OREANDA-NEWS. FactSet Research Systems Inc. (NYSE:FDS) (NASDAQ:FDS), a leading provider of integrated financial information and analytical applications, today announced its results for the fourth quarter of fiscal 2016.

For the quarter ended August 31, 2016, revenues grew to $287.3 million. Operating income rose to $87.7 million compared to $85.7 million in the prior year period. Net income was $144.3 million versus $62.2 million a year ago. Net income for the fourth quarter of fiscal 2016 included an after-tax gain of $81.7 million related to the sale of the Market Metrics business in July 2016. Diluted earnings per share were $3.55 compared to $1.48 in the same period of fiscal 2015.

Organic revenues exclude acquired revenue from Portware, the effects of foreign currency and revenue related to the Market Metrics business in all periods presented. Adjusted operating income and margin, adjusted net income and adjusted diluted earnings per share exclude both deal-related amortization and non-recurring items. The Company believes that these adjusted financial measures better reflect the underlying economic performance of FactSet. A supplementary schedule reconciling GAAP results to these adjusted financial measures is presented on page 10 of this earnings release.

Organic revenues grew 8.8% during the fourth quarter of fiscal 2016. Adjusted operating income for the quarter, which excludes $3.7 million of deal-related amortization and $4.6 million of non-recurring items related primarily to legal matters, was $96.1 million, up 6.2% over the prior year. Adjusted net income increased 8.5% over the prior year and excludes $2.7 million (after-tax) from deal-related amortization, $3.3 million (after-tax) from non-recurring items and the gain of $81.7 million (after-tax) related to the sale of the Market Metrics business. Adjusted diluted EPS rose 11.9% to $1.69 and excludes the net effect of deal-related amortization, non-recurring items and the gain on sale.

Consolidated Statements of Income

           
(Condensed and Unaudited) Three Months Ended
August 31,		  
(In thousands, except per share data)    2016   2015   Change
Revenues $ 287,291 $ 261,779 9.7 %
Adjusted operating income $ 96,098 $ 90,450 6.2 %
Adjusted net income $ 68,607 $ 63,247 8.5 %
Adjusted diluted earnings per share $ 1.69 $ 1.51 11.9 %
GAAP diluted earnings per share $ 3.55 $ 1.48 NM  
Diluted weighted average shares   40,673   41,995    
             

“We continue to build market share. Our broadening suite of products allows us to partner with our clients to address an increasingly larger percentage of their enterprise workflow,” said Phil Snow, FactSet CEO.

Annual Subscription Value (“ASV”)

ASV was $1.15 billion at August 31, 2016, up 8.8% organically from the prior year. Organic ASV, which excludes the effects of acquisitions, dispositions and foreign currency, increased $29.1 million over the last three months. ASV at any given point in time represents the forward-looking revenues for the next 12 months from all services currently being supplied to clients.

Buy-side and sell-side ASV growth rates for the fourth quarter of fiscal 2016 were 9.0% and 7.6%, respectively. Buy-side clients account for 82.6% of ASV and the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research. Supplementary tables covering organic, buy-side and sell-side ASV growth rates are presented on page 12 of this earnings release.

Financial Highlights – Fourth Quarter of Fiscal 2016

  • ASV from U.S. operations was $754.3 million, increasing 8.3% organically over the prior year. U.S. revenues were $190.4 million. Excluding acquired revenue from Portware and revenue related to the Market Metrics business, the U.S. growth rate was 7.4%.   
  • ASV from international operations grew 10.7% organically to $395.5 million and now represents 34.4% of total ASV, up from 32.4% a year ago. International revenues rose to $96.9 million. Excluding the impact of foreign currency, acquired revenue from Portware and revenue related to the Market Metrics business, the international revenue growth rate was 11.7%.
  • Adjusted operating margin was 33.4%, compared to 34.6% in the year ago fourth quarter. Portware’s operations reduced FactSet’s just completed fourth quarter operating margin by 110 basis points and was break-even to GAAP EPS. Excluding deal-related amortization, the Portware acquisition was $0.04 accretive to adjusted EPS in the fourth quarter of fiscal 2016.
  • The Company’s effective tax rate for the fourth quarter was 27.8%, as compared to 27.7% a year ago. Excluding income tax benefits from both periods, the current year annual effective tax rate was 28.3% compared to 30.3% in the prior year period.
  • Quarterly free cash flow was $57.0 million.

