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FactSet Second Quarter Results Highlight ASV Acceleration of 9.5%, EPS Growth of 12.0%

March 15, 2016

NORWALK, Conn., March 15, 2016 (GLOBE NEWSWIRE) -- FactSet Research Systems Inc. (NYSE:FDS) (NASDAQ:FDS), a leading provider of integrated financial information and analytical applications, today announced its results for the second quarter of fiscal 2016.

For the quarter ended February 29, 2016, revenues grew to $281.8 million. Operating income was $85.3 million compared to $80.6 million in the prior year period. Net income was $67.8 million versus $61.6 million a year ago. Diluted earnings per share were $1.63 compared to $1.46 in the same period of fiscal 2015.

Beginning in the second quarter of fiscal 2016, the Company changed its non-GAAP reporting by adjusting for deal-related amortization. Adjusted operating income and margin, adjusted net income and adjusted earnings per share exclude both deal-related amortization and non-recurring items. The Company believes that this change to its reported adjusted financial measures better reflects the underlying economic performance of FactSet. A supplementary schedule reconciling GAAP results to these adjusted financial measures is presented beginning on page 9 of this earnings release.

Excluding revenues acquired from acquisitions completed within the last 12 months and the effects of foreign currency, organic revenues grew 9.5%. Adjusted operating income for the quarter was $93.3 million, up 8.6% over the prior year. Adjusted operating income during the just completed second quarter excludes $4.1 million of deal-related amortization and $3.8 million of incremental expense from restructuring actions and stock-based compensation related to a change in the vesting of performance-based stock options. Adjusted net income advanced 9.9% over the prior year and excludes the after-tax charge of $2.9 million from deal-related amortization, the after-tax charge of $2.7 million from restructuring actions and incremental stock-based compensation expense and $7.3 million in income tax benefits from the permanent reenactment of the U.S. Federal R&D tax credit, retroactive to January 1, 2015. Adjusted diluted EPS was up 12.0% to $1.59 and excludes the net effect of the $0.17 benefit from the permanent reenactment of the U.S. Federal R&D tax credit, a $0.07 detriment from deal-related amortization and a $0.06 detriment from restructuring actions and incremental stock-based compensation expense.

Consolidated Statements of Income

(Condensed and Unaudited)

       
          Three Months Ended              
          February 29,         February 28,              
(In thousands, except per share data)         2016         2015       Change          
Revenues       $ 281,796       $ 247,792       13.7 %        
Adjusted operating income       $ 93,260       $ 85,850       8.6 %        
Adjusted net income       $ 66,081       $ 60,140       9.9 %        
Adjusted diluted earnings per share       $ 1.59       $ 1.42       12.0 %        
GAAP diluted earnings per share       $ 1.63       $ 1.46       11.6 %        
Diluted weighted average shares         41,536         42,306                  
                     

“FactSet continues to perform well and with our unique content, superior workflow and analytical solutions, and unmatched client support, we will continue to partner with our clients to grow their businesses,” said Phil Snow, FactSet’s CEO.

Annual Subscription Value (“ASV”)

ASV was $1.139 billion at February 29, 2016, up 9.5% organically from the prior year. Over the last three months organic ASV increased $29.8 million, which excludes the effects of foreign currency. 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.

Buy-side and sell-side ASV growth rates were both 9.5% for the second fiscal quarter of 2016. Buy-side clients account for 83.4% of ASV and the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research. Supplementary tables covering buy-side and sell-side ASV growth rates are presented on page 11 of this earnings release.

