Decent 2Q Numbers for FactSet
FactSet Research (FDS) reported second quarter 2012 earnings per share (EPS) of $1.05, ahead of the Zacks Consensus Estimate of $1.00.
Revenue
FactSet reported total revenue of $199.4 million in the second quarter of 2012, up 12.2% from $177.6 million delivered in the year-ago quarter. The company experienced strong growth in Annual Subscription Value (:ASV), which is mostly derived from the company’s buy-side clients and the remaining from the company’s sell-side firms conducting M&A advisory work and equity research.
Annual client retention was greater than 95.0% of the AVS, almost flat with the year-ago ASV. On a client basis, annual retention rate improved to 92.0% compared with 90.0% in the year-ago period, thereby reflecting a reduction in the client turnover rate.
Annual Subscription Value
ASV for the month of February was $803.0 million, up 11.0% year over year. 81.0% of the total ASV was derived from buy-side clients, while the remainder came from the sell-side firms. ASV from U.S. operations was $548.0 million, while the same from international operations was $225.0 million.
Operating Results
FactSet’s operating margin was 33.7% in the quarter versus 32.7% in the year-ago quarter. Cost of services, as a percentage of revenue, remained flat year over year as higher compensation expense due to new hirings in consulting, engineering and content was offset by lower depreciation and third-party data costs.
Moreover, the company succeeded in reducing its SG&A expense margin by 95 basis points from the year-ago quarter, attributable to lower stock-based compensation and monetization of state tax credits. The company also increased its headcount by 66 employees to over 5,500 employees at the end of the quarter, thereby registering an annualized growth of 16.0%.
Net income during the quarter came in at $46.7 million, up 3.3% from $45.2 million in the year-ago period. On a fully-diluted basis, quarterly EPS was $1.02 versus 95 cents in the year-ago quarter. Adjusted net income (excluding amortization of intangible assets from acquisitions, but including stock based compensation) of $1.05 per share was ahead of the year-ago level of $1.00 per share.
Balance Sheet & Cash Flow
FactSet exited the quarter with $184.9 million in cash and cash equivalents, compared with $193.7 million in the previous quarter. The company has no long-term debt.
During the second quarter, capital expenditures were $4.6 million. The company repurchased 507,800 shares for $45.1 million during the second quarter. At February 29, 2012, the company had $83.0 million remaining under its existing share repurchase program.
Guidance
The company expects third quarter 2012 revenues between $200.0 million and $204.0 million, representing a year-over-year growth of 9.0% to 11.0%. Operating margin is expected in the range between 33.5% and 34.0%. GAAP diluted EPS is estimated in the range of $1.03 to $1.05, while non-GAAP diluted EPS is expected between $1.14 and $1.16, reflecting a year-over-year growth of 12.0% to 14.0%.
Our Take
FactSet reported decent second quarter results, with revenue increasing on a year-over-year basis and earnings exceeding the Zacks Consensus Estimate. The company is witnessing a decline in cash balance despite an improvement in operating performance.
On the other hand, the recent economic turmoil in the European markets had a negative impact on the financial services companies, thereby restricting spending on investment tools. Moreover, FactSet faces competition from MSCI Inc. (MSCI), which might rationalize the growth prospects of the company in the coming quarters.
FactSet holds a Zacks #4 Rank, implying a short-term Sell rating.
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