FactSet Research Systems Inc. (NYSE:FDS) (NASDAQ:FDS), a leading provider of integrated financial information and analytical applications, today announced its results for the first quarter of fiscal 2017.
For the quarter ended November 30, 2016, revenues grew to $288.1 million. Operating income rose to $90.3 million compared to $87.3 million in the prior year period. Net income was $66.6 million versus $60.0 million in the year ago first quarter. Diluted earnings per share were $1.66 compared to $1.43 in the same period of fiscal 2016. Additionally, in the first quarter of fiscal 2017, FactSet completed the acquisitions of Vermilion Software Limited (“Vermilion”) and CYMBA Technologies Limited (“CYMBA”), for cash consideration of $67 million and $8 million, respectively.
Organic revenues grew 8.4% during the first quarter of fiscal 2017. Adjusted operating income for the first quarter, which excludes $3.8 million of intangible asset amortization and $1.0 million of non-recurring acquisition costs, was $95.0 million, up 4.5% over the prior year quarter. Adjusted net income increased 12.2% over the prior year and excludes $2.8 million (after-tax) from intangible asset amortization and $0.7 million (after-tax) from non-recurring acquisition costs. Adjusted diluted EPS rose 18.2% to $1.75 and excludes the net effect of intangible asset amortization and non-recurring acquisition costs.
Organic revenues exclude the effects of acquisitions and dispositions completed in the last 12 months and foreign currency in all periods presented. Adjusted operating income and margin, adjusted net income and adjusted diluted earnings per share exclude both intangible asset amortization and non-recurring items, including acquisition costs. The Company believes that these adjusted financial measures better reflect the underlying economic performance of FactSet. A supplementary schedule reconciling financial results in accordance with U.S. generally accepted accounting principles (“GAAP”) to these adjusted financial measures is presented on page 10 of this earnings release.
“We delivered another solid quarter of revenue and earnings growth in a climate that remains challenging for some segments of the market. FactSet’s resilient business model and partnership with our clients continues to be a winning formula. Our advances in technology and product are opening up more enterprise discussions with our clients and the breadth of solutions we can provide them,” said Phil Snow, FactSet CEO.
Annual Subscription Value (“ASV”)
ASV was $1.17 billion at November 30, 2016, up 7.9% organically from the prior year. Organic ASV, which excludes the effects of acquisitions, dispositions and foreign currency, increased $7.9 million over the last three months. ASV at any given point in time represents the forward-looking revenues for the next 12 months from all services currently being supplied to clients.
Buy-side and sell-side ASV growth rates for the first quarter of fiscal 2017 were 8.3% and 6.3%, respectively. Buy-side clients account for 83.0% of ASV while the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research. Supplementary tables covering organic buy-side and sell-side ASV growth rates are presented on page 12 of this earnings release.
Financial Highlights - First Quarter of Fiscal 2017
ASV from U.S. operations was $765.3 million, increasing 7.1% organically over the prior year. U.S. revenues were $190.6 million. Excluding the effects of acquisitions and dispositions completed in the last 12 months, the U.S. growth rate was 7.1%.
ASV from international operations grew 9.3% organically to $405.1 million and now represents 34.6% of total ASV, up from 32.6% a year ago. International revenues rose to $97.5 million. Excluding the impact of foreign currency and acquisitions and dispositions completed in the last 12 months, the international revenue growth rate was 11.0%.
The Company’s effective tax rate for the first quarter was 25.9%, a decrease from 31.4% a year ago, primarily due to FactSet’s global operational realignment effective September 1, 2016.
Quarterly free cash flow was $38.6 million.
Operational Highlights - First Quarter of Fiscal 2017
Client count as of November 30, 2016 was 3,116, a net increase of 24 clients in the past three months driven by client additions from the Vermilion and CYMBA acquisitions.
User count grew 1,308 to 66,963.
Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention was 93%.
Employee count was 8,713 at November 30, 2016, up 780 people in the past 12 months. Excluding the acquired Vermilion and CYMBA workforces and employees of the sold Market Metrics business, headcount increased 10.7% from a year ago.