Financial Highlights – Second Quarter of Fiscal 2016

  • ASV from U.S. operations was $766 million and $373 million was related to non-U.S. operations.
  • U.S. revenues were $189.7 million. Excluding revenues from acquisitions completed within the past 12 months, the U.S. growth rate was 9.4%.    
  • Non-U.S. revenues rose to $92.1 million. Excluding the impact of foreign currency and acquisitions completed within the past 12 months, the international growth rate was 9.6%.
  • Adjusted operating margin was 33.1%, compared to 34.6% in the year ago second quarter. Portware’s operations reduced FactSet’s just completed second quarter operating margin by 130 basis points and diluted earnings per share by $0.02. Excluding deal-related amortization, the Portware acquisition was $0.02 accretive in the just completed second quarter.
  • The U.S. Federal R&D tax credit, which had previously expired on December 31, 2014, was reinstated during the second quarter of fiscal 2016. The R&D tax credit was retroactive to January 1, 2015, and by providing for a permanent R&D tax credit, the yearly uncertainty surrounding the extension of the credit has been removed. The reenactment resulted in income tax benefits of $7.3 million, or $0.17 per diluted share, reducing the Company’s annual effective tax rate to 28.8%. 
  • Quarterly free cash flow of $81.1 million represents the highest reported second quarter free cash flow in Company history.

Operational Highlights – Second Quarter of Fiscal 2016

  • Client count rose by 51 and totaled 3,057 at February 29, 2016.
  • User count grew 10.6% to 63,500, reflecting 331 net new users.
  • Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention increased to 95%, up from 93% in the prior year second quarter.
  • Employee count was 8,093 at February 29, 2016, up 160 people in the past three months. Excluding the acquired Portware workforce, headcount increased 13.6% from a year ago.  
  • Capital expenditures were $12.1 million, of which $5.7 million related to the buildout of the Company’s New York office.
  • Common shares outstanding were 41.0 million at February 29, 2016.
  • A regular quarterly dividend of $18.0 million, or $0.44 per share, was paid on March 15, 2016, to common stockholders of record as of February 29, 2016.
  • The Company repurchased 465,100 shares for $71.4 million during the quarter. At February 29, 2016, $270.9 million remained authorized for further repurchases. Over the last 12 months, $336 million has been returned to stockholders in the form of share repurchases and dividends, funded entirely by cash generated from operations.
  • FactSet was recently recognized for the eighth time on Fortune’s 100 Best Companies to Work For®, the only Connecticut-based company to make the list.
  • The SPDR FactSet Innovative Technology ETF began trading on the NYSE Arca in January 2016. This FactSet index leverages the Company’s U.S. sector classification system to uniquely identify technology-related companies in new, rapidly evolving areas, such as mobile devices, cyber security and cloud computing.

Business Outlook

The following forward-looking statements reflect FactSet’s expectations as of today’s date. Given the risk factors, uncertainties and assumptions discussed below, actual results may differ materially. FactSet does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publicly available statements.

Third Quarter Fiscal 2016 Expectations

  • Revenues are expected to range between $286 million and $289 million.
  • GAAP operating margin is expected to range between 31.0% and 32.0% which includes a 120 basis point reduction from the operations of Portware. Adjusted operating margin is expected to range between 32.5% and 33.5%.
  • The annual effective tax rate is expected to range between 28.5% and 29.5%.
  • GAAP diluted EPS should range between $1.54 and $1.58. Adjusted EPS is expected to range between $1.60 and $1.64. The midpoint of the adjusted EPS range represents 11.0% growth over the prior year. 

Conference Call

The Company will host a conference call today, March 15, 2016 at 11:00 a.m. Eastern Time to review the second quarter fiscal 2016 earnings release. To listen, please visit the “Audiocasts” section on FactSet's Investor Relations website at http://investor.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 "expects," "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. Adjusted operating income during the just completed second quarter excludes $4.1 million of deal-related amortization and $3.8 million of restructuring actions and incremental stock-based compensation expense. Adjusted net income excludes an after-tax charge of $2.9 million from deal-related amortization, the after-tax charge of $2.7 million from restructuring actions and incremental stock-based compensation expense and $7.3 million in income tax benefits from the permanent reenactment of the U.S. Federal R&D tax credit. Adjusted diluted EPS of $1.59 excludes the net effect of a $0.17 benefit from the reenactment of the U.S. Federal R&D tax credit, a $0.07 detriment from deal-related amortization and a $0.06 detriment from restructuring actions and incremental stock-based compensation expense. 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 they permit 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 recently completed second quarter was $93.2 million of net cash provided by operations and $12.1 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 is a leading provider of integrated financial information and analytical applications. More than 63,000 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 on Twitter: www.twitter.com/factset.

