FactSet Research Systems Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended February 29, 2024. Comparisons are with the three and six months ended February 28, 2023, respectively. FactSet provides subscription-based financial data, analytics and workflow solutions, serving more than 8,000 clients and 206,478 investment professionals.
Financial performance
| Metric | Fiscal Q2 2024 | Change year over year | Six months 2024 | Change year over year |
|---|---|---|---|---|
| Revenue | $545.9 million | +6.0% | $1,088.2 million | +6.7% |
| Operating income | $181.9 million | +7.5% | $371.0 million | +8.7% |
| Operating margin | 33.3% | 32.9% prior year | 34.1% | 33.4% prior year |
| Net income | $140.9 million | +7.1% | $289.5 million | +7.9% |
| Diluted EPS | $3.65 | +8.0% | $7.49 | +8.7% |
| Operating cash flow | Not provided for quarter | — | $298.9 million | +$27.6 million |
| Free cash flow (non-GAAP) | Not provided for quarter | — | $260.6 million | +$24.7 million |
Quarterly cost of services was $255.1 million, or 46.7% of revenue, versus 46.8% a year earlier. SG&A was $108.8 million, or 19.9% of revenue. The six-month effective tax rate rose to 15.8% from 14.7%.
Quarterly revenue growth was described as organic. For the six months, organic revenue growth was 6.6%, with a 0.1% foreign-exchange benefit. Organic ASV plus Professional Services was $2,209.5 million at quarter-end, up 5.4% year over year. Management cited higher demand for workstations, data solutions, CGS subscriptions and middle-office solutions.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $381.7 million at February 29, down from $425.4 million at August 31, 2023; investments were $68.5 million. Current assets were $823.0 million and current liabilities $459.8 million.
- Long-term debt carried at $1,489.5 million, representing $1.5 billion principal, down from $1,612.7 million carrying value at August 31. The company repaid $125.0 million of term debt in the first half. It reported compliance with its debt covenants.
- Six-month cash uses included $83.3 million in investing activities and $259.2 million in financing activities. Financing included $125.0 million of debt repayments, $112.2 million of share repurchases and $74.1 million of dividends.
- FactSet said operating cash flow, cash balances and available revolving-credit capacity should meet its needs for the next 12 months and the foreseeable future. The filing does not provide a specific earnings or revenue forecast.
Changes, outlook and notable items
- Revenue increased in all three geographies. Americas revenue rose 6.5% in the quarter, EMEA 5.0% and Asia Pacific 5.2%. Americas operating income increased 33.6%, while EMEA and Asia Pacific operating income declined 8.9% and 4.4%, respectively, primarily reflecting cost increases.
- Management reported annual ASV retention above 95%; client-count retention was approximately 90%, down from approximately 92%. Client count increased 3.8% and users increased 10.7% year over year.
- Quarterly results included $10.7 million of restructuring and severance charges. Adjusted diluted EPS, a non-GAAP measure excluding specified items, was $4.22, up 11.1%. These adjustments should not be treated as GAAP results.
- The company resumed share repurchases: 249,000 shares for $112.2 million in the first half; $187.8 million remained authorized at quarter-end. The quarterly dividend was $0.98 per share, up from $0.89 in the prior-year quarter.
- The 2022 interest-rate swap matured February 28. On March 1, 2024, FactSet entered a new $200 million swap fixed at 5.145%, scheduled to decline by $50 million quarterly and mature February 28, 2025.
- Key exposures include foreign exchange and floating-rate debt. At February 29, $500 million of variable-rate debt was unhedged; the filing estimates that a 25-basis-point SOFR change would alter annual interest expense by about $1 million. FactSet also identified reliance on one supplier for the majority of cloud computing support and two data suppliers each exceeding 10% of data costs.
Risks and contingencies
- FactSet is contesting Massachusetts sales-tax assessments covering periods from 2006 through June 2021 and received a notice selecting July 2021 through December 2023 for audit. It believes it will prevail, but says an adverse outcome could materially affect financial position, results and cash flows. An accrual was recorded and described as not material.
- Management said other unresolved legal matters and tax examinations were not expected to have a material adverse effect. Purchase obligations were $362.2 million at August 31, 2023, with no material change reported for the first half.
- Foreign-exchange sensitivity analysis estimated that a hypothetical 10% U.S. dollar devaluation would increase the fair value of outstanding forward contracts by about $18 million and reduce operating income, excluding those contracts, by an estimated $22 million. The company cautioned that the analysis has limitations.
Investor verification priorities
- Track organic ASV and revenue growth, retention, and demand across products and geographies, especially whether Americas growth offsets weaker segment operating-income trends elsewhere.
- Assess margin quality, including restructuring charges, higher amortization, bad-debt expense, compensation costs and non-GAAP adjustments.
- Monitor debt repayment, variable-rate exposure after the new swap, cash generation, and continued repurchases and dividends.
- Follow the Massachusetts sales-tax appeal and audit, as well as cloud-provider concentration and data-supplier dependencies.