Capital expenditures were $12.5 million primarily related to the build out of office space and purchases of computer-related equipment.
On July 1, 2016 FactSet entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase $120.0 million of FactSet common stock. The final settlement of the ASR Agreement occurred in the first quarter of fiscal 2017. The Company repurchased 698,523 shares of its common stock under the ASR Agreement.
In addition, FactSet repurchased 505,000 shares for $79.3 million during the first quarter under the Company’s existing share repurchase program. As of November 30, 2016, $117.7 million remained authorized for further repurchases. Over the last 12 months, $473.4 million has been returned to stockholders in the form of share repurchases and dividends, funded by cash generated from operations and the sale of the Market Metrics business.
Common shares outstanding were 39.7 million at November 30, 2016.
In November 2016, FactSet held its 2016 Investment Process Symposium in Southampton, Bermuda, with 228 industry professionals from 105 firms and 70 cities in attendance.
FactSet was named “Best Index Data Provider” at the 2016 Data Management Review Awards in November 2016.
First Quarter Fiscal 2017 Acquisitions
In November 2016, FactSet acquired Vermilion, a premier global provider of client reporting and communications software and services to the financial services industry, for cash consideration of $67 million. Client reporting is a rapidly growing area of the market as regulatory requirements rise and investors grow increasingly sophisticated. The Vermilion Reporting Suite (VRS) creates a workflow around all elements of the client reporting process. At the time of acquisition, Vermilion employed 59 individuals across offices located in the U.K., U.S. and Singapore.
In September 2016, FactSet completed the acquisition of CYMBA, a fast-growing provider of high-performance multi-asset class investment management solutions, for cash consideration of $8 million. A U.K.-based company, CYMBA has a solid foundation of core order management system functionality through its product. CYMBA has 11 employees based in its London office.
“CYMBA and Vermilion are outstanding additions as FactSet strives to more holistically address the portfolio life cycle through both innovation and acquisition,” explained Phil Snow. “Operating alone, each company has developed compelling functionality to meet critical needs of the investment management community; in combination with FactSet’s core strengths and global commercial footprint, we believe we will better meet client needs going forward.”
The Vermilion and CYMBA acquisitions added $15 million in acquired ASV during the quarter. Following the closing of the Vermilion acquisition, FactSet carries $365 million in total debt under its amended revolving credit facility with Bank of America at an interest rate of one-month LIBOR plus 0.75%. The credit facility has a three-year term and may be expanded up to a total of $400 million. Vermilion and CYMBA’s operations did not have an impact on FactSet’s first quarter adjusted diluted earnings per share. For the second quarter of fiscal 2017, these two acquisitions combined are expected to reduce adjusted diluted EPS by $0.01 and reduce GAAP diluted EPS by $0.02. FactSet forecasts that the acquisitions will be breakeven to both adjusted and GAAP diluted EPS by the fourth quarter of fiscal 2017.
FactSet Operational Realignment
Effective September 1, 2016, FactSet realigned certain aspects of its global operations from FactSet Research Systems Inc., its U.S. parent company, to FactSet UK Limited, a U.K. operating company, to better position the Company to serve its growing client base outside the U.S. This realignment allows the Company to further implement strategic corporate objectives and helps achieve operational and financial efficiencies, while complementing FactSet’s increasing global growth and reach. As a result of the realignment, the Company’s effective tax rate declined from 28.3% in the fourth quarter of 2016 to 25.9% in the first quarter of 2017.
The following forward-looking statements reflect FactSet’s expectations as of today’s date. Given the risk factors, uncertainties and assumptions discussed below, actual results may differ materially. FactSet does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publicly available statements.
Second Quarter Fiscal 2017 Expectations:
Revenues are expected to range between $293 million and $298 million.
GAAP operating margin is expected to range between 31% and 32%. Adjusted operating margin is expected to range between 32.5% and 33.5%.
The annual effective tax rate is expected to range between 25.5% and 26.5%.
GAAP diluted EPS is expected to range between $1.70 and $1.74. Adjusted EPS is expected to range between $1.78 and $1.82. The midpoint of the adjusted EPS range represents 13.2% growth over the prior year.