- ASV increased $12.3 million, up 7% organically
- Adjusted EPS rose 11% to $1.25
- Free cash flow generation was $91 million
- FactSet names 18-year veteran, Phil Snow, as President
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 third quarter of fiscal 2014.
For the quarter ended May 31, 2014, revenues advanced to $231.8
million, up 8% over the prior year. Included in this total was $3.7
million from acquisitions completed since June 2013. Operating
income was $73.0 million compared to $71.6 million in the year ago
quarter. Net income was $51.5 million versus $53.4 million a year
ago. Diluted earnings per share was $1.21 compared to $1.20 in the
same period of fiscal 2013.
Adjusted operating income for the quarter increased 6%
over the prior year. Adjusted operating income excludes a non-cash
pre-tax charge of $1.4 million related to vesting of
performance-based options in connection with StreetAccount and a
$1.6 million pre-tax legal charge primarily from settling a claim.
Adjusted net income rose 6% and excludes the after-tax stock-based
compensation charge of $1.0 million, the after-tax legal charge of
$1.1 million and $0.6 million in income tax benefits from
finalizing prior years' tax returns. Adjusted net income in the
year ago quarter excludes income tax benefits of $3.3 million
related to the U.S. Federal R&D tax credit and finalizing prior
years' tax returns.
Adjusted diluted EPS grew 11% to $1.25. The fiscal 2014
third quarter adjusted diluted EPS of $1.25 excludes $0.02 from
stock-based compensation, $0.03 from a legal charge primarily to
settle a claim and $0.01 in income tax benefits. Prior year
adjusted diluted EPS of $1.13 excludes income tax benefits of $0.07
per share from the U.S. Federal R&D tax credit and finalizing
prior years' tax returns.
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
May 31, |
(In thousands, except per share
data) |
2014 |
2013 |
Change |
Revenues |
$231,761 |
$214,613 |
8% |
Adjusted operating income |
$76,084 |
$71,637 |
6% |
Adjusted net income |
$53,095 |
$50,085 |
6% |
Adjusted diluted earnings per share |
$ 1.25 |
$ 1.13 |
11% |
Diluted weighted average shares |
42,615 |
44,485 |
|
|
"I'm pleased to see that our ASV growth rate accelerated
to 7% and adjusted EPS grew by 11% in the just completed third
quarter," said Philip Hadley, Chairman and CEO. "We continued to
capitalize on our opportunities as evidenced by adding 30 net new
clients and 620 net new users in the past three months. I'm also
excited to announce that Phil Snow has accepted the role as
President, effective July 1st."
Annual Subscription Value ("ASV")
ASV totaled $932 million at May 31, 2014, up 7% organically over
the prior year and increased $12.3 million over the last three
months. Buy-side clients account for 83.1% 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 – Third Quarter of Fiscal
2014
- ASV from U.S. operations was $630 million and $302 million was
related to international operations.
- U.S. revenues were $156.3 million, up 6% from the year ago
quarter.
- Non-U.S. revenues rose to $75.5 million. Excluding incremental
revenue from the acquisition of Matrix and the impact of foreign
currency, the international growth rate was 8%.
- Operating margin was 31.5% compared to 33.4% a year ago.
Acquisitions completed since June 2013 reduced the operating margin
by 120 basis points.
- Adjusted operating margin was 32.8%, which excludes $1.4
million from vesting performance-based options and $1.6 million
from a legal charge primarily to settle a claim.
- The effective tax rate for the third quarter was 29.8%, up from
25.9% a year ago. Excluding income tax benefits from both periods,
the current year annual effective rate was 30.5% compared to 29.0%
in the prior year period. If the U.S. Federal R&D tax credit
had been re-enacted by May 31, 2014, the annual effective tax rate
would have been 28.7%.
- Quarterly free cash flow was $91 million.
Operational Highlights – Third Quarter of Fiscal
2014
- Client count rose by 30 and totaled 2,662 at May 31, 2014.
- Annual client retention was greater than 95% of ASV and 93%
when expressed as a percentage of clients.
- Users of the FactSet workstation increased by 620 and totaled
52,483 professionals at May 31, 2014.
- Employee count was 6,372 at May 31, 2014, up 8% over last
year.
- Capital expenditures were $3.7 million.
- The regular quarterly dividend increased 11% from $0.35 to
$0.39 per share, beginning with the Company's dividend payment on
June 17, 2014 to holders of record of FactSet common stock on May
30, 2014.
- The Company repurchased 540,000 shares for $56.9 million during
the third quarter. At May 31, 2014, $162 million remains authorized
for future repurchases.
- Common shares outstanding were 42.0 million at May 31,
2014.
- FactSet was recently recognized as one of the UK's "Best
Workplaces" by the Great Place to Work® Institute UK for the sixth
consecutive year, listed in Crain's "Chicago's Best Places to Work"
for the second year in a row and included in the "2014 Best Places
to Work in France" list for the third consecutive year.
- In May 2014, FactSet and Japan-based QUICK Corp. agreed to
jointly develop a new premium service that QUICK Corp. will sell
exclusively in Asia, including Japan.
FactSet Names 18-Year Veteran, Phil Snow, as
President
FactSet also announced that Phil Snow has been named President,
effective July 1, 2014. Mr. Snow will report directly to Philip
Hadley, Chairman and CEO. Mr. Snow joined FactSet in 1996 and is
currently Senior Vice President, Director of U.S. Investment
Management Sales. In his new role, Mr. Snow will be responsible for
the strategies that drive FactSet's mission: to provide
best-of-breed products and client service to financial
professionals worldwide. He will have oversight and management
responsibility for both FactSet's Sales and Operations teams.
FactSet's Executive Vice Presidents, Michael Frankenfield and Peter
Walsh, will remain in their current roles, both reporting to Mr.
Snow.
Philip Hadley said, "During Phil Snow's tenure at FactSet, he
has held many roles within the global sales organization. He has a
stellar track record of executing growth strategies and
consistently improving the performance of the teams he has managed.
I am delighted that he has agreed to accept the additional
responsibilities of this role to help lead FactSet into its next
phase of growth."
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.
Fourth Quarter Fiscal 2014 Expectations
- Revenues are expected to range between $235 million and $240
million.
- Operating margin is expected to range between 32.5% and 33.5%,
which includes a 100 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 fourth quarter of fiscal
2014.
- Diluted EPS should range between $1.30 and $1.32. 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, June 17, 2014, at
11:00 a.m. (Eastern Time) to review the third 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.
Adjusted operating income excludes a non-cash pre-tax charge of
$1.4 million related to vesting of performance-based options
granted in connection with StreetAccount and $1.6 million of legal
fees incurred during the current year third quarter primarily to
settle a claim. Adjusted net income excludes the after-tax
stock-based compensation charge of $1.0 million, after-tax legal
fees of $1.1 million and $0.6 million in income tax benefits from
finalizing prior years' tax returns. Adjusted net income in the
year ago quarter excludes income tax benefits of $3.3 million
related to the U.S. Federal R&D tax credit and finalizing prior
years' tax returns. The fiscal 2014 third quarter adjusted diluted
EPS of $1.25 excludes $0.02 from stock-based compensation, $0.03
from legal fees primarily to settle a claim and $0.01 in income tax
benefits. Prior year adjusted diluted EPS of $1.13 excludes income
tax benefits of $0.07 per share from the U.S. Federal R&D tax
credit and finalizing prior years' tax returns. 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
third quarter was $95 million of net cash provided by operations
and $4 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 |
Nine Months Ended |
|
May 31, |
May 31, |
(In thousands, except per share data) |
2014 |
2013 |
2014 |
2013 |
|
|
|
|
|
Revenues |
$231,761 |
$214,613 |
$681,671 |
$638,779 |
|
|
|
|
|
Operating expenses |
|
|
|
|
Cost of services |
90,661 |
76,721 |
261,165 |
226,148 |
Selling, general and administrative |
68,063 |
66,255 |
197,673 |
213,746 |
Total operating expenses |
158,724 |
142,976 |
458,838 |
439,894 |
|
|
|
|
|
Operating income |
73,037 |
71,637 |
222,833 |
198,885 |
|
|
|
|
|
Other income |
334 |
361 |
1,018 |
1,146 |
Income before income taxes |
73,371 |
71,998 |
223,851 |
200,031 |
|
|
|
|
|
Provision for income taxes |
21,839 |
18,631 |
67,715 |
52,357 |
Net income |
$51,532 |
$53,367 |
$156,136 |
$147,674 |
|
|
|
|
|
Diluted earnings per common share |
$1.21 |
$1.20 |
$3.62 |
$3.30 |
Diluted weighted average common shares |
42,615 |
44,485 |
43,170 |
44,784 |
|
|
FactSet Research Systems
Inc. |
Consolidated Statements of Comprehensive
Income – Unaudited |
|
|
|
Three Months Ended
May 31, |
Nine Months
Ended May 31, |
(In thousands) |
2014 |
2013 |
2014 |
2013 |
|
|
|
|
|
Net income |
$51,532 |
$53,367 |
$156,136 |
$147,674 |
|
|
|
|
|
Other comprehensive income (loss), net of
tax |
|
|
|
|
Net unrealized gain (loss) on cash flow
hedges* |
2,341 |
(549) |
5,625 |
822 |
Foreign currency translation
adjustments |
545 |
(2,478) |
12,199 |
(4,135) |
Other comprehensive income (loss) |
2,886 |
(3,027) |
17,824 |
(3,313) |
Comprehensive income |
$54,418 |
$50,340 |
$173,960 |
$144,361 |
|
* For the three
and nine months ended May 31, 2014, the unrealized gain on cash
flow hedges was net of tax expense of $1,391 and $3,352,
respectively. The unrealized (loss) gain on cash flow hedges
disclosed above for the three and nine months ended May 31, 2013,
was net of tax benefit of $328 and tax expense of $494,
respectively. |
|
|
|
|
|
|
FactSet Research Systems Inc. |
|
|
Consolidated Balance Sheets - Unaudited |
|
|
|
May 31, |
August 31, |
(In thousands) |
2014 |
2013 |
|
|
|
ASSETS |
|
|
Cash and cash equivalents |
$118,858 |
$196,627 |
Investments |
15,217 |
12,725 |
Accounts receivable, net of reserves |
86,069 |
73,290 |
Prepaid taxes |
3,136 |
16,937 |
Deferred taxes |
1,667 |
2,803 |
Prepaid expenses and other current
assets |
15,156 |
15,652 |
Total current assets |
240,103 |
318,034 |
|
|
|
Property, equipment, and leasehold
improvements, net |
58,045 |
65,371 |
Goodwill |
287,287 |
244,573 |
Intangible assets, net |
44,603 |
36,223 |
Deferred taxes |
23,587 |
22,023 |
Other assets |
6,011 |
3,973 |
TOTAL ASSETS |
$659,636 |
$690,197 |
|
|
|
LIABILITIES |
|
|
Accounts payable and accrued
expenses |
$27,295 |
$29,864 |
Accrued compensation |
33,290 |
40,137 |
Deferred fees |
37,658 |
29,319 |
Taxes payable |
4,568 |
3,769 |
Dividends payable |
16,386 |
15,164 |
Total current liabilities |
119,197 |
118,253 |
Deferred taxes |
3,092 |
2,396 |
Taxes payable |
5,157 |
5,435 |
Deferred rent and other non-current
liabilities |
16,922 |
22,334 |
TOTAL LIABILITIES |
$144,368 |
$148,418 |
|
|
|
STOCKHOLDERS' EQUITY |
|
|
Common stock |
$487 |
$481 |
Additional paid-in capital |
377,805 |
326,869 |
Treasury stock, at cost |
(660,071) |
(454,917) |
Retained earnings |
810,396 |
700,519 |
Accumulated other comprehensive loss |
(13,349) |
(31,173) |
TOTAL STOCKHOLDERS' EQUITY |
515,268 |
541,779 |
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
$659,636 |
$690,197 |
|
|
FactSet Research Systems
Inc. |
Consolidated Statements of Cash
Flows - Unaudited |
|
Nine Months Ended |
|
May 31, |
(In thousands) |
2014 |
2013 |
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
Net income |
$156,136 |
$147,674 |
Adjustments to reconcile net income to net
cash provided by operating activities |
|
|
Depreciation and amortization |
25,852 |
26,941 |
Stock-based compensation expense |
17,425 |
31,813 |
Deferred income taxes |
(2,038) |
2,025 |
Gain on sale of assets |
(62) |
(7) |
Tax benefits from share-based payment
arrangements |
(6,815) |
(14,858) |
Changes in assets and liabilities, net of
effects of acquisitions |
|
|
Accounts receivable, net of reserves |
(9,001) |
5,006 |
Accounts payable and accrued
expenses |
(2,260) |
2,276 |
Accrued compensation |
(7,368) |
(11,514) |
Deferred fees |
4,709 |
2,882 |
Taxes payable, net of prepaid taxes |
20,777 |
(368) |
Prepaid expenses and other assets |
(1,931) |
1,253 |
Deferred rent and other non-current
liabilities |
(1,241) |
(927) |
Other working capital accounts, net |
(461) |
1,431 |
Net cash provided by operating
activities |
193,722 |
193,627 |
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
Acquisition of businesses, net of cash
acquired |
(46,873) |
(705) |
Purchases of investments |
(7,818) |
(8,406) |
Proceeds from sales of investments |
6,871 |
7,500 |
Purchases of property, equipment and
leasehold improvements, net of proceeds from dispositions |
(11,704) |
(13,288) |
Net cash used in investing activities |
(59,524) |
(14,899) |
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
Dividend payments |
(44,736) |
(40,693) |
Repurchase of common stock |
(205,154) |
(188,066) |
Proceeds from employee stock plans |
26,799 |
91,011 |
Tax benefits from share-based payment
arrangements |
6,815 |
14,858 |
Net cash used in financing activities |
(216,276) |
(122,890) |
Effect of exchange rate changes on cash and
cash equivalents |
4,309 |
(2,043) |
Net (decrease) increase in cash and cash
equivalents |
(77,769) |
53,795 |
Cash and cash equivalents at beginning of
period |
196,627 |
189,044 |
Cash and cash equivalents at end of
period |
$118,858 |
$242,839 |
Reconciliation of GAAP to 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 |
|
May 31, |
(In thousands, except per share
data) |
2014 |
2013 |
Change |
GAAP Operating income |
$73,037 |
$71,637 |
|
Vesting performance-based stock options
(a) |
1,415 |
-- |
|
Legal charge primarily from settling a claim
(b) |
1,632 |
-- |
|
Adjusted Operating
income |
$76,084 |
$71,637 |
6% |
|
|
|
|
GAAP Net income |
$51,532 |
$53,367 |
|
Vesting performance-based stock options
(a)(c) |
983 |
-- |
|
Legal charge primarily from settling a claim
(b)(c) |
1,134 |
-- |
|
Income tax benefits (d) |
(554) |
(3,282) |
|
Adjusted Net income |
$53,095 |
$50,085 |
6% |
|
|
|
|
Adjusted Diluted earnings per common
share |
$1.25 |
$1.13 |
11% |
Weighted average common shares
(Diluted) |
42,615 |
44,485 |
|
|
(a) GAAP operating income was adjusted
to exclude a non-cash pre-tax charge of $1.4 million for
stock-based compensation. The vesting of the performance-based
stock options increased stock-based compensation, net of tax by
$1.0 million and reduced diluted earnings per share by $0.02. |
|
(b) GAAP operating income was adjusted
to exclude a $1.6 million pre-tax legal charge primarily from
settling a claim. The legal charge increased SG&A expenses by
$1.1 million, net of tax and reduced diluted earnings per share by
$0.03. |
|
(c) For the purposes of calculating
adjusted net income and adjusted diluted earnings per share, the
pre-tax stock-based compensation charge of $1.4 million and the
legal charge totaling $1.6 million were taxed at the current year
annual effective tax rate of 30.5%. |
|
(d) GAAP net income was adjusted to
exclude $0.6 million of income tax benefits related to finalizing
prior years' tax returns. GAAP diluted EPS was adjusted to exclude
$0.01 from these same income tax benefits. GAAP financial measures
in the fiscal 2013 third quarter were adjusted to exclude $3.3
million or $0.07 per diluted share in income tax benefits from the
U.S. Federal R&D credit and finalizing prior years' tax
returns. |
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 May 31,
2014 |
|
|
|
(Condensed and Unaudited) In
thousands |
GAAP |
Stock-Based Compensation |
Amortization of Intangible
Assets |
Income Tax Benefits (b) |
Non-GAAP |
Operating Income |
$ 73,037 |
$ 6,809 |
$ 2,354 |
|
$ 82,200 |
Net Income (a) |
$ 51,532 |
$ 4,732 |
$ 1,636 |
$ (554) |
$ 57,346 |
Diluted EPS (a) (c) |
$ 1.21 |
$ 0.11 |
$ 0.04 |
$ (0.01) |
$ 1.35 |
Weighted Average Shares |
42,615 |
|
|
|
42,615 |
|
(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 current year annual effective tax rate of 30.5%. |
|
(b) GAAP net income was adjusted to
exclude $0.6 million of income tax benefits related to finalizing
prior years' tax returns. GAAP diluted EPS was adjusted to exclude
$0.01 from these same income tax benefits. |
|
(c) 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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