What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-20 compared with 2022-10-20 · 158 added, 256 removed, 237 unchanged (64% of the section changed)

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MD&A is provided as a supplement to and should be read in conjunction with our consolidated financial statements and the accompanying Notes to Financial Statements in Item 1 of this Form 10-Q.

This section discusses the results of our operations for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

This section discusses the results of our operations for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

All percentages have been calculated using unrounded amounts for each of the periods presented.

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We use advanced statistical techniques, machine learning and proprietary software tools to analyze available data to create customized insights, decision-making and process automation solutions and processing services for our clients.

We are a leading provider of information and solutions used in payroll-related and human resource management business process services in the U.S.

We are a leading provider of e-commerce fraud and charge back protection services in North America as well as information and solutions used in payroll-related and human resource management business process services in the 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.

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North America (U.S.

and Canada), Asia Pacific (Australia, New Zealand and India), Europe (the U.K., Spain and Portugal) and Latin America (Argentina, Chile, Costa Rica, Dominican Republic,

Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru and Uruguay).

and Canada), Asia Pacific (Australia, New Zealand and India), Europe (the U.K., Spain and Portugal) and Latin America (Argentina, Chile, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru and Uruguay).

We maintain support operations in the Republic of Ireland, Chile, Costa Rica and India.

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Recent Events and Company Outlook

As further described in our 2021 Form 10-K, we operate in the U.S., which represented 78% of our revenue in 2021, and internationally in more than 20 countries.

Our products and services span a wide variety of vertical markets including financial services, mortgage, federal, state and local governments, automotive, telecommunications, background screening and many others.

Demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity, small business commercial credit, marketing activity and employee hiring and onboarding activity.

The impact of the COVID-19 pandemic and related actions to attempt to control its spread began to impact our consolidated operating results in the first quarter of 2020.

During 2020, overall revenue grew, reflecting strong U.S.

mortgage market demand in 2020 compared to 2019 and growth across our Workforce Solutions business.

In 2021 and 2022 to-date, as efforts to minimize the spread of COVID-19 were more successful and access to vaccinations increased, our consolidated revenue grew when compared to prior year, reflecting recovering country economies, growth from Equifax initiatives and, to a lesser extent, revenue from acquired companies.

The continued impact of the COVID-19 pandemic remains uncertain and may affect certain markets or regions we serve differently.

To date, changes to our working environment as a result of COVID-19 have not caused material disruptions in the execution of our strategic plans and have not impacted our internal controls, financial reporting systems or operations.

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 unclear.

For more information, see “Item 1A.

Risk Factors— Our business has been and may continue to be negatively impacted by the COVID-19 pandemic,” in our 2021 Form 10-K.

In the United States, we expect 2022 economic activity, as measured by GDP, to be up from the levels seen in 2021, however not at the same levels of growth experienced in 2021.

We expect modest growth in consumer credit, excluding mortgage, over the course of 2022.

Our outlook assumes the U.S.

mortgage market, as measured by credit inquiries, will decline by greater than 50 percent on average for the remaining three months of 2022 versus the same period in 2021.

mortgage market, particularly the mortgage purchase portion of the U.S.

mortgage market, can be further impacted by U.S.

As further described in our 2022 Form 10-K, we operate in the U.S., which represented 78% of our revenue in 2022, and internationally in 19 countries.

Our products and services span a wide variety of vertical markets including financial services, mortgage, talent solutions, federal, state and local governments, automotive, telecommunications, e-commerce and many others.

Demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity, small business commercial credit, marketing activity, identity and fraud, and employee hiring and onboarding activity.

Demand is also enhanced by our initiatives to expand our products, capabilities and markets served.

For 2023, we expect that U.S.

economic activity, as measured by GDP, to grow but at a slower rate of growth than experienced in 2022.

Our forecast assumes the U.S.

mortgage market, as measured by originations, is expected to decline by about 32% in 2023 versus 2022.

mortgage market, particularly the mortgage refinance portion of the U.S.

mortgage market, can be significantly impacted by U.S.

interest rates and therefore mortgage rates.

The mortgage refinancing market declined significantly in the third quarter and we expect refinancing activity to remain at very low levels given current mortgage interest rates.

We expect mortgage activity to remain weak in the first quarter of 2023.

In the international markets in which we operate, we expect 2022 economic activity, as measured by GDP, to grow but less than the rates of growth experienced in 2021, and much less in our Latin American markets, particularly Chile and Argentina.

In the International markets in which we operate, in particular in Australia, the U.K.

and Canada, our forecast also assumes economic activity, as measured by GDP, to grow in 2023 but at slower rates than in 2022.

Segment and Geographic Information

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.

Verification Services revenue is transaction-based and is derived primarily from employment and income verification, as well as criminal justice data.

Employer Services revenue is derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings.

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Canada’s services are similar to our USIS offerings.

Asia Pacific, Europe and Latin America are made up of varying mixes of service lines that are generally

consistent with those in our USIS reportable segment.

Asia Pacific, Europe and Latin America are made up of varying mixes of service lines that are generally consistent with those in our USIS reportable segment.

We also provide information and technology services to support lenders and other creditors in the collections and recovery management process.

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We previously had a joint venture in Russia that offered consumer credit services;

however, during the third quarter of 2022, we completed the sale of this equity method investment.Approximately 77% and 78% of our revenue was generated in the U.S.

during the three months ended September 30, 2022 and 2021, respectively.

Approximately 78% of our revenue was generated in the U.S.

during the nine months ended September 30, 2022 and 2021, respectively.

however, during the third quarter of 2022, we completed the sale of this equity method investment.

Approximately 78% and 79% of our revenue was generated in the U.S.

during the three months ended March 31, 2023 and 2022, respectively.

We experience seasonality in certain of our revenue streams.

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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.

Any change in the U.S.

change in the U.S.

mortgage market has a corresponding impact on revenue and operating profit for our business within the Workforce Solutions and USIS operating segments.

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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 and nine months ended September 30, 2022 and 2021 were as follows:

The key performance indicators for the three months ended March 31, 2023 and 2022 were as follows:

Key Performance Indicators

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In millions, except per share data)

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Operational and Financial Highlights

• We did not repurchase any shares from public market transactions in 2022.

We repurchased 0.4 million shares of our common stock on the open market for $69.9 million during the first nine months of 2021.

At September 30, 2022, $520.2 million was available for future purchases of common stock under our share repurchase authorization.

• We paid out $143.3 million or $1.17 per share in dividends to our shareholders during the first nine months of 2022.

RESULTS OF OPERATIONS—THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

• We did not repurchase any shares from public market transactions during the first three months of 2023 and 2022.

At March 31, 2023, $520.2 million was available for future purchases of common stock under our share repurchase authorization.

• We paid out $47.9 million or $0.39 per share in dividends to our shareholders during the first three months of 2023.

RESULTS OF OPERATIONS—THREE MONTHS ENDED MARCH 31, 2023 AND 2022

Consolidated Financial Results

Operating Revenue

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Consolidated Operating Revenue 2023 2022 $ %

(In millions) (In millions)

(In millions)

Workforce Solutions $ 596.3 $ 649.0 $ (52.7) (8) %

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Consolidated operating revenue $ 1,302.0 $ 1,363.2 $ (61.2) (4) %

Revenue increased by $21.4 million, or 2%, and by $253.6 million, or 7%, for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Total revenue was negatively impacted by foreign exchange rates, which decreased revenue by $28.6 million, or 2%, and $64.2 million, or 2%, for the third quarter and first nine months of 2022, compared to the same periods in 2021.

Revenue in the third quarter and first nine months of 2022 increased primarily due to growth in Workforce Solutions and International, partially offset by a decline in the USIS business.

Revenue decreased by $61.2 million, or 4% for the first quarter of 2023, compared to the same period in 2022.

Total revenue was negatively impacted by foreign exchange rates, which decreased revenue by $23.4 million, or 2%, for the first quarter of 2023, compared to same period in 2022.

Revenue in the first quarter of 2023 decreased primarily due to declines in Workforce Solutions, mainly Verification Services, and USIS, due to declines in the U.S.

mortgage market.

Operating Expenses

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Consolidated Operating Expenses 2023 2022 $ %

(In millions) (In millions)

(In millions)

Consolidated cost of services $ 580.4 $ 553.4 $ 27.0 5 %

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Consolidated operating expenses $ 1,096.6 $ 1,030.8 $ 65.8 6 %

Cost of services increased $53.5 million and $182.7 million in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases for both periods were primarily due to higher royalty costs, people costs and production costs, which include third party cloud usage fees and software costs.

The impact of changes in foreign exchange rates on costs of services led to a decrease of $15.3 million and $34.2 million in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Selling, general and administrative expenses decreased $26.2 million and increased $7.1 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decrease in the third quarter of 2022 was due to decreases in people costs, primarily related to incentive plans, and professional fees.

The increase in the first nine months of 2022 was primarily driven by an increase in costs as a result of 2021 and 2022 acquisitions.

The impact of changes in foreign currency exchange rates led to a decrease in selling, general and administrative expenses of $7.8 million and $17.8 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Depreciation and amortization expense increased $24.4 million and $69.6 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases in both periods were due to the higher amortization of purchased intangible assets related to recent acquisitions and increased amortization of capitalized internal-use software and system costs from technology transformation capital spending incurred previously.

The impact of changes in foreign currency exchange rates led to a decrease in depreciation and amortization expense of $3.3 million and $8.1 million, for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

Cost of services increased $27.0 million in the first quarter of 2023, compared to the same period in 2022.

The increase was primarily due to higher people costs and royalty costs, as well as higher third party cloud usage fees and software costs.

The impact of changes in foreign exchange rates on costs of services led to a decrease of $10.7 million in the first quarter of 2023, compared to the same period in 2022.

Selling, general and administrative expenses increased $25.8 million for the first quarter of 2023, compared to the same period in 2022.

The increase was primarily due to increases in people costs.

The impact of changes in foreign currency exchange rates led to a decrease in selling, general and administrative expenses of $6.4 million for the first quarter of 2023, compared to the same period in 2022.

Depreciation and amortization expense increased $13.0 million for the first quarter of 2023, compared to the same period in 2022.

The increase was due to the higher amortization of purchased intangible assets related to recent acquisitions and increased amortization of capitalized internal-use software and system costs from technology transformation capital spending incurred previously.

The impact of changes in foreign currency exchange rates led to a decrease in depreciation and amortization expense of $2.0 million for the first quarter of 2023 compared to the same period in 2022.

Operating Income and Operating Margin

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Consolidated Operating Income 2023 2022 $ %

(In millions) (In millions)

(In millions)

Consolidated operating revenue $ 1,302.0 $ 1,363.2 $ (61.2) (4) %

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Consolidated operating income $ 205.4 $ 332.4 $ (127.0) (38) %

Consolidated operating margin 19.5 % 22.3 % (2.8) pts 22.4 % 24.1 % (1.7) pts

Total company operating margin decreased by 2.8 percentage points and 1.7 percentage points in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The margin decrease was due to the aforementioned increased operating expense and amortization expense that outpaced revenue growth during the period.

Consolidated operating margin 15.8 % 24.4 % (8.6) pts

Total company operating margin decreased by 8.6 percentage points in the first quarter of 2023, compared to the same period in 2022.

The margin decrease was due to the aforementioned decreased revenue and increased operating expenses and amortization expense.

