FactSet Research Systems Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2023. Comparisons are with the corresponding 2022 periods unless otherwise noted. FactSet provides subscription-based financial data, analytics, software and workflow solutions through its Americas, EMEA and Asia Pacific segments.
Financial performance
| Metric | Three months ended May 31, 2023 | Nine months ended May 31, 2023 |
|---|---|---|
| Revenue | $529.8 million; up 8.4% | $1,549.7 million; up 15.3% |
| Operating income / margin | $172.0 million / 32.5% | $513.1 million / 33.1% |
| Net income | $134.7 million; up 79.8% | $403.1 million; up 37.8% |
| Diluted EPS | $3.46; up 79.3% | $10.35; up 36.5% |
| Operating cash flow | Not provided as a quarterly figure in the filing text | $489.9 million, versus $386.9 million |
| Free cash flow (non-GAAP) | Not provided as a quarterly figure in the filing text | $428.5 million, versus $351.0 million |
Quarterly revenue growth reflected higher sales across all segments and workflow solutions. Nine-month reported growth included acquisition-related CGS revenue; organic revenue growth was 8.6%, versus reported growth of 15.3%. Quarterly organic revenue growth was 8.5%. Organic ASV plus Professional Services was $2.12 billion at May 31, up 8.0% year over year. Annual ASV retention exceeded 95%.
The effective tax rate was 16.9% for the quarter and 15.4% for the nine months, compared with 12.2% and 10.6%, respectively, in 2022. Management attributed the increase mainly to lower tax-attribute and discrete-item benefits and higher U.K. tax rates. Nine-month interest expense rose to $49.6 million from $20.1 million, mainly reflecting higher debt outstanding.
Financial position, liquidity and capital allocation
At May 31, 2023, cash and cash equivalents were $486.6 million and investments were $32.2 million. Current assets were $844.3 million and current liabilities were $400.9 million. Long-term debt had a net carrying value of $1.674 billion, or $1.688 billion principal; total stockholders’ equity was $1.669 billion.
Nine-month operating cash flow increased 26.6% year over year. Capital expenditures were $61.4 million, up from $36.0 million, primarily for internal-use software and technology equipment. Cash declined $16.6 million during the nine months. Financing cash outflows included $312.5 million of term-loan repayments, $101.4 million of dividends and $67.1 million of share repurchases.
FactSet repaid $312.5 million of its term facility during the nine months. Floating-rate borrowings were subject to one-month Term SOFR plus a 1.1% spread; a $300 million swap hedged part of the exposure. The company reported compliance with debt covenants. Its $500 million revolving facility had $250 million drawn at period-end. The quarterly dividend was increased 10% to $0.98 per share; the board later authorized up to $300 million of repurchases beginning September 1, 2023.
Changes, outlook and risks
- Operating income and margin rose substantially, but comparison benefited from prior-year real-estate impairment charges of $49.0 million for the quarter and $63.0 million for the nine months. Those charges related mainly to vacated office space. Current-period impairment charges were $0.4 million and $1.2 million, respectively.
- CGS, acquired in March 2022, contributed to nine-month revenue growth and also increased intangible-asset amortization and royalty costs. The prior-year period included acquisition-related expenses.
- Management said existing liquidity, including revolving-credit capacity and other financing alternatives, should be sufficient for the next 12 months and the foreseeable future. The filing provides no specific revenue, earnings or margin guidance.
- Beginning in fiscal 2024, FactSet planned to reorganize workflow groups around client firm types and combine Content and CTS into a Data Solutions organization; management did not expect the changes to affect segment reporting.
- FactSet continued to monitor the Russia-Ukraine conflict, had discontinued commercial operations and service delivery in Russia, and said associated revenue was not material. Management reported no significant COVID-19 impact on the periods presented and no material changes to previously disclosed risk factors.
- A Massachusetts sales-tax dispute escalated: the state upheld assessments covering tax periods from 2006 through June 2021. FactSet is contesting them, believes it will prevail, and recorded an immaterial accrual; it warned that an adverse outcome could materially affect financial position, results or cash flows. Management considered other disclosed legal matters not material.
Most important facts for investors to verify
- How much reported growth and future recurring revenue are attributable to CGS versus organic client demand, pricing and retention.
- The effect of higher personnel, technology, data, amortization and royalty costs on margins as prior-year impairment and acquisition costs roll off.
- Debt repayment plans, variable-rate exposure, interest costs and covenant headroom; the filing does not state the company’s actual leverage ratio.
- The outcome and potential financial exposure of the Massachusetts sales-tax assessments, which the filing does not quantify clearly.
- Whether capital spending, dividends and authorized repurchases remain supportable by operating cash flow and liquidity.