Equifax Inc. (EFX) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Equifax Inc. Our host for today's call is Mark Feidler. [Operator Instructions] I will now turn the call over to your host, Mr. Feidler. You may begin, sir.

Thank you. Good afternoon or morning, depending upon where you are, and welcome to the Equifax 2020 Annual Meeting of Shareholders. I'm Mark Feidler, Independent Chairman of the Board of Directors, and I will preside over the meeting. At this time, I call the meeting to order. We welcome you to our virtual annual meeting, which is a new experience for us at Equifax. First, let me address some housekeeping matters that are unique to this virtual meeting format. On the meeting website, you will see a meeting agenda, along with rules of conduct and our proxy materials. I invite you to refer to those materials as we proceed today. If you are a shareholder of record, and logged in today using your 16-digit control number, you will also see a section of the meeting website in the lower left side, allowing you to submit questions to be answered during the question-and-answer portion of the meeting. In addition, shareholders who have not yet voted or wish to change their prior vote, also have the ability to vote during today's meeting by clicking on the Vote Here button. I am joined today by our Board of Directors and our senior leadership team. They are also participating remotely. In addition to me, the participants in today's meeting include Mark Begor, Chief Executive Officer; Lisa Stockard, Assistant Secretary. A representative of Broadridge is serving as the independent inspector of election for this meeting. The inspector of election has taken the oath of office, which will be filed with the minutes of this meeting. We have a list of shareholders of record as of March 6, 2020, the record date for this meeting available for inspection during the meeting via a link on the meeting website. Following the business portion of this meeting, our CEO will provide a brief presentation, and then we will conduct a question-and-answer session with shareholders. During the Q&A period, a representative of Ernst & Young will be available to respond to appropriate questions regarding the company's financial statements. Shareholders of record may ask a question by typing the question into the Ask A Question field on the meeting website and clicking submit. Please note that only questions pertinent to meeting matters will be answered during today's meeting, subject to our meeting time constraints. In the interest of time, questions that are substantially similar may be grouped and answered together to avoid repetition. I will now ask the secretary to report on whether or not a quorum is present.

Thank you. The inspector of election has certified that a quorum is present.

The meeting is now duly convened for the purpose of transacting business properly before it, and the polls are open. The next order of business is voting on the matters described in the proxy statement to the extent they are properly presented. The first proposal is the election of 10 directors for a 1-year term. The nominees are listed in your proxy materials. The second proposal is an advisory vote to approve named executive officer compensation. The third proposal is the ratification of the appointment of Ernst & Young as our independent auditor for 2020. The fourth and final proposal is a vote to approve the company's employee stock purchase plan. The Board recommends a vote for each of the director nominees in each of these other proposals. If you are a shareholder of record and have not already done so, please vote at this time by clicking the Vote Here on the meeting website. If you have already sent in your proxy card or voted by telephone or over the Internet, there is no need to vote today unless you wish to change your vote. We will now pause for 60 seconds to allow time for voting on the meeting website. [Voting]

I declare that the polls are now closed. The secretary will now report on the preliminary voting results.

Mr. Chairman, the inspector has provided us with a preliminary report on the tabulation of ballots and informed us that the 10 nominees for director have been elected. The vote to approve named executive officer compensation has passed. Ernst & Young's appointment as the independent auditor for 2020 has been ratified, and the employee stock purchase plan has been approved.

Thank you. The final voting results will be filed with the SEC. Since there is no further business, I declare the meeting to be officially adjourned. We will now proceed with the informal portion of the meeting. At this time, I would like to ask our CEO, Mark Begor, to provide a brief presentation regarding the company. A question-and-answer period will follow his presentation.

Thank you, Mark. I'd like to direct our shareholders and other meeting guests to the slide presentation that's now visible on the meeting website, and I'll take you through an update on the company. First, before I start that, I'd like to thank the dedicated and selfless health care professionals, first responders and other volunteers who are on the front line fighting the coronavirus pandemic. They're the real heroes in this challenging time. First slide I'll go to, is an update on Equifax's performance in 2019. And on behalf of the 11,000 Equifax associates, I'm proud to share our strong performance last year with you. Our revenue was up 5.6% to $3.53 billion, our margins at 33.4%, and adjusted EPS of $5.62 from continuing operations. We also invested $292 million in our technology transformation, which I'll talk about a little bit later. We're also changing Equifax, the new Equifax, as we call it, with new values and purpose, focused on being a leading global data analytics and technology company with a purpose around helping people live their financial best. We're excited about the future of Equifax that this new format, a new role for the company. The next slide goes in some detail about the broad-based execution in 2019 by our business units. First, our largest business, USIS, had adjusted revenue growth of 4%. Our Workforce Solutions business based in The United States also with its unique income and employment data had revenue growth of 15%. Our international business, which operates in 25 countries around the globe, had revenue growth of 3% and our consumer business, which is a global business also, was down 3% but improved as it went through the year. We also made big investments in our Security, and our Cloud transformation, and technology, and continue to focus on our unique data assets and investing in data and analytics. The next slide gives you a breakdown of our diversified portfolio which we believe positions us well for this COVID economic environment and for the future. On the left-hand side, you can see a mix of our businesses between USIS, Workforce Solutions, International, and Global Consumer. And then on the right, you can see our customer base and how diversified we are between financial companies, telco, mortgage, auto, and so many other spaces. Equifax's differentiated data assets position us well in the marketplace. No one has this set of scale, differentiated data assets, including our U.S. credit file data assets, our U.S. telco, and utility data assets called NCTUE and our income employment data assets that's called our TWN database, along with wealth data and so many others in the United States and around the globe. And these really provide the foundation for Equifax to deliver for our customers, unique insights, and allow them to help them grow. As you know, in 2018, we announced a $1.25 billion 3-year program to transform our infrastructure and technology and data assets from a legacy environment to a cloud fabric. We believe this will accelerate our revenue growth and reduce our costs and capital expenditures in the company. The technology transformation benefits will include an Always -on capability, enhanced Security, a Speed & Latency that will be market-leading, ability to get products to market more quickly, a Single Data Fabric where we'll transform our multiple silo databases into a Single Data Fabric in the Google Cloud. The ability to move products around the globe very easily because of their -- they're going to be built in the cloud environment, in an operating scale, that's quite strong. As I said earlier, we expect this to improve our revenue growth in the future and also reduce our costs in technology by 10% to 15% and reduce our CapEx and increase our cash generation -- our cash efficiency by 25% to 35%. This is a bold and strong program and one that we're in year 3 of our 3-year cloud transformation program, which we're very excited about. Security remains a top priority and a part of our DNA at Equifax. Our 4 pillars of Security are around culture, compliance, controls, and customers. And our culture, it's really become and is an inherent part of our DNA about putting Security first. When you look at our total Security spend, it's up 3x from what it was before the cyber event in 2017. In 2019, we opened up a new 24/7 global security center. We call our global fusion center in Atlanta. And we're excited about the benefits that provides around managing our security footprint around the globe. We're committed for around security leadership at Equifax. The next slide gives you some perspectives on the COVID-19 response from Equifax. This has been a really unprecedented impact for everyone around the globe in every company. We set out 4 key priorities when we launched our COVID response about 10 weeks ago. First and foremost was to ensure the health and safety of our team and their families, and that will continue going forward; second was to ensure the continuous operations of the company for our customers and for consumers; third was to continue our investment in execution in our $1.25 billion cloud technology, data, and security transformation; and fourth was to continue our new product investments and make sure they're tailored for the recessionary environment. We scaled up a crisis management team that reports directly to me. I receive daily updates from the team and review frequently with the Board, our progress on managing the company during this COVID crisis. About 8 weeks ago, we moved 9,000 of our 11,000 employees from the office to working from home. We're operating quite effectively there, and we're now starting planning as shelter-in-place restrictions are being lifted for a return to office in the coming weeks. Our intention is to continue those priorities about putting the health and safety of our team first as we continue to operate through this unprecedented environment. Some of the other COVID actions that we take in quite quickly in this 8-week environment is, working with our customers on new recession tools. It's clear that this economy is going to be more challenging than anything we've seen in our lifetimes. And we want to make sure that Equifax's differentiated data is positioned to help support our customers manage through this. And we've been doing that through webinars, videos, calls, and analytics with our customers. We're rapidly rolling out new products, leveraging our differentiated data to support our customers. We're very active in this work-from-home environment of connecting with our customers to support them in this challenging time. To support consumers, we've rolled out in a number of markets, including The United States, the availability of free credit reports to help consumers navigate this challenging environment. And in the U.S., we're now offering for the next year, a free credit report every week. We're coordinating with our customers, the financial institutions around the forbearances, and the support they're giving consumers, and we're also supporting small businesses in this unprecedented time. We're also very proactive about supporting consumers. There's millions of consumers -- tens of millions of consumers around the globe that are now unemployed. They're going to struggle in paying their credit card bills or mortgage bills or auto bills, and we want to make sure we support them. We have on our website articles and videos and webinars to help support them as they manage through this challenging environment for them. We've rolled out, as I mentioned earlier, the free credit reports, not only here in the United States, but also in Canada. And we're also helping them with other tools in education on how they can manage in this challenging environment. This next slide really compares Equifax in 2008 to 2019. And obviously, Equifax is much larger at $3.5 billion versus $1.8 billion at that time. But when you look at the different businesses in Equifax, we think we're well positioned for this COVID recession. In 2008, about 40% of Equifax was positioned to grow through a recession and did. And in 2019, those same businesses are larger and a larger portion of Equifax, with now 55% of Equifax in a recession growth or countercyclical growth position. We think this positions Equifax extremely well to deliver for our shareholders and our customers in this COVID recession. And then lastly, it's a real priority for Equifax to give back to our communities. Equifax has been doing this for many, many years. In 2019, some of our community accomplishments include contributing or investing $2.6 million in our communities by the Equifax foundation. Our 11,000 employees invested 4,360 volunteer hours supporting different charities in our communities. We also have a gift matching program, where 332 of our employees donated over $366,000 in matches from Equifax to charities of their choice. And this will continue being a priority for Equifax in 2020. We'd like now to open up the meeting to shareholders to ask questions during a brief question-and-answer session. If you'd like to ask a question, please type your question into the Ask a Question field on the website and click submit. We will do our best to answer as many questions as we can today, subject to our meeting time constraints.

So one of the first questions we received is what is Equifax doing to prevent further data breaches? And as you might imagine, this is a real priority for Equifax. When I joined 2 years ago, in April, there was already a very significant effort underway to enhance our security and technology to ensure we are protected from data breaches. In my presentation, you heard me discuss that we've expanded our Security team and spending by 3x. We set out a goal after the cyber event that we intend to be an industry leader in Security, and that's still our goal today. Security has become an important part of our DNA and will continue going forward. Security is never done. It's one that we're going to be focused on in 2020, in '21 and '22. But we are immensely safer today, and we feel we're well protected against future security breaches, but we're going to continue to invest in our technology and our security protocols to make sure that we have industry leadership around security. There being no further questions, I now declare the meeting concluded. I'd like to thank you all for attending today's meeting and for your continued support of Equifax. Thank you.

This now concludes the meeting. Thank you for joining, and have a pleasant day.