FactSet Research Systems Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2021. FactSet provides subscription-based financial information, analytics, applications and services to investment and corporate clients.
Financial performance
| Metric | Q3 FY2021 | Prior-year Q3 | Nine months FY2021 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $399.6 million (+6.8%) | $374.1 million | $1,179.6 million (+6.2%) | $1,110.5 million |
| Operating income | $117.7 million (-3.2%) | $121.6 million | $354.9 million (+4.0%) | $341.1 million |
| Operating margin | 29.5% | 32.5% | 30.1% | 30.7% |
| Net income | $100.7 million (-0.5%) | $101.2 million | $298.5 million (+5.2%) | $283.9 million |
| Diluted EPS | $2.62 (-0.4%) | $2.63 | $7.73 (+5.0%) | $7.36 |
- Q3 revenue growth was broad-based across regions and workflows, led by Analytics and Trading and Content and Technology Solutions. Organic revenue growth was 5.9% in Q3 and 5.3% for the nine-month period.
- Cost of services rose 20.2% in Q3 and 15.0% year to date, mainly due to employee compensation, technology and cloud-hosting costs; year-to-date data costs and intangible amortization also increased. Lower SG&A partly offset these pressures.
- Cash provided by operations was $370.2 million for the nine months, versus $346.4 million. Capital expenditures were $47.4 million, versus $62.9 million; company-defined free cash flow was $322.8 million, up 13.9%.
- Cash and cash equivalents were $658.3 million at May 31, 2021, up from $585.6 million at August 31, 2020; short-term investments were $18.4 million. Current liabilities were $280.9 million.
- Long-term debt was $574.5 million carrying value, representing $575.0 million drawn on a $750.0 million revolving facility; $175.0 million remained available. The facility matures in March 2024. A swap hedges $287.5 million of principal, and FactSet reported covenant compliance.
- FactSet returned $259.4 million to shareholders through repurchases and dividends during the nine months. It repurchased $172.2 million of shares and paid $87.1 million in dividends. The quarterly dividend was raised to $0.82 per share.
Material changes and business indicators
- Organic ASV plus Professional Services reached $1.612 billion, up 5.8% year over year. Annual client retention exceeded 95% measured by ASV; client retention by count was approximately 91%, versus 89% a year earlier.
- Clients increased 7.5% to 6,172 and users increased 11.4% to 155,004. User figures reflect a revised methodology, with the prior-year count adjusted for comparison.
- FactSet acquired ESG-data provider Truvalue Labs in November 2020 for approximately $41.9 million. The acquisition added $30.1 million of goodwill; management said its effect was not material to the financial statements.
- For the nine months, Americas revenue grew 6.9%, EMEA 4.4%, and Asia Pacific 7.2%. Q3 revenue growth was strongest in Asia Pacific at 10.7%.
Outlook, commentary and risks
- The filing provides no quantified forward financial guidance. Management said current liquidity and financing alternatives should fund operations and planned growth for the next 12 months and foreseeable future.
- Management attributed Q3 margin pressure primarily to compensation and computer-related costs, including investment in cloud-based hosting. For the nine months, lower discretionary employee-related spending and professional fees partially offset higher operating costs.
- Management reported that remote work had not significantly affected results through May 31, 2021, but cautioned that COVID-19 could lengthen sales cycles, delay implementations, or reduce client spending. Future effects remained uncertain.
- FactSet received a Massachusetts notice concerning potential sales taxes, interest and penalties for 2006–2013 and, on June 24, 2021, a separate request for information concerning 2014–2018. No liability was recorded because the outcomes could not be reasonably estimated. The company believes it will prevail, but an adverse outcome could materially affect financial position, cash flows and results.
- Other disclosed sensitivities include currency movements, variable-rate debt and Brexit-related uncertainty. The filing reports no material changes to other previously disclosed risk factors.
Important facts for investors to verify
- Developments and potential exposure in both Massachusetts sales-tax matters, including whether a formal assessment is issued.
- Whether revenue and ASV growth persist while cost-of-services growth and cloud-related investment affect margins.
- Cash generation, shareholder distributions, and remaining repurchase authorization relative to operating and investment needs.
- Debt-facility covenant headroom, LIBOR transition arrangements, and interest-rate exposure on the unhedged portion of borrowings.
- Client retention and growth trends, noting the revised user-count methodology and the contribution from the Truvalue Labs acquisition.