Operational Highlights – Fourth Quarter of Fiscal 2016

  • Client count rose by 17 and totaled 3,092 at August 31, 2016. This is net of a reduction of 41 clients due to the sale of the Market Metrics business.
  • User count grew 2,120 to 65,655.
  • Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention was 94%, consistent with the prior year fourth quarter.
  • Employee count was 8,375 at August 31, 2016, up 1,015 people in the past 12 months. Excluding the acquired Portware workforce and employees of the sold Market Metrics business, headcount increased 13.4% from a year ago. 
  • Capital expenditures were $13.1 million.
  • A regular quarterly dividend of $20.0 million, or $0.50 per share, was paid on September 20, 2016, to common stockholders of record as of August 31, 2016.
  • On July 1, 2016 FactSet entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase $120.0 million of common stock. The Company received 595,607 shares of its common stock on that date, which was approximately 80% of the total number of shares of common stock expected to be repurchased under the ASR Agreement. The final settlement of the ASR Agreement is scheduled to occur in the first quarter of fiscal 2017. 
  • FactSet repurchased 258,000 shares for $42.8 million during the quarter under the Company’s existing share repurchase program. As of August 31, 2016, $197.0 million remained authorized for further repurchases. Over the last 12 months, $431.0 million has been returned to stockholders in the form of share repurchases and dividends, funded by cash generated from operations and the sale of the Market Metrics business.
  • Common shares outstanding were 40.0 million at August 31, 2016.
  • In July 2016, the Company announced it was strengthening its alliance with QUICK Corp. by bringing together FactSet’s in-depth insight and multi-asset class data and analytics with Japan-specific content such as Nikkei’s Flash News, Nikkei NEEDS Fundamentals and QUICK market information.
  • FactSet was named the “Best Data Analytics Provider” of market data, research and analytics in the 2016 annual rankings announced by Waters Technology, a division of Incisive Media. FactSet was also honored with the “Best Research and Analytics Tool” award at the annual Systems in the City Awards presented in London by Goodacre UK, a leading securities industry consultancy.

Full Year Fiscal 2016 Highlights

  • ASV rose to $1.15 billion, up 8.8% organically.
  • Revenues were $1.13 billion, an organic increase of 9.9%. 
  • Diluted EPS, excluding the gain from the sale of the Market Metrics business, rose to $6.18.
  • Free cash flow totaled $283.4 million, up $2.6 million from last year.
  • Client count was up 116, while users grew by 3,450.
  • FactSet returned $431.0 million to stockholders in the form of share repurchases and dividends, an increase of 33.5% over the prior year.
  • The Company completed the strategic acquisition of Portware in October 2015.
  • FactSet sold its Market Metrics business in July 2016 and recognized an after-tax gain of $81.7 million. 
  • FactSet was ranked #89 on Fortune’s “100 Best Companies to Work For,” marking the Company’s eighth appearance on the list in the last nine years.
  • FactSet was recognized as one of the UK’s “Best Workplaces” by the Great Place to Work® Institute UK for the eighth consecutive year.
  • In May 2016, FactSet was awarded “Best Overall Provider,” "Best Research Provider" and "Best Analytics Provider" by Inside Market Data.

Business Outlook

The following forward-looking statements reflect FactSet’s expectations as of today’s date. Given the risk factors, uncertainties and assumptions discussed below, actual results may differ materially. FactSet does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publicly available statements.

First Quarter Fiscal 2017 Expectations:

  • Revenues are expected to range between $286 million and $292 million.
  • GAAP operating margin is expected to range between 31.0% and 32.0%. Adjusted operating margin is expected to range between 32.5% and 33.5%.
  • The annual effective tax rate is expected to range between 28.0% and 29.0%.
  • GAAP diluted EPS is expected to range between $1.62 and $1.66. Adjusted EPS is expected to range between $1.68 and $1.72. The midpoint of the adjusted EPS range represents 14.5% growth over the prior year. 

About Adjusted Financial Measures

Financial measures in accordance with U.S. generally accepted accounting principles (“GAAP”) including operating income and margin, net income and diluted earnings per share have been adjusted. Adjusted operating income during the just completed fourth quarter excludes $3.7 million of deal-related amortization and $4.6 million of non-recurring items related primarily to legal matters. Adjusted net income excludes the after-tax charges of $2.7 million from deal-related amortization and $3.3 million from non-recurring items and the after-tax gain of $81.7 million related to the sale of the Market Metrics business. Adjusted diluted EPS of $1.69 excludes the net effect of deal-related amortization, non-recurring items and the gain on sale.

