FactSet Research Systems Inc. — Q3 FY2024 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended May 31, 2024; results are unaudited. FactSet provides subscription-based financial data, analytics and technology to investment professionals through its Americas, EMEA and Asia Pacific segments.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $552.7M (+4.3%) | $529.8M | $1,640.9M (+5.9%) | $1,549.7M |
| Operating income | $202.5M (+17.7%) | $172.0M | $573.4M (+11.8%) | $513.1M |
| Operating margin | 36.6% | 32.5% | 34.9% | 33.1% |
| Net income | $158.1M (+17.4%) | $134.7M | $447.6M (+11.1%) | $403.1M |
| Diluted EPS | $4.09 (+18.2%) | $3.46 | $11.58 (+11.9%) | $10.35 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $537.2M | $489.9M |
| Free cash flow (non-GAAP) | Not provided for quarter | Not provided for quarter | $477.5M | $428.5M |
Q3 organic revenue growth was 4.5%; reported growth included a 0.2% headwind from foreign exchange. For the nine-month period, organic revenue growth was 5.9%. Revenue increased across all segments; Q3 growth was strongest in the Americas (+5.6%), followed by EMEA (+2.4%) and Asia Pacific (+1.5%). The filing does not provide a consolidated gross-margin figure.
As of May 31, 2024, Organic ASV plus Professional Services was $2.220B, up 5.0% year over year. Annual ASV retention exceeded 95%; client-count retention was approximately 90%, compared with approximately 92% a year earlier. Clients numbered 8,029 (+3.3%) and users 208,140 (+10.8%).
Liquidity, debt and capital returns
- Cash and cash equivalents were $453.1M and investments were $68.9M at May 31, 2024, compared with cash of $425.4M and investments of $32.2M at August 31, 2023.
- Debt carrying value was $1.428B, versus $1.613B at August 31, 2023; principal outstanding was $1.438B. This included $187.5M under the term facility due March 2025, $250M drawn on a $500M revolving facility, and $1.0B of senior notes due in 2027 and 2032. The company reported compliance with its credit-agreement covenants.
- Nine-month financing cash outflows included $187.5M of debt repayments, $171.9M of share repurchases and $111.3M of dividends. The quarterly dividend was increased 6%, from $0.98 to $1.04 per share. $128.1M remained authorized for repurchases at May 31.
Changes, outlook and risks
- Operating margin improved year over year, with management citing revenue growth and lower compensation costs and bad-debt expense. Q3 cost-of-services and SG&A were 44.7% and 18.7% of revenue, respectively. Management also noted a one-time payroll-tax adjustment and higher capitalization of internal-use software development costs; higher intangible amortization, cloud-hosting and licensed-software expenses partly offset savings.
- Management attributed subscription growth mainly to higher existing-client demand and price increases in workstations, data and middle-office solutions, partly offset by client cancellations. Strategic priorities include expanding the digital platform and use of AI, execution and expense discipline, and investment in talent and partnerships. No specific financial outlook or earnings guidance is provided in the supplied filing text.
- FactSet identifies foreign-exchange and interest-rate exposure. A hypothetical 10% U.S. dollar devaluation was estimated to increase forward-contract fair value by about $18M and reduce operating income, before those contracts, by about $32M based on nine-month results. A 25-basis-point SOFR change was estimated to affect annual interest expense by about $1M, assuming the relevant debt balance stayed constant.
- A Massachusetts sales-tax assessment covering periods from 2006 through June 2021 is under appeal; FactSet believes it will prevail but states an adverse outcome could materially affect financial position, results or cash flows. It recorded a non-material accrual and received notice of an audit covering July 2021 through December 2023.
- Two data suppliers each represented more than 10% of data costs, and one cloud provider supplied the majority of cloud computing support during the nine months. Management says it uses multiple cloud providers and maintains backup and continuity measures. The company reported no material changes to its previously disclosed risk factors.
Key investor verification points
- Assess whether ASV growth, revenue growth and retention trends persist, particularly the decline in client-count retention.
- Separate recurring operating leverage from temporary payroll-tax effects, software-cost capitalization and changes in variable compensation.
- Review the Massachusetts sales-tax appeal, audit and accrual as further information becomes available.
- Track repayment or refinancing of the $187.5M term-facility maturity in March 2025, alongside share repurchases and dividend commitments.
- Monitor sensitivity to foreign exchange and SOFR, and the company’s reliance on a major cloud provider and concentrated data suppliers.