in Argentina.” Mortgage inquiries were down over 10 percentage points, in the quarter, hitting revenues by three percentage points.

He said later in the call that “currency continues to be substantial headwind for our business, negatively impacting revenue by over 200 basis points and adjusted EPS by approximately $0.04 a share versus third quarter 2017.”

As for the continued impact of the breach, Begor said that “we have now a very small handful and I would say less than one hand [worth] of customers where we're still completing security reviews to address any remaining open items from the cybersecurity incident in 2017.”

In response to analyst questions, he said that “customers want our data and it's just going to be a matter of time. And we do expect continued improvement from third quarter to fourth quarter ... It's just hard to predict when we'll actually get to that pre-breach growth level. But from my perspective, it's not a matter of if, it's really just when and we expect that progress to continue.”

In the workforce solutions segment, the company said, revenue gained nine percent and inquiries gained 11 percent.

With an eye on fourth-quarter initiatives and beyond, management stated that Equifax should complete implementation of Ignite Direct and the virtual private cloud in a public cloud environment in Europe, in Latin America and Australia and new deployments of Ignite Direct in the U.S. and Canada following in the first quarter of next year. Ignite is being billed as a decisioning tool that lets end customers access the company’s data for modeling purposes.

Management also stated that it expects in 2018 to incur in excess of $350 million of gross incremental cost for investments in technology and data security projects, “and legal and professional fees being incurred just specifically to address litigation claims and governmental and regulatory investigations related to the cybersecurity incident.” All in all, net costs after insurance proceeds are still expected to be approximately $275 million.

The company sees earnings of $1.30 to $1.35 versus the Street at $1.43 and revenue of $835 to $850 million, and the Street had been at $863.8 million.  Management said on the call that mortgage impact may continue, and may be down lower than 10 percent.



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