FactSet Research Systems Inc. (NYSE:FDS) (NASDAQ:FDS), a leading provider of integrated financial information and analytical applications, today announced its results for the third quarter of fiscal 2016.
For the quarter ended May 31, 2016, revenues grew to $287.5 million. Operating income was $89.3 million compared to $85.4 million in the prior year period. Net income was $66.8 million versus $61.4 million a year ago. Diluted earnings per share were $1.62 compared to $1.45 in the same period of fiscal 2015.
Adjusted operating income and margin, adjusted net income and adjusted diluted earnings per share exclude both deal-related amortization and non-recurring items. The Company believes that these adjusted financial measures better reflect the underlying economic performance of FactSet. A supplementary schedule reconciling GAAP results to these adjusted financial measures is presented on page 10 of this earnings release.
Excluding revenues acquired from acquisitions completed within the last 12 months and the effects of foreign currency, organic revenues grew 9.0%. Adjusted operating income for the quarter, which excludes $4.1 million of deal-related amortization and $1.4 million of professional fees primarily related to the sale of the Company's Market Metrics business, was $94.8 million, up 8.1% over the prior year. Adjusted net income increased 9.7% over the year ago third quarter and excludes the after-tax charge of $2.9 million from deal-related amortization, the after-tax charge of $1.0 million from professional fees and $3.2 million in income tax benefits from finalizing prior years' tax returns and other discrete items. Adjusted diluted EPS rose 12.3% to $1.64 and excludes the net effect of deal-related amortization, incremental professional fees and income tax benefits.
Consolidated Statements of Income
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"We had another strong quarter, amidst an uncertain market. This reaffirms the strength of the FactSet business model and the appeal of our products and solutions," said Phil Snow, FactSet's CEO.
Annual Subscription Value ("ASV")
ASV was $1.156 billion at May 31, 2016, up 9.3% organically from the prior year. Over the last three months organic ASV increased $16.3 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 for the third quarter of fiscal 2016 were 9.6% and 8.1%, respectively. Buy-side clients account for 83.6% 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 12 of this earnings release.
Financial Highlights — Third Quarter of Fiscal 2016
- ASV from U.S. operations was $775.6 million, increasing 9.0% organically over the prior year. U.S. revenues were $193.2 million. Excluding revenues from acquisitions completed within the past 12 months, the U.S. growth rate was 8.5%.
- ASV from non-U.S. operations grew 10.1% organically to $380.7 million and now represents 32.9% of total ASV, up from 32.6% a year ago. Non-U.S. revenues rose to $94.3 million. Excluding the impact of foreign currency and acquisitions completed within the past 12 months, the international revenue growth rate was 10.1%.
- Adjusted operating margin was 33.0%, compared to 34.4% in the year ago third quarter. Portware's operations reduced FactSet's just completed third quarter operating margin by 130 basis points and diluted earnings per share by $0.01. Excluding deal-related amortization, the Portware acquisition was $0.03 accretive to the third quarter of fiscal 2016.
- The Company's effective tax rate for the third quarter was 24.8%, as compared to 28.5% a year ago. Excluding income tax benefits from both periods, the current year annual effective tax rate was 28.4% compared to 30.1% in the prior period.
- Quarterly free cash flow was $88.6 million. Free cash flow in the last 12 months grew 9.9% and totaled $299.7 million.
Operational Highlights — Third Quarter of Fiscal 2016
- Client count rose by 18 and totaled 3,075 at May 31, 2016.
- User count grew 7.7% to 63,535.
- Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention was 94%, consistent with the prior year third quarter.
- Employee count was 8,100 at May 31, 2016, up 1,149 people in the past 12 months. Excluding the acquired Portware workforce, headcount increased 14.1% from a year ago.
- Capital expenditures were $8.2 million.
- The regular quarterly dividend was increased 13.6% from $0.44 to $0.50 per share, beginning with the Company's dividend payment on June 21, 2016.
- FactSet repurchased 505,000 shares for $76.3 million during the third quarter. On May 19, 2016, the Company's Board of Directors approved a $165 million expansion of the existing share repurchase program. Including this expansion, $360 million remained authorized for further repurchases as of May 31, 2016. Over the last 12 months, $344 million has been returned to stockholders in the form of share repurchases and dividends, funded entirely by cash generated from operations.
- Common shares outstanding were 40.7 million at May 31, 2016.
- FactSet was ranked #89 on Fortune's "100 Best Companies to Work For," marking the Company's eighth appearance on the list in the last nine years.
- FactSet was recently recognized as one of the UK's "Best Workplaces" by the Great Place to Work® Institute UK for the eighth consecutive year.
