FactSet Exceeds Expectations

Sep.22.10 | About: FactSet Research (FDS)

FactSet Research (NYSE:FDS) reported third quarter 2010 EPS of 83 cents, exceeding the Zacks Consensus Estimate of 80 cents.


The company reported revenue for the fourth quarter of $168.2 million, up 8.2% from $155.5 million reported in the year-ago quarter. Factset witnessed some benefits from investments made during the downturn, which helped results across all its key segments.

Revenues from the U.S. were $114.7 million, up 8.0% compared to the year-ago quarter. Non-U.S. revenues also increased 8.0% to $53.5 million.

Annual Subscription Value

Annual Subscription Value (ASV) increased $38.0 million sequentially to $648.0 million in the fourth 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 $466.0 million, while ASV from international operations amounted to $218.0 million.

The company exited the quarter with 42,800 users, an increase of 2,400 users during the quarter. Client count was 2,110 at quarter-end, a net increase of 35 clients. The annual client retention rate was greater than 95.0% of ASV and 90.0% of clients. Portfolio Analytics (PA) 2.0 was deployed by 693 clients and 6,291 users at quarter-end. PA users increased by 312 sequentially, while the number of PA clients increased by 22.

Operating Results

Operating margin was 34.1% in the quarter, an increase of 10 basis points year over year. The limited expansion in the operating margin was due to the fact that operating expenses increased at a higher rate than revenue. The increase in operating expense can be attributed to the increase in headcount, which improved by 485 employees sequentially.

Net income for the quarter came in at $38.3 million, an increase of 8.3% from $36.3 million reported in the year-ago period. The growth in net income for the quarter was partially offset by other income which declined 24.2% year over year to $72,000. On a fully diluted basis, the quarterly EPS of 83 cents was an increase from 74 cents in the year-ago quarter.

Balance Sheet & Cash Flow

FactSet exited the quarter with $195.7 million in cash and short-term investments, compared to $225.0 million in the previous quarter. The company has no long-term debt. During the quarter, the company repurchased 541,390 shares for $39.2 million, $159.0 million remains authorized for future repurchases. This apart, the company incurred a net capital expenditure of $7.1 million during the quarter, which includes $3.7 million for computer equipment and the other part for office expansion.


For the first quarter of fiscal 2010, FactSet expects revenue in the range of $169 million to $174 million. Diluted EPS for the first quarter is expected to be in the 83 to 85 cent range.

For full fiscal year 2011, FactSet expects capital expenditures, net of landlord contributions, to be between $22.0 million and $28.0 million.

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

Additionally, with the gradual recovery of the financial markets, spending on investment tools is showing gradual improvement. On the other hand, Factset operates in a highly competitive market which may rationalize the growth prospects of the company in the coming quarters.

As such, we have a short-term Hold rating (Zacks #3 Rank) on FactSet shares.

Disclosure: None