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FactSet Lags Q4 Earnings Estimates

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FactSet Research Systems Inc.’s (FDS - Free Report) fourth-quarter 2013 earnings of $1.16 per share lagged the Zacks Consensus Estimate of $1.19 per share.


FactSet reported revenues of $219.3 million, up 5.6% on a year-over-year basis, 5.1 percentage points of which was organic growth, with the balance from the StreetAccount acquisition. FactSet’s revenues marginally beat the Zacks Consensus Estimate of $219.0 million.

During the quarter, FactSet’s U.S. revenues grew 6.0% from the year-ago quarter to $149.9 million, while its non-U.S. revenues of $69.4 million were up 5.0% on a year-over-year basis. Revenues from Europe and Asia Pacific recorded growth of 4% and 11%, respectively.

FactSet added 60 new clients this quarter taking its clients tally to a total of 2500. The company retained 92% of clients, amounting to 95% of the Annual Subscription Value (ASV).   

The company’s Annual Subscription Value (ASV) increased by $6.0 million and reached a total figure of $888.0 million on Aug 31, 2013. Nearly 82% of this total figure is generated from buy-side clients, with the rest coming from sell-side firms performing functions like Mergers & Acquisition advisory work and equity research.

Operating Results

FactSet’s operating expenses increased 8.6% from the year-ago quarter to $148.8 million primarily due to higher cost of services (up 11.0% year over year and increased 180 bps as a percentage of sales from the year-ago quarter) and selling, general and administrative expenses (up 5.9% year over year and increased 10 bps as a percentage of sales from the year-ago quarter). As a percentage of revenues, operating expenses increased 180 basis points (bps) on a year-over-year basis.

This increase in costs impacted operating income which was down marginally (down 0.1% on a year-over-year basis) while margins contracted 180 bps from the year-ago quarter to 32.2%.

Net income during the quarter came in at $50.9 million, up 5.0% from the year-ago period while net margin for the quarter was 23.2% versus 23.4% in the year-ago quarter.

Balance Sheet, Cash Flow

FactSet exited the quarter with $196.6 million in cash and cash equivalents, compared with $242.8 million in the previous quarter. The company has no long-term debt.

FactSet generated free cash flow of $71.0 million during the quarter and purchased 1.4 million shares for $144.0 million.


For the first quarter of fiscal 2014, FactSet expects revenues in the range of $222.0 million to $225.0 million. Apart from this, the operating margin is expected to range between 33.0% and 34.0%. While the GAAP earnings per share should range between $1.21 and $1.24 (GAAP diluted earnings per share presumes the enforcement of U.S. Federal R&D tax credit). Without the U.S. Federal R&D tax credit reinforcement, the GAAP earnings per share will be reduced by 3 cents.

Our Take

FactSet reported modest fourth-quarter 2013 results since revenues grew on a year-over-year basis but earnings lagged the Zacks Consensus Estimate. However, the company provided a positive guidance for the forthcoming quarter. Moreover, the ASV increased compared to the year-ago quarter and FactSet added a good number of clients.

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

Nonetheless, competition from Bloomberg L.P., Dow Jones & Company Inc., MSCI Inc. (MSCI - Free Report) 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 #4 (Sell). Investors may consider other stocks in the technology space such as Arrow Electronics (ARW - Free Report) and Xilinx Inc (XLNX - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy).

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