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FactSet Research Systems Inc. (FDS - Free Report) reported mixed results for the first quarter of fiscal 2017 wherein its adjusted earnings came ahead of the Zacks Consensus Estimate but revenues missed the same by $1 million.
The company reported adjusted earnings per share of $1.75, which surpassed the Zacks Consensus Estimate of $1.70 per share as well as the guided range of 1.68 to $1.72 (mid-point $1.70). Moreover, adjusted earnings improved 18.2% on a year-over-year basis.
On a GAAP basis, the company reported earnings per share of $1.66 compared with $1.43 in the year-ago quarter.
FactSet’s revenues of $288.1 million increased 6.5% from the year-ago quarter but missed the Zacks Consensus Estimate of $289.3 million. Moreover, reported revenues were toward the lower-end of the guidance of $286 million to $292 million (mid-point $289 million). As FactSet’s revenues missed the consensus mark by just a million dollars, we opine that it will be unfair to say that the company’s top-line results were weak.
FactSet witnessed better-than-expected growth across products and geographic regions, which aided quarterly revenues. Also, synergies from the Portware acquisition contributed to revenue growth.
During the quarter, FactSet’s revenues from the U.S. grew to $190.6 million, while non-U.S. revenues went up to $97.5 million. Excluding the impact of foreign currency, acquisitions and disposition, U.S. revenues and international revenues rose 7.1% and 11%, respectively, on a year-over-year basis.
The company’s Annual Subscription Value (ASV) increased 7.9% to $1.17 billion as of Nov 30, 2016. Of this, nearly 83% was generated by buy-side clients while the rest came from sell-side firms performing functions like mergers & acquisition, advisory work and equity research.
FactSet added 24 clients in the reported quarter, taking the tally to 3,116. The company retained 93% of its clients. The retention percentage was more than 95% of ASV.
Coming to the operational metrics, FactSet reported a 7.9% rise in total operating expenses, primarily due to an increase in cost of services (up 10.9% on a year-over-year basis). As a percentage of revenues, operating expenses increased 90 basis points (bps) to 68.6%.
FactSet’s adjusted operating income increased 4.5% from the year-ago quarter to $95 million. However, operating margin contracted 60 bps year over year to 33%, mainly due to higher operating expenses as a percentage of revenues.
Adjusted net income during the quarter was $70.1 million, which improved 12.2% from $62.4 million reported in the year-ago quarter.
FactSet exited the quarter with $173.3 million in cash and cash equivalents, compared with $228.4 million in the previous quarter. Long-term debt during the quarter amounted to $365 million.
Cash flow from operations during the three months ended Nov 30, 2016 was $51.1 million. The company generated free cash flow of $38.6 million during the reported quarter. FactSet purchased approximately 505K shares for $79.3 million under its existing share repurchase authorization. At quarter-end, the company had $117.7 million remaining under its share repurchase authorization.
Apart from this, during the first quarter, FactSet completed the repurchase of $120 million worth of common stock under the Accelerated Share Repurchase agreement entered on Jul 1, 2016.
Guidance
For fiscal second quarter of 2017, FactSet expects revenues in the range of $293 million to $298 million (mid-point $295.5 million). The Zacks Consensus Estimate is pegged at $295.4 million.
Adjusted operating margin is expected between 32.5% and 33.5%. Adjusted earnings per share are projected in a band of $1.78 to $1.82 (mid-point $1.80). The Zacks Consensus Estimate stands at $1.71. The annual effective tax rate is expected within 25.5% to 26.5%.
Our Take
FactSet reported mixed results for the first quarter wherein the bottom-line came ahead of the Zacks Consensus Estimate but the top-line missed the same. Also, quarterly revenues were below the company’s own guidance at the mid-point, while adjusted earnings came ahead of expectations.
Given the lower-than-expected revenues, investors remained slightly cautious, pulling shares down 2.5% during yesterday’s trade. Notably, FactSet has underperformed the Zacks Categorized Business Information Services industry. The company has lost 0.8% of its value on a year-to-date basis while the industry gained a marginal 0.3% over the same time frame.
Nonetheless, we are encouraged by the favorable year-over-year comparisons on both counts. Moreover, the company has a high client retention ratio, which is a positive. Also, ASV increased year over year and the company added a good number of clients.
The share repurchase program is expected to support earnings in the long run apart from boosting shareholders’ value.
The company continues with product innovation across its segments with special emphasis on financial services to gain more customers. Moreover, the company’s acquisitions of Portware, Revere Data, Matrix Data and Code Red will enhance its product suite and help it to evolve as a global financial database company. It will also help FactSet to maximize value for its partners and provide exclusive content set.
Nonetheless, competition from Bloomberg L.P., Dow Jones & Company Inc., MSCI Inc. (MSCI - Free Report) and Thomson Reuters (TRI - Free Report) , which are also introducing substitute products at competitive prices, is a headwind.
Another stock worth considering in the broader technology sector is LifeLock Inc. , which carries the same Zacks Rank as FactSet. Its earnings per share estimate for the current year has been revised upward to 59 cents from 45 cents over the past 30 days. Moreover, the stock has a long-term EPS growth rate of 20%, which is much higher than the industry average of 12.2%.
