FactSet's 1Q EPS Beats Estimates

FactSet Research Systems Inc. ( FDS - Analyst Report ) reported first quarter 2013 earnings per share (EPS) of $1.14, ahead of the Zacks Consensus Estimate of $1.10.

Revenue

FactSet reported total revenue of $211.1 million in the first quarter of 2013, up 7.5% from $196.4 million in the year-ago quarter. This includes $2.7 million contribution from the StreetAccount.

The number of users for FactSet increased by 105 during the first quarter to 49,605 professionals. This can be attributed to the additions in buy-side clients, partially offset due to a drop from the sell-side.

The company generated U.S. revenues of $143.9 million, up 7.0% year on year. Non-U.S. revenues improved 8.3% year on year to $67.2 million.

Annual Subscription Value

Annual Subscription Value (ASV) increased by $5.0 million organically during first quarter. Total ASV was $847 million, increasing 7.0% from the year-ago period. Out of the total ASV, 81% was derived from the buy-side clients and the remaining portion was contributed by the sell-side firms, performing M&A advisory work and equity research.

Operating Results

FactSet’s revenue growth rate was below the growth rate of operating expenses. This led to a 30 basis points decline in operating margin. Operating margin was 33.7% in the quarter versus 34.0% in the year-ago quarter. The decline was attributable to the higher expenses that were incurred for increasing number of employees and consulting professionals coupled with increase in headcount in content operations and StreetAccount employees.

Net income during the quarter came in at $49.8 million, up 22.9% from $45.5 million in the year-ago period. On a fully-diluted basis, quarterly EPS was $1.11 versus 99 cents in the year-ago quarter. Adjusted net income (excluding amortization of intangible assets from acquisitions, but including stock based compensation) of $1.14 per share was ahead of the year-ago quarter’s $1.10 per share.

Balance Sheet, Cash Flow

FactSet exited the quarter with $210.7 million in cash and cash equivalents, compared with $189.0 million in the previous quarter. The company has no long-term debt. The company generated cash flow from operations of $50.6 million, down from $51.0 million in the previous quarter.

Guidance

For the second quarter, the company expects revenues to be in the range of $212.0 million to $215.0 million. Moreover, the operating margin is projected between 33.5% and 34.0%.This apart, the GAAP diluted EPS is expected to be in the range of $1.11 to $1.13.

Our Take

FactSet reported decent first quarter 2013 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 witnessed revenue growth across its business segments.

The company continues to launch new products and application across its segments with special emphasis on financial services to gain more customers.

Although new products and services are offered by the company regularly, we believe adding new customers is a challenge as the European weakness has resulted in a slowdown of business activity in the region. 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.