FactSet Reports Solid Results for Third Quarter 2020
Third Quarter Fiscal 2020 Highlights
- Revenue increased 2.6%, or
$9.6 million , to$374.1 million compared with$364.5 million for the same period in fiscal 2019. The increase is primarily due to higher sales of analytics, content and technology solutions (CTS) and wealth management solutions. Organic revenues grew 2.6% to$375.3 million during the third quarter of fiscal 2020 from the prior year period. - Annual Subscription Value (ASV) plus professional services was
$1.52 billion atMay 31, 2020 , compared with$1.45 billion atMay 31, 2019 . The organic growth rate, which excludes the effects of acquisitions, dispositions, and foreign currency movements, was 5.0%. The primary contributors to this growth rate were higher sales in FactSet's wealth and research workflow solutions and a price increase in the Company's international region. Please see the “ASV + Professional Services” section of this press release for details. - Operating margin increased to 32.5% compared with 32.2% for the same period last year. Adjusted operating margin improved to 35.5% compared with 34.0% in the prior year period primarily as a result of reduced employee-related operating expenses due to the coronavirus pandemic.
- Diluted earnings per share (EPS) increased 11.0% to
$2.63 compared with$2.37 for the same period in fiscal 2019. Adjusted diluted EPS rose 9.2% to$2.86 compared with$2.62 in the prior year period primarily driven by an improvement in operating results. - The Company’s effective tax rate for the third quarter decreased to 15.0% compared with 18.6% a year ago, primarily due to an income tax expense in the prior year related to finalizing the Company's tax returns with no similar event for the three months ended
May 31, 2020 . - FactSet increased its quarterly dividend by
$0.05 per share or 7% to$0.77 marking the fifteenth consecutive year the Company has increased dividends, highlighting its continued commitment to returning value to shareholders. - FactSet updated its annual outlook for fiscal 2020. Please see the “Annual Business Outlook” section of this press release for details.
- The Company announced changes to its Board of Directors including a new chair, two new members, and the retirement of two current members. Please see FactSet's press release dated
June 24 and its Form 8-K filing onJune 25 for more details.
“We had a strong third quarter and executed well in challenging circumstances,” said
Key Financial Measures*
| (Condensed and Unaudited) | Three Months Ended | |||||||
| (In thousands, except per share data) | 2020 | 2019 | Change | |||||
| GAAP revenues | $ | 374,083 | $ | 364,533 | 2.6 | % | ||
| Organic revenues | $ | 375,336 | $ | 365,807 | 2.6 | % | ||
| Operating income | $ | 121,640 | $ | 117,240 | 3.8 | % | ||
| Adjusted operating income | $ | 133,380 | $ | 122,795 | 8.6 | % | ||
| Operating margin | 32.5 | % | 32.2 | % | ||||
| Adjusted operating margin | 35.5 | % | 34.0 | % | ||||
| Net income | $ | 101,216 | $ | 92,265 | 9.7 | % | ||
| Adjusted net income | $ | 110,085 | $ | 102,056 | 7.9 | % | ||
| Diluted EPS | $ | 2.63 | $ | 2.37 | 11.0 | % | ||
| Adjusted diluted EPS | $ | 2.86 | $ | 2.62 | 9.2 | % | ||
* See reconciliation of
“Our ongoing operational discipline and execution resulted in a solid quarter," said
Annual Subscription Value (ASV) + Professional Services and Segment Revenue
ASV at any given point in time represents the forward-looking revenues for the next twelve months from all subscription services currently supplied to clients and excludes professional services fees billed in the last 12 months that are not subscription-based. Professional services are revenues derived from project-based consulting and implementation.
ASV plus professional services was
Buy-side and sell-side ASV growth rates for the third quarter of fiscal 2020 were 4.8% and 5.6%, respectively. Buy-side clients accounted for approximately 84% of organic 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 may be found on the last page of this press release.
ASV from the
Operational Highlights – Third Quarter Fiscal 2020
- Client count as of
May 31, 2020 was 5,743, a net increase of 55 clients in the past three months, primarily driven by an increase in corporate and wealth management clients. The count includes clients with ASV of$10,000 and above. - User count increased by 2,199 to 131,095 in the past three months, primarily driven by an increase in wealth advisors and buy-side research users.
- Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention was 89%.
