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FactSet (FDS) Surpasses Earnings and Revenue Estimates in Q3

Zacks Equity Research

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

The company reported adjusted earnings per share of $2.62, which surpassed the Zacks Consensus Estimate of $2.37. The figure increased 20.2% on a year-over-year basis driven by strong operating performance.

We observe that shares of FactSet have gained 42.5% year to date, significantly outperforming the 29.2% rally of the industry it belongs to.

Revenues in Detail

FactSet’s revenues of $364.5 million increased 7.2% from the year-ago quarter and exceeded the Zacks Consensus Estimate of $358.9 million. The uptick was driven by higher sales of analytics, content and technology solutions (CTS) as well as wealth management solutions. Organic revenues increased 7.3% year over year to $366.3 million.

Region-wise, U.S. revenues increased to $227 million from $210.3 million in the year-ago quarter. International revenues were $137.5 million compared with $129.6 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 $1.45 billion at the end of the quarter, up 5.1% year over year. Organically, it increased 5.6% year over year.

Buy-side and sell-side ASV growth rates were 5.2% and 6.8%, 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 $887.6 million, up 5.2% from the prior-year quarter’s level. Internationally, ASV was $535.4 million, up 4.4% year over year.

FactSet added 50 clients in the reported quarter, taking the total number to 5,455. Annual client retention was 90% of clients and more than 95% of ASV. At the end of the quarter, total employee count was 9,366, up 1.8% year over year.

Operating Results

Adjusted operating income came in at $122.8 million, up 16.2% from the year-ago quarter’s figure. Adjusted operating margin increased 300 basis points (bps) to 34%.

Selling, general and administration expenses increased 2.3% to $83.5 million. Total operating expenses increased slightly to $247.3 million.

Balance Sheet and Cash Flow

FactSet exited the fiscal third quarter with cash and cash equivalents of $324 million compared with $218.3 million in the previous quarter. Long-term debt at the end of the quarter was $574.1 million compared with $574.8 million in the prior quarter.

In the quarter, the company generated $159.8 million of cash from operating activities and capital expenditure was $11.4 million. Free cash flow was $148.3 million.

Share Repurchase and Dividend Payout

FactSet repurchased 175,000 shares for $47.6 million during the reported quarter. The company has $300 million under existing share repurchase program after a recent addition of $210 million.

FactSet paid dividends of $27.3 million in the quarter. The company increased its quarterly dividend by 12.5% to 72 cents marking the 14th consecutive year of dividend increase.

Fiscal 2019 Outlook

FactSet updated fiscal 2019 guidance. The company now anticipates adjusted EPS in the range of $9.80 and $9.90 compared with the previous guidance of $9.50-$9.65. Midpoint ($9.85) of the updated range is higher than the Zacks Consensus Estimate of $9.59.

The company expects revenues between $1.42 billion and $1.44 billion compared with the previous guidance of $1.41-$1.45 billion. Midpoint of the updated guided range matches Zacks Consensus Estimate of $1.43 billion.

Organic ASV plus professional services for fiscal 2019 is now projected to increase in the range of $70-$75 million compared with the previously projected range of $75-$90 million. Adjusted operating margin is projected in the range of 32.5%-33%, compared with the previously projected range of 31.5-32.5%.

The annual effective tax rate is expected between 16% and 16.5%. The previous expectation was between 17% and 18%.

Zacks Rank & Stocks to Consider

FactSet currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Zacks Business Services sector are Navigant Consulting NCI, NV5 Global NVEE and FLEETCOR Technologies FLT. While Navigant Consulting sports a Zacks Rank #1, FLEETCOR and NV5 Global carry a Zacks Rank #2 (Buy).

Long-term expected EPS (three to five years) growth rate for Navigant Consulting, FLEETCOR and NV5 Global is 13.5%, 15.4% and 20%, respectively.

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