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FactSet's 2Q EPS Lags, Revs Up - Analyst Blog

By: Zacks.com
Posted: 3/20/2013 1:47:00 PM
Referenced Stocks: FDS;LOCK;MSCI;NLSN

FactSet Research Systems Inc. ( FDS ) reported second-quarter 2013 earnings per share of 89 cents, below the Zacks Consensus Estimate of $1.13.

Revenue

FactSet reported total revenue of $213.1 million in the second quarter of 2013, up 6.9% from $199.4 million in the year-ago quarter. This includes $2.7 million contribution from StreetAccount (Acquired on July 2012).

The company witnessed an increase in its client count, which increased by 35 to reach a level of 2,436.

On the other hand, the number of users for FactSet declined by 150 sequentially, to a level of 49,455 professionals. Total clients witnessed additions from the buy-side clients, which was offset to a considerable extent by declines on the sell-side.

The U.S. revenues for the company were $2.7 billion, which included a $146.0 million contribution from StreetAccount, up 7.0% from the year-ago quarter. Moreover, the Non-U.S. revenues were $67.1 million, up 7.0% compared with the year-ago quarter.

Annual Subscription Value

The company's Annual Subscription Value (ASV) grew $17.3 million in the reported quarter to $863.2 million. Of this total amount, 82% was derived from buy-side clients while the remainder was from the sell-side firms, mostly conducting the M&A advisory work and equity research.

Operating Results

FactSet's revenue growth rate was slower than that of operating expenses. This led to a 30 basis points decline in operating margin. Operating margin was 26.3% in the quarter versus 33.6% in the year-ago quarter. Operating expenses, excluding the non-cash charge, were $157 million, up 7.0% year over year.

The increase resulted from higher compensation expense due to an increase in headcount in the software engineering, consultant and content collection, as well as new employees from StreetAccount, which was offset to a considerable extent by lower computer maintenance costs and a dip in the depreciation from computer hardware.

Net income during the quarter came in at $44.5 million, down 4.9% from $46.7 million in the year-ago period. Quarterly earnings per share were $1.00 versus $1.02 in the year-ago quarter. Adjusted net income (excluding amortization of intangible assets from acquisitions, but including stock-based compensation) of 89 cents per share was below the year-ago quarter's $1.02 per share.

Balance Sheet, Cash Flow

FactSet exited the quarter with $166.1 million in cash and cash equivalents, compared with $210.7 million in the previous quarter. The company has no long-term debt. The company generated cash flow from operations of $46.4 million, down from $47.5 million in the previous quarter.

Guidance

For the third quarter of fiscal 2013, revenues are expected between $213 million and $216 million, while operating margin is expected to hover around 33% and 34%. GAAP EPS should range between $1.14 and $1.16.

 Our Take

FactSet reported modest second-quarter 2013 results since revenue grew on a year-over-year basis, but earnings per share remained below the Zacks Consensus Estimate due to some unexpected increase in operating expense. Although revenue grew on the back of an increase in clients, number of users declined. The company witnessed revenue growth in most of its business segments.

FactSet continues to launch new products and applications across its segments with special emphasis on financial services to gain more customers.

The company is offering new products and services on a regular basis. However, adding new customers is still a challenge due to the sluggish European market, which led to a slowdown in business. Moreover, FactSet faces stiff competition from MSCI Inc . ( MSCI ), which is also coming up with new solutions to increase its market share.

FactSet carries a Zacks Rank #2 (Buy).

Investors can also consider other stocks in the technology space such as:



FACTSET RESH (FDS): Free Stock Analysis Report

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