- Employee count was 10,065 as of
May 31, 2020 , up 7.5% over the last twelve months primarily driven by hiring as part of the Company's three-year investment plan. - Net cash provided by operating activities decreased to
$151.0 million compared with$159.8 million for the third quarter of 2019. Quarterly free cash flow decreased to$139.9 million compared with$148.3 million a year ago, a decrease of 5.7%, primarily due to timing of certain international tax payments. - Capital expenditures decreased to
$11.0 million , compared with$11.4 million a year ago, primarily due to reduced facilities spend. - A regular quarterly dividend of
$29.0 million , or$0.77 per share, was paid onJune 18, 2020 , to holders of record of FactSet’s common stock at the close of business onMay 29, 2020 . - FactSet announced that it will provide financial, non-financial, and benchmark data to the
Government Pension Investment Fund (GPIF) ofJapan . FactSet will deliver over 20 content sets as part of GPIF’s introduction of its new Index Posting System. The Index Posting System will enhance GPIF’s overall fund management by efficiently collecting a range of information to facilitate more extensive and effective index analysis. - The Company won Best EMS Solution at the Markets Media Market Choice Awards, as well as Best Client Reporting Solutions at the WealthBriefing Asia Awards.
- The Company released its third annual Corporate Social Responsibility Report, which covered the fiscal year ending
August 31, 2019 . The report highlights FactSet’s recent global achievements in the communities it serves.
Share Repurchase Program
FactSet repurchased 46,689 shares of its common stock for
Annual Business Outlook
FactSet provided its outlook for fiscal 2020 on
Fiscal 2020 Expectations
- Organic ASV plus professional services is now expected to increase in the range of
$60 million and$75 million over fiscal 2019. The change in the anticipated range reflects the current expected business impacts resulting from the coronavirus pandemic. - GAAP revenue is now expected to be in the range of
$1,485 million and$1,490 million . - GAAP operating margin is now expected to be in the range of 30.0% and 30.5%.
- Adjusted operating margin is now expected to be in the range of 33.0% and 33.5%.
- Annual effective tax rate is now expected to be in the range of 15.5% and 16.5%.
- GAAP diluted EPS is now expected to be in the range of
$9.60 and$9.80 . Adjusted diluted EPS is now expected to be in the range of$10.40 and$10.60 .
Both GAAP operating margin and GAAP diluted EPS guidance do not include certain effects of any non-recurring benefits or charges that may arise in fiscal 2020. Please see the back of this press release for a reconciliation of GAAP to adjusted metrics.
Conference Call
The Company will host a conference call today,
| 833.726.6487 | |
| International Participants: | 830.213.7677 |
| Passcode: | 2889655 |
An archived webcast with the accompanying slides will be available at FactSet Investor Relations for one year after the conclusion of the live event. The earnings call transcript will also be available via the FactSet workstation or web. An audio replay of this conference will also be available until
Forward-looking Statements
This news release contains forward-looking statements based on management's current expectations, estimates, forecasts and projections about industries in which FactSet operates and the beliefs and assumptions of management. All statements that address expectations, guidance, outlook or projections about the future, including statements about the Company's strategy for growth, product development, revenues, future financial results, anticipated growth, market position, subscriptions, expected expenditures, trends in FactSet’s business and financial results, are forward-looking statements. Forward-looking statements may be identified by words like "expects," "believes, " "anticipates," "plans," "intends, " "estimates, " "projects," "should," "indicates," "continues," "may" and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in FactSet's filings with the
About Non-GAAP Financial Measures
Financial measures in accordance with
FactSet uses these adjusted financial measures both in presenting its results to stockholders and the investment community and in its internal evaluation and management of the business. The Company believes that these adjusted financial measures and the information they provide are useful to investors because they permit investors to view the Company’s performance using the same tools that management uses to gauge progress in achieving its goals. Investors may benefit from referring to these adjusted financial measures in assessing the Company’s performance and when planning, forecasting and analyzing future periods and may also facilitate comparisons to its historical performance. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
Organic revenues exclude the effects of acquisitions and dispositions completed in the last 12 months and foreign currency movements 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. The Company believes that these adjusted financial measures better reflect the underlying economic performance of FactSet.
The GAAP financial measure, cash flows provided by operating activities, has been adjusted for capital expenditures to report non-GAAP free cash flow. FactSet uses this financial measure both in presenting its results to stockholders and the investment community and in the Company’s internal evaluation and management of the business. Management believes that this financial measure is useful to investors because it permits investors to view the Company’s performance using the same metric that management uses to gauge progress in achieving its goals and is an indication of cash flow that may be available to fund further investments in future growth initiatives.
