FactSet Research Systems Inc. (FDS) reported third-quarter 2013 earnings per share of $1.17, beating the Zacks Consensus Estimate.
Revenues
FactSet reported total revenue of $214.6 million in the third quarter of 2013, up 6.0% from $202.3 million reported in the year-ago quarter. Within this 6.0%, 5.0% is organic in nature, while 1.0% is the growth rate that the company had on account of the contribution from StreetAccount.
Four new clients were added to the company’s existing portfolio of clients, reaching a total of 2,440. This figure, however, includes neither the companies on trial nor the ones that pay less than $24,000 a year.
Apart from this, 61 users were added to the company’s user count this quarter after which the figure increased more than 49,500. Buy-Side clients added to the company’s user base, while some sell-side clients continued to reduce their exposure to FactSet. Moreover, the company continues to make gains on the buy-side, which constituted around 83% of the total revenue contribution.
The U.S. revenues for the company were $147.0 million, which included a contribution of approximately $2.9 million from StreetAccount, up 6.0% from the year-ago quarter. Moreover, the Non-U.S. revenues were $68.0 million, up 6.0% compared with the year-ago quarter.
Annual Subscription Value
The company’s Annual Subscription Value (ASV) increased by $2.0 million and reached a total figure of $864.0 million on May 31, 2013. Included in this total figure, is 83% derived from buy-side clients, while rest of it comes from the sell-side firms who perform Mergers & Acquisition advisory work and equity research.
Operating Results
FactSet’s revenue growth rate was slower than that of operating expenses. This led to a 30 basis points (bps) decline in operating margin which dropped to 33.4% compared with 33.8% in the year-ago quarter.
The increase in operating expense resulted from higher compensation expense, from the engineering, consulting and content disciplines as well as higher StreetAccount revenues. Higher depreciation in the computer hardware price resulted from reinvesting in the company’s state-of-the-art computer infrastructure also contributed to the increase in the revenue.
Net income during the quarter came in at $53.4 million, down 11.3% from $48.0 million in the year-ago period. Quarterly earnings per share were $1.20 versus $1.05 in the year-ago quarter. Adjusted net income (excluding amortization of intangible assets from acquisitions, but including stock-based compensation) of $1.17 per share was below the year-ago quarter’s $1.05 per share.
Balance Sheet, Cash Flow
FactSet exited the quarter with $257.5 million in cash and cash equivalents, compared with $166.1 million in the previous quarter. The company has no long-term debt. Free cash flow increased $92 million, the largest quarterly free cash flow in FactSet's history, up 32% over the same period last year.
Guidance
For the fourth quarter of fiscal 2013, the company expects revenues in the range of $218.0 million to $221.0 million. Apart from this, the operating margin is expected to range between 33.0% and 34.0%. While the GAAP earnings per share should range between $1.18 and $1.21.
Our Take
FactSet reported modest third-quarter 2013 results since revenues grew on a year-over-year basis and earnings per share and exceeded the Zacks Consensus Estimate. The company also reported a decent operating performance, with operating income growing above the year-ago quarter. Moreover, the ASV increased compared to the year-ago quarter.
FactSet continues to launch new products and applications across its segments with special emphasis on financial services to gain more customers.
The company is offering new products and services on a regular basis. However, adding new customers is still a challenge due to the sluggish European market.
We expect competition to intensify further in the future. Some competitors such as Bloomberg L.P., Dow Jones & Company Inc., MSCI Inc. (MSCI) and Thomson Reuters are also coming up with substitute products at competitive prices.
FactSet carries a Zacks Rank #3 (Hold).
Investors can consider other stocks in the technology space such as, Lifelock Inc. (LOCK) and Western Digital Corp. (WDC) both carrying a Zacks Rank #2 (Buy).
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