- In May 2016, FactSet was awarded "Best Overall Provider," "Best Research Provider" and "Best Data Analytics Provider" by Inside Market Data. FactSet was previously awarded Acquisition of the Year in 2014, Best Research Provider in 2014 and 2012, and Best Analytics Provider in 2008, 2009 and 2011.
Sale of the Market Metrics Business
On May 21, 2016 FactSet entered into a definitive agreement to sell its market research business focused on advisor-sold investments and insurance, consisting of Market Metrics LLC and Matrix Data Limited, to Asset International, a portfolio company of Genstar Capital. The total purchase price is approximately $165 million, subject to certain working capital adjustments, with an additional earn-out of $10 million based on the achievement of certain growth targets over the next two years. The transaction is expected to close in FactSet's fourth quarter of fiscal 2016, with the proceeds from the sale being primarily used for share repurchases under the Company's existing program. The sale is not expected to have a material impact on FactSet's fourth quarter of fiscal 2016 or full-year fiscal 2017 results.
Election of two new Directors, Sheila Jordan and Malcolm Frank
On June 27, 2016, the Board of Directors of FactSet elected two new directors, Sheila B. Jordan and Malcolm Frank. In conjunction with their election to the Board, Ms. Jordan was appointed to serve as a member of the Company's Audit Committee and Mr. Frank will serve on FactSet's Compensation Committee. Both will stand for election by a vote of stockholders at the Company's 2016 Annual Meeting of Stockholders in December 2016.
Philip Hadley, Executive Chairman of FactSet, said, "We are pleased to welcome the additions of Sheila Jordan and Malcolm Frank to FactSet's Board of Directors. We look forward to leveraging their global technology expertise as we deliver leading insight and information to investment professionals around the world."
Ms. Jordan, age 51, currently serves as Senior Vice President, Chief Information Officer at Symantec Corporation, a global leader in cybersecurity. Ms. Jordan has served in this role since February 2014 and is responsible for driving Symantec's information technology strategy and operations with a focus on building and supporting the global information technology effort. She serves as global executive sponsor for the Symantec Women's Action Network, a networking forum to help support and encourage female employees to achieve their potential. Prior to joining Symantec, Ms. Jordan spent nine years at Cisco Systems Inc., where she served as Senior Vice President of IT, Communication and Collaboration. Previously, Ms. Jordan held leadership roles at Grand Circle Corporation, as Chief Information Officer and Executive Vice President, and at The Walt Disney Company, where she was a Senior Vice President for Destination Disney and Vice President of Marketing and Sales Finance. She was also a senior financial analyst at Martin Marietta, a construction supplies aggregate company. Ms. Jordan serves on the customer advisory board of Sutter Hill Ventures, a venture capital firm. She received her Bachelor's degree from the University of Central Florida and an M.B.A. from the Florida Institute of Technology.
Mr. Frank, age 50, currently serves as Executive Vice President, Strategy & Marketing at Cognizant Technology Solutions Corp., a provider of custom information technology, consulting and business process outsourcing services. Mr. Frank joined Cognizant in 2005 and has more than two decades of experience in the information technology industry. Prior to joining Cognizant, he was co-founder, President and CEO of CXO systems, an independent software vendor providing dashboard solutions for senior managers. In addition, he was the founder, President, Chief Executive Officer and chairman of Nervewire Inc., a leading management consulting and systems integration firm. Prior to founding Nervewire, Mr. Frank was a co-founder, executive officer and Senior Vice President at Cambridge Technology Partners, where he ran Worldwide Marketing, Business Development and several business units. Mr. Frank is a recognized industry thought leader and is a frequent speaker on key issues of IT management. He has been profiled by Forbes magazine and ABC's 20/20 and is the subject of a Harvard Business School case study on Leadership and Management. Mr. Frank is a graduate of Yale University with a degree in Economics.
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.
Fourth Quarter Fiscal 2016 Expectations (the expectations below include the Market Metrics business for the full quarter):
- Revenues are expected to range between $292 million and $298 million.
- GAAP operating margin is expected to range between 31.0% and 32.0%. Adjusted operating margin is expected to range between 32.5% and 33.5%.
- The annual effective tax rate is expected to range between 28.0% and 29.0%.
- GAAP diluted EPS should range between $1.61 and $1.65. Adjusted EPS is expected to range between $1.68 and $1.72.
The midpoint of the adjusted EPS range represents 12.6% growth over the prior year.
- The Market Metrics transaction is expected to close in FactSet's fourth quarter of fiscal 2016, at which time updated guidance for the fourth quarter of fiscal 2016 will be provided.