FactSet Research Systems Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended August 31, 2020. Although the request metadata refers to 2020 Q4, this filing is an annual report; selected unaudited fourth-quarter results are noted below. FactSet provides subscription-based financial information, analytics, data feeds and workflow tools to investment and corporate clients.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $1,494.1 million | $1,435.4 million | +4.1% |
| Operating income | $439.7 million | $438.0 million | +0.4% |
| Operating margin | 29.4% | 30.5% | Down 1.1 percentage points |
| Net income | $372.9 million | $352.8 million | +5.7% |
| Diluted EPS | $9.65 | $9.08 | +6.3% |
| Operating cash flow | $505.8 million | $427.1 million | +$78.7 million |
| Capital expenditures | $77.6 million | $59.4 million | +$18.3 million |
| Free cash flow (non-GAAP) | $428.2 million | $367.8 million | +$60.4 million |
Revenue growth was organic; management reported organic revenue growth of 4.0% after adjustments for currency and purchase-accounting effects. Organic annual subscription value (ASV) reached $1.535 billion, up 5.2%; ASV plus professional services was $1.56 billion, up 5.3%. Annual retention exceeded 95% measured by ASV.
By segment, revenue was Americas $929.4 million (+3.9%), EMEA $422.2 million (+3.5%) and Asia Pacific $142.5 million (+7.3%). Analytics and Trading was the largest workflow growth driver, followed by Content and Technology Solutions and Wealth. Fourth-quarter revenue was $383.6 million, operating income $98.6 million, net income $89.1 million and diluted EPS $2.29.
Cash and cash equivalents were $585.6 million at year-end, versus $359.8 million a year earlier. The company had $575.0 million outstanding under its revolving credit facility, with $175.0 million of the $750.0 million facility undrawn; the facility matures in March 2024. Half the debt principal was hedged through an interest-rate swap. The company reported compliance with debt covenants. Operating lease liabilities totaled $301.3 million; these are separate from funded debt.
Liquidity strengthened as operating cash flow increased. FY2020 cash uses included $199.6 million of share repurchases, $110.4 million of dividends and $77.6 million of capital expenditures. The annual dividend declared per share rose to $2.98 from $2.72.
Material changes and unusual items
- Operating expenses rose 5.7%, faster than revenue. Cost of services increased 4.8% and SG&A increased 7.5%; operating margin contracted from 30.5% to 29.4%.
- FY2020 included a $16.5 million impairment charge on an investment, $14.8 million of professional fees tied to infrastructure upgrades and the multi-year investment plan, and $4.3 million of duplicate facilities costs during the headquarters build-out.
- Adjusted operating margin, a company-defined non-GAAP measure, was 33.6% versus 33.2%; adjusted diluted EPS was $10.87 versus $10.00. These exclude specified amortization, purchase-accounting adjustments, impairment and other items; they are not GAAP results.
- The effective income tax rate fell to 12.7% from 16.4%, mainly reflecting higher R&D credits and the FDII deduction, as well as prior-year tax-return adjustments. This supported net income and EPS growth despite nearly flat operating income.
- Asia Pacific operating income increased 14.5%, EMEA increased 0.3%, while Americas operating income declined 5.8%, partly due to investment impairment, technology costs and professional fees.
- Adoption of lease accounting brought right-of-use assets and lease liabilities onto the balance sheet. Total assets increased to $2.08 billion from $1.56 billion, partly reflecting this adoption and increased cash.
Outlook, commentary and risks
Management gave no specific numerical FY2021 guidance in the filing text. It described the subscription model and revenue, earnings and ASV as relatively stable and predictable, but anticipated possible weakness from longer sales cycles and lower incremental billings. Management said COVID-19 had not materially affected FY2020 revenue or ASV, and remote work had caused minimal service interruption; it cautioned that future effects remained uncertain. Discretionary-spending reductions and tighter headcount and content-cost management were identified as potential mitigations.
Key risks include continued COVID-19 effects on client spending, sales cycles and operations; competition and industry cost-cutting; shifts toward passive investing; reliance on third-party content and technology providers; cyberattacks, data privacy and service continuity; foreign-exchange movements; and regulatory and tax uncertainty. One supplier accounted for 11% of data costs. A Massachusetts sales-tax authority had issued a notice of intent to assess tax, interest and penalties for prior periods; FactSet contested the matter, had not recorded a liability, and said the outcome could be material if it did not prevail. Other ordinary-course legal matters were not considered likely to have a material adverse effect by management.
Subsequent events: FactSet agreed in October 2020 to acquire Truvalue Labs to expand ESG data offerings; the transaction was expected to close during 2020 and was not expected to materially affect FY2021 results. The company also amended its credit agreement in September 2020.
Most important facts for investors to verify
- Whether organic ASV growth, client retention and revenue growth continue as client budgets and sales cycles respond to the pandemic and market conditions.
- Whether operating-margin pressure persists as cloud, technology, compensation and professional-fee costs rise; assess the recurring nature of expenses excluded from adjusted measures.
- Cash generation and capital allocation relative to the $575 million revolving debt balance, lease commitments, share repurchases and dividends.
- Resolution and potential exposure from the Massachusetts sales-tax matter, alongside other tax audits and the company’s effective tax rate.
- Integration, purchase price and realized benefits of the Truvalue Labs acquisition, and progress on technology and cloud investments.