FactSet Research Systems Inc. FDS reported second-quarter fiscal 2015 adjusted earnings per share of $1.39, which missed the Zacks Consensus Estimate of $1.41 per share. However, earnings increased from $1.22 per share reported in the year-ago quarter.
Quarter Details
FactSet reported revenues of $247.8 million, which not only increased 9.2% from the year-ago quarter but were also ahead of the Zacks Consensus Estimate of $246 million. Reported revenues were toward the higher end of management’s guided range of $244 million to $248 million. Organic revenue growth, excluding the Code Red acquisitions, was 9% year over year. Better-than-expected growth across products and geographic regions positively impacted quarterly revenues.
During the quarter, FactSet’s revenues from the U.S. grew 8% year over year to $167 million, while its non-U.S. revenues grew to $81 million. Excluding the impact of foreign currency, international revenues grew 13% on a year-over-year basis.
The company’s Annual Subscription Value (ASV) increased 8.5% and reached $1.00 billion as of Feb 28, 2014. Nearly 82.8% of this total figure is generated from buy-side clients while the rest comes from sell-side firms performing functions like mergers & acquisition, advisory work and equity research.
FactSet added 106 new clients this quarter (including 50 new clients from Code Red acquisition), taking the tally to 2,868. The company retained 93% of the clients and the client retention percentage was more than 95% of ASV.
Coming to the operational metrics, FactSet reported a 10.1% increase in total operating expenses, primarily due to an increase in cost of services (up 14.1% on a year over year basis) and higher compensation expense.
As a percentage of revenues, its operating expenses increased 52 basis points (bps) during the quarter to 67.5%, primarily due to higher employee compensation expenses.
FactSet’s adjusted operating income increased 11.7% from the year-ago quarter to $83.8 million. Moreover, operating margin increased 75 bps from the year-ago quarter to 33.8%, primarily due to changes in the senior management of the sales teams.
Adjusted net income during the quarter came in at $58.7 million or $1.39 per share, which improved from $52.4 million or $1.22 per share in the year-ago quarter.
FactSet exited the quarter with $122.1 million in cash and cash equivalents, compared with $115.2 million in the previous quarter. Long-term debt during the quarter amounted to $35 million.
Cash flow from operations during the six months ended Feb 28 came in at $120.7 million. The company generated free cash flow of $42.6 million during the quarter. FactSet purchased approximately 390K shares for $55.8 million during the quarter. The company also paid a quarterly dividend of 39 cents on Mar 17. 2015.
Guidance
For the third quarter of fiscal 2015, FactSet expects revenues in the range of $251 million to $256 million (mid-point $253.5 million). The Zacks Consensus Estimate is pegged at $252 million.
Operating margin is expected to range between 33% and 34%, Earnings per share are expected between $1.40 and $1.42 (mid-point $1.41). The Zacks Consensus Estimate for the third quarter stands at $1.39. The annual effective tax rate is expected to be in a range of 30% to 31%.
Our Take
FactSet reported mixed second-quarter of fiscal 2015 results. While the company’s bottom line missed the Zacks Consensus Estimate, the top line beat the same. Nonetheless, year-over-year comparisons were favorable. Moreover, the company has a high client retention ratio, which is a positive catalyst. Also, ASV increased year over year and the company added a good number of clients.
FactSet also provided an encouraging guidance for the forthcoming quarter. The share repurchase program is expected to support its earnings per share in the long run and boost shareholder value.
The company continues with product innovation and applications across its segments with special emphasis on financial services to gain more customers. Moreover, the company’s acquisition of Revere Data, Matrix Data and Code Red will help it to deliver innovative products and evolve as a global financial database company. It will also help FactSet to maximize value for its partners and provide exclusive content sets.
Nonetheless, competition from Bloomberg L.P., Dow Jones & Company Inc., MSCI Inc. MSCI and Thomson Reuters, which are also coming up with substitute products at competitive prices, is a headwind for the company.
FactSet carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the technology sector include Cirrus Logic Inc. CRUS and Avago Technologies Limited AVGO, both of which sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment