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FactSet Research ( FDS - Analyst Report ) reported third quarter 2012 earnings per share (EPS) of $1.08, ahead of the Zacks Consensus Estimate of $1.04. The company’s share price tumbled more than 9% on Tuesday as the company’s fourth quarter revenue forecast did not meet market expectations.
FactSet reported total revenue of $202.3 million in the third quarter of 2012, up 10.2% from $183.6 million in the year-ago quarter. The company added 1,100 new users during the quarter, thus bringing the total user count to 48,400 as FactSet replaced a competitor at a global sell-side banking firm.
Moreover, FactSet is also benefiting from growing adoption of its Portfolio Analytics suite. FactSet believes that Portfolio Analytics has a good market among existing clients and it remains an attractive selling point for new clients. The company has witnessed considerable sales growth for its PA 2.0 users and clients over the last 12 months.
Annual Subscription Value
The company’s Annual Subscription Value (ASV) was about $811.0 million, up 9.0% from the year-ago period. Out of the total subscription value, 80.0% came from the buy-side clients while the remaining 20.0% came from the sell-side firms, which generally provides consultancy on the M&A activity and equity research.
The company witnessed an increase in its data costs as a result of its growing client base and expanding third-party dataset offerings, but offset to a greater extent by lower depreciation and intangible asset amortization. This apart, SG&A expenses as a percentage of revenues reduced on the back of lower inter-office travel, more efficient use of existing leased office space and also as a result of prior-year internal sales conference that were not repeated in 2012.
FactSet’s revenue growth exceeded the growth rate of operating expenses. This led to a 20 basis points expansion in operating margin. Operating margin was 33.9% in the quarter versus 33.7% in the year-ago quarter. Cost of services, as a percentage of revenue, increased marginally on a year-over-year basis on higher compensation costs and an uptick in data charges.
Net income during the quarter came in at $48.0 million, up 10.8% from $43.3 million in the year-ago period. On a fully-diluted basis, quarterly EPS was $1.05 versus 92 cents in the year-ago quarter. Adjusted net income (excluding amortization of intangible assets from acquisitions, but including stock based compensation) of $1.08 per share was ahead of the year-ago level of 95 cents per share.
Balance Sheet, Cash Flow & Share Repurchase
FactSet exited the quarter with $228.5 million in cash and cash equivalents, compared with $184.9 million in the previous quarter. The company has no long-term debt.
During the third quarter, the company made capital expenditure of $6.0 million and also spent $27.0 million on share repurchases. Moreover, on May 8, 2012, the company approved an additional $200.0 million for share repurchases. At the end of the quarter, the company had $256.0 million remaining for future share repurchases.
The company expects fourth quarter 2012 revenues between $204 million and $208 million. Operating margin is expected between 33.5% and 34.0%. GAAP diluted EPS is estimated in the range of $1.06 to $1.08, while non-GAAP diluted EPS is expected in the range of $1.15 to $1.17.
FactSet reported decent third quarter 2012 results by beating the Zacks Consensus Estimate on bottom line. The company’s revenue growth was supported by an increase in the number of users, which in turn improved the business volume. The company’s balance sheet seems strong with sufficient cash balance and no long term debt burden. But the company provided weak fourth quarter outlook, which is a reason for concern.
The company continues to launch new applications and new data in its system, which includes its own or from other sources such as the new bank loan data from Markit, ace provider of independent loan market data and loan portfolio management software. This also includes fixed income in the company’s Portfolio Analytics products.
Although new products and services are offered by the company regularly, but we believe adding new customers is a challenge. On the other hand, the recent economic turmoil in the European markets had a negative impact on the financial services companies, thereby restricting spending on investment tools. Moreover, FactSet faces stiff competition from MSCI Inc. ( MSCI - Snapshot Report ) , which is also coming up with new solutions to increase its market share.
FactSet carries a Zacks #3 Rank, implying a short-term Hold rating.
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