Interest Expense and Other Income, net

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Consolidated Interest Expense and Other Income, net 2023 2022 $ %

(In millions) (In millions)

(In millions)

Consolidated interest expense $ (57.6) $ (39.7) $ (17.9) 45 %

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Average cost of debt 4.0 % 2.8 %

Total consolidated debt, net, at quarter end $ 5,882.1 $ 5,470.0 $ 412.1 8 % $ 5,882.1 $ 5,470.0 $ 412.1 8 %

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Interest expense increased by $12.1 million and $21.4 million in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increase for the third quarter and first nine months of 2022 was due to higher debt balances in 2022 when compared to the same periods of 2021 due to the purchase of Insights in the fourth quarter of 2021 and the issuance of 5.1% Senior Notes in the third quarter of 2022.

Other income, net, decreased by $3.3 million in the third quarter of 2022, as compared to the same period in 2021.

Other income, net, increased by $4.5 million in the first nine months of 2022, compared to the same period in 2021.

The decrease for the third quarter of 2022 was due to the fair value adjustment of our investment in Brazil offset by gains associated with the sale of an equity method investment.

The increase for the first nine months of 2022 was due to gains associated with the sale of equity method investments offset by the fair value adjustment of our investment in Brazil.

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Total consolidated debt, net, at quarter end $ 5,803.0 $ 5,814.0 $ (11.0) nm

Interest expense increased by $17.9 million in the first quarter of 2023, compared to the same period in 2022.

The increase for the first quarter of 2023 was due to a higher weighted average outstanding amount of debt and higher interest costs attributable to debt agreements entered into during 2022.

Other income, net, decreased $6.7 million in the first quarter of 2023, as compared to the same period in 2022.

The decrease for the first quarter of 2023 was due to the lower fair value adjustment of our investment in Brazil as compared to the same period in 2022.

Three Months Ended March 31, Change

Consolidated Provision for Income Taxes 2023 2022 $ %

(In millions) (In millions)

(In millions)

Consolidated provision for income taxes $ (38.7) $ (81.0) $ 42.3 (52) %

Effective income tax rate 25.4 % 26.7 %

Our effective income tax rate was 24.0% for the three months ended September 30, 2022, compared to 22.1% for the three months ended September 30, 2021.

Our effective income tax rate was 25.0% for the nine months ended September 30, 2022, compared to 22.9% for the nine months ended September 30, 2021.

Our effective tax rate was higher for the third quarter and first nine months of 2022 as compared to 2021 due to a greater foreign income tax rate differential.

The increase in the foreign rate differential was primarily driven by higher taxes on foreign earnings.

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Our effective income tax rate was 25.4% for the three months ended March 31, 2023, compared to 26.7% for the three months ended March 31, 2022.

Our effective tax rate was lower during the first quarter of 2023 as compared to 2022 primarily due to an unfavorable impact of a state law change that was reflected in the prior year.

Three Months Ended March 31, Change

Consolidated Net Income 2023 2022 $ %

(In millions, except per share amounts) (In millions, except per share amounts)

(In millions, except per share amounts)

Consolidated operating income $ 205.4 $ 332.4 $ (127.0) (38) %

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Weighted-average shares used in computing diluted earnings per share 123.5 123.5

Consolidated net income decreased by $39.7 million and $34.4 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decreases for both periods of 2022 are due to lower levels of operating income and higher interest expense in 2022.

Consolidated net income decreased by $109.3 million for the first quarter of 2023, compared to the same period in 2022.

The decrease for the first quarter of 2023 was due to the decrease in operating income from decreased revenue and increased operating expenses and interest expense, partially offset by decreased tax expense.

Segment Financial Results

Workforce Solutions

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Workforce Solutions 2023 2022 $ %

(In millions) (In millions)

(In millions)

Operating revenue:

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Total operating income $ 248.7 $ 308.4 $ (59.7) (19) %

Operating margin 41.3 % 49.4 % (8.1) pts 45.2 % 52.2 % (7.0) pts

Workforce Solutions revenue increased by 9% and 21% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases for both periods were due to growth in Verification Services driven by growth in non-mortgage verticals and acquisition revenue in both Verification Services and Employer Services.

Operating margin 41.7 % 47.5 % (5.8) pts

Workforce Solutions revenue decreased by 8% in the first quarter of 2023, compared to the same period in 2022.

The decrease was due to a decline in Verification Services driven by a decline in mortgage vertical revenue as U.S.

mortgage origination activity has declined as a result of higher interest rates when compared to first quarter 2022, partially offset by growth in non-mortgage verticals, as well as an increase in Employer Services.

Verification Services

Revenue increased by 13% and 25% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increase in revenue for both periods was due to growth in talent solutions, government, and consumer finance verticals, along with acquisition revenue principally from Insights, offset by a decline in the mortgage vertical due to significantly slower U.S.

mortgage origination activity in 2022 due to higher interest rates.

Verification Services benefited across all verticals from the continued growth of employment and income records in The Work Number database.

Revenue decreased by 11% for the first quarter of 2023, compared to the same period in 2022.

The decrease in revenue was primarily due to a decline in the mortgage vertical due to continued slower U.S.

mortgage origination activity in 2023 due to higher interest rates, partially offset by increases in government and talent solutions verticals.

Employer Services

Revenue decreased by 7% and increased by 7% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decrease for the third quarter of 2022 is due to lower tax credit revenue and a decrease in unemployment claims management revenue as the number of unemployment claims returned to pre-COVID-19 levels in 2022 after having been significantly higher in 2021 due to the economic impact of COVID-19 on the U.S.

The increase for the first nine months of 2022 was due to acquisition revenue and growth in employee services, partially offset by a decrease in unemployment claims revenue.

Revenue increased by 4% in the first quarter of 2023, compared to the same period in 2022.

The increase for the first quarter of 2023 is due to growth in the I-9 and onboarding verticals, as well as revenue from recent acquisitions.

Workforce Solutions Operating Margin

Operating margin decreased to 41.3% for the third quarter of 2022 from 49.4% for the third quarter of 2021, and to 45.2% for the first nine months of 2022 from 52.2% for the first nine months of 2021.

The decreased margin for both periods is due to increased royalty costs, people costs and production costs, and increased purchased intangible asset amortization, which altogether grew faster than the increase in revenue.

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Operating margin decreased to 41.7% for the first quarter of 2023 from 47.5% for the first quarter of 2022.

The decreased margin is due to the decline in revenue, as well as increased people costs, production costs, and purchased intangible asset amortization.

Three Months Ended March 31, Change

Information Solutions 2023 2022 $ %

(In millions) (In millions)

(In millions)

Operating revenue:

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Total operating income $ 78.6 $ 121.5 $ (42.9) (35) %

Operating margin 20.6 % 29.2 % (8.6) pts 25.2 % 31.0 % (5.8) pts

USIS revenue decreased by 9% and 7% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decreases in both periods were due to the negative impact of declining mortgage inquiry volumes on both online services and mortgage solutions, partially offset by acquisition-related revenue and growth in non-mortgage online services.

The decline in mortgage related online revenue and mortgage solutions revenue is due to declining mortgage inquiry volumes caused by higher interest rates during both periods of 2022 compared to the overall strength of the U.S.

mortgage market in the prior year.

Operating margin 18.6 % 28.1 % (9.5) pts

USIS revenue decreased by 3% for the first quarter of 2023, compared to the same period in 2022.

The decrease was due to the negative impact of declining mortgage inquiry volumes on both online services and mortgage solutions, partially offset by growth in non-mortgage online services and Financial Marketing Services.

Online Information Solutions

Revenue decreased by 6% and 5% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decreases for both periods were due to declining mortgage inquiry volumes compared to the prior year, partially offset by continued growth of non-mortgage online services and revenue from acquisitions.

Revenue decreased by 1% for the first quarter of 2023, compared to the same period in 2022.

The decrease was due to declining mortgage inquiry volumes compared to the prior year, partially offset by continued growth of non-mortgage online services and revenue from acquisitions.

Mortgage Solutions

Revenue decreased by 31% and 25% in the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decreases in both periods were due to declining mortgage inquiry volumes, as compared to the prior year.

Revenue decreased by 23% in the first quarter of 2023, compared to the same period in 2022.

The decrease was due to declining mortgage inquiry volumes, as compared to the prior year.

Financial Marketing Services

Revenue decreased by 8% and 9% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decreases for both periods were driven by lower fraud, risk management and other data services revenue.

Revenue increased by 4% for the first quarter of 2023, compared to the same period in 2022.

The increase was driven by marketing services revenue.

USIS Operating Margin

USIS operating margin decreased to 20.6% for the third quarter of 2022 from 29.2% for the third quarter of 2021 and to 25.2% for the first nine months of 2022 from 31.0% for the first nine months of 2021.

The margin decrease for both periods is due to the decrease in revenue and increase in depreciation expense related to increased capitalized software development spending and cloud production costs.

USIS operating margin decreased to 18.6% for the first quarter of 2023 from 28.1% for the first quarter of 2022.

The margin decrease was due to the decrease in revenue and increase in depreciation expense related to increased capitalized software development assets in service and cloud production costs, as well as increased royalty expense.

International

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

International 2023 2022 $ %

(In millions) (In millions)

(In millions)

Operating revenue:

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Total operating income $ 32.7 $ 37.0 $ (4.3) (12) %

Operating margin 14.8 % 12.0 % 2.8 pts 13.1 % 11.8 % 1.3 pts

International revenue increased by 6% and 5% in the third quarter and the first nine months of 2022, respectively, compared to the same periods in 2021.

On a local currency basis, revenue increased by 17% and 13% in the third quarter and first nine months of 2022, respectively, driven by growth in all geographies.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $28.6 million, or 11%, for the third quarter of 2022, and by $64.2 million, or 8%, for the first nine months of 2022.

On a local currency basis, revenue increased by 6% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases in both periods were driven by stronger volumes within our consumer, commercial, and identity and fraud businesses, as well as growth in India due to higher consumer volumes, partially offset by consumer direct business declines in Australia.

Operating margin 11.5 % 13.2 % (1.7) pts

International revenue increased by 1% in the first quarter of 2023, compared to the same period in 2022.

On a local currency basis, revenue increased by 9% in the first quarter of 2023, mainly driven by growth in Latin America, Asia Pacific and Canada, partially offset by declines in Europe due to our debt services business.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $6.9 million, or 8%, and $19.7 million, or 7%, for the third quarter and first nine months of 2022, respectively.

Reported revenue decreased by 2% and 1% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

On a local currency basis, revenue increased by 24% and 19% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases in both periods were driven by growth in the debt services business and core credit decisioning and identity and fraud, partially offset by a decline in the consumer direct business.

dollar negatively impacted revenue by $23.4 million, or 8%, for the first quarter of 2023.

On a local currency basis, revenue increased by 11% for the first quarter of 2023, compared to the same period in 2022.

The increase was driven by the commercial business due to higher volumes, partially offset by the decline in background check verifications.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $13.7 million, or 18%, and $26.1 million, or 12%, for the third quarter and first nine months of 2022, respectively.

Reported revenue increased by 6% and 7% for the third quarter and first nine months of 2022, compared to the same periods in 2021.

On a local currency basis, revenue increased by 12% and 5% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases in both periods were driven by higher analytical batch credit services, stronger decisioning online volumes and identity and fraud, partially offset by declines in consumer direct services and mortgage related products due to interest rate increases.

dollar negatively impacted revenue by $5.7 million, or 7%, for the first quarter of 2023.

Reported revenue increased by 4% for the first quarter of 2023, compared to the same period in 2022.

On a local currency basis, revenue decreased by 4% for the first quarter of 2023, compared to the same period in 2022.

The decrease was driven by a decline in the debt services business driven by lower revenue from public sector customers.

This was partially offset by growth in the credit reporting business, principally in consumer online, analytical services and identity and fraud.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $1.9 million, or 3%, and $4.0 million or 2%, for the third quarter and first nine months of 2022, respectively.