FactSet Research Systems Inc.        
Consolidated Statements of Income – Unaudited

 
       
  Three Months Ended   Six Months Ended
    February 29,       February 28,       February 29,       February 28,  
(In thousands, except per share data)   2016       2015       2016       2015  
                               
Revenues $ 281,796     $ 247,792     $ 552,300     $ 490,468  
               
Operating expenses              
Cost of services   123,911       99,516       238,647       197,059  
Selling, general and administrative   72,541       67,628       141,001       132,501  
Total operating expenses   196,452       167,144       379,648       329,560  
               
Operating income   85,344       80,648       172,652       160,908  
               
Other (expense) income, net   (424 )     534       (331 )     964  
Income before income taxes   84,920       81,182       172,321       161,872  
               
Provision for income taxes   17,157       19,584       44,594       44,414  
Net income $ 67,763     $ 61,598     $ 127,727     $ 117,458  
               
Diluted earnings per common share $ 1.63     $ 1.46     $ 3.06     $ 2.78  
               
Diluted weighted average common shares   41,536       42,306       41,799       42,324  

 

FactSet Research Systems Inc.  
Consolidated Statements of Comprehensive Income – Unaudited  
         
  Three Months Ended    Six Months Ended  
(In thousands)   February 29,       February 28,       February 29,       February 28,  
    2016       2015       2016       2015  
Net income $ 67,763     $ 61,598     $ 127,727     $ 117,458  
               
Other comprehensive loss, net of tax              
Net unrealized (loss) gain on cash flow hedges*   (1,819 )     843       (2,236 )     731  
Foreign currency translation adjustments   (10,364 )     (8,011 )     (16,750 )     (21,566 )
Other comprehensive loss   (12,183 )     (7,168 )     (18,986 )     (20,835 )
Comprehensive income $ 55,580     $ 54,430     $ 108,741     $ 96,623  
               
* For the three and six months ended February 29, 2016, the unrealized loss on cash flow hedges was net of tax benefits of $1,068
and $1,312 respectively. The unrealized gain on cash flow hedges disclosed above for the three and six months ended February
28, 2015, was net of tax expense of $501 and $434, respectively.

 

FactSet Research Systems Inc.      
Consolidated Balance Sheets - Unaudited      
      February 29,       August 31,    
(In thousands)       2016       2015    
               
ASSETS              
Cash and cash equivalents   $ 175,170     $ 158,914    
Investments   22,931       23,497    
Accounts receivable, net of reserves   105,928       95,064    
Prepaid taxes     2,107       4,808    
Deferred taxes     3,397       2,105    
Prepaid expenses and other current assets     17,808       19,786    
  Total current assets     327,341       304,174    
                     
Property, equipment, and leasehold improvements, net   75,667       59,264    
Goodwill       489,340       308,287    
Intangible assets, net       106,753       40,052    
Deferred taxes       17,744       20,599    
Other assets       4,860       4,295    
  TOTAL ASSETS     $ 1,021,705     $ 736,671    
               
               
LIABILITIES        
Accounts payable and accrued expenses $ 39,210     $ 33,880    
Accrued compensation     35,079       44,916    
Deferred fees     44,038       38,488    
Taxes payable     3,345       3,755    
Deferred taxes     321       562    
Dividends payable     18,044       18,179    
  Total current liabilities     140,037       139,780    
                     
Deferred taxes       1,469       1,697    
Taxes payable       8,488       6,776    
Long-term debt   300,000       35,000    
Deferred rent and other non-current liabilities   30,653       21,834    
  TOTAL LIABILITIES   $ 480,647     $ 205,087    
               
               
STOCKHOLDERS’ EQUITY          
Common stock   $ 507     $ 503    
Additional paid-in capital   595,030       542,355    
Treasury stock, at cost     (1,104,567 )     (988,873 )  
Retained earnings     1,113,126       1,021,651    
Accumulated other comprehensive loss       (63,038 )     (44,052 )  
  TOTAL STOCKHOLDERS’ EQUITY     541,058       531,584    
  TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,021,705     $ 736,671    

 

FactSet Research Systems Inc.        
Consolidated Statements of Cash Flows - Unaudited  
   
(In thousands) Six Months Ended
                    February 29,       February 28,    
                      2016       2015    
CASH FLOWS FROM OPERATING ACTIVITIES                                  
Net income             $   127,727     $ 117,458    
Adjustments to reconcile net income to net cash provided by operating activities        
Depreciation and amortization   18,260       16,222    
Stock-based compensation expense   15,027       11,037    
Deferred income taxes   732       2,697    
Gain on sale of assets         (4 )  
Tax benefits from share-based payment arrangements   (10,804 )     (11,743 )  
Changes in assets and liabilities, net of effects of acquisitions            
Accounts receivable, net of reserves       (5,683 )     (9,280 )  
Accounts payable and accrued expenses       1,930       4,206    
Accrued compensation   (10,180 )     (12,753 )  
Deferred fees   913       2,624    
Taxes payable, net of prepaid taxes   15,138       3,139    
Prepaid expenses and other assets   1,816       (1,664 )  
Deferred rent and other non-current liabilities   9,372       (1,172 )  
Other working capital accounts, net               (22 )     (27 )  
Net cash provided by operating activities     164,226       120,740    
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Acquisition of businesses, net of cash acquired     (264,087 )     (30,133 )    
Purchases of investments     (12,530 )     (12,437 )    
Proceeds from sales of investments     12,423       7,535      
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions                               (26,438 )     (11,764 )    
Net cash used in investing activities     (290,632 )     (46,799 )  
                   
CASH FLOWS FROM FINANCING ACTIVITIES          
Dividend payments     (36,132 )     (32,286 )  
Repurchase of common stock     (115,695 )     (106,317 )  
Proceeds from debt       265,000       35,000    
Debt issuance costs       (12 )     (32 )  
Proceeds from employee stock plans       26,848       34,393    
Tax benefits from share-based payment arrangements             10,804       11,743    
Net cash provided by (used in) financing activities       150,813       (57,499 )  
             
Effect of exchange rate changes on cash and cash equivalents             (8,151 )     (10,750 )  
             
Net increase in cash and cash equivalents       16,256       5,692    
             
Cash and cash equivalents at beginning of period             158,914       116,378    
Cash and cash equivalents at end of period     $       175,170     $ 122,070    
             

Reconciliation of GAAP Results to Adjusted Financial Measures

Financial measures in accordance with U.S. GAAP including operating income, operating margin, 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 they permit 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 29,   February 28,  
(In thousands, except per share data) 2016   2015   Change  
             
GAAP Operating income $ 85,344     $ 80,648          
Deal-related amortization (a)   4,078       2,048          
Restructuring actions (b)   2,430       3,154          
Vesting performance-based stock options (c)   1,408                
Adjusted operating income $ 93,260     $ 85,850       8.6 %
Adjusted operating margin   33.1 %     34.6 %        
             
GAAP Net income $ 67,763     $ 61,598          
Deal-related amortization (a)(d)   2,903       1,425          
Restructuring actions (b)(d)   1,730       2,196          
Vesting performance-based stock options (c)(d)   1,002                
Income tax benefits from reenactment of the U.S. Federal R&D tax credit (e)(f)       (7,317 )     (5,079 )        
Adjusted net income $ 66,081     $ 60,140       9.9 %
             
Adjusted Diluted earnings per common share $ 1.59     $ 1.42       12.0 %
Weighted average common shares (Diluted)   41,536       42,306          

 

(a) GAAP operating income in the second quarter of fiscal 2016 was adjusted to exclude $4.1 million of pre-tax deal-related amortization, which reduced diluted earnings per share by $0.07. GAAP operating income in the second quarter of fiscal 2015 was adjusted to exclude $2.0 million of deal-related amortization, which reduced diluted earnings per share by $0.03.
   
(b) GAAP operating income in the second quarter of fiscal 2016 was adjusted to exclude a pre-tax charge of $2.4 million from restructuring actions initiated by the Company. The restructuring actions reduced diluted earnings per share by $0.04 in the just completed second quarter. GAAP operating income for fiscal 2015 was adjusted to exclude a pre-tax charge of $3.2 million primarily from changes in the senior leadership responsible for the Company’s salesforce. This incremental expense reduced diluted earnings per share by $0.05 in the year ago second quarter.
   
(c) GAAP operating income in the second quarter of fiscal 2016 was adjusted to exclude $1.4 million of pre-tax expense related to a change in the vesting of performance-based stock options. The incremental expense reduced diluted EPS by $0.02.
   
(d) For the purposes of calculating adjusted net income and adjusted diluted earnings per share, deal-related amortization and non-recurring items were taxed at the effective tax rates of 28.8% for fiscal 2016 and 30.4% for fiscal 2015.
   
(e) The U.S. Federal R&D tax credit, which had previously expired on December 31, 2014, was permanently reenacted and retroactive to January 1, 2015. The reenactment resulted in discrete income tax benefits of $7.3 million or $0.17 per diluted share during the second quarter of fiscal 2016.
   
(f) In the year ago second quarter, the U.S. Federal R&D tax credit was reinstated, retroactive to January 1, 2014 and extended through the end of the 2014 calendar year. The reenactment resulted in discrete income tax benefits of $5.1 million or $0.12 per diluted share during the second quarter of fiscal 2015.


Supplementary Schedule of Historical Adjusted Financial Measures

The following table presents adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, and may be useful to facilitate historical comparisons.

(Unaudited)

(In thousands, except per share data)
Q2’16 Q1’16 Q4’15 Q3’15 Q2‘15 Q1‘15
GAAP Operating income $ 85,344   $ 87,308   $ 85,653   $ 85,356   $ 80,648   $ 80,260  
Deal-related amortization   4,078     2,922     1,787     2,284     2,048     2,101  
Non-recurring items   3,838     690     3,010         3,154      
Adjusted operating income $ 93,260   $ 90,920   $ 90,450   $ 87,640   $ 85,850   $ 82,361  
Adjusted operating margin   33.1 %   33.6 %   34.6 %   34.4 %   34.6 %   33.9 %
             
GAAP Net income $ 67,763   $ 59,965   $ 62,184   $ 61,409   $ 61,598   $ 55,860  
Deal-related amortization   2,903     2,004     1,246     1,597     1,425     1,454  
Non-recurring items   (4,585 )   474     (183 )   (1,408 )   (2,883 )    
Adjusted net income $ 66,081   $ 62,443   $ 63,247   $ 61,598   $ 60,140   $ 57,314  
             
Adjusted Diluted earnings per common share $ 1.59   $ 1.48   $ 1.51   $ 1.46   $ 1.42   $ 1.35  
Weighted average common shares (Diluted)   41,536     42,063     41,995     42,297     42,306     42,340  


Supplementary Schedules of Historical ASV by Client Type

The following table presents the percentages and growth rates of ASV by client type, excluding currency, and may be useful to facilitate historical comparisons.

  Q2’16 Q1’16 Q4’15 Q3’15 Q2‘15 Q1‘15
% of ASV from buy-side clients   83.4 %   83.2 %   82.5 %   82.8 %   82.8 %   82.5 %
% of ASV from sell-side clients   16.6 %   16.8 %   17.5 %   17.2 %   17.2 %   17.5 %
             
ASV Growth rate from buy-side clients   9.5 %   9.3 %   9.0 %   8.5 %   8.7 %   8.9 %
ASV Growth rate from sell-side clients   9.5 %   10.0 %   9.8 %   10.9 %   7.9 %   6.7 %
ASV Growth rate from all clients    9.5 %   9.4 %   9.2 %   8.9 %   8.5 %   8.5 %

The following table presents the calculation of the above-mentioned growth rates by client type for the second quarter of fiscal 2016.

(In millions) Feb 29,
2016
Feb 28,
2015
Q2 2016
ASV Growth Rate
   
As reported ASV $ 1,139.2   $ 1,004.6        
Less acquired ASV (a)   (39.7 )          
Currency impact (b)   0.8                
Organic ASV total $ 1,100.3   $ 1,004.6     9.5 %    
Buy-side   911.0     831.8     9.5 %    
Sell-side   189.3     172.8     9.5 %    

 

(a) Acquired ASV from acquisitions completed within the last 12 months.
   
(b) The negative impact from foreign currency movements over the past 12 months was added back in order to calculate total organic ASV.
   
Contact:
Rachel Stern
FactSet Research Systems Inc.
203.810.1000
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