FactSet (FDS) Misses Earnings & Revenue Estimates in Q1

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Shares of FactSet Research Systems Inc.FDS went down around 4% yesterday, after the company reported lower-than-expected first quarter fiscal 2016 results.

The company reported adjusted earnings per share of $1.44 per share, which missed the Zacks Consensus Estimate of $1.46 per share. However, earnings increased from $1.32 per share reported in the year-ago quarter.

Factset Research Systems Inc. - Earnings Surprise | FindTheBest

Quarter Details

Though FactSet's revenues of $270.5 million increased 11.5% from the year-ago quarter, it lagged the Zacks Consensus Estimate of $273 million. Reported revenues however surpassed management's guided range of $265 million to $269 million. Better-than-expected growth across products and geographic regions positively impacted quarterly revenues. Also, synergies from acquisitions completed within the last 12 months and positive effects of foreign currency aided the quarter's revenues.

During the quarter, FactSet's revenues from the U.S. grew 8.2% year over year to $182.2 million, while its non-U.S. revenues grew to $88.3 million. Excluding the impact of foreign currency and acquired revenues from acquisition completed in the past 12 months, international revenues grew 10.6% on a year-over-year basis.

The company's Annual Subscription Value (ASV) increased 9.4% and reached $1.109 billion as of Nov 30, 2015. Nearly 83.2% of this total figure is generated from buy-side clients while the rest comes from sell-side firms performing functions like mergers & acquisition, advisory work and equity research.

FactSet added 30 new clients this quarter, taking the tally to 3,006. The company retained 95% of the clients and the client retention percentage was also more than 95% of ASV.

During the quarter, FactSet purchased all the issued and outstanding membership interests of Portware, LLC. for $265 million in an all-cash transaction.

Coming to the operational metrics, FactSet reported a 12.8% increase in total operating expenses, primarily due to an increase in cost of services (up 17.6% on a year-over- year basis) and higher compensation expense. As a percentage of revenues, its operating expenses increased 79 basis points (bps) during the quarter to 67.7%.

FactSet's adjusted operating income increased 9.6% from the year-ago quarter to $87.9 million. However, operating margin decreased 54 bps from the year-ago quarter to 32.5%, mainly due to higher operating expenses as a percentage of revenues.

Adjusted net income during the quarter came in at $60.4 million or $1.44 per share, which improved from $55.9 million or $1.32 per share in the year-ago quarter.

FactSet exited the quarter with $180.1 million in cash and cash equivalents, compared with $158.9 million in the previous quarter. Long-term debt during the quarter amounted to $300 million.

Cash flow from operations during the quarter came in at $71.1 million. The company generated free cash flow of $56.7 million during the quarter. FactSet purchased approximately 250K shares for $41.9 million during the quarter. The company also paid a quarterly dividend of $18.1 million


For the second quarter of fiscal 2016, FactSet expects revenues in the range of $280 million to $286 million (mid-point $283 million). The Zacks Consensus Estimate is pegged at $282 million.

Operating margin is expected to range between 31% and 32%. Earnings per share are expected between $1.49 and $1.53 (mid-point $1.51). The Zacks Consensus Estimate for the second quarter stands at $1.51. The annual effective tax rate is expected to be in a range of 28.5% to 29.5%.

Our Take

FactSet reported lower-than-expected first quarter of fiscal 2016 results. Nonetheless, year-over-year comparisons on both counts were favorable. Moreover, the company has a high client retention ratio, which is a positive catalyst. Also, ASV increased year over year and the company added a good number of clients.

FactSet also provided a modest guidance for the forthcoming quarter. The share repurchase program is expected to support its earnings per share in the long run and boost shareholder value.

The company continues with product innovation across its segments with special emphasis on financial services to gain more customers. Moreover, the company's acquisition of Revere Data, Matrix Data and Code Red will help it to deliver innovative products and evolve as a global financial database company. It will also help FactSet to maximize value for its partners and provide exclusive content sets.

Nonetheless, competition from Bloomberg L.P., Dow Jones & Company Inc., MSCI Inc. MSCI and Thomson Reuters, which are also coming up with substitute products at competitive prices, is a headwind for the company.

FactSet carries a Zacks Rank #3 (Hold).

Better-ranked stocks include VASCO Data Security International Inc. VDSI and ReneSola Ltd. SOL , both of which sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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