Reported revenue increased by 9% and 3% for the third quarter and first nine months of 2022, compared to the same periods in 2021.

dollar negatively impacted revenue by $6.9 million, or 8%, for the first quarter of 2023.

Reported revenue decreased by 12% for the first quarter of 2023, compared to the same period in 2022.

Latin America

On a local currency basis, revenue increased by 34% and 29% for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The increases in both periods reflect local currency growth across most countries driven by price increases mainly in Argentina and Chile, stronger online consumer growth, as well as growth due to acquisition revenue.

On a local currency basis, revenue increased by 32% for the first quarter of 2023, compared to the same period in 2022.

The increase principally reflects local currency growth in Argentina, Honduras, Paraguay, Chile and Uruguay, as well as growth due to acquisition revenue.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $6.0 million, or 13%, and $14.4 million, or 11%, for the third quarter and first nine months of 2022, respectively, primarily within Argentina and Chile.

Reported revenue increased by 21% and 18% for the third quarter and first nine months of 2022, compared to the same periods in 2021.

dollar negatively impacted revenue by $7.4 million, or 15%, for the first quarter of 2023, primarily within Argentina.

Reported revenue increased by 17% for the first quarter of 2023, compared to the same period in 2022.

On a local currency basis, revenue increased by 8% for the first quarter of 2023, compared to the same period in 2022.

The increase was driven by growth in consumer online and fraud products, partially offset by a decline in the consumer direct business.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $3.4 million, or 6%, for the first quarter of 2023.

Reported revenue increased by 2% for the first quarter of 2023, compared to the same period in 2022.

International Operating Margin

Operating margin increased to 14.8% for the third quarter of 2022 from 12.0% for the third quarter of 2021 and increased to 13.1% for the first nine months of 2022 from 11.8% for the first nine months of 2021.

The increased margins for the third quarter and first nine months of 2022, respectively, are due to higher revenue, lower purchased intangible asset amortization costs in Australia, partially offset by higher cloud production costs and depreciation expense related to technology transformation project spending.

Operating margin decreased to 11.5% for the first quarter of 2023 from 13.2% for the first quarter of 2022.

The decrease in margins for the first quarter of 2023 was due to lower margin revenue in debt services, higher cloud production and data costs, depreciation expense related to the technology transformation and increases in people costs.

General Corporate Expense

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

General Corporate Expense 2023 2022 $ %

(In millions) (In millions)

(In millions)

General corporate expense $ 154.6 $ 134.5 $ 20.1 15 %

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 by $28.4 million and $46.8 million for the third quarter and first nine months of 2022, respectively, compared to the same periods in 2021.

The decrease was due to reduced people costs, primarily incentive plans, and professional fees.

General corporate expense increased by $20.1 million for the first quarter of 2023, compared to the same period in 2022.

The increase was due to increased people costs, primarily equity compensation.

LIQUIDITY AND FINANCIAL CONDITION

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Funds generated by operating activities, our Revolver and related CP program, more fully described below, are our most significant sources of liquidity.

At September 30, 2022, we had $241.7 million in cash balances, as well as $1,337.2 million available to borrow under our Revolver.

At March 31, 2023, we had $232.5 million in cash balances, as well as $918.4 million available to borrow under our Revolver.

Sources and Uses of Cash

We believe that our existing cash balance, liquidity available from our CP and Revolver, cash generated from ongoing operations and continued access to public or private debt markets will be sufficient to satisfy cash requirements over the next 12 months and beyond.

While there was no significant change in our cash requirements as of September 30, 2022 compared to December 31, 2021, we have utilized existing CP capacity, together with cash from operating activities, to meet our current obligations.

This includes the $345.0 million consumer class action settlement payment that was made in January 2022 related to the U.S.

Consumer MDL Litigation settlement that became effective on January 11, 2022.

In addition, during October 2022, we paid off the $500.0 million Senior Notes due December 2022 with the proceeds from the $750.0 million 5.1% Senior Notes issued in September 2022 and commercial paper borrowings.

While there was no significant change in our cash requirements as of March 31, 2023 compared to December 31, 2022, we have utilized existing CP and Revolver capacity, together with cash from operating activities, to meet our current obligations.

During the first quarter of 2023, we borrowed $175.0 million on our Revolver to pay down CP.

Fund Transfer Limitations.

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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 September 30, 2022, we held $185.9 million of cash in our foreign subsidiaries.

As of March 31, 2023, we held $210.9 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 nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30, Change

The following table summarizes our cash flows for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31, Change

Net cash provided by (used in):

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Operating Activities

Cash provided by operating activities in the nine months ended September 30, 2022 decreased by $517.8 million compared to the prior year period due to the $345.0 million consumer class action settlement payment that was made in January 2022 related to the U.S.

Consumer MDL Litigation settlement that became effective on January 11, 2022 and an increase in working capital during the year.

Cash provided by operating activities in the three months ended March 31, 2023 increased by $349.4 million compared to the prior year period primarily due to the $345.0 million consumer class action settlement payment that was made in January 2022 related to the U.S.

Consumer MDL Litigation settlement, with no similar payments in the first quarter of 2023.

Investing Activities

Capital Expenditures

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Net cash used in:

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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 certain software applications, investing in system reliability, security and disaster recovery enhancements, and updating or expanding our office facilities.

Capital expenditures paid in the first nine months of 2022 increased by $135.5 million from the same period in 2021.

We are continuing to invest in enhanced technology systems and infrastructure as part of our technology transformation.

Capital expenditures paid in the first three months of 2023 increased by $1.8 million from the same period in 2022 as we continue to invest in enhanced technology systems and infrastructure as part of our technology transformation.

Acquisitions, Divestitures and Investments

Nine Months Ended September 30, Change

Net cash (provided by) used in:

Three Months Ended March 31, Change

Net cash used in:

2023 2022 2023 vs.

