FactSet Beats by a Penny

FactSet Research (FDS - Analyst Report) reported fourth quarter 2011 earnings per share (EPS) of 96 cents, exceeding the Zacks Consensus Estimate by a penny.

Revenue

The company reported total revenue of $191.9 million in the fourth quarter of 2011, up 14.1% from $168.2 million delivered in the year-ago quarter, mainly attributed to the improvement in the annual subscription value and client count.

U.S.revenues expanded 15.0% year over year to $132.0 million. Non-U.S revenues rose 12% year over year to $60 million.

Revenues from Europe and the Asia-Pacific regions were $47 million and $13 million, up 11% and 17% year over year, respectively.

Annual Subscription Value

Annual Subscription Value (ASV) increased $37.0 million organically to $779.0 million in the fourth quarter. Of the total, 82% came from buy-side clients while the sell-side firms contributed the rest. ASV at any given point of time represents the forward-looking revenues for the next 12 months from all services currently being supplied to clients.

The company exited the quarter with 48,100 users, an increase of 2500 users from the previous quarter. Client count was 2,237 at August 31, a net increase of 50 clients during the quarter.

Operating Results

FactSet’s operating margin was 30.7% in the quarter versus 34.1% in the year-ago quarter. The reduction in operating margin was due to the fact that operating expenses grew at a higher rate than revenue. The increase in operating expense may be attributed to higher cost of service and SG&A expenses, which was mainly due to increasing headcount.

Net income during the quarter came in at $40.9 million, up 4.0% from $39.3 million reported in the year-ago period. On a fully-diluted basis, quarterly EPS was 88 cents, up from 83 cents reported in the year-ago quarter. Adjusted net Income (excluding stock based compensation) of 96 cents per share, was higher than 82 cents per share reported in the year-ago quarter.

Balance Sheet & Cash Flow

FactSet exited the quarter with $181.7 million in cash and short-term investments, compared with $208.7 million in the previous quarter. The company has no long-term debt.

During the quarter, the company repurchased 890,000 shares for $84.0 million. At August 31, 2011, $142.0 million remained under the company’s current share repurchase program. Capital expenditures in the quarter were $6.5 million, with approximately $3.9 million for computer equipment and the remainder for office expansion.

Guidance

For the first quarter of fiscal 2012, the company expects revenues between $195.0 million and $198.0 million. EPS is expected between 98 cents and $1.00.

Moreover, for fiscal 2012, capital expenditure, net of landlord contributions, is expected in the range of $22.0 million to $30.0 million.

Our Take

The company is witnessing growing demand for its products in overseas and developing markets, which helped raise the client count. This apart, FactSet has a healthy cash balance. On the other hand, the recent economic turmoil in the US and other European markets could have a negative effect on the financial services companies, thereby restricting spending on investment tools. Moreover, FactSet faces competition from MSCI Inc. (MSCI - Snapshot Report),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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