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FactSet Research (NYSE:FDS) reported third quarter 2010 EPS of 81 cents, exceeding the Zacks Consensus Estimate of 77 cents.


The company reported revenue for the third quarter of $160.3 million, up 3.8% from $154.4 million reported in the year-ago quarter. Factset is witnessing some benefits from investments made during the downturn, as well as growth across all its key segments.

Revenues from the U.S. were $108.6 million, up 3.0% compared to the year-ago quarter. Non-U.S. revenues increased 5.0% to $51.7 million.

Annual Subscription Value

Annual Subscription Value (ASV) increased $12.3 million sequentially to $646.0 million in the third quarter. Of this, 82.0% of ASV was from buy-side clients and the remainder from sell-side firms performing M&A advisory work and equity research. ASV from FactSet's U.S. operations was $436.6 million, while ASV from international operations amounted to $209.8 million.

The company exited the quarter with 40,400 users, an increase of 1600 users during the quarter. Client count was 2,075 at quarter-end, a net increase of 23 clients. Annual client retention rate was greater than 95.0% of ASV and 89.0% of clients. Portfolio Analytics (PA) 2.0 was deployed by 671 clients and 5,979 users at quarter-end. PA users increased by 185 sequentially, while the number of PA clients increased by 16.

Operating Results

Operating margin was 34.7% in the quarter, an increase of 20 basis points year over year. The limited expansion in the operating margin was due to the fact that operating expenses increased at the same rate as revenue.

Net income for the quarter came in at $38.7 million, an increase of 0.3% from $38.5 million reported in the year-ago period. The growth in net income for the quarter was partially offset by other income, which declined 52.5% year over year to $86,000. On a fully diluted basis, the quarterly EPS of 81 cents marked an increase of 2.5% from 79 cents in the year-ago quarter.

Balance Sheet & Cash Flow

FactSet exited the quarter with $225.0 million in cash and short-term investments, compared to $205.0 million in the previous quarter. The company has no long-term debt. During the quarter, FactSet repurchased 621,147 shares of common stock for $46.4 million and $198.0 million remains authorized for repurchase, which includes the $150.0 million expansion made during the quarter. This apart, the company incurred a net capital expenditure of $4.6 million during the quarter, which includes $3.8 million for computer equipment.


For the fourth quarter of fiscal 2010, FactSet expects revenue in the range of $165 million to $169 million. Diluted EPS for the fourth quarter is expected to be in the 78 to 80 cents range.

For full fiscal year 2010, FactSet expects capital expenditures, net of landlord contributions, to be between $16.0 million and $22.0 million.

The company is witnessing some benefits from investments made during the downturn and the growth in client count is also healthy. This apart, FactSet has a healthy cash balance.

However, with the gradual recovery of the financial markets, spending on investment tools is slowly picking up. The company operates in a highly competitive market and its acquisition-for-growth strategy may backfire if the acquired companies do not generate substantial returns.

As such, we have a Neutral rating on FactSet shares.

Source: FactSet's Latest Earnings Top Expectations