- ASV advanced $22.5 million, up 6% organically
- Adjusted EPS rose 10% to $1.22
FactSet Research Systems Inc. (NYSE:FDS) (Nasdaq:FDS), a leading
provider of integrated global financial information and analytical
applications to the investment community, today announced its
results for the second quarter of fiscal 2014.
For the quarter ended February 28, 2014, revenues increased to
$226.9 million, up 7% over the prior year. Included in this total
was $2 million from the acquisition of Matrix. Operating income was
$75.1 million compared to $56.2 million in the year ago quarter.
Net income was $52.4 million versus $44.5 million a year ago.
Diluted earnings per share was $1.22 compared to $1.00 in the same
period of fiscal 2013.
Adjusted operating income for the quarter was up 4% over the
prior year. Adjusted operating income in the fiscal 2013 period
excludes the prior year non-cash pre-tax charge of $15.7 million
for vesting performance-based stock options. Adjusted net income
advanced 6%. Adjusted net income in the year ago quarter excludes
both the after-tax charge of $11.0 million related to
performance-based stock options and $6.3 million in income tax
benefits from the U.S. Federal R&D credit. Adjusted diluted EPS
rose 10%. Prior year adjusted diluted EPS of $1.11 excludes the net
effect of a $0.25 decrease for the vesting of performance-based
options, partially offset by a $0.14 increase in diluted EPS from
the U.S. Federal R&D credit.
A reconciliation between GAAP and adjusted financial measures is
presented on page 9 of this press release.
|
Consolidated Statements of Income |
| (Condensed and Unaudited) |
|
| |
Three Months Ended February
28, |
| (In thousands, except per
share data) |
2014 |
2013 |
Change |
| Revenues |
$226,934 |
$213,083 |
7% |
| Adjusted operating income |
$75,054 |
$71,860 |
4% |
| Adjusted net income |
$52,426 |
$49,281 |
6% |
| Adjusted diluted earnings per share |
$1.22 |
$1.11 |
10% |
| Diluted weighted average shares |
43,107 |
44,455 |
|
| |
"Our second quarter results reflect an improving buy-side client
base, and include acquiring the remaining 40% interest in Matrix,"
said Philip Hadley, Chairman and CEO. "I'm pleased to see that our
net client growth in the past three months was the highest
quarterly total since 2006 and buy-side users grew at a level we've
not seen since 2004. This is validation that our sizable
reinvestment in our products and services is being recognized by
the market."
Annual Subscription Value ("ASV")
ASV totaled $920 million at February 28, 2014, up 6% organically
over the prior year. Including $7.3 million from the acquisition of
Matrix, ASV increased $29.8 million over the last three months.
Buy-side clients account for 82.7% of ASV and the remainder from
sell-side firms who perform M&A advisory work and equity
research. ASV at any given point in time represents the
forward-looking revenues for the next 12 months from all services
currently being supplied to clients.
Financial Highlights – Second Quarter of Fiscal
2014
- ASV from U.S. operations was $626 million and $294 million was
related to international operations.
- U.S. revenues were $154.3 million, up 6% from the year ago
quarter.
- Non-U.S. revenues rose to $72.7 million. Excluding incremental
revenue from the acquisition of Matrix and the impact of foreign
currency, the international growth rate was 6%.
- Operating margin was 33.1% compared to 26.4% a year ago. The
acquisition of Matrix reduced the operating margin by 40 basis
points.
- The effective tax rate was 30.5%. If the U.S. Federal R&D
tax credit had been re-enacted by February 28, 2014, the annual
effective tax rate would have been 29.0%.
- Quarterly free cash flow was $38 million.
Operational Highlights – Second Quarter of Fiscal
2014
- Client count rose by 96, including 32 new clients acquired from
Matrix and totaled 2,632 at February 28, 2014.
- Annual client retention was greater than 95% of ASV and 92%
when expressed as a percentage of clients.
- Users of the FactSet workstation increased by 849 over the past
three months and totaled 51,863 professionals at February 28, 2014.
The user count does not include Matrix users.
- Employee count was 6,486 at February 28, 2014, an increase of
87 employees during the quarter.
- Capital expenditures were $2.6 million.
- A regular quarterly dividend of $14.8 million or $0.35 per
share was paid on March 18, 2014, to common stockholders of record
as of February 28, 2014.
- The Company repurchased 800,000 shares for $86.1 million during
the second quarter. At February 28, 2014, $219 million remains
authorized for future repurchases.
- Common shares outstanding were 42.4 million at February 28,
2014.
- FactSet was named one of Fortune's "100 Best Companies to Work
For," marking the Company's sixth appearance on the list in the
last seven years.
- FactSet opened a new office in Singapore to meet the needs of
its growing international client base.
Matrix Acquisition
FactSet acquired Matrix Data Limited ("Matrix") for $32 million
during the second quarter of fiscal 2014. Headquartered in London,
England, Matrix's primary line of business is a provider of
intelligence to the UK financial services industry, covering market
share of mutual fund distribution. Matrix has developed customer,
channel and market benchmarking solutions that help clients
optimize product distribution and improve marketing effectiveness
to drive revenue growth. At the time of acquisition, Matrix
employed 85 individuals in England and had annual subscriptions of
$7.3 million. Matrix reduced FactSet's second quarter operating
margin by 40 basis points and diluted earnings per share by $0.01.
For the full year fiscal 2014, Matrix is not expected to have an
impact on diluted earnings per share.
Business Outlook
The following forward-looking statements reflect FactSet's
expectations as of today's date. Given the number of risk factors,
uncertainties and assumptions discussed below, actual results may
differ materially. The Company does not intend to update its
forward-looking statements until its next quarterly results
announcement, other than in publicly available statements.
Third Quarter Fiscal 2014 Expectations
- Revenues are expected to range between $229 million and $233
million.
- Operating margin is expected to range between 32.5% and 33.5%,
which includes a 70 basis point reduction from the recent
acquisitions of Revere and Matrix.
- The annual effective tax rate is expected to range between 30%
and 31% and assumes that the U.S. Federal R&D tax credit will
not be re-enacted by the end of the third quarter of fiscal
2014.
- Diluted EPS should range between $1.24 and $1.26. The lapse in
the U.S. Federal R&D tax credit on December 31, 2013 reduced
each end of the diluted EPS range by $0.03.
Conference Call
The Company will host a conference call today, March 18, 2014,
at 11:00 a.m. (Eastern Time) to review the second quarter fiscal
2014 earnings release. To listen, please visit the investor
relations section of the Company's website at www.factset.com.
Forward-looking Statements
This news release contains forward-looking statements based on
management's current expectations, estimates and projections. All
statements that address expectations or projections about the
future, including statements about the Company's strategy for
growth, product development, market position, subscriptions,
expected expenditures and financial results are forward-looking
statements. Forward-looking statements may be identified by words
like "expected," "anticipates," "plans," "intends," "projects,"
"should," "indicates," "continues," "subscriptions" and similar
expressions. These statements are not guarantees of future
performance and involve a number of risks, uncertainties and
assumptions. Many factors, including those discussed more fully
elsewhere in this release and in FactSet's filings with the
Securities and Exchange Commission, particularly its latest annual
report on Form 10-K and quarterly reports on Form 10-Q, as well as
others, could cause results to differ materially from those stated.
These factors include, but are not limited to, the current status
of the global economy; the ability to integrate newly acquired
companies and businesses; the stability of global securities
markets; the ability to hire qualified personnel; the maintenance
of the Company's leading technological position; the impact of
global market trends on the Company's revenue growth rate and
future results of operations; the negotiation of contract terms
with corporate vendors, data suppliers and potential landlords; the
retention of key clients; the successful resolution of ongoing
audits by tax authorities; the continued employment of key
personnel; the absence of U.S. or foreign governmental regulation
restricting international business; and the sustainability of
historical levels of profitability and growth rates in cash flow
generation.
About Adjusted Financial Measures
Financial measures in accordance with U.S. generally accepted
accounting principles ("GAAP") including operating income, net
income and diluted earnings per share have been adjusted. Fiscal
2013 adjusted financial measures exclude a non-cash pre-tax charge
of $15.7 million related to the vesting of performance-based stock
options and $6.3 million of income tax benefits related to the U.S.
Federal R&D credit. The second quarter fiscal 2013 pre-tax
stock-based compensation charge reduced GAAP operating income by
$15.7 million, GAAP diluted earnings per share by $0.25 and GAAP
operating margin by 730 basis points. Together, the stock-based
compensation charge and income tax benefits decreased GAAP net
income by $4.7 million and GAAP diluted EPS by $0.11 per share.
FactSet uses these adjusted financial measures, both in presenting
its results to stockholders and the investment community, and in
its internal evaluation and management of the business. The Company
believes that these adjusted financial measures and the information
they provide are useful to investors because it permits investors
to view the Company's performance using the same tools that
management uses to gauge progress in achieving its goals. Investors
may benefit from referring to these adjusted financial measures in
assessing the Company's performance and when planning, forecasting
and analyzing future periods and may also facilitate comparisons to
its historical performance. The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with GAAP.
About Non-GAAP Free Cash Flow
The GAAP financial measure, cash flows provided by operating
activities, has been adjusted to report non-GAAP free cash flow
that includes the cash cost for taxes and changes in working
capital, less capital expenditures. Included in the just completed
second quarter was $41 million of net cash provided by operations
and $3 million of capital expenditures. The presentation of free
cash flow is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with GAAP. FactSet uses this financial measure, both in
presenting its results to stockholders and the investment
community, and in the Company's internal evaluation and management
of the business. Management believes that this financial measure is
useful to investors because it permits investors to view the
Company's performance using the same metric that management uses to
gauge progress in achieving its goals and is an indication of cash
flow that may be available to fund further investments in future
growth initiatives.
About FactSet
FactSet, a leading provider of financial information and
analytics, helps the world's best investment professionals
outperform. More than 50,000 users stay ahead of global market
trends, access extensive company and industry intelligence, and
monitor performance with FactSet's desktop analytics, mobile
applications, and comprehensive data feeds. The Company has been
included in FORTUNE's Top 100 Best Companies to Work For, the
United Kingdom's Great Places to Work and France's Best Workplaces.
FactSet is listed on the New York Stock Exchange and NASDAQ
(NYSE:FDS) (Nasdaq:FDS). Learn more at www.factset.com, and follow
us on Twitter: www.twitter.com/factset.
| FactSet Research Systems Inc. |
|
|
|
|
| Consolidated Statements of Income –
Unaudited |
|
|
|
|
| |
|
|
|
|
| |
Three Months Ended |
Six Months Ended |
| |
February 28, |
February 28, |
| (In thousands, except per share data) |
2014 |
2013 |
2014 |
2013 |
| |
|
|
|
|
| Revenues |
$226,934 |
$213,083 |
$449,909 |
$424,167 |
| |
|
|
|
|
| Operating expenses |
|
|
|
|
| Cost of services |
87,254 |
75,842 |
170,504 |
149,427 |
| Selling, general and
administrative* |
64,626 |
81,077 |
129,610 |
147,492 |
| Total operating expenses |
151,880 |
156,919 |
300,114 |
296,919 |
| |
|
|
|
|
| Operating income |
75,054 |
56,164 |
149,795 |
127,248 |
| |
|
|
|
|
| Other income |
344 |
357 |
685 |
785 |
| Income before income taxes |
75,398 |
56,521 |
150,480 |
128,033 |
| |
|
|
|
|
| Provision for income taxes |
22,972 |
11,982 |
45,876 |
33,726 |
| Net income |
$52,426 |
$44,539 |
$104,604 |
$94,307 |
| |
|
|
|
|
| Diluted earnings per common share |
$1.22 |
$1.00 |
$2.41 |
$2.11 |
| |
|
|
|
|
| Diluted weighted average common shares |
43,107 |
44,455 |
43,432 |
44,788 |
| |
|
|
|
|
| * Of the total pre-tax
stock-based compensation charge of $15.7 million from the vesting
of performance-based stock options, $15.5 million is reflected
within the Selling, general and administrative expense line above
for the three and six months ended February 28, 2013,
respectively. |
| |
| FactSet Research Systems
Inc. |
| Consolidated Statements of Comprehensive
Income – Unaudited |
|
|
| |
Three Months Ended February
28, |
Six Months Ended February
28, |
| (In thousands) |
2014 |
2013 |
2014 |
2013 |
| |
|
|
|
|
| Net income |
$52,426 |
$44,539 |
$104,604 |
$94,307 |
| |
|
| Other comprehensive income (loss), net of
tax |
|
| Net unrealized gain on cash
flow hedges* |
387 |
84 |
3,284 |
1,371 |
| Foreign currency translation
adjustments |
3,506 |
(4,731) |
11,654 |
(1,657) |
| Other comprehensive income
(loss) |
3,893 |
(4,647) |
14,938 |
(286) |
| |
|
|
|
|
| Comprehensive income |
$56,319 |
$39,892 |
$119,542 |
$94,021 |
| |
| * For the three
and six months ended February 28, 2014, the unrealized gain on cash
flow hedges was net of tax expense of $231 and $1,961,
respectively. The unrealized gain on cash flow hedges disclosed
above for the three and six months ended February 28, 2013, was net
of tax expense of $50 and $822, respectively. |
| |
|
|
| FactSet Research Systems Inc. |
|
|
| Consolidated Balance Sheets - Unaudited |
|
|
| |
February 28, |
August 31, |
| (In thousands) |
2014 |
2013 |
| |
|
|
| ASSETS |
|
|
| Cash and cash equivalents |
$88,790 |
$196,627 |
| Investments |
14,185 |
12,725 |
| Accounts receivable, net of
reserves |
97,564 |
73,290 |
| Prepaid taxes |
14,487 |
16,937 |
| Deferred taxes |
3,474 |
2,803 |
| Prepaid expenses and other
current assets |
13,536 |
15,652 |
| Total current assets |
232,036 |
318,034 |
| |
|
|
| Property, equipment, and
leasehold improvements, net |
60,627 |
65,371 |
| Goodwill |
287,545 |
244,573 |
| Intangible assets, net |
47,390 |
36,223 |
| Deferred taxes |
21,871 |
22,023 |
| Other assets |
4,496 |
3,973 |
| TOTAL ASSETS |
$653,965 |
$690,197 |
| |
|
|
| LIABILITIES |
|
|
| Accounts payable and accrued
expenses |
$27,821 |
$29,864 |
| Accrued compensation |
24,649 |
40,137 |
| Deferred fees |
35,417 |
29,319 |
| Taxes payable |
6,576 |
3,769 |
| Dividends payable |
14,827 |
15,164 |
| Total current liabilities |
109,290 |
118,253 |
| |
|
|
| Deferred taxes |
2,723 |
2,396 |
| Taxes payable |
5,345 |
5,435 |
| Deferred rent and other
non-current liabilities |
18,953 |
22,334 |
| TOTAL LIABILITIES |
$136,311 |
$148,418 |
| |
|
|
| STOCKHOLDERS' EQUITY |
|
|
| Common stock |
$485 |
$481 |
| Additional paid-in capital |
359,253 |
326,869 |
| Treasury stock, at cost |
(601,101) |
(454,917) |
| Retained earnings |
775,251 |
700,519 |
| Accumulated other comprehensive
loss |
(16,234) |
(31,173) |
| TOTAL STOCKHOLDERS' EQUITY |
517,654 |
541,779 |
| TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY |
$653,965 |
$690,197 |
| |
|
|
| FactSet Research Systems Inc. |
|
|
| Consolidated Statements of Cash Flows -
Unaudited |
|
|
| |
|
|
| |
Six Months Ended |
| (In thousands) |
February 28, |
| |
2014 |
2013 |
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
| Net income |
$104,604 |
$94,307 |
| Adjustments to reconcile net income to net
cash provided by operating activities |
|
|
| Depreciation and
amortization |
17,442 |
18,010 |
| Stock-based compensation
expense |
10,616 |
26,373 |
| Deferred income taxes |
(1,157) |
(2,394) |
| Gain on sale of assets |
(64) |
(2) |
| Tax benefits from share-based
payment arrangements |
(4,984) |
(9,870) |
| Changes in assets and
liabilities, net of effects of acquisitions |
|
|
| Accounts receivable, net of
reserves |
(20,466) |
(11,569) |
| Accounts payable and accrued
expenses |
(2,909) |
5,038 |
| Accrued compensation |
(15,949) |
(22,061) |
| Deferred fees |
2,460 |
1,937 |
| Taxes payable, net of prepaid
taxes |
9,754 |
(3,295) |
| Prepaid expenses and other
assets |
(331) |
772 |
| Deferred rent and other
non-current liabilities |
(389) |
(282) |
| Other working capital accounts,
net |
100 |
74 |
| Net cash provided by operating
activities |
98,727 |
97,038 |
| |
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
| Acquisition of businesses, net of cash
acquired |
(47,170) |
(705) |
| Purchases of investments |
(7,487) |
(8,098) |
| Proceeds from sales of investments |
6,871 |
7,500 |
| Purchases of property, equipment and
leasehold improvements, net of proceeds from dispositions |
(8,032) |
(9,084) |
| Net cash used in investing activities |
(55,818) |
(10,387) |
| |
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
| Dividend payments |
(30,011) |
(27,280) |
| Repurchase of common stock |
(146,184) |
(139,010) |
| Proceeds from employee stock plans |
16,881 |
31,306 |
| Tax benefits from share-based payment
arrangements |
4,984 |
9,870 |
| Net cash used in financing activities |
(154,330) |
(125,114) |
| |
|
|
| Effect of exchange rate changes on cash and
cash equivalents |
3,584 |
733 |
| |
|
|
| Net decrease in cash and cash
equivalents |
(107,837) |
(37,730) |
| |
|
|
| Cash and cash equivalents at beginning of
period |
196,627 |
189,044 |
| Cash and cash equivalents at end of
period |
$88,790 |
$151,314 |
Reconciliation of Adjusted Financial
Measures
Financial measures in accordance with U.S. GAAP including
operating income, net income and diluted earnings per share have
been adjusted below. FactSet uses these adjusted financial
measures, both in presenting its results to stockholders and the
investment community, and in its internal evaluation and management
of the business. The Company believes that these adjusted financial
measures and the information they provide are useful to investors
because it permits investors to view the Company's performance
using the same tools that management uses to gauge progress in
achieving its goals. Adjusted measures may also facilitate
comparisons to FactSet's historical performance.
| |
| (Unaudited) |
Three Months
Ended |
| |
February 28, |
| (In thousands, except per share
data) |
2014 |
2013 |
Change |
| GAAP Operating income |
$75,054 |
$56,164 |
|
| Vesting Performance-based stock options
(a) |
-- |
15,696 |
|
| Adjusted Operating
income |
$75,054 |
$71,860 |
4% |
| |
|
|
|
| GAAP Net income |
$52,426 |
$44,539 |
|
| Vesting Performance-based stock options
(a) |
-- |
11,004 |
|
| Income tax benefits from the U.S. Federal
R&D credit (b) |
-- |
(6,262) |
|
| Adjusted Net income |
$52,426 |
$49,281 |
6% |
| |
|
|
|
| Adjusted Diluted earnings per common share
(a)(b) |
$1.22 |
$1.11 |
10% |
| Weighted average common
shares (Diluted) |
43,107 |
44,455 |
|
| |
| (a) GAAP operating income
was adjusted to exclude a non-cash pre-tax charge of $15.7 million
for stock-based compensation. The vesting of the performance-based
stock options increased stock-based compensation, net of tax by
$11.0 million and reduced diluted earnings per share by $0.25. For
the purposes of calculating adjusted net income and adjusted
diluted earnings per share, the pre-tax stock-based compensation
charge of $15.7 million was taxed at the prior year annual
effective tax rate of 29.9%. |
| |
| (b) The U.S. Federal R&D tax
credit was first enacted in 1981, but was never made a permanent
credit, resulting in 8 expirations and 15 extensions since 1981.
Only once in its 32-year history was the tax credit not
retroactively re-enacted, which was from July 1, 1995 through June
30, 1996. The timing of when FactSet is able to recognize the U.S.
Federal R&D tax credit has been volatile due to the numerous
lapses and retroactive re-enactments by legislation over the past
10 years. GAAP financial measures in the fiscal 2013 second quarter
were adjusted to exclude $6.3 million or $0.14 per diluted share in
income tax benefits from the U.S. Federal R&D credit. |
Reconciliation of Non-GAAP Financial
Measures
Financial measures in accordance with U.S. GAAP including
operating income, net income and diluted earnings per share have
been adjusted below.
| Three Months Ended February
28, 2014 |
| (Condensed and Unaudited) In
thousands |
GAAP |
Stock-Based Compensation |
Amortization of Intangible
Assets |
Non-GAAP |
| Operating Income |
$75,054 |
$5,500 |
$2,179 |
$82,733 |
| Net Income (a) |
$52,426 |
$3,823 |
$1,514 |
$57,763 |
| Diluted EPS (a) (b) |
$1.22 |
$0.09 |
$0.04 |
$1.34 |
| Weighted Average Shares |
43,107 |
|
|
43,107 |
| |
| (a) For the purposes of
calculating non-GAAP net income and non-GAAP diluted EPS,
stock-based compensation expense and the amortization of intangible
assets were taxed at the annual effective tax rate of 30.5%. |
| |
| (b) The sum of the non-GAAP
diluted earnings per share may not equal the totals above due to
rounding. |
CONTACT: Rachel Stern
FactSet Research Systems Inc.
203.810.1000
FactSet Research Systems (NYSE:FDS)
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