FactSet Research Systems Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended November 30, 2022; comparisons are with the three months ended November 30, 2021 unless otherwise noted. FactSet provides subscription-based financial data, analytics and workflow solutions through its Americas, EMEA and Asia Pacific segments. Results include CUSIP Global Services (CGS), acquired March 1, 2022.
Financial performance
| Metric | Q1 FY2023 | Prior year | Change |
|---|---|---|---|
| Revenue | $504.8 million | $424.7 million | +18.9% |
| Organic revenue (non-GAAP) | $459.9 million | $424.8 million | +8.3% |
| Operating income | $171.9 million | $122.7 million | +40.1% |
| Operating margin | 34.1% | 28.9% | +5.2 percentage points |
| Net income | $136.8 million | $107.6 million | +27.1% |
| Diluted EPS | $3.52 | $2.79 | +26.2% |
| Operating cash flow | $106.6 million | $72.9 million | +46.2% |
| Free cash flow (non-GAAP) | $88.7 million | $64.3 million | +$24.3 million |
Revenue growth reflected 8.3% organic growth, acquisition-related contribution and a 0.8% adverse currency effect. CGS was the primary acquisition-related driver, especially in Content & Technology Solutions. Organic ASV plus Professional Services was $1.85 billion, up 8.8% year over year. Operating margin benefited from revenue growth, lower employee compensation, data and occupancy costs, and lower prior-year impairment charges; higher CGS-related amortization and royalty fees partially offset these benefits.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $437.1 million at November 30, 2022, down from $503.3 million at August 31, 2022. Cash declined $66.1 million during the quarter.
- Total debt principal was $1.875 billion, with a net carrying value of $1.859 billion. FactSet repaid $125 million of term debt during the quarter; the term facility balance was $625 million. The revolving facility had $250 million outstanding.
- Debt includes $500 million of 2.90% notes due 2027 and $500 million of 3.45% notes due 2032. Variable-rate credit-facility borrowings bear Term SOFR plus 1.1%; a $500 million interest-rate swap hedges part of the floating-rate exposure. A hypothetical 25-basis-point SOFR change was estimated to affect annual interest expense by $0.9 million.
- FactSet reported compliance with its credit-agreement covenants, including the maximum 4.00-to-1.00 total leverage ratio covenant. Management said available liquidity, including revolving-facility capacity and other financing alternatives, should fund operations and planned growth for the next 12 months and foreseeable future.
- Quarterly dividends paid were $33.7 million; the declared dividend was $0.89 per share. The share-repurchase program remained suspended to prioritize debt repayment, except for limited withholding-tax or dilution-related repurchases.
Business trends, outlook and risks
- Revenue increased in all segments: Americas +21.2%, EMEA +13.7% and Asia Pacific +18.5%. Management attributed organic ASV growth mainly to existing-client sales, with contributions from price increases and new clients, partly offset by cancellations. ASV retention exceeded 95% by value and was 92% by client count.
- Management described the subscription model as relatively stable and said the COVID-19 pandemic had not significantly affected the quarter. FactSet discontinued commercial operations and service delivery to Russian clients; associated revenue was not material.
- The filing provides no specific numerical earnings or revenue guidance. Forward-looking statements are subject to risks and uncertainties; the company said risk factors had not materially changed from its FY2022 Form 10-K.
- A Massachusetts sales-tax dispute covers periods from 2006 through June 2021. FactSet has appealed or intends to appeal the notices and recorded an accrual it describes as not material. It considers payment probable, and warns that an adverse outcome could materially affect financial position, results or cash flows.
- Management considered ordinary-course legal matters not likely to have a material adverse effect. Tax-authority audits are ongoing; the company does not expect their final outcomes to materially affect results or cash flows.
- CGS was excluded from management’s internal-control assessment under SEC guidance for recently acquired businesses. Management concluded disclosure controls were effective excluding CGS; CGS represented 10% of quarterly revenue and 7% of assets excluding goodwill and intangible assets.
Key facts investors should verify
- How much reported growth and future recurring revenue depend on CGS versus organic growth; the filing reports organic revenue growth of 8.3% and organic ASV plus Professional Services growth of 8.8%.
- Whether operating-margin gains persist as acquisition amortization, royalty fees, compensation, technology and data costs evolve.
- Debt repayment progress, floating-rate exposure, covenant headroom and the effect of interest costs on earnings and cash generation.
- Developments in the Massachusetts sales-tax assessments and any resulting change to the recorded accrual or potential exposure.
- Completion of CGS integration and internal-control evaluation, as well as the company’s ability to sustain client retention, sales growth and cash flow.