FactSet Research Systems (NYSE:FDS) is a global provider of financial information and analytics for investment professionals. More than 50,000 users stay abreast of global market trends, access extensive company and industry intelligence, and monitor performance with FactSet's desktop analytics, mobile applications, and comprehensive data feeds.
Founded in 1978, FactSet Research Systems was started to deliver computer-based financial information to the investment community. Today, FactSet is a leading force within the multibillion dollar financial information industry as they consolidate content from hundreds of databases with powerful analytics and also provide proprietary content. The company's 2,525 clients with 51,000 users can access information from more than 170 data suppliers, 100 exchanges and 90 news sources. Approximately 82% of FactSet's revenues in 2013 came from investment management clients and the remainder from investment banking firms who perform merger and acquisition advisory work and equity research.
FactSet has generated steady growth with 33 consecutive years of revenue growth and 17 consecutive years of positive earnings growth as a public company. The company's operating and net margins are also remarkably steady with operating margins having exceeded 31% for 11 consecutive years with net margins hovering in the 23% range. The company has also steadily increased its dividend with eight consecutive years of dividend increases greater than 10%.
As FactSet celebrated its 35th anniversary in 2013, the company once again attained record levels of revenues, operating income, net income and EPS as revenues grew 6.5% to $858 million. The company's revenues are derived from subscriptions to services, content and financial applications. The company's annual subscription value (NASDAQ:ASV) was $888 million as of 8/31/13, which represents the forward-looking revenue for the next 12 months from all subscription services supplied to clients.
U.S. operations account for 68% of total subscriptions with international subscriptions making up 32% of the total with overall client retention greater than 95% of ASV.
GROWING CASH FLOWS
FactSet's business generates strong operating cash flows with minimal capital expenditure needs. As a result, free cash flow has grown strongly over the past decade from $39 million to $251 million as of 8/31/13. Management has allocated their growing cash to substantial share repurchases, steadily rising dividends and acquisitions to drive future growth.
Over the past five fiscal years, the company has repurchased $1 billion of its shares. The Board of Directors recently authorized an additional $300 million for future share repurchases. The dividend payout has doubled over the last decade from 15% to 30%. With a still relatively low payout, this easily enables the company to provide future dividend increases.
STRONG BALANCE SHEET
Over the past five years, free cash flow has exceeded net income, which is a sign of high-quality earnings. Thanks to the strong cash flows, the company has been able to operate its business with no long-term debt over the past decade with cash topping $187 million on the company's solid balance sheet as of 11/30/13. This is even after the company spent $15.3 million for the recent acquisition of the assets of Revere Data, LLC, which offers investors a unique way to classify companies and analyze how they fit in the global economy. At the time of the acquisition, Revere had annual subscriptions of $5 million and is expected to dilute FactSet's earnings in fiscal 2014 by $.02 per share. On 12/10/13, FactSet acquired 60% of Matrix Data Limited for 12 million pounds, with the ability to acquire the remaining 40% interest. Matrix's primary line of business is a provider of intelligence to the UK financial services industry. Matrix had $7 million of subscriptions at the time of acquisition. Long-term investors should research FactSet Research Systems, a HI-quality firm with a strong balance sheet and steady growth in sales, earnings, cash flows, dividends and share repurchases. Buy.
Disclosure: I am long FDS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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