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Acquisitions, net of cash acquired $ (4.3) $ (111.7) $ 107.4

Cash received from divestitures $ 98.8 $ 1.5 $ 97.3

During the first nine months of 2022, we acquired Efficient Hire and LawLogix within our Workforce Solutions segment, Midigator within our USIS segment and Data Crédito within our International segment.

During the first nine months of 2022, we reported $98.8 million of cash inflows from investing activities associated with cash received from the sale of multiple equity method investments.

During the first nine months of 2021, we acquired Kount and Teletrack within our USIS segment, and HIREtech, i2Verify and Health e(fx) within our Workforce Solutions segment and a small tuck-in acquisition within our International segment.

In addition, in 2021, we sold a small business within our International segment.

During the first three months of 2023, we acquired a Canadian company within the International operating segment.

During the first three months of 2022, we acquired Efficient Hire within our Workforce Solutions segment and Data Crédito within our International segment.

Financing Activities

Borrowings and Credit Facility Availability

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Net cash provided by (used in):

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Net short-term (repayments) borrowings $ (160.8) $ 516.8 $ (677.6)

Payments on long-term debt $ — $ (1,100.2) $ 1,100.2

Borrowings on long-term debt $ 175.0 $ — $ 175.0

Debt issuance costs $ (0.3) $ — $ (0.3)

Credit Facilities Availability

In September 2022, we issued $750.0 million aggregate principal amount of 5.1% five-year Senior Notes due 2027 (the "2027 Notes") in an underwritten public offering.

Interest on the 2027 Notes accrues at a rate of 5.1% per year and is payable semi-annually in arrears on June 15 and December 15 of each year.

The net proceeds of the sale of the 2027 Notes were ultimately used to repay, in October 2022, our then-outstanding $500.0 million 3.30% Senior Notes due December 2022.

The remaining proceeds were used for general corporate purposes, including the repayment of borrowings under our commercial paper program.

We must comply with various non-financial covenants, including certain limitations on mortgages, liens and sale-leaseback transactions, as well as mergers and sales of substantially all of our assets.

The 2027 Notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness.

In August 2021, we refinanced our existing unsecured revolving credit facility of $1.1 billion set to expire in September 2023, and entered into a new $1.5 billion five-year unsecured Revolver and a new $700.0 million delayed draw Term Loan, collectively known as the “Senior Credit Facilities,” both which mature in August 2026.

In March 2023, we amended our Senior Credit Facilities agreement to adjust our debt covenant requirements and incorporate the Secure Overnight Financing Rate (SOFR) into our agreement, among other changes.

Borrowings under the Senior Credit Facilities may be used for working capital, for capital expenditures, to refinance existing debt, to finance acquisitions and for other general corporate purposes.

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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 September 30, 2022, there were $0.4 million of letters of credit outstanding, no outstanding borrowings under the Revolver, $700.0 million outstanding under the Term Loan and $162.4 million of outstanding CP notes.

Availability under the Revolver was $1,337.2 million at September 30, 2022.

At September 30, 2022, 85% of our debt was fixed-rate debt and 15% was variable debt.

As of March 31, 2023, there were $0.4 million of letters of credit outstanding, one hundred seventy-five million outstanding borrowings under the Revolver, $700.0 million outstanding under the Term Loan and $406.2 million of outstanding CP notes.

Availability under the Revolver was $918.4 million at March 31, 2023.

At March 31, 2023, 78% of our debt was fixed-rate debt and 22% was effectively variable debt.

Our variable-rate debt consists of our outstanding term loan and CP.

The interest rates reset periodically, depending on the terms of the respective financing agreements.

At September 30, 2022, the interest rate on our variable-rate debt ranged from 2.05% to 4.38%.

At March 31, 2023, the interest rate on our variable-rate debt ranged from 4.90% to 6.16%.

Borrowing and Repayment Activity

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Net short-term borrowings primarily represent net borrowings or repayments of outstanding amounts under our CP program.

Borrowings on long-term debt represent the net proceeds received from the issuance of the $750 million 2027 Notes in the first nine months of 2022.

Borrowings on long-term debt represent $175 million of borrowings on our Revolver during the for the first three months of 2023.

Debt Covenants.

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Our outstanding indentures and comparable instruments also contain customary covenants including, for example, limits on mortgages, liens, sale/leaseback transactions, mergers and sales of assets.

In August 2021, we entered into our new Senior Credit Facilities as noted above in anticipation of the Appriss Insights acquisition, which provides additional financial flexibility.

The Senior Credit Facilities include a maximum leverage ratio, defined as consolidated funded debt divided by consolidated EBITDA for the preceding four quarters, of (i) 3.75 to 1.0 initially, (ii) 4.25 to 1.0 for the first fiscal quarter ending after the consummation of the Company’s acquisition of Appriss Insights on October 1, 2021, until the fourth fiscal quarter ending September 30, 2022, (iii) 4.0 to 1.0 for the fifth fiscal quarter ending December 31, 2022 until the sixth fiscal quarter ending March 31, 2023 and (iv) 3.75 to 1.0 for the seventh fiscal quarter ending June 30, 2023 and through the remaining term of the Revolver.

In August 2021, we entered into our new Senior Credit Facilities as noted above in anticipation of the Appriss Insights acquisition.

In March 2023, we amended our Senior Credit Facilities, resulting in a modification of our required maximum leverage ratio, among other changes.

As amended, the Senior Credit Facilities require a maximum leverage ratio, defined as consolidated funded debt divided by consolidated EBITDA, of (i) 4.25 to 1.0 commencing with the fourth quarter of 2022 through the fourth quarter of 2023 and (ii) 3.75 to 1.0 commencing with the first quarter of 2024 and for each fiscal quarter ending thereafter through the remaining term of the Senior Credit Facilities.

We may also elect to increase the maximum leverage ratio by 0.5 to 1.0 (subject to a maximum leverage ratio of 4.75 to 1.0) in connection with certain material acquisitions if we satisfy certain requirements.

The Senior Credit Facilities also permit cash in excess of $175 million to be netted against debt in the calculation of the leverage ratio, subject to certain restrictions.