About FactSet
FactSet (NYSE:FDS | NASDAQ:FDS) delivers superior content, analytics, and flexible technology to help more than 131,000 users see and seize opportunity sooner. We give investment professionals the edge to outperform with informed insights, workflow solutions across the portfolio lifecycle, and industry-leading support from dedicated specialists. We're proud to have been recognized with multiple awards for our analytical and data-driven solutions and repeatedly ranked as one of Fortune's 100 Best Companies to Work For® and a Best Workplace in the
FactSet
Media & Investor Relations Contact:
Rima Hyder
+1.857.265.7523
rima.hyder@factset.com
| Consolidated Statements of Income (Unaudited) |
||||||||||||||||||
| |
Three Months Ended | Nine months ended | ||||||||||||||||
| (In thousands, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Revenues | $ | 374,083 | $ | 364,533 | $ | 1,110,521 | $ | 1,071,068 | ||||||||||
| Operating expenses | ||||||||||||||||||
| Cost of services | 170,703 | 163,832 | 511,878 | 495,716 | ||||||||||||||
| Selling, general and administrative | 81,740 | 83,461 | 257,560 | 248,885 | ||||||||||||||
| Total operating expenses | 252,443 | 247,293 | 769,438 | 744,601 | ||||||||||||||
| Operating income | 121,640 | 117,240 | 341,083 | 326,467 | ||||||||||||||
| Other expense | ||||||||||||||||||
| Interest expense, net | (2,211 | ) | (4,377 | ) | (8,003 | ) | (13,046 | ) | ||||||||||
| Other (expense) income, net | (289 | ) | 521 | (2,090 | ) | 255 | ||||||||||||
| Income before income taxes | 119,140 | 113,384 | 330,990 | 313,676 | ||||||||||||||
| Provision for income taxes | 17,924 | 21,119 | 47,131 | 52,413 | ||||||||||||||
| Net income | $ | 101,216 | $ | 92,265 | $ | 283,859 | $ | 261,263 | ||||||||||
| Diluted earnings per common share | $ | 2.63 | $ | 2.37 | $ | 7.36 | $ | 6.73 | ||||||||||
| Diluted weighted average common shares | 38,481 | 38,993 | 38,548 | 38,807 | ||||||||||||||
| Consolidated Balance Sheets (Unaudited) |
||||||
| (In thousands) | 2020 | 2019 | ||||
| ASSETS | ||||||
| Cash and cash equivalents | $ | 457,707 | $ | 359,799 | ||
| Investments | 22,606 | 25,813 | ||||
| Accounts receivable, net of reserves | 151,398 | 146,309 | ||||
| Prepaid taxes | 42,250 | 15,033 | ||||
| Prepaid expenses and other current assets | 34,468 | 36,858 | ||||
| Total current assets | 708,429 | 583,812 | ||||
| Property, equipment, and leasehold improvements, net | 136,655 | 119,384 | ||||
| |
688,484 | 685,729 | ||||
| Intangible assets, net | 127,207 | 133,691 | ||||
| Deferred taxes | — | 7,571 | ||||
| Lease right-of-use assets, net | 254,391 | — | ||||
| Other assets | 32,539 | 29,943 | ||||
| TOTAL ASSETS | $ | 1,947,705 | $ | 1,560,130 | ||
| LIABILITIES | ||||||
| Accounts payable and accrued expenses | $ | 80,048 | $ | 79,620 | ||
| Current lease liabilities | 29,225 | — | ||||
| Accrued compensation | 50,114 | 64,202 | ||||
| Deferred fees | 58,725 | 47,656 | ||||
| Dividends payable | 29,188 | 27,445 | ||||
| Total current liabilities | 247,300 | 218,923 | ||||
| Long-term debt | 574,309 | 574,174 | ||||
| Deferred taxes | 15,502 | 16,391 | ||||
| Deferred fees | 8,885 | 10,088 | ||||
| Taxes payable | 26,816 | 26,292 | ||||
| Lease liabilities | 276,019 | — | ||||
| Deferred rent and other non-current liabilities | 5,916 | 42,006 | ||||
| TOTAL LIABILITIES | $ | 1,154,747 | $ | 887,874 | ||
| STOCKHOLDERS’ EQUITY | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | $ | 792,958 | $ | 672,256 | ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,947,705 | $ | 1,560,130 | ||
| Consolidated Statements of Cash Flows (Unaudited) |
||||||||
| Nine months ended | ||||||||
| (In thousands) | 2020 | 2019 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 283,859 | $ | 261,263 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation and amortization | 41,333 | 43,943 | ||||||
| Stock-based compensation expense | 28,372 | 24,135 | ||||||
| Deferred income taxes | 7,230 | 1,294 | ||||||
| Loss on sale of assets | 166 | 195 | ||||||
| Changes in assets and liabilities, net of effects of acquisitions | ||||||||
| Accounts receivable, net of reserves | (5,091 | ) | 3,112 | |||||
| Accounts payable and accrued expenses | 10,400 | (4,783 | ) | |||||
| Accrued compensation | (14,154 | ) | (23,672 | ) | ||||
| Deferred fees | 9,856 | 4,826 | ||||||
| Taxes payable, net of prepaid taxes | (27,088 | ) | (2,232 | ) | ||||
| Other, net | 11,530 | (2,757 | ) | |||||
| Net cash provided by operating activities | 346,413 | 305,324 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions | (62,909 | ) | (32,906 | ) | ||||
| Purchases of Investments | (2,736 | ) | (8,180 | ) | ||||
| Proceeds from maturity or sale of investments | 4,199 | 11,543 | ||||||
| Net cash used in investing activities | (61,446 | ) | (29,543 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repurchases of common stock | (171,005 | ) | (158,294 | ) | ||||
| Dividend payments | (81,438 | ) | (75,769 | ) | ||||
| Proceeds from employee stock plans | 65,323 | 78,926 | ||||||
| Repayment of debt | — | (575,000 | ) | |||||
| Proceeds from debt | — | 575,000 | ||||||
| Other financing, net | (1,592 | ) | (901 | ) | ||||
| Net cash used in financing activities | (188,712 | ) | (156,038 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 1,653 | (4,406 | ) | |||||
| Net (increase) increase in cash and cash equivalents | 97,908 | 115,337 | ||||||
| Cash and cash equivalents at beginning of period | 359,799 | 208,623 | ||||||
| Cash and cash equivalents at end of period | $ | 457,707 | $ | 323,960 | ||||
Reconciliation of
Financial measures in accordance with
Revenues
| (Unaudited) | Three Months Ended | |||||||
| (In thousands) | 2020 | 2019 | Change | |||||
| GAAP revenues | $ | 374,083 | $ | 364,533 | 2.6 | % | ||
| Deferred revenue fair value adjustment (a) | 1,169 | 1,274 | ||||||
| Currency impact (b) | 84 | — | ||||||
| Organic revenues | $ | 375,336 | $ | 365,807 | 2.6 | % | ||
(a) The adjustment relates to deferred revenue fair value adjustments from purchase accounting.
(b) The impact from foreign currency movements over the past 12 months.
Operating Income, Margin, Net Income and Diluted EPS
| (Unaudited) | Three Months Ended | |||||||||
| (In thousands, except per share data) | 2020 | 2019 | Change | |||||||
| GAAP Operating income | $ | 121,640 | $ | 117,240 | 3.8 | % | ||||
| Intangible asset amortization | 5,107 | 5,928 | ||||||||
| Deferred revenue fair value adjustment | 1,169 | 1,274 | ||||||||
| Other non-recurring items (a) | 5,464 | (1,647 | ) | |||||||
| Adjusted operating income | $ | 133,380 | $ | 122,795 | 8.6 | % | ||||
| Adjusted operating margin (b) | 35.5 | % | 34.0 | % | ||||||
| GAAP Net income | $ | 101,216 | $ | 92,265 | 9.7 | % | ||||
| Intangible asset amortization (c) | 4,204 | 4,797 | ||||||||
| Deferred revenue fair value adjustment (c) | 963 | 1,031 | ||||||||
| Other non-recurring items (a)(c) | 4,436 | (1,333 | ) | |||||||
| Income tax (expenses) / benefits (d) | (734 | ) | 5,296 | |||||||
| Adjusted net income | $ | 110,085 | $ | 102,056 | 7.9 | % | ||||
| GAAP Diluted earnings per common share | $ | 2.63 | $ | 2.37 | 11.0 | % | ||||
| Intangible asset amortization | 0.11 | 0.12 | ||||||||
| Deferred revenue fair value adjustment | 0.03 | 0.02 | ||||||||
| Other non-recurring items (a) | 0.12 | (0.03 | ) | |||||||
| Income tax (expenses) / benefits (d) | (0.03 | ) | 0.14 | |||||||
| Adjusted diluted earnings per common share | $ | 2.86 | $ | 2.62 | 9.2 | % | ||||
| Weighted average common shares (Diluted) | 38,481 | 38,993 | ||||||||
(a) GAAP operating income in the third quarter of fiscal 2020 was adjusted to exclude
(b) Adjusted operating margin is calculated as adjusted operating income divided by GAAP revenues plus the deferred revenue fair value adjustment.
