FactSet (the "Company") (NYSE:FDS) (NASDAQ:FDS), a global provider of integrated financial information, analytical applications, and industry-leading service, today announced its results for the second quarter ended February 28, 2017.
Second Quarter 2017 Highlights
- Revenues increased 4.5% or $12.6 million to $294.4 million compared with $281.8 million for the same period in 2016. The second quarter of 2016 includes revenues from the Market Metrics business, which was sold in FactSet's fourth quarter of 2016. Organic revenues grew 7.0% to $291.5 million during the second quarter of 2017 from the prior year period.
- Operating income increased 7.5% or $6.4 million to $91.7 million compared with $85.3 million in the prior year period. Adjusted operating income for the second quarter increased 4.5% or $4.2 million to $97.4 million compared with the prior year period.
- Operating margin increased to 31.2% compared to 30.3% in the prior year period. Adjusted operating margin remained consistent year over year at 33.1%.
- Net income decreased 1.6% or $1.1 million to $66.7 million compared with $67.8 million for the second quarter of 2016. Adjusted net income increased 8.7% or $5.8 million to $71.8 million for the second quarter compared with the prior year period.
- Diluted earnings per share ("EPS") increased 3.1% to $1.68 compared with $1.63 for the same period in 2016. Adjusted diluted EPS for the second quarter rose 13.8% to $1.81 compared with the second quarter of 2016.
- Annual Subscription Value ("ASV") increased to $1.19 billion at February 28, 2017 compared with prior year ASV of $1.14 billion. Organic ASV, which excludes the effects of acquisitions, dispositions and foreign currency increased 6.5%.
- The Company's effective tax rate for the second quarter was 25.5%, a decrease from 28.8% a year ago, primarily due to FactSet's global operational realignment effective September 1, 2016.
- FactSet announced two transactions recently. FactSet completed the acquisition of BISAM Technologies S.A. ("BISAM") for cash consideration of $205.2 million on March 17, 2017. The transaction is expected be accretive by $0.02 to adjusted diluted EPS and dilutive by $0.06 to GAAP diluted EPS for the remainder of fiscal 2017. Additionally, FactSet agreed to acquire Interactive Data Managed Solutions ("IDMS") on January 26, and the acquisition is expected to close in the Company's third quarter of fiscal 2017. The acquisition of IDMS is expected to have an immaterial impact to GAAP diluted EPS and adjusted diluted EPS for FactSet's fiscal 2017.
- FactSet entered into a new credit agreement on March 17, 2017 with PNC Bank National Association ("PNC") and borrowed $575 million to fund the BISAM transaction and retire its existing outstanding debt.
"FactSet continues to be a leading technology partner for the investment community delivering another quarter of growth in a market that remains challenging for the financial industry. Through product innovation and acquisition, we believe we are well positioned to offer a broad suite of solutions across the enterprise for our clients critical workflows," said Phil Snow, FactSet CEO.
(Condensed and Unaudited)
Three Months Ended
(In thousands, except per share data)
February 28, 2017
February 29, 2016
Adjusted operating income
Adjusted operating margin
Adjusted net income
Adjusted diluted EPS
Maurizio Nicolelli, FactSet CFO added, "In the second quarter, we continued to grow ASV by deepening our relationships with our clients and delivered double-digit growth for adjusted diluted EPS at the high end of our guidance. In a market that remains challenging in certain segments, we believe that we will be able to grow ASV and maintain cost discipline as evidenced by our steady operating margins."
Annual Subscription Value (ASV) and Segment Revenue
ASV was $1.19 billion at February 28, 2017, up 6.5% or $71.1 million organically from prior year. Organic ASV, which excludes the effects of acquisitions, dispositions and foreign currency, increased $16.3 million over the last three months. ASV at any given point in time represents the forward-looking revenues for the next twelve months from all subscription services currently supplied to clients.
Buy-side and sell-side ASV growth rates for the second quarter of fiscal 2017 were 6.8% and 4.9%, respectively. Buy-side clients account for 83.2% of ASV while the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research. Supplementary tables covering organic buy-side and sell-side ASV growth rates may be found on page 12 of this earnings release.
ASV from U.S. operations was $773.7 million, increasing 0.9% over prior year of $766.4 million and 5.4% organically. U.S. revenues were $191.6 million compared with $189.7 million. Excluding the effects of acquisitions and dispositions completed in the last 12 months, the U.S. revenue growth rate was 5.9%. ASV from international operations was $413.2 million, increasing 10.8% over prior year of $372.8 million and 8.4% organically. International ASV now represents 34.8% of total ASV, an increase of 2.1% over prior year. International revenues rose to $102.7 million compared with $92.1 million from the second quarter of 2016. Excluding the effects of acquisitions and dispositions completed in the last 12 months and foreign currency, the international revenue growth rate was 8.9%.
- Client count as of February 28, 2017 was 4,404, a net increase of 143 clients in the past three months. As of the second quarter, FactSet changed its client count definition to capture clients with ASV greater than $10,000 versus the previous threshold of ASV greater than $24,000. Please see page 12 of this press release for historical data based on the new definition.
- User count grew 1,503 to 85,788 in the past three months. As of the second quarter, FactSet also changed its user count definition to account for users from workstations previously not captured due to certain product bundling, and additionally, users of the StreetAccount web product. Please see page 12 of this press release for historical data based on the new definition.
- Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention was 93%.
- Employee count was 8,592 at February 28, 2017, up 499 people in the past 12 months. Excluding the acquired Vermilion and CYMBA workforces and employees of the sold Market Metrics business, headcount increased 7.0% from a year ago.
- Quarterly free cash flow was $71.4 million compared with $81.1 million for the second quarter of 2016. Operating cash flow for the second quarter was $76.9 million compared with $93.1 million for the second quarter of 2016.
- Capital expenditures decreased to $5.5 million, compared with $12.1 million a year ago primarily from the build out of office space last year.
- A regular quarterly dividend of $19.7 million, or $0.50 per share, was paid on March 21, 2017, to common stockholders of record as of February 28, 2017.
- FactSet launched the Global FinTech Index, which provides a benchmark to track the performance of companies engaged in financial technologies, particularly in the areas of software and consulting, data and analytics, digital payment processing and transfer, and payment-related hardware. The Global FinTech Index has been licensed to Nikko Asset Management as the benchmark for the Global Fintech Equity Fund.
- The Company strengthened its existing relationship with Axioma, a leading provider of enterprise risk management, portfolio construction and risk and regulatory reporting solutions, to expand its strong fixed income and multi-asset class analytics, performance, and risk offerings. The enhanced offerings include making Axioma's linear fixed income and multi-asset class model available on FactSet and expand the multi-asset class risk models already available through FactSet.
- Earlier this month, FactSet unveiled its new brand campaign, See the Advantage, which identifies the Company as a premier partner, helping clients see and seize new opportunities every day. This new brand statement is a fresh articulation of FactSet's nearly four-decade mission to solve its clients' greatest challenges with the power of collaboration.
Share Repurchase Program
FactSet repurchased 479,822 shares for $81.1 million during the second quarter under the Company's existing share repurchase program. Over the last 12 months, FactSet has returned $485.2 million to stockholders in the form of share repurchases and dividends, funded by cash generated from operations and the sale of the Market Metrics business. On March 27, 2017, the Board of Directors of FactSet approved a $300 million expansion to the existing share repurchase program. Including this expansion, $336.5 million is currently available for future share repurchases.
On January 26, 2017, FactSet announced that it had entered into an agreement to acquire IDMS from Intercontinental Exchange (NYSE:ICE). With a client base of large financial institutions across Europe and the U.S., IDMS is a leading managed solutions and portal provider for the global wealth management industry. IDMS supports the wealth management marketplace across a variety of workflows and functions, from advisors to their clients. IDMS offers real-time market data desktops, customizable web-based portals, and a broad range of mobile solutions. The transaction is expected to close in the Company's third quarter of fiscal 2017 and have an immaterial impact to GAAP diluted EPS and adjusted diluted EPS for FactSet's fiscal 2017. FactSet considers wealth management an area of strong growth for the Company and this acquisition adds significant scale to its already growing wealth management business.
On March 17, 2017, the Company completed the acquisition of BISAM for cash consideration of $205.2 million. With more than 160 employees worldwide, BISAM is a leading provider of portfolio performance and attribution, multi-asset risk, GIPS composites management and reporting. B-One, BISAM's award-winning, market-leading cross-asset solution, is an outstanding complement to both FactSet's portfolio analytics suite and client reporting solutions. Simultaneously, its Cognity (or Finanalytica) product enhances FactSet's risk analysis for derivatives and quantitative portfolio construction. BISAM's annual revenues as of December 31, 2016 were over $28 million.
FactSet borrowed $575 million under a new revolving credit facility with PNC on March 17, 2017 to fund the BISAM transaction and retire its existing outstanding debt. BISAM is expected to be accretive by $0.02 to adjusted diluted EPS and dilutive by $0.06 to GAAP diluted EPS for FactSet's fiscal 2017.
The following forward-looking statements reflect FactSet's expectations as of today's date and includes the recently completed BISAM acquisition. 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 2017 Expectations:
- GAAP Revenues are expected to be in the range of $301 million and $307 million. BISAM is expected to add approximately $6 million in third quarter revenues.
- GAAP operating margin is expected to be in the range of 30.0% and 31.0%, which includes a 90 basis point reduction from BISAM. Adjusted operating margin is expected to be in the range of 32.0% and 33.0%, which includes a 30 basis point reduction from BISAM.
- The annual effective tax rate is expected to be in the range of 25.0% and 26.0%.
- GAAP diluted EPS is expected to be in the range of $1.68 and $1.74. Adjusted diluted EPS is expected to be in the range of $1.80 and $1.86. The midpoint of the adjusted EPS range represents 12% growth over the prior year.
FactSet (NYSE:FDS) (NASDAQ:FDS) delivers superior analytics, service, content, and technology to help more than 85,000 users see and seize opportunity sooner. We are committed to giving investment professionals the edge to outperform, with fresh perspectives, informed insights, and the industry-leading support of our dedicated specialists. We're proud to have been recognized with multiple awards for our analytical and data-driven solutions and repeatedly ranked as one of Fortune's 100 Best Companies to Work For and a Best Workplace in the United Kingdom and France.