FactSet Research Systems Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended August 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Unless otherwise noted, financial figures are in U.S. dollars.
Business context
FactSet provides subscription-based financial data, analytics and workflow technology to investment and other financial professionals. Its reportable segments are the Americas, EMEA and Asia Pacific. Revenue is primarily generated from subscriptions to workstations, portfolio analytics, market data and related services.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,591.4 million | $1,494.1 million | +6.5% |
| Operating income | $474.0 million | $439.7 million | +7.8% |
| Operating margin | 29.8% | 29.4% | +0.4 percentage points |
| Net income | $399.6 million | $372.9 million | +7.1% |
| Diluted EPS | $10.36 | $9.65 | +7.4% |
| Cash from operating activities | $555.2 million | $505.8 million | +9.8% |
| Free cash flow (non-GAAP) | $493.9 million | $428.2 million | +$65.7 million |
Organic revenue grew 6.3%. Revenue increased in each segment: Americas 6.8% to $1,008.0 million, EMEA 5.2% to $427.7 million, and Asia Pacific 8.2% to $155.7 million. Management attributed growth primarily to sales to existing clients, new client sales and annual price increases; Analytics & Trading and Content & Technology Solutions were prominent contributors.
Cost of services rose 13.1% to $786.4 million, driven mainly by compensation and technology costs, including cloud migration and software expenses. SG&A declined 7.8% to $331.0 million, reflecting lower travel, entertainment, occupancy and professional-fee costs, as well as the absence of a prior-year investment impairment. The effective tax rate increased to 14.5% from 12.7%.
Organic ASV plus Professional Services was $1.679 billion, up 7.2%. Annual ASV retention exceeded 95%; client-count retention was approximately 91%, compared with approximately 90% a year earlier. Clients totaled 6,453 (+9.8%) and users totaled 160,932 (+14.0%).
Cash, debt and capital allocation
Cash and cash equivalents were $681.9 million at year-end, up from $585.6 million. Investments were $36.0 million. FactSet generated $555.2 million of operating cash and spent $61.3 million on capital expenditures. Investing cash outflow was $136.0 million, including $58.1 million for acquisitions; financing cash outflow was $322.7 million.
Long-term debt was $574.5 million, drawn under a $750.0 million revolving facility maturing March 29, 2024, leaving $175.0 million available. Half of the $575.0 million principal balance was covered by an interest-rate swap. The company reported compliance with debt covenants. It returned $382.6 million to shareholders through $264.7 million of share repurchases and $117.9 million of dividends. The quarterly dividend rose 6.5% during the year to $0.82 per share.
Material changes, outlook and risks
- Operating margin improved modestly on a GAAP basis, but adjusted operating margin (non-GAAP) fell to 32.5% from 33.6%, reflecting higher compensation and technology costs among other adjustments.
- FactSet acquired ESG data provider Truvalue Labs for approximately $41.9 million in November 2020. After year-end, it completed the approximately $51.0 million acquisition of Cobalt Software, a private-capital portfolio monitoring provider.
- Management said COVID-19 had not materially affected FY2021 financial results or substantially interrupted client service. Remote and hybrid work continued; lower travel and office spending more than offset pandemic-related incremental costs. The future effects of the pandemic remained uncertain.
- Management’s stated strategy emphasizes expanding its open, cloud-enabled data and analytics platform, migrating systems to cloud infrastructure, developing products and pursuing growth in areas including ESG, private markets and wealth. The filing text does not provide a clear numerical FY2022 financial guidance figure.
- Key risks include cyberattacks and service outages, cloud migration and third-party provider dependence, competition and pricing pressure, shifts from active to passive investing, market declines and client consolidation, data-provider contract and cost risks, foreign-exchange exposure, and regulatory and privacy-law changes.
- Massachusetts issued notices concerning potential sales/use tax assessments for prior periods and requested information for additional periods. FactSet is contesting/cooperating with the inquiries, could not estimate the outcome, and recorded no liability; an adverse assessment could be material.
- Ordinary-course litigation was not considered likely to have a material adverse effect by management. The auditor issued unqualified opinions on the financial statements and internal control; management also concluded internal control was effective.
Important facts for investors to verify
- Whether recurring ASV growth and retention remain strong, and whether growth continues across all three regions and workflow offerings.
- Whether cloud, product-development and compensation investments improve future growth and margins, particularly given the decline in adjusted operating margin.
- How the Truvalue Labs and Cobalt acquisitions contribute to revenue, ASV and profitability, and how much additional investment or integration cost they require.
- The status and potential financial exposure of the Massachusetts sales-tax matters, along with changes in tax rates and unrecognized tax positions.
- Debt repayment plans and interest-rate exposure as the revolving facility approaches its 2024 maturity and benchmark rates transition away from LIBOR.
- Whether capital returns remain supported by operating cash flow after dividends, repurchases, acquisitions and capital expenditures.