FactSet (FDS) Beats Q1 Earnings Estimates, Lags Revenues

FactSet Research Systems Inc. FDS reported mixed first-quarter fiscal 2020 results, wherein earnings topped the Zacks Consensus Estimate but revenues missed the same.

The company reported adjusted earnings per share of $2.58, which surpassed the Zacks Consensus Estimate by 6.6% and increased 9.8% on a year-over-year basis driven by strong operating performance.

So far this year, shares of FactSet have gained 33.7%, significantly underperforming the 45.3% growth of the industry it belongs to.

Revenues in Detail

FactSet’s revenues of $366.7 million missed the Zacks Consensus Estimate by 0.2% and increased 4.3% year over year. The uptick was driven by higher sales of analytics, content and technology solutions (CTS) as well as wealth management solutions.

Organic revenues increased 4.2% year over year to $367.9 million. Region-wise, U.S. revenues increased to $231.3 million from $222.2 million in the year-ago quarter. International revenues were $135.3 million compared with $129.4 million in the year-ago quarter.

ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services of $1.48 billion was flat year over year. Organically, it increased 4.1% year over year. Buy-side and sell-side ASV growth rates were 4% and 4%, respectively. Nearly 83.9% of organic ASV was generated by buy-side clients. The rest were derived from sell-side firms performing functions like mergers and acquisitions advisory work, equity research and capital markets services.

ASV generated from the United States was $907.5 million, up 3.5% from the prior-year quarter’s level. Internationally, ASV was $546.2 million, up 4.8% year over year. FactSet added 119 clients in the reported quarter, taking the total number to 5,574. Annual client retention was 89%. At the end of the quarter, total employee count was 9,681, up 1.1% year over year.

Operating Results

Adjusted operating income came in at $124.7 million, up 12.1% from the year-ago quarter’s figure. Adjusted operating margin increased 240 basis points (bps) to 33.9%. Selling, general and administration expenses increased 4.9% to $88.5 million. Total operating expenses increased 0.9% to $253.5 million.

Balance Sheet and Cash Flow

FactSet exited first-quarter fiscal 2020 with cash and cash equivalents of $336.2 million compared with $359.8 million in the previous quarter. Long-term debt of $574.2 million was flat year over year. In the quarter, the company generated $95.8 million of cash from operating activities and capital expenditure was $26.8 million. Free cash flow was $69 million.

FactSet repurchased 343,000 shares for $84.4 million during the reported quarter. As of Nov 30, 2019, the company had $154.2 million available for share repurchases. A quarterly dividend of $27.3 million was paid out on Dec 19.

Fiscal 2020 Outlook

FactSet reaffirmed its outlook for fiscal 2020. The company expects adjusted EPS between $9.85 and $10.15.

The company expects revenues between $1.49 billion and $1.50 billion. Organic ASV plus professional services for fiscal 2020 is projected to increase in the range of $65-$85 million. Adjusted operating margin of 28.5%-29.5% is expected. The annual effective tax rate is anticipated between 17% and 17.5%.

Zacks Rank & Stocks to Consider

Currently, FactSet carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Cardtronics CATM, Global Payments GPN and Mastercard Inc. MA. While Cardtronics sports a Zacks Rank #1 (Strong Buy), Global Payments and Mastercard carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS (three to five years) growth rate for Cardtronics, Global Payments and Mastercard is 4%, 18% and 16%, respectively.

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