As of September 30, 2022, we were in compliance with all of our debt covenants.

As of March 31, 2023, we were in compliance with all of our debt covenants.

We do not have any credit rating triggers that would accelerate the maturity of a material amount of the outstanding debt;

however, our 3.95% senior notes due 2023, 2.6% senior notes due 2024, 2.6% senior notes due 2025, 3.25% senior notes due 2026, 5.1% senior notes due 2027, 3.1% senior notes due 2030, 2.35% senior notes due 2031 and 7.0% senior notes due 2037 (collectively, the “Senior Notes”) contain change in control provisions.

however, our 3.3% senior notes due 2022, 3.95% senior notes due 2023, 2.6% senior notes due 2024, 2.6% senior notes due 2025, 3.25% senior notes due 2026, 5.1% senior notes due 2027, 3.1% senior notes due 2030, 2.35% senior notes due 2031 and 7.0% senior notes due 2037 (collectively, the “Senior Notes”) contain change in control provisions.

If the Company experiences a change of control or publicly announces the Company’s intention to effect a change of control and the rating on the Senior Notes is lowered by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”) below an investment grade rating within 60 days of such change of control or notice thereof, then the Company 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 September 30, 2022, our S&P credit rating was BBB with a stable outlook and our Moody’s credit rating was Baa2 with a stable outlook.

These ratings are subject to change as events and circumstances change.

For additional information about our debt, including the terms of our financing arrangements, basis for variable interest rates and debt covenants, see Note 5 of the Notes to Consolidated Financial Statements in our 2022 Form 10-K.

Equity Transactions

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

Net cash provided by (used in):

1 unchanged sentence

(In millions)

Treasury stock repurchases $ — $ (69.9) $ 69.9

Dividends paid to Equifax shareholders $ (47.9) $ (47.9) $ —

2 unchanged sentences

Payment of taxes related to settlement of equity awards $ (15.9) $ (29.8) $ 13.9

Purchase of noncontrolling interests $ — $ (11.2) $ 11.2

Sources and uses of cash related to equity during the nine months ended September 30, 2022 and 2021 were as follows:

- During the first nine months of 2022, we did not repurchase any shares of our common stock on the open market.

During the first nine months of 2021, we repurchased $0.4 million shares of our common stock for $69.9 million.

- We maintained our quarterly dividend of $0.39 per share in the third quarter of 2022.

We paid cash dividends to Equifax shareholders of $143.3 million and $142.6 million, or $1.17 per share, during the nine months ended September 30, 2022 and 2021, respectively.

- We received cash of $13.5 million and $33.4 million during the first nine months of 2022 and 2021, respectively, from the exercise of stock options and the employee stock purchase plan.

At September 30, 2022, the Company had $520.2 million remaining for stock repurchases under the existing authorization from the board of directors.

Sources and uses of cash related to equity during the three months ended March 31, 2023 and 2022 were as follows:

- During the first three months of 2023 and 2022, we did not repurchase any shares of our common stock on the open market.

- We maintained our quarterly dividend of $0.39 per share in the first quarter of 2023.

We paid cash dividends to Equifax shareholders of $47.9 million, or $0.39 per share, during the three months ended March 31, 2023 and 2022, respectively.

- We received cash of $6.6 million and $5.7 million during the first three months of 2023 and 2022, respectively, from the exercise of stock options and the employee stock purchase plan.

- We paid taxes of $15.9 million and $29.8 million related to the settlement of equity awards during the first three months of 2023 and 2022, respectively.

At March 31, 2023, the Company had $520.2 million remaining for stock repurchases under the existing authorization from the board of directors.

Contractual Obligations, Commercial Commitments and Other Contingencies

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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 U.S.

During the third quarter of 2022, we settled the liabilities under our Canadian Retirement Income Plan.

For additional information about our benefit plans, see Note 9 of the Notes to Consolidated Financial Statements in our 2022 Form 10-K.

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As such, Argentina was deemed a highly inflationary economy by accounting policymakers.

Beginning in the third quarter of 2018, we have accounted for Argentina as a highly inflationary economy which resulted in the recognition of a $0.2 million foreign currency gain and a $0.3 million foreign currency gain that was recorded in other income, net in our Consolidated Statements of Income during the three months and nine months ended September 30, 2022, respectively.

Beginning in the third quarter of 2018, we have accounted for Argentina as a highly inflationary economy which resulted in the recognition of a $0.1 million foreign currency loss that was recorded in other income, net in our Consolidated Statements of Income during the three months ended March 31, 2023.

There was minimal foreign currency impact during the three months ended March 31, 2022.

RECENT ACCOUNTING PRONOUNCEMENTS

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Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

We review goodwill for impairment annually (as of September 30) and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

These events or circumstances could include a significant change in the business climate, legal factors, operating performance or trends, competition, or sale or disposition of a significant portion of a reporting unit.

We have six reporting units comprised of Workforce Solutions (which includes Verification Services and Employer Services), USIS (which includes Online Information Solutions, Mortgage Solutions and Financial Marketing Services), Asia Pacific, Europe, Latin America, and Canada.

The goodwill balance at September 30, 2022, for our six reporting units was as follows:

September 30,

(In millions)

Workforce Solutions $ 2,511.4

Asia Pacific 1,300.9

Latin America 234.3

Total goodwill $ 6,304.3

We performed a qualitative assessment to determine whether further impairment testing was necessary for our Workforce Solutions, USIS, Latin America, Europe, and Canada reporting units.

In this qualitative assessment, we considered the following items for each of the reporting units:

macroeconomic conditions, industry and market conditions, overall financial performance and other entity specific events.

In addition, for each of these reporting units, the most recent fair value determination resulted in an amount that significantly exceeded the carrying amount of the reporting units.

Based on these assessments, we determined the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is not more likely than not.

As a result of our conclusions, no further testing was required for these reporting units.

Valuation Techniques

We performed a quantitative assessment for our Asia Pacific reporting unit to determine whether impairment exists from the most recent valuation date due to the size of the cushion and overall uncertainty in the reporting unit due to the negative impacts of COVID-19.

In determining the fair value of the reporting unit, we used a combination of the income and market approaches to estimate the reporting unit’s business enterprise value.

Under the income approach, we calculate the fair value of a reporting unit based on estimated future discounted cash flows which require assumptions about short and long-term revenue growth rates, operating margins for the reporting unit, discount rates, foreign currency exchange rates and estimates of capital expenditures.

The assumptions we use are based on what we believe a hypothetical marketplace participant would use in estimating fair value.

Under the market approach, we estimate the fair value based on market multiples of revenue or earnings before income taxes, depreciation and amortization, for benchmark companies or guideline transactions.

We believe the benchmark companies used for our Asia Pacific reporting unit serves as an appropriate input for calculating a fair value for the reporting unit as those benchmark companies have similar risks, participate in similar markets, provide similar services for their customers and compete with us directly.

The companies we use as benchmarks are principally outlined in our discussion of Competition in our 2021 Form 10-K and have not significantly changed since the date of our last annual impairment test.

Competition for our Asia Pacific reporting unit generally includes global consumer credit reporting companies, such as Experian, which offer a product suite similar to the reporting unit's credit reporting solutions.

The values separately derived from each of the income and market approach valuation techniques were used to develop an overall estimate of a reporting unit’s fair value.

We use a consistent approach across all reporting units when considering the weight of the income and market approaches for calculating the fair value of each of our reporting units.

This approach relies more heavily on the calculated fair value derived from the income approach with 70% of the value coming from the income approach.

We believe this approach is consistent with that of a market participant in valuing prospective purchase business combinations.

The selection and weighting of the various fair value techniques may result in a higher or lower fair value.

Judgment is applied in determining the weightings that are most representative of fair value.

We have not made any material changes to the valuation methodology we use to assess goodwill impairment since the date of our last annual impairment test.

Growth Assumptions

The assumptions for our future cash flows begin with our historical operating performance, the details of which are described in our Management’s Discussion & Analysis of operating performance.

Additionally, we consider the impact that known economic, industry and market trends, including the impact of rising interest rates and inflation, will have on our future forecasts, as well as the impact that we expect from planned business initiatives including new product initiatives, client service and retention standards, and cost management programs.

At the end of the forecast period, the long-term growth rate we used to determine the terminal value of our Asia Pacific reporting unit was between 3.0% and 4.0% based on management’s assessment of the minimum expected terminal growth rate of the reporting unit, as well as broader economic considerations such as GDP, inflation and the maturity of the markets we serve.

We projected revenue growth in 2023 for our Asia Pacific reporting unit in completing our 2022 impairment testing based on expected continued economic recovery from the negative impact the COVID-19 pandemic had on these regions in previous years and planned business initiatives and prevailing trends exhibited by this reporting unit.

The anticipated revenue growth in this reporting unit, however, is partially offset by assumed increases in expenses and capital expenditures for the reporting unit which reflects the additional level of investment needed in order to achieve the planned revenue growth and completion of our technology transformation initiatives.

Discount Rate Assumptions

We utilize a weighted average cost of capital, or WACC, in our impairment analysis that makes assumptions about the capital structure that we believe a market participant would make and include a risk premium based on an assessment of risks related to the projected cash flows for the reporting unit.

We believe this approach yields a discount rate that is consistent with an implied rate of return that a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.

To calculate the WACC, the cost of equity and cost of debt are multiplied by the assumed capital structure of the reporting unit as compared to industry trends and relevant benchmark company structures.

The cost of equity was computed using the Capital Asset Pricing Model which considers the risk-free

interest rate, beta, equity risk premium and specific company risk premium related to a particular reporting unit.

The cost of debt was computed using a benchmark rate and the Company’s tax rate.

For the 2022 annual goodwill impairment evaluation, the discount rate used to develop the estimated fair value of the Asia Pacific reporting unit was between 9.5% and 11.0%.

Estimated Fair Value and Sensitivities

The estimated fair value of the reporting unit is derived from the valuation techniques described above incorporating the related projections and assumptions.

Impairment occurs when the estimated fair value of the reporting unit is below the carrying value of its equity.

The estimated fair value for our Asia Pacific reporting unit exceeded its related carrying value as of September 30, 2022.

As a result, no goodwill impairment was recorded.

The estimated fair value of the reporting unit is highly sensitive to changes in these projections and assumptions;

therefore, in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value.

For example, an increase in the discount rate and decline in the projected cumulative cash flow of a reporting unit could cause the fair value of certain reporting units to be below its carrying value.

We perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.

Ultimately, future potential changes in these assumptions may impact the estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below its carrying value.

Due to the lower cushion when compared to other reporting units, Asia Pacific is more sensitive to changes in the assumptions noted above that could result in a fair value that is less than its carrying value.

The excess of fair value over carrying value for the Asia Pacific reporting unit was greater than 5% and 10% as of September 30, 2022 and September 30, 2021, respectively.

Given the relatively smaller excess of fair value over carrying value for the Asia Pacific reporting unit, we believe that it is at risk of a possible future goodwill impairment.

The excess of fair value for the Asia Pacific reporting unit is lower in 2022 than in 2021 primarily due to higher observed risk free interest rates and the loss of income from our joint venture in Russia which was formerly included in this reporting unit.

The future impact of changes in economic conditions, including rising interest rates and inflation, remains uncertain.

Avoidance of a future impairment will be dependent on continued growth during current economic conditions and our ability to execute on initiatives to grow revenue and manage expenses prudently.

We will continue to monitor the performance of this reporting unit to ensure no interim indications of possible impairment have occurred before our next annual goodwill impairment assessment in September 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of our 2022 Form 10-K.

There were no material changes to our market risk exposure during the three and nine months ended September 30, 2022.

There were no material changes to our market risk exposure during the three months ended March 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis