Equifax Inc: Form 10-Q for the period ended Mar 31, 2020

As used herein, the terms Equifax, the Company, we, our and us refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.

All references to earnings per share data in Management’s Discussion and Analysis, or MD&A, are to diluted earnings per share, or EPS, unless otherwise noted. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding.

BUSINESS OVERVIEW

Equifax Inc. is a global data, analytics and technology company. We provide information solutions and human resources business process outsourcing services for businesses, governments and consumers. We have a large and diversified group of clients, including financial institutions, corporations, governments and individuals. Our services are based on comprehensive databases of consumer and business information derived from numerous sources including credit, financial assets, telecommunications and utility payments, employment, income, demographic and marketing data. We use advanced statistical techniques, machine learning and proprietary software tools to analyze available data to create customized insights, decision-making solutions and processing services for our clients. We also provide information, technology and services to support debt collections and recovery management. Additionally, we are a leading provider of payroll-related and human resource management business process outsourcing services in the United States of America, or U.S. For consumers, we provide products and services to help people understand, manage and protect their personal information and make more informed financial decisions.

We currently operate in four global regions: North America (U.S. and Canada), Asia Pacific (Australia, New Zealand and India), Europe (the United Kingdom, or U.K., Spain and Portugal) and Latin America (Argentina, Chile, Costa Rica, Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru and Uruguay). We maintain support operations in the Republic of Ireland, Chile, Costa Rica and India. We also offer Equifax branded credit services in Russia through a joint venture, have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia, Singapore and the United Arab Emirates, have an investment in a consumer and commercial credit information company in Brazil and have an investment in an identity authentication company in Canada.

Recent Events and Company Outlook

On March 11, 2020, the World Health Organization designated the novel coronavirus disease (“COVID-19”) as a global pandemic. In March of 2020, the impact of COVID-19 and related actions to attempt to control its spread began to impact our consolidated operating results. Through the end of February 2020, consolidated revenue showed significant growth versus the same two-month period in 2019. Principally beginning in the second half of March, however, year-over-year consolidated revenue trends materially weakened. We expect consolidated revenue to be negatively impacted in the second quarter of 2020, and for negative impacts to continue until economic conditions improve.

As further described in our 2019 Form 10-K, we operate in the United States, which represented 73% of our revenue in 2019, and internationally in 24 countries. Our products and services span a wide variety of vertical markets including financial services, mortgage, federal, state and local governments, automotive, telecommunications and many others. Since mid-March 2020, we have experienced significant declines in most vertical markets, including financial services, automotive and telecommunications. The exception, particularly in the United States, is primarily in the mortgage market and our unemployment cost management business in which we are seeing significant growth, and in certain government services and our consumer direct businesses which are seeing far smaller impacts. Due to this dynamic, at present, our revenue in the United States is being impacted substantially less than our revenue internationally. We are unable to determine the severity or duration of the impact of COVID-19 on Equifax, or how the impact on the individual markets in the countries we serve will change with time.

We expect that the global COVID-19 pandemic will continue to adversely impact our business and results of operations. During this uncertain time, our critical priorities are:

(i) the health and safety of our employees and their families;

(ii) providing support to consumers;

(iii) helping our customers execute their changing business plans by providing innovative solutions combining our unique data assets and leading analytical and technology capabilities; and

(iv) executing on our EFX2020 cloud technology, data and security transformation per our previously stated plans.

In the first quarter of 2020, we executed on our business continuity plans and formed a crisis management team to address the challenges related to the ongoing COVID-19 pandemic. Since March, our employees have been working from home in each country where we operate, with only essential employees in customer support and data center operations working on site at our facilities. For employees working at our facilities, we have instituted social distancing protocols, increased the level of cleaning and sanitizing in those facilities and undertaken other actions to make these sites safer. We have also substantially reduced employee travel to only essential business needs. As part of our business continuity plans, we are generally following the requirements and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments. We cannot predict when or how we will begin to lift the actions put in place as part of our business continuity plans, including work from home requirements and travel restrictions. As of the date of this filing, we do not believe our work from home protocol has materially adversely impacted our internal controls, financial reporting systems or our operations.

Our data and analytics, product and sales teams are focused on how to refine existing products and services, as well as generate new products and services, to meet changing needs of our customer in this environment. Our technology teams continue to execute on our EFX2020 cloud technology, data and security transformation, including the continued migration of our technology to cloud native environments. To date, the change in working environment has not caused meaningful disruptions in the execution of this plan.

As a response to the ongoing COVID-19 pandemic, we have implemented plans to manage our costs. We have significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer or regulatory needs, and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be considered. Any future asset impairment charges, increase in allowance for doubtful accounts, or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis.

At March 31, 2020, we had approximately $370 million in cash and $1.2 billion available to borrow under our revolving credit facility that matures in September 2023 and receivables funding facility that matures in December 2022. We recently amended our revolving credit facility to increase the maximum leverage ratio through 2021 to provide us with additional financial flexibility.

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that COVID-19 could have on our financial condition and operating results remains highly uncertain.

For more information, see “Item 1A. Risk Factors—Our business has been and will continue to be negatively impacted by the recent coronavirus outbreak.”

2017 Cybersecurity Incident

Litigation, Claims and Government Investigations. As a result of the 2017 cybersecurity incident, we are subject to a significant number of proceedings and investigations as described in Part II, “Item 1. Legal Proceedings” in this Form 10-Q.

We believe it is probable that we will incur losses associated with certain of the proceedings and investigations related to the 2017 cybersecurity incident. In 2019, we recorded expenses, net of insurance recoveries, of $800.9 million in other current liabilities and selling, general, and administrative expenses in our Consolidated Balance Sheets and Statements of Income (Loss), respectively, exclusive of our legal and professional services expenses. The amount accrued represents our best estimate of the liability related to these matters. The Company will continue to evaluate information as it becomes known and adjust accruals for new information and further developments in accordance with ASC 450-20-25. While it is reasonably possible that losses exceeding the amount accrued may be incurred, it is not possible at this time to estimate the additional possible loss in excess of the amount already accrued that might result from adverse judgments, settlements, penalties or other resolution of the proceedings and investigations described below based on a number of factors, such as the various stages of these proceedings and investigations, including matters on appeal, that alleged damages have not been specified or are uncertain, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues. The ultimate amount paid on these actions, claims and investigations in excess of the amount already accrued could be material to the Company’s consolidated financial condition, results of operations, or cash flows in future periods.

Future Costs. We are currently executing substantial initiatives in security and consumer support, and a company-wide transformation of our technology infrastructure, which we refer to as our technology transformation, and incurred substantial increased expenses and capital expenditures in 2019 related to these initiatives. We expect to continue to incur significant expenses and capital expenditures in 2020 related to these initiatives, at similar levels as those incurred in 2019.

We incurred significant legal and professional services expenses related to the lawsuits, claims and government investigations to which we were a party in 2019, and expect to continue to incur these expenses until all matters are fully resolved. However, we expect that the level of legal and professional service expenses related to these matters will be significantly lower in 2020 due to the settlement of all of the significant matters in the U.S in 2019.

We will recognize the expenses and capital expenditures referenced herein as they are incurred.

Segment and Geographic Information

Segments. The USIS segment, the largest of our four segments, consists of three service lines: Online Information Solutions; Mortgage Solutions; and Financial Marketing Services. Online Information Solutions and Mortgage Solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring, identity management, fraud detection and modeling services. USIS also markets certain decisioning software services, which facilitate and automate a variety of consumer and commercial credit-oriented decisions. Financial Marketing Services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers, cross selling to existing customers and managing portfolio risk.

The Workforce Solutions segment consists of the Verification Services and Employer Services business lines. Verification Services revenue is transaction-based and is derived primarily from employment and income verification. Employer Services revenues are derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings. These services include unemployment claims management, employment-based tax credit services and other complementary employment-based transaction services.

The International segment consists of Asia Pacific, Europe, Latin America and Canada. Canada’s services are similar to our USIS offerings, while Asia Pacific, Europe and Latin America are made up of varying mixes of service lines that are generally in our USIS segment. We also provide information and technology services to support lenders and other creditors in the collections and recovery management process.

Global Consumer Solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products, which we deliver electronically to consumers primarily via the internet in the U.S., Canada, and the U.K. We also sell consumer and credit information to resellers who combine our information with other information to provide direct-to-consumer monitoring, reports and scores.

Geographic Information. We currently have operations in the following countries: Argentina, Australia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Mexico, New Zealand, Paraguay, Peru, Portugal, the Republic of Ireland, Spain, the U.K., Uruguay and the U.S. We also offer Equifax branded credit services in Russia through a joint venture, have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia, Singapore, and the United Arab Emirates, have an investment in a consumer and commercial credit information company in Brazil, and have an investment in an identity authentication company in Canada. Approximately 76% and 72% of our revenue was generated in the U.S. during the three months ended March 31, 2020 and 2019, respectively.

Key Performance Indicators. Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include measurements of operating revenue, change in operating revenue, operating income, operating margin, net income, diluted earnings per share, cash provided by operating activities and capital expenditures. The key performance indicators for the three months ended March 31, 2020 and 2019 were as follows:

(In millions, except per share data)

*Amounts include accruals for capital expenditures.

Operational and Financial Highlights

• We did not repurchase shares of our common stock during the first three months of 2020. At March 31, 2020, $590.1 million was available for future purchases of common stock under our share repurchase authorization.
• We paid out $47.3 million or $0.39 per share in dividends to our shareholders during the first three months of 2020.

RESULTS OF OPERATIONS—THREE MONTHS ENDED MARCH 31, 2020 AND 2019

Consolidated Financial Results

Operating Revenue

(In millions)

Revenue increased by $111.8 million, or 13%, in the first three months of 2020 compared to the same period in 2019. Total revenue was negatively impacted by foreign exchange rates, which decreased revenue by $16.0 million, or 2%, for the first three months of 2020, compared to the same period in 2019.

Revenue in the first quarter of 2020 increased due to growth in our Workforce Solutions, USIS and GCS segments, partially offset by the negative foreign exchange impacts within our International segment. Revenue growth was negatively impacted due to a significant decline in the second half of March in non-mortgage related revenue in USIS and across International, due to the impact of COVID-19.

Operating Expenses

(In millions)

Cost of services increased $26.6 million in the first quarter of 2020, compared to the same period in 2019. The first quarter increase is due to an increase in royalty and production costs, partially offset by a decrease in incremental technology and data security costs related to our ongoing technology transformation. The impact of changes in foreign exchange rates on costs of services was a decrease of $7.0 million in the first quarter of 2020.

Selling, general and administrative expenses decreased $682.9 million in the first quarter of 2020, compared to the same periods in 2019 due to a $690.0 million legal accrual associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident recorded in the first quarter of 2019, that did not recur in 2020. The impact of changes in foreign currency exchange rates decreased selling, general and administrative expenses by $5.0 million in the first quarter of 2020.

Depreciation and amortization expense increased $14.3 million for the first quarter of 2020, compared to the same period in 2019. The increases are due to the higher amortization of capitalized internal-use software and system costs.

Operating Income and Operating Margin

(In millions)

Total company operating margin increased by 87.2% in the first quarter of 2020 compared to the same period in 2019.

The increased margin in the first quarter of 2020 is primarily due to increased revenue and the prior year accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident that did not recur in 2020, partially offset by increased royalty costs.

Interest Expense and Other Income, net

(In millions)

nm - not meaningful

Interest expense increased $4.0 million for the first quarter of 2020, compared to the same period in 2019. The increase is due to an increase in our consolidated debt balance resulting from the issuance of senior notes in fourth quarter of 2019.

Other income, net, increased by $43.2 million in the first quarter of 2020 compared to the same period in 2019. The increase is primarily due to a $32.9 million gain recorded related to a fair value adjustment of our equity investment in India, for which we completed the acquisition of the remaining shareholder interests in the first quarter of 2020, and gain on the foreign currency impact of certain intercompany loans.

Income Taxes

(In millions)

Our effective income tax rate is 23.9% for the three months ended March 31, 2020 compared to a 13.7% benefit for the three months ended March 31, 2019. Our effective tax rate was higher during the first quarter of 2020 as compared to 2019 due to permanent tax differences resulting from the accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident included in the 2019 effective tax rate. The 2020 first quarter rate has been adversely impacted by valuation allowances against the deferred tax assets of certain international operations, however this impact was partially offset by favorable adjustments related to the 2019 legal proceedings.

Net Income

(In millions, except per share amounts)

Consolidated net income (loss) increased by $668.9 million in the first quarter of 2020, compared to the same period in 2019. The increase in the first quarter of 2020 is due to increased operating income resulting from the increase in revenue, the prior year accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident that did not recur in 2020 and an increase in Other Income resulting from the fair value adjustment of the India equity investment, partially offset by an increase in tax expense, depreciation of capitalized projects, and royalty costs.

Segment Financial Results

USIS

(In millions)

USIS revenue increased by 15% in the first quarter of 2020, compared to the same period in 2019. The increases are due to improvements in our core credit decisioning services volumes, improvement in mortgage market inquiries and revenue from acquisitions.

Online Information Solutions

Revenue increased by 16% in the first quarter of 2020 compared to the same period in 2019. The increase in the first quarter is due to an increase in core credit decisioning services volumes and revenue from an acquisition that occurred in the second quarter of 2019. In the latter half of March, non-mortgage online revenue declined due to the impact of COVID-19.

Mortgage Solutions

Revenue increased by 33% for the first quarter of 2020, compared to the same period in 2019. The increase is due to increased mortgage market transaction volumes.

Financial Marketing Services

Revenue decreased 2% for the first quarter of 2020, compared to the same period in 2019 due to the timing of project related revenue.

USIS Operating Margin

USIS operating margin decreased slightly from 32.2% in the first quarter of 2019 to 31.4% in the first quarter of 2020. The margin decrease during the first quarter of 2020 was due to the increase in royalty and technology costs, as well as incremental technology and data security costs.

Workforce Solutions

(In millions)

Workforce Solutions revenue increased by 32% in the first quarter of 2020, compared to the same period in 2019. The increase for the first quarter was due to strong growth in Verification Services and a slight increase in Employer Services, driven by growth in unemployment claims management in March.

Verification Services

Revenue increased by 48% in the first quarter of 2020, compared to the same period in 2019 due to strong growth in the mortgage and government verticals and continued addition of new records to The Work Number database. In the second half of March, revenue from the commercial non-mortgage segment of Verification Services, including the talent acquisition, debt management and auto segments, began to see declines in revenue versus the same period in 2019 due to the impact of COVID-19.

Employer Services

Revenue increased by 2% in the first quarter of 2020, compared to the same period in 2019. The increase is due to increases in our unemployment claims management services that occurred in the second half of March as US unemployment claims increased substantially, and acquisition revenue.

Workforce Solutions Operating Margin

Operating margin increased to 44.3% for the first quarter of 2020 from 42.1% for the first quarter of 2019. The increased margin was due to the increase in revenue and partially offset by increases in royalty, people, and technology costs.

International

(In millions)

International revenue decreased by 4% in the first quarter of 2020, compared to the same period in 2019. Local currency revenue growth for the first quarter of 2020 was 3%, driven by growth across the Latin America, Asia Pacific and Canada regions. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $15.8 million, or 7%, during the first quarter of 2020. Revenue growth was negatively impacted due to a significant decline in volume in the second half of March in each of the four regions within our International business, due to the impact of COVID-19.

Asia Pacific

On a local currency basis, revenue increased 3% in the first quarter of 2020, compared to the same period in 2019. The increase in the first quarter of 2020 was driven by an increase in our commercial business, higher click volumes and acquisition revenue, partially offset by decreases in our marketing services and direct-to-consumer related revenue. Local currency fluctuations negatively impacted revenue by $5.7 million, or 8% for the first quarter of 2019. Reported revenue decreased by 5% in the first quarter of 2020.

Europe

On a local currency basis, revenue decreased by 1% in first quarter of 2020 compared to the same period in 2019. The decreases are primarily in the U.K. consumer credit business, driven by the impacts related to COVID-19 on online volumes and Spain debt services. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $1.4 million, or 2%, for the first quarter of 2020. Reported revenue decreased by 3% in the first quarter of 2020.

Latin America

On a local currency basis, revenue increased by 9% in the first quarter of 2020, compared to the same period in 2019. The increase was driven by growth in consumer credit operations in Argentina and Chile. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $8.3 million, or 17%, in the first quarter of 2020, primarily from Argentina and Chile. Reported revenue decreased by 8% in the first quarter of 2020.

Canada

On a local currency basis, revenue increased by 2% in the first quarter of 2020, compared to the same period in 2019. The increase is due to growth in consumer credit revenues. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $0.4 million, or 1%, in the first quarter of 2020. Reported revenue increased by 1% in the first quarter of 2020.

International Operating Margin

Operating margin increased to 7.1% in the first quarter of 2020 from 5.0% in the first quarter of 2019. The increased margin in the first quarter was due to a decrease in people costs driven by restructuring actions taken in 2019.

Global Consumer Solutions

(In millions)

Revenue increased 3% for the first quarter of 2020, compared to the same period in 2019. The increase in the first quarter of 2020 was driven by an increase in North America partner and benefits revenue, partially offset by a decrease in direct to consumer revenue. Local currency fluctuations had minimal impact on the first quarter of 2020.

Global Consumer Solutions Operating Margin

Operating margin increased to 13.5% in the first quarter of 2020 from 12.1% in the first quarter of 2019. The increased margin in the first quarter is due to an increase in revenue and decrease in people costs, partially offset by an increase in production costs and software expenses.

General Corporate Expense

(In millions)

Our general corporate expenses are unallocated costs that are incurred at the corporate level and include those expenses impacted by corporate direction, including shared services, technology, security, data and analytics, administrative, legal, restructuring, and the portion of management incentive compensation determined by total company-wide performance.

General corporate expense decreased $699.1 million in the first quarter of 2020, compared to the prior year periods. The decrease in the first quarter is primarily due to an accrual of $690.0 million for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident and restructuring charges recorded in the prior year, that did not recur in 2020.

LIQUIDITY AND FINANCIAL CONDITION

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We continue to generate substantial cash from operating activities, remain in a strong financial position, and manage our capital structure to meet short- and long-term objectives including reinvestment in existing businesses and strategic acquisitions.

Sources and Uses of Cash

Funds generated by operating activities, our Revolver and related commercial paper program and our Receivables Facility, more fully described below, are our most significant sources of liquidity. The Company has and expects to make payments to resolve certain legal proceedings and investigations related to the 2017 cybersecurity incident, described more fully in “Item 1. Legal Proceedings” in this Form 10-Q. Through March 31, 2020, the Company made payments of $391.2 million for legal settlements related to the 2017 cybersecurity incident. The remaining $355.3 million to be paid to the Consumer Restitution Fund will be made after a final adjudication affirming the U.S. Consumer MDL Litigation Settlement or dismissal of the pending appeals. Although we expect this payment and the remaining settlement payments to be made later in 2020 or 2021, we can give no assurance that these payments will occur in 2020 due to pending approvals or appeals. As a result of the possible payments that could be made in 2020 related to the losses associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident, funds generated by operating activities are not expected to be sufficient to fund working capital and other cash requirements throughout 2020. Our plan is to finance the payments with existing borrowing capacity, including under our Revolver. At March 31, 2020, $1.1 billion was available to borrow under our Revolver. As of March 31, 2020, $100.0 million was available to borrow under our Receivables Facility. In the event that additional financing is needed, we would finance using the public and private corporate bond markets and/or syndicated loan markets, if available.

Fund Transfer Limitations. The ability of certain of our subsidiaries and associated companies to transfer funds to the U.S. may be limited, in some cases, by certain restrictions imposed by foreign governments. These restrictions do not, individually or in the aggregate, materially limit our ability to service our indebtedness, meet our current obligations or pay dividends. As of March 31, 2020, we held $159.7 million of cash in our foreign subsidiaries.

Information about our cash flows, by category, is presented in the Consolidated Statements of Cash Flows. The following table summarizes our cash flows for the three months ended March 31, 2020 and 2019:

(In millions)

Operating Activities

Cash provided by operating activities in the three months ended March 31, 2020 was relatively flat compared the prior year period. The increased net income was offset by the partial payment of accrued losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident, net of insurance proceeds, and decreases in net working capital.

Investing Activities

Capital Expenditures

(In millions)

*Amounts above are total cash outflows for capital expenditures.

Our capital expenditures are used for developing, enhancing and deploying new and existing software in support of our expanding product set, replacing or adding equipment, updating systems for regulatory compliance, the licensing of standard software applications, investing in system reliability, security and disaster recovery enhancements, and updating or expanding our office facilities.

Capital expenditures paid in the first three months of 2020 decreased by $26.8 million from the same period in 2019. We are continuing to invest in enhanced technology systems, infrastructure and data security after the 2017 cybersecurity incident.

Acquisitions, Divestitures and Investments

(In millions)

During the first three months of 2020, we acquired the remaining interest in our India joint venture, within the International segment. During the first three months of 2019, we completed an acquisition in our Workforce Solutions segment.

Financing Activities

Borrowings and Credit Facility Availability

(In millions)

Credit Facility Availability

In September 2018, the Company entered into a $1.1 billion five-year unsecured revolving credit facility with a group of financial institutions, which will mature in September 2023 (the “Revolver”). In the second quarter of 2019, we increased our commercial paper program to $1.1 billion. Borrowings under the Revolver may be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchase programs. The Revolver has an accordion feature that allows us to request an increase in the total commitment to $1.6 billion. The Revolver includes an option to request a maximum of two one-year extensions of the maturity date, any time after the first anniversary of the Revolver closing. We believe we are currently in compliance with all representations and warranties necessary as a condition for borrowing under the Revolver, but we cannot assure that we will be able to comply with all such conditions to borrowing in the future. Availability of the Revolver is reduced by the outstanding principal balance of our commercial paper notes and by any letters of credit issued under the facility.

Our $1.1 billion commercial paper (CP) program has been established to allow for borrowing through the private placement of CP with maturities ranging from overnight to 397 days. We may use the proceeds of CP for general corporate purposes. The CP program is supported by our Revolver and the total amount of CP which may be issued is reduced by the amount of any outstanding borrowings under our Revolver.

As of March 31, 2020, there were $0.7 million of letters of credit issued under the Revolver, no principal drawn amounts under the Revolver, and no commercial paper borrowings. Availability under the Revolver was $1.1 billion at March 31, 2020.

At March 31, 2020, 88% of our debt was fixed-rate debt and 12% was effectively variable debt. Our variable-rate debt consists of the Floating Rate Senior Notes, our commercial paper and our Receivables Facility. The interest rates reset periodically, depending on the terms of the respective financing agreements. At March 31, 2020, the interest rates on our variable-rate debt ranged from 2.56% to 2.63%.

Borrowing and Repayment Activity

We primarily borrow under our CP program, on our Revolver, or our Receivables Facility as needed and availability allows.

Net short-term borrowings primarily represent borrowings or repayments of outstanding amounts under our CP program. The increase in the first three months of 2019 primarily reflect the net activity of CP notes.

Payments on long-term debt reflect $25.0 million payments made on our Receivables Facility in first three months of 2019.

Borrowings on long-term debt represent the net proceeds received from draw downs on our Receivables Facility in the first three months of 2020 and 2019.

There were $125.0 million of borrowings under the Receivables Facility as of March 31, 2020. The Receivables Facility was supported by $276.1 million of accounts receivable as collateral at March 31, 2020 which, as a retained interest, is included in accounts receivable, net in our Consolidated Balance Sheets.

Debt Covenants. A downgrade in our credit ratings would increase the cost of borrowings under our CP program and Revolver, and could limit or, in the case of a significant downgrade, preclude our ability to issue CP. Our outstanding indentures and comparable instruments also contain customary covenants including, for example, limits on mortgages, liens, and sale/leaseback transactions. In addition, the Revolver requires us to maintain a maximum leverage ratio of not more than 3.5 to 1.0. As permitted under the terms of the Revolver, we made the election to increase the covenant to 4.0 to 1.0, effective for four consecutive quarters, beginning in the second quarter of 2019 and continuing through the first quarter of 2020. As of March 31, 2020, we were in compliance with all of our debt covenants.

On April 10, 2020, we amended our existing revolving credit facility to increase the maximum leverage ratios to provide additional financial flexibility. The Amendment increases the maximum leverage ratio, defined as consolidated funded debt divided by consolidated EBITDA for the preceding four quarters, to (i) 4.5 to 1.0 for fiscal quarters ending on June 30, 2020 through and including September 30, 2021 and (ii) 4.0 to 1.0 for the fiscal quarter ending on December 31, 2021. The maximum leverage ratio will return to 3.5 to 1.0 beginning with the fiscal quarter ending March 31, 2022 and thereafter. Beginning January 1, 2021, the Company may also elect to increase the maximum leverage ratio by 0.5 to 1.0 (not to exceed 4.5 to 1.0) in connection with certain material acquisitions if the Company satisfies certain requirements.

The Amendment also (i) permits cash in excess of $200 million to be netted against debt in the calculation of the leverage ratio through September 30, 2021, subject to certain restrictions and (ii) extends the add-back of certain expenses related to the 2017 cybersecurity incident to the definition of Consolidated EBITDA through December 31, 2021.

The Company does not have any credit rating triggers that would accelerate the maturity of a material amount of our outstanding debt; however, our 2.3% senior notes due 2021, 3.6% senior notes due 2021, floating rate notes due 2021, 3.3% senior notes due 2022, 3.95% senior notes due 2023, 3.25% senior notes due 2026, and 7.0% senior notes due 2037 (together, the “Senior Notes”) contain change in control provisions. If the Company experiences a change in control or publicly announces the Company’s intention to effect a change in control and the rating on the Senior Notes is lowered by each of Standard & Poor’s, or S&P, and Moody’s Investors Service, or Moody’s, below an investment grade rating within 60 days of such change in control or notice thereof, we will be required to offer to repurchase the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest. As of March 31, 2020, our S&P credit rating was BBB with a negative outlook and our Moody’s credit rating was Baa1 with a negative outlook. These ratings are subject to change as events and circumstances change. In April of 2020, our Moody's credit rating was revised one-notch lower to Baa2 and our outlook revised to stable.

For additional information about our debt, including the terms of our financing arrangements, basis for floating interest rates and debt covenants, see Note 5 of the Notes to Consolidated Financial Statements in our 2019 Form 10-K.

Equity Transactions

(In millions)

Sources and uses of cash related to equity during the three months ended March 31, 2020 and 2019 were as follows:

• During the first three months of 2020 and 2019, we did not repurchase any shares of our stock.
• We maintained our quarterly dividend of $0.39 per share in the first quarter of 2019. We paid cash dividends to Equifax shareholders of $47.3 million and $47.1 million, or $0.39 per share, during the three months ended March 31, 2020 and 2019, respectively.
• We received cash of $16.7 million and $1.9 million during the first three months of 2020 and 2019, respectively, from the exercise of stock options.

At March 31, 2020, the Company had $590.1 million remaining for stock repurchases under the existing Board authorization.

Contractual Obligations, Commercial Commitments and Other Contingencies

Our contractual obligations have not changed materially from those reported in our 2019 Form 10-K. For additional information about certain obligations and contingencies, see Note 5 of the Notes to Consolidated Financial Statements in this Form 10-Q.

Off-Balance Sheet Arrangements

There have been no material changes with respect to our off-balance sheet arrangements from those presented in our 2019 Form 10-K.

Benefit Plans

At December 31, 2019, our U.S. Retirement Income Plan, or USRIP, met or exceeded ERISA’s minimum funding requirements. In the future, we expect to make minimum funding contributions as required and may make discretionary contributions, depending on certain circumstances, including market conditions and our liquidity needs. We believe additional funding contributions, if any, would not prevent us from continuing to meet our liquidity needs, which are primarily funded from cash flows generated by operating activities, available cash and cash equivalents, our CP program, our Revolver and our Receivables Facility.

For our non-U.S., tax-qualified retirement plans, we fund an amount sufficient to meet minimum funding requirements but no more than allowed as a tax deduction pursuant to applicable tax regulations. For our non-qualified supplementary retirement plans, we fund the benefits as they are paid to retired participants, but accrue the associated expense and liabilities in accordance with GAAP.

For additional information about our benefit plans, see Note 9 of the Notes to Consolidated Financial Statements in our 2019 Form 10-K.

Seasonality

Traditionally we experience seasonality in certain of our revenue streams. Revenue generated by the online consumer information services component of our USIS operating segment are typically the lowest during the first quarter, when consumer lending activity is at a seasonal low. Revenue generated from the Employer Services business unit within the Workforce Solutions operating segment is generally higher in the first quarter due primarily to the provision of Form W-2, 1094, and 1095 preparation services which occur in the first quarter each year. Revenue generated from our financial wealth asset products and data management services in our Financial Marketing Services business are generally higher in the fourth quarter each year. Mortgage related revenue is generally higher in the second and third quarters of the year due to the increase in consumer home purchasing during the summer in the U.S. Due to the COVID-19 pandemic, as described above within “Recent Events and Company Outlook,” we are unsure of how future results will compare to historic seasonality trends.

Foreign Currency

Argentina has experienced multiple periods of increasing inflation rates, devaluation of the peso, and increasing borrowing rates. As such, Argentina has been deemed a highly inflationary economy by accounting policymakers. Beginning in the third quarter of 2018, we have accounted for Argentina as highly inflationary which resulted in the recognition of a $0.2 million foreign currency loss that was recorded in other income, net in our Consolidated Statements of Income (Loss) during the three months ended March 31, 2020.

RECENT ACCOUNTING PRONOUNCEMENTS

For information about new accounting pronouncements and the potential impact on our Consolidated Financial Statements, see Note 1 of the Notes to Consolidated Financial Statements in this Form 10-Q and Note 1 of the Notes to Consolidated Financial Statements in our 2019 Form 10-K.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP. This requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our Consolidated Financial Statements and the Notes to Consolidated Financial Statements. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates and assumptions about the effects of matters that are inherently uncertain. The “Application of Critical Accounting Policies and Estimates” section in the MD&A, and Note 1 of the Notes to Consolidated Financial Statements, in our 2019 Form 10-K describe the significant accounting estimates and policies used in the preparation of our Consolidated Financial Statements. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of our 2019 Form 10-K. There were no material changes to our market risk exposure during the three months ended March 31, 2020.

As of the end of the period covered by this report, an evaluation was carried out by the Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes with respect to the risk factors disclosed in our 2019 Form 10-K except as set forth below. The risk factors set forth below update, and should be read together with, the risk factors in our 2019 Form 10-K.

Our business has been and will continue to be negatively impacted by the recent COVID-19 outbreak.

We face various risks related to health epidemics, pandemics and similar outbreaks, including the recent global outbreak of COVID-19. The COVID-19 pandemic and the mitigation efforts by governments to attempt to control its spread have adversely impacted the global economy, leading to reduced consumer spending and lending activities and disruptions and volatility in the global capital markets. Our customers, and therefore our business and revenues, are sensitive to negative changes in general economic conditions. As a result, we experienced a significant decline in revenue during the second half of March 2020. We expect that the negative impacts of the COVID-19 pandemic on our operating revenue may continue until economic conditions improve.

We continue to work with our stakeholders (including customers, employees, consumers, suppliers, business partners and local communities) to responsibly address this global pandemic. We will continue to monitor the situation and assess possible implications to our business and our stakeholders and will take appropriate actions in an effort to mitigate adverse consequences. We cannot assure you that we will be successful in any such mitigation efforts. The extent to which the coronavirus will continue to 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, outbreaks occurring at any of our facilities, the actions taken to control the spread of COVID-19 or treat its impact, and changes in worldwide and U.S. economic conditions. Further deteriorations in economic conditions, as a result of the COVID-19 pandemic 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 such financing. We cannot at this time predict the extent of the impact of the COVID-19 pandemic and its resulting economic impact, but it could have a material adverse effect on our business, financial position, results of operations and cash flows. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019, such as our need to generate sufficient cash flows to service our indebtedness and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise.