For the quarter ended February 28, 2013 revenues increased to $213.1 million, up 7% over the prior year. Included in this total was $2.7 million of acquired revenues from StreetAccount. Operating income was $56.2 million compared to $67.1 million in the second quarter of fiscal 2012. Net income was $44.5 million versus $46.7 million a year ago. Diluted earnings per share was $1.00 compared to $1.02 in the same period of fiscal 2012.
Adjusted operating income for the quarter was $71.9 million, up 7% over the prior year. Adjusted operating income excludes a non-cash pre-tax charge of $15.7 million for stock-based compensation related to the performance-based options granted in connection with the acquisition of Market Metrics in June 2010. These options vested in the second quarter of fiscal 2013 when the Market Metrics business accelerated to achieve stretch revenue growth targets.
Adjusted net income advanced 8% to $50.6 million. Adjusted net income excludes the after-tax charge of $11.0 million related to the Market Metrics performance-based stock options and $4.9 million in income tax benefits from the reenactment of the U.S. Federal R&D credit. This tax law change was retroactive to January 1, 2012 and resulted in cumulative income tax benefits of $4.9 million in the second quarter of fiscal 2013.
Adjusted diluted EPS rose 12% to $1.14. Adjusted diluted EPS excludes the net effect of a $0.25 decrease for the vesting of performance-based options partially offset by an $0.11 increase in diluted EPS from the reenactment of the U.S. Federal R&D credit.
A reconciliation between GAAP and adjusted financial measures is presented on page 8 of this press release.
“While we were pleased to achieve ASV growth of $17.3 million in the quarter, we continue to operate in a challenging sell-side environment,” said Philip A. Hadley, Chairman and CEO. “Our second quarter results include growing adjusted EPS by 12% and free cash flow by 11%. I am also proud to share that FactSet was recently named one of FORTUNE’s 100 Best Companies to Work For, marking our fifth appearance on that list in the last six years.”
Annual Subscription Value (“ASV”)
ASV advanced $17.3 million excluding the impact from foreign currency during the quarter and totaled $863.2 million at February 28, 2013. Of this total, 82% is derived from buy-side clients and the remainder is from the 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. The increase in ASV during the past three months was from buy-side clients, while sell-side client ASV contracted from a continuing volatile environment.
Financial Highlights – Second Quarter of Fiscal 2013
- ASV from U.S. operations was $592.6 million and $270.6 million was related to international operations.
- U.S. revenues, including $2.7 million from StreetAccount, were $146.0 million, up 7% from the year ago quarter.
- Non-U.S. revenues also rose 7% to $67.1 million as compared to the same period in fiscal 2012.
- GAAP operating margin was 26.4%. Adjusted operating margin was 33.7%, consistent with a year ago.
- The effective tax rate for the second quarter was 21.2% as compared to 30.9% a year ago. Excluding income tax benefits from the reenactment of the U.S. Federal R&D credit, the annual effective tax rate was 29.9%.
- Quarterly free cash flow was $43.4 million, up 11% over the year ago quarter.
- Accounts receivable increased $14 million over the last 12 months while ASV is up $60 million.
Operational Highlights – Second Quarter of Fiscal 2013
- Client count was 2,436 at February 28th, a net increase of 35 clients and the 13th consecutive quarter of net client growth.
- Annual client retention was greater than 95% of ASV and 93% when expressed as a percentage of clients.
- Users declined by 150 over the past three months and totaled 49,455 professionals at February 28th. Additions from buy-side clients were offset by user declines on the sell-side.
- Employee count was 6,048 at February 28th, up 10% over last year and a net increase of 28 in the past three months.
- Capital expenditures were $3.0 million.
- A regular quarterly dividend of $13.5 million or $0.31 per share was paid on March 19, 2013 to common stockholders of record as of February 28, 2013.
- The Company repurchased 1.2 million shares for $109 million during the second quarter under the share repurchase program. At February 28th, $55.5 million remains authorized for future repurchases.
- Common shares outstanding were 43.6 million at February 28, 2013.
- The integration of BlackRock Inc.’s iShares® Fixed Income Exchange Traded Funds on the FactSet platform was completed.
- FactSet was named one of FORTUNE’s “100 Best Companies to Work For,” marking our fifth appearance on this list in the last six years.
The following forward-looking statements reflect FactSet’s expectations as of February 28, 2013. 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 2013 Expectations
- Revenues are expected to range between $213 million and $216 million.
- Operating margin is expected to range between 33% and 34%.
- The annual effective tax rate is expected to range between 29.5% and 30.5%.
- GAAP diluted EPS should range between $1.14 and $1.16, the midpoint of the range represents 10% growth over last year’s third quarter.
The Company will host a conference call today, March 19, 2013, at 11:00 a.m. (EDT) to review the second quarter fiscal 2013 earnings release. To listen, please visit the investor relations section of the Company’s website at http://investor.factset.com/events.cfm.
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, operating margin, net income and diluted earnings per share have been adjusted. These adjusted financial measures exclude a pre-tax charge of $15.7 million related to the vesting of Market Metrics performance-based stock options and $4.9 million of cumulative income tax benefits related to the reenactment of the U.S. Federal R&D credit in January 2013. The charge related to stock-based compensation reduced GAAP operating income by $15.7 million, GAAP diluted earnings per share by $0.25 and GAAP operating margin by 730 basis points. The income tax benefits reduced the Company’s effective tax rate from 29.9% to 21.2% in the second quarter of fiscal 2013. Together, the stock-based compensation charge and income tax benefits decreased GAAP net income by $6.1 million and GAAP diluted EPS by $0.14 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. For more information on these adjusted financial measures, please see page 8 of this release.
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 $46.4 million of net cash provided by operations and $3.0 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 businesses. 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.
FactSet, a leading provider of financial information and analytics, helps the world’s best investment professionals outperform. More than 49,000 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 was named the 2012 Best Research Provider at the Inside Market Data and Inside Reference Data Awards and 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). Follow us on Twitter: www.twitter.com/factset.