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FactSet (FDS) Tops Q1 Earnings Estimates, Misses Revenues
FactSet Research Systems Inc. (FDS - Free Report) reported mixed results for the first quarter of fiscal 2017 wherein its adjusted earnings came ahead of the Zacks Consensus Estimate but revenues missed the same by $1 million.
The company reported adjusted earnings per share of $1.75, which surpassed the Zacks Consensus Estimate of $1.70 per share as well as the guided range of 1.68 to $1.72 (mid-point $1.70). Moreover, adjusted earnings improved 18.2% on a year-over-year basis.
On a GAAP basis, the company reported earnings per share of $1.66 compared with $1.43 in the year-ago quarter.
FACTSET RESH Price, Consensus and EPS Surprise
FACTSET RESH Price, Consensus and EPS Surprise | FACTSET RESH Quote
Quarter Details
FactSet’s revenues of $288.1 million increased 6.5% from the year-ago quarter but missed the Zacks Consensus Estimate of $289.3 million. Moreover, reported revenues were toward the lower-end of the guidance of $286 million to $292 million (mid-point $289 million). As FactSet’s revenues missed the consensus mark by just a million dollars, we opine that it will be unfair to say that the company’s top-line results were weak.
FactSet witnessed better-than-expected growth across products and geographic regions, which aided quarterly revenues. Also, synergies from the Portware acquisition contributed to revenue growth.
During the quarter, FactSet’s revenues from the U.S. grew to $190.6 million, while non-U.S. revenues went up to $97.5 million. Excluding the impact of foreign currency, acquisitions and disposition, U.S. revenues and international revenues rose 7.1% and 11%, respectively, on a year-over-year basis.
The company’s Annual Subscription Value (ASV) increased 7.9% to $1.17 billion as of Nov 30, 2016. Of this, nearly 83% was generated by buy-side clients while the rest came from sell-side firms performing functions like mergers & acquisition, advisory work and equity research.
FactSet added 24 clients in the reported quarter, taking the tally to 3,116. The company retained 93% of its clients. The retention percentage was more than 95% of ASV.
Coming to the operational metrics, FactSet reported a 7.9% rise in total operating expenses, primarily due to an increase in cost of services (up 10.9% on a year-over-year basis). As a percentage of revenues, operating expenses increased 90 basis points (bps) to 68.6%.
FactSet’s adjusted operating income increased 4.5% from the year-ago quarter to $95 million. However, operating margin contracted 60 bps year over year to 33%, mainly due to higher operating expenses as a percentage of revenues.
Adjusted net income during the quarter was $70.1 million, which improved 12.2% from $62.4 million reported in the year-ago quarter.
FactSet exited the quarter with $173.3 million in cash and cash equivalents, compared with $228.4 million in the previous quarter. Long-term debt during the quarter amounted to $365 million.
Cash flow from operations during the three months ended Nov 30, 2016 was $51.1 million. The company generated free cash flow of $38.6 million during the reported quarter. FactSet purchased approximately 505K shares for $79.3 million under its existing share repurchase authorization. At quarter-end, the company had $117.7 million remaining under its share repurchase authorization.
Apart from this, during the first quarter, FactSet completed the repurchase of $120 million worth of common stock under the Accelerated Share Repurchase agreement entered on Jul 1, 2016.
Guidance
For fiscal second quarter of 2017, FactSet expects revenues in the range of $293 million to $298 million (mid-point $295.5 million). The Zacks Consensus Estimate is pegged at $295.4 million.
Adjusted operating margin is expected between 32.5% and 33.5%. Adjusted earnings per share are projected in a band of $1.78 to $1.82 (mid-point $1.80). The Zacks Consensus Estimate stands at $1.71. The annual effective tax rate is expected within 25.5% to 26.5%.
Our Take
FactSet reported mixed results for the first quarter wherein the bottom-line came ahead of the Zacks Consensus Estimate but the top-line missed the same. Also, quarterly revenues were below the company’s own guidance at the mid-point, while adjusted earnings came ahead of expectations.
Given the lower-than-expected revenues, investors remained slightly cautious, pulling shares down 2.5% during yesterday’s trade. Notably, FactSet has underperformed the Zacks Categorized Business Information Services industry. The company has lost 0.8% of its value on a year-to-date basis while the industry gained a marginal 0.3% over the same time frame.
Nonetheless, we are encouraged by the favorable year-over-year comparisons on both counts. Moreover, the company has a high client retention ratio, which is a positive. Also, ASV increased year over year and the company added a good number of clients.
The share repurchase program is expected to support earnings in the long run apart from boosting shareholders’ value.
The company continues with product innovation across its segments with special emphasis on financial services to gain more customers. Moreover, the company’s acquisitions of Portware, Revere Data, Matrix Data and Code Red will enhance its product suite and help it to evolve as a global financial database company. It will also help FactSet to maximize value for its partners and provide exclusive content set.
Nonetheless, competition from Bloomberg L.P., Dow Jones & Company Inc., MSCI Inc. (MSCI - Free Report) and Thomson Reuters (TRI - Free Report) , which are also introducing substitute products at competitive prices, is a headwind.
FactSet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Another stock worth considering in the broader technology sector is LifeLock Inc. , which carries the same Zacks Rank as FactSet. Its earnings per share estimate for the current year has been revised upward to 59 cents from 45 cents over the past 30 days. Moreover, the stock has a long-term EPS growth rate of 20%, which is much higher than the industry average of 12.2%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>