(c) For purposes of calculating adjusted net income and adjusted diluted earnings per share, intangible asset amortization, deferred revenue fair value adjustments and other non-recurring items were taxed at the annual effective tax rates of 17.7% for fiscal 2020 and 19.1% for fiscal 2019.
(d) GAAP net income in the third quarter of fiscal 2020 was adjusted by
Business Outlook Operating Margin, Net Income and Diluted EPS
| (Unaudited) | ||||||
| Annual Fiscal 2020 Guidance | ||||||
| (In thousands, except per share data) | Low end of range | High end of range | ||||
| GAAP Operating margin | 30.0 | % | 30.5 | % | ||
| Intangible asset amortization (a) | 1.4 | % | 1.4 | % | ||
| Deferred revenue fair value adjustment (b) | 0.3 | % | 0.3 | % | ||
| Other non-recurring items (c) | 1.3 | % | 1.3 | % | ||
| Adjusted operating margin | 33.0 | % | 33.5 | % | ||
| GAAP Net income | $ | 370,000 | $ | 380,000 | ||
| Intangible asset amortization (a) | 17,600 | 17,600 | ||||
| Deferred revenue fair value adjustment (b) | 4,085 | 4,085 | ||||
| Other non-recurring items (c) | 8,675 | 8,675 | ||||
| Adjusted net income | $ | 400,360 | $ | 410,360 | ||
| GAAP Diluted earnings per common share | $ | 9.60 | $ | 9.80 | ||
| Intangible asset amortization (a) | 0.46 | 0.46 | ||||
| Deferred revenue fair value adjustment (b) | 0.11 | 0.11 | ||||
| Other/ Other non-recurring items (c) | 0.23 | 0.23 | ||||
| Adjusted diluted earnings per common share | $ | 10.40 | $ | 10.60 | ||
(a) GAAP operating income for the full fiscal 2020 year is adjusted to exclude
(b) The adjustment relates to deferred revenue fair value adjustments from purchase accounting. The income tax effect related to deferred revenue fair value adjustments was
(c) GAAP operating income for the full fiscal 2020 year is adjusted to exclude
Free Cash Flow
| (Unaudited) | Three Months Ended | |||||||||
| (In thousands) | 2020 | 2019 | Change | |||||||
| Net cash provided by operating activities | $ | 150,953 | $ | 159,770 | ||||||
| Capital expenditures | (11,010 | ) | (11,424 | ) | ||||||
| Free cash flow | $ | 139,943 | $ | 148,346 | (5.7 | )% | ||||
Supplementary Schedules of Historical ASV by Client Type
The following table presents the percentages and growth rates of organic ASV by client type, excluding the impact of currency movements, and may be useful to facilitate historical comparisons. Organic ASV excludes acquisitions and dispositions completed within the last 12 months and the effects of foreign currency movements. The numbers below do not include professional services.
| Q3'20 | Q2'20 | Q1'20 | Q4'19 | Q3'19 | Q2'19 | Q1'19 | Q4'18 | |||||||||
| % of ASV from buy-side clients | 84.1 | % | 84.1 | % | 83.9 | % | 83.7 | % | 84.2 | % | 83.9 | % | 83.9 | % | 83.9 | % |
| % of ASV from sell-side clients | 15.9 | % | 15.9 | % | 16.1 | % | 16.3 | % | 15.8 | % | 16.1 | % | 16.1 | % | 16.1 | % |
| ASV Growth rate from buy-side clients | 4.8 | % | 4.5 | % | 4.0 | % | 4.8 | % | 5.2 | % | 5.3 | % | 5.9 | % | 5.4 | % |
| ASV Growth rate from sell-side clients | 5.6 | % | 2.9 | % | 4.0 | % | 6.3 | % | 6.8 | % | 9.2 | % | 8.6 | % | 7.3 | % |
| Total Organic ASV Growth Rate | 5.0 | % | 4.2 | % | 4.0 | % | 5.0 | % | 5.4 | % | 5.9 | % | 6.3 | % | 5.7 | % |
The following table presents the calculation of the above-mentioned ASV growth rates from all clients.
(Details may not sum to total due to rounding)
| (In millions) | Q3'20 | Q3'19 | ||||||
| As reported ASV (a) | $ | 1,493.8 | $ | 1,423.0 | ||||
| Currency impact (b) | (0.1 | ) | ||||||
| Organic ASV total | $ | 1,493.7 | $ | 1,423.0 | ||||
| Total Organic ASV Growth Rate | 5.0% | |||||||
(a) ASV excludes
(b) The impact from foreign currency movements was excluded above to calculate total organic ASV.
