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FactSet (FDS) Beats Earnings and Revenue Estimates in Q4

Zacks Equity Research

FactSet Research Systems Inc. FDS reported impressive results for fourth-quarter fiscal 2019, wherein it topped the Zacks Consensus Estimate on both counts.

The company reported adjusted earnings per share of $2.61, which surpassed the Zacks Consensus Estimate by 14 cents. The figure increased 18.6% on a year-over-year basis driven by strong operating performance.

We observe that shares of FactSet have gained 21.9% year to date, significantly underperforming the 36.6% rally of the industry it belongs to.

Revenues in Detail

FactSet’s revenues of $364.3 million increased 5.3% from the year-ago quarter and exceeded the Zacks Consensus Estimate by around $2 million. The uptick was driven by higher sales of analytics, content and technology solutions (CTS) as well as wealth management solutions. Organic revenues increased 5.3% year over year to $365.6 million.

Region-wise, U.S. revenues increased to $222.1 million from $213.9 million in the year-ago quarter. International revenues were $142.2 million compared with $131.9 million in the year-ago quarter.

FactSet Research Systems Inc. Revenue (TTM)


FactSet Research Systems Inc. Revenue (TTM)

FactSet Research Systems Inc. revenue-ttm | FactSet Research Systems Inc. Quote


ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services was $1.48 billion at the end of the quarter, up 5% year over year. Organically, it increased 5.1% year over year.

Buy-side and sell-side ASV growth rates were 4.8% and 6.3%, respectively. Nearly 84% 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 $909.7 million, up 4.7% from the prior-year quarter’s level. Internationally, ASV was $548.3 million, up 4.6% 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 $123.9 million, up 14% from the year-ago quarter’s figure. Adjusted operating margin increased 260 basis points (bps) to 33.9%.

Selling, general and administration expenses increased 3.5% to $85 million. Total operating expenses decreased 1.5% to $252.7 million.

Balance Sheet and Cash Flow

FactSet exited the fiscal fourth quarter with cash and cash equivalents of $359.8 million compared with $324 million in the previous quarter. Long-term debt at the end of the quarter was $574.2 million compared with $574.1 million in the prior quarter.

In the quarter, the company generated $121.8 million of cash from operating activities and capital expenditure was $26.5 million. Free cash flow was $95.3 million.

FactSet repurchased 221,292 shares for $62.1 million during the quarter. A quarterly dividend of $27.3 million was paid out on Sep 19.

Fiscal 2020 Outlook

The company anticipates adjusted EPS in the range of $9.85 and $10.15. Midpoint ($10) of the updated range is lower than the Zacks Consensus Estimate of $10.5. The company expects revenues between $1.49 billion and $1.50 billion. The Zacks Consensus Estimate is pegged at $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 is projected in the range of 28.5%-29.5%. The annual effective tax rate is expected between 17% and 1.5%.

Zacks Rank & Stocks to Consider

FactSet currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Zacks Business Services sector are Fiserv FISV, Huron Consulting HURN and Charles River Associates CRAI. While Fiserv and Huron sport a Zacks Rank #1 (Strong Buy), Charles River carries a Zacks Rank #2 (Buy).

Long-term earnings (three to five years) growth rate for Huron Consulting, Charles River Associates and Fiserv is estimated 13.5%, 13% and 12%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

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