FactSet uses these adjusted financial measures, both in presenting its results to stockholders and the investment community, and in its internal evaluation and management of the business. The Company believes that these adjusted financial measures and the information they provide are useful to investors because they permit investors to view the Company’s performance using the same tools that management uses to gauge progress in achieving its goals. Investors may benefit from referring to these adjusted financial measures in assessing the Company’s performance and when planning, forecasting and analyzing future periods and may also facilitate comparisons to its historical performance. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

About Non-GAAP Free Cash Flow

The GAAP financial measure, cash flows provided by operating activities, has been adjusted to report non-GAAP free cash flow that includes the cash cost for taxes and changes in working capital, less capital expenditures. Included in the recently completed fourth quarter was $70.1 million of net cash provided by operations and $13.1 million of capital expenditures. The presentation of free cash flow is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. FactSet uses this financial measure, both in presenting its results to stockholders and the investment community, and in the Company’s internal evaluation and management of the business. Management believes that this financial measure is useful to investors because it permits investors to view the Company’s performance using the same metric that management uses to gauge progress in achieving its goals and is an indication of cash flow that may be available to fund further investments in future growth initiatives.

About FactSet

FactSet delivers the world's best insight and information to investment professionals through superior analytics, service, content, and technology. More than 63,000 users make smarter investment decisions with FactSet's desktop analytics, mobile applications, and comprehensive data feeds. FactSet is also an honoree of Fortune's 100 Best Companies to Work For and a Best Workplace Award recipient in the United Kingdom and France. FactSet is listed on the New York Stock Exchange and NASDAQ (NYSE:FDS | NASDAQ:FDS).

         
Consolidated Statements of Income – Unaudited        
  Three Months Ended
August 31,		   Twelve Months Ended
August 31, 
(In thousands, except per share data)   2016       2015       2016       2015  
               
Revenues $ 287,291     $ 261,779     $ 1,127,092     $ 1,006,768  
               
Operating expenses              
Cost of services   124,160       107,595       487,409       405,339  
Selling, general and administrative   75,397       68,531       290,007       269,511  
Total operating expenses   199,557       176,126       777,416       674,850  
               
Operating income   87,734       85,653       349,676       331,918  
               
Other income (expense)                  
Gain on sale of business   112,453       -       112,453       -  
Interest (expense), net of interest income   (371 )     391       (1,136 )     1,836  
Total other income   112,082       391       111,317       1,836  
               
Income before income taxes   199,816       86,044       460,993       333,754  
               
Provision for income taxes   55,510       23,860       122,178       92,703  
Net income $ 144,306     $ 62,184     $ 338,815     $ 241,051  
                                   
Diluted earnings per common share $ 3.55     $ 1.48     $ 8.19     $ 5.71  
               
Diluted weighted average common shares   40,673       41,995       41,365       42,235  
                               
Consolidated Statements of Comprehensive Income – Unaudited  
 

Three Months Ended
August 31,

  

Twelve Months Ended
August 31,
(In thousands)   2016       2015       2016       2015  
               
Net income $ 144,306     $ 62,184     $ 338,815     $ 241,051  
               
Other comprehensive loss, net of tax              
Net unrealized loss on cash flow hedges*       (1,086 )     (579 )     (857 )     (868 )
Foreign currency translation adjustments   (15,777 )     490       (23,644 )     (25,263 )
Other comprehensive loss   (16,863 )     (89 )     (24,501 )     (26,131 )
Comprehensive income $ 127,443     $ 62,095     $ 314,314     $ 214,920  
                                   

*For the three and twelve months ended August 31, 2016, the unrealized loss on cash flow hedges were net of tax benefits of $634 and $498, respectively.  For the three and twelve months ended August 31, 2015, the unrealized loss on cash flow hedges were net of tax benefits of $340 and $512, respectively.

Consolidated Balance Sheets - Unaudited

      
       
    August 31,   August 31,  
(In thousands)       2016     2015  
               
ASSETS              
Cash and cash equivalents   $ 228,407     $ 158,914    
Investments   24,217       23,497    
Accounts receivable, net of reserves   97,797       95,064    
Prepaid taxes     -       4,808    
Deferred taxes     3,158       2,105    
Prepaid expenses and other current assets     15,697       19,786    
  Total current assets     369,276       304,174    
Property, equipment, and leasehold improvements, net   84,622       59,264    
Goodwill       452,915       308,287    
Intangible assets, net       93,161       40,052    
Deferred taxes       13,406       20,599    
Other assets       5,781       4,295    
  Total Assets     $ 1,019,161     $ 736,671    
               
LIABILITIES        
Accounts payable and accrued expenses $ 45,836     $ 33,880    
Accrued compensation     51,036       44,916    
Deferred fees     33,247       38,488    
Taxes payable     7,781       3,755    
Deferred taxes     291       562    
Dividends payable     20,019       18,179    
  Total current liabilities     158,210       139,780    
Deferred taxes       1,708       1,697    
Taxes payable       8,782       6,776    
Long-term debt   300,000       35,000    
Deferred rent and other non-current liabilities   33,080       21,834    
  Total Liabilities   $ 501,780     $ 205,087    
               
STOCKHOLDERS’ EQUITY          
  Common stock   $ 512     $ 503    
  Additional paid-in capital   623,195       542,355    
  Treasury stock, at cost     (1,321,700 )     (988,873 )  
  Retained earnings     1,283,927       1,021,651    
  Accumulated other comprehensive loss       (68,553 )     (44,052 )  
  Total Stockholders’ Equity     517,381       531,584    
  Total Liabilities And Stockholders’ Equity $ 1,019,161     $ 736,671    
   
Consolidated Statements of Cash Flows – Unaudited  
(In thousands) Twelve Months Ended
August 31,
        2016       2015  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net income   $ 338,815     $ 241,051  
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization   38,052       31,349  
Stock-based compensation expense   29,793       26,371  
Gain on sale of business   (112,453 )     -  
Deferred income taxes   4,528       (969 )
Loss (gain) on sale of assets   8       (34 )
Tax benefits from share-based payment arrangements   (18,205 )     (28,948 )
Changes in assets and liabilities, net of effects of acquisitions      
Accounts receivable, net of reserves       (3,541 )     (4,300 )
Accounts payable and accrued expenses       5,525       8,123  
Accrued compensation   3,961       3,516  
Deferred fees   700       53  
Taxes payable, net of prepaid taxes   30,270       30,437  
Prepaid expenses and other assets   7       (4,523 )
Deferred rent and other non-current liabilities   13,674       4,322  
Other working capital accounts, net   6       (6 )
Net cash provided by operating activities     331,140       306,442  
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Acquisition of businesses, net of cash acquired   (262,909 )     (34,758 )
Proceeds from sale of business, net   153,137       -  
Purchases of investments   (18,137 )     (24,264 )
Proceeds from sales of investments   17,241       19,827  
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions       (47,740 )     (25,682 )
Net cash used in investing activities   (158,408 )     (64,877 )
       
CASH FLOWS FROM FINANCING ACTIVITIES      
Dividend payments   (74,218 )     (66,551 )
Repurchase of common stock   (356,828 )     (256,217 )
Proceeds from debt     265,000       35,000  
Debt issuance costs     (12 )     (32 )
Proceeds from employee stock plans     56,851       71,526  
Tax benefits from share-based payment arrangements     18,205       28,948  
Net cash used in financing activities     (91,002 )     (187,326 )
         
Effect of exchange rate changes on cash and cash equivalents   (12,237 )     (11,703 )
         
Net increase in cash and cash equivalents     69,493       42,536  
         
Cash and cash equivalents at beginning of period     158,914       116,378  
Cash and cash equivalents at end of period   $ 228,407     $ 158,914  
 

Reconciliation of GAAP Results to Adjusted Financial Measures

Financial measures in accordance with U.S. GAAP including operating income and margin, net income and diluted earnings per share have been adjusted below. FactSet uses these adjusted financial measures, both in presenting its results to stockholders and the investment community, and in its internal evaluation and management of the business. The Company believes that these adjusted financial measures and the information they provide are useful to investors because they permit investors to view the Company’s performance using the same tools that management uses to gauge progress in achieving its goals. Adjusted measures may also facilitate comparisons to FactSet’s historical performance.

     
(Unaudited)   Three Months Ended 
August 31,		    
(In thousands, except per share data)   2016      2015   Change
GAAP Operating income $ 87,734   $ 85,653      
Deal-related amortization (a)   3,732     1,787      
Non-recurring items (b)   4,632     3,010      
         
Adjusted operating income $ 96,098   $ 90,450   6.2 %
Adjusted operating margin   33.4 %   34.6 %    
         
GAAP Net income $ 144,306   $ 62,184      
Deal-related amortization (a)(d)   2,675     1,246      
Non-recurring items (b)(d)   3,320     2,097      
Gain on sale of business (c)   (81,694 )   -      
Income tax benefits (e)   -     (2,280 )    
                   
Adjusted net income $ 68,607   $ 63,247   8.5 %
         
Adjusted Diluted earnings per common share (f)       $ 1.69   $ 1.51   11.9 %
Weighted average common shares (Diluted)   40,673     41,995      

(a) GAAP operating income in the fourth quarter of fiscal 2016 was adjusted to exclude $3.7 million of pre-tax deal-related amortization, which reduced diluted earnings per share by $0.07. GAAP operating income in the fourth quarter of fiscal 2015 was adjusted to exclude $1.8 million of pre-tax deal-related amortization, which reduced diluted earnings per share by $0.03.

(b) GAAP operating income in the fourth quarter of fiscal 2016 was adjusted to exclude $4.6 million of pre-tax non-recurring items related primarily to legal matters, which reduced net income by $3.3 million and diluted earnings per share by $0.08. GAAP operating income in the fourth quarter of fiscal 2015 was adjusted to exclude $3.0 million of pre-tax non-recurring items related primarily to the vesting of performance-based equity instruments. The vesting of performance-based equity instruments increased stock-based compensation, net of tax, by $2.1 million, and reduced diluted earnings per share by $0.05. 

(c) GAAP net income in the fourth quarter of fiscal 2016 was adjusted to exclude an after-tax gain of $81.7 million related to the sale of the Market Metrics business in July 2016, net of tax of $30.8 million. The gain on sale was taxed at an effective tax rate of 27.4% and increased diluted earnings per share by $2.01. 

(d) For the purposes of calculating adjusted net income and adjusted diluted earnings per share, deal-related amortization and non-recurring items were taxed at the effective tax rates of 28.3% for fiscal 2016 and 30.3% for fiscal 2015. 

(e) GAAP net income in the year ago fourth quarter was adjusted to exclude $2.3 million of income tax benefits related to finalizing prior year tax returns and other discrete items and GAAP diluted EPS was adjusted to exclude $0.05 from these same income tax benefits. 

(f) The sum of the non-GAAP diluted earnings per share may not equal the totals above due to rounding.

Supplementary Schedule of Historical Adjusted Financial Measures

The following table presents adjusted operating income and margin, adjusted net income and adjusted diluted earnings per share, and may be useful to facilitate historical comparisons.

(Unaudited)

(In thousands, except per share data)

 Q4’16 Q3’16 Q2’16 Q1’16 Q4’15 Q3’15 Q2‘15 Q1‘15
GAAP Operating income $ 87,734   $ 89,290   $ 85,344   $ 87,308   $ 85,653   $ 85,356   $ 80,648   $ 80,260  
Deal-related amortization   3,732     4,085     4,078     2,922     1,787     2,284     2,048     2,101  
Non-recurring items   4,632     1,394     3,838     690     3,010     -     3,154   -  
Adjusted operating income $ 96,098   $ 94,769   $ 93,260   $ 90,920   $ 90,450   $ 87,640   $ 85,850   $ 82,361  
Adjusted operating margin   33.4 %   33.0 %   33.1 %   33.6 %   34.6 %   34.4 %   34.6 %   33.9 %
                 
GAAP Net income $ 144,306   $ 66,781   $ 67,763   $ 59,965   $ 62,184   $ 61,409   $ 61,598   $ 55,860  
Deal-related amortization   2,675     2,925     2,903     2,004     1,246     1,597     1,425     1,454  
Non-recurring items   (78,374 )   (2,161 )   (4,585 )    474     (183 )   (1,408 )   (2,883 ) -  
Adjusted net income $ 68,607   $ 67,545   $ 66,081   $ 62,443   $ 63,247   $ 61,598   $ 60,140   $ 57,314  
                 
Adjusted Diluted earnings per common share     $ 1.69   $ 1.64   $ 1.59   $ 1.48   $ 1.51   $ 1.46   $ 1.42   $ 1.35  
Weighted average common shares (Diluted)   40,673     41,189     41,536     42,063     41,995     42,297     42,306     42,340  


Supplementary Schedules of Historical ASV by Client Type

The following table presents the percentages and growth rates of organic ASV by client type, excluding currency, and may be useful to facilitate historical comparisons. Organic ASV excludes acquisitions and dispositions completed within the last 12 months and the effects of foreign currency. 

  Q4’16 Q3’16 Q2’16 Q1’16 Q4’15
% of ASV from buy-side clients   82.6 %   83.0 %   82.8 %   82.4 %   82.6 %
% of ASV from sell-side clients   17.4 %   17.0 %   17.2 %   17.6 %   17.4 %
           
ASV Growth rate from buy-side clients       9.0 %   10.3 %   9.9 %   9.5 %   9.4 %
ASV Growth rate from sell-side clients   7.6 %   8.1 %   10.0 %   10.3 %   9.4 %
Total Organic ASV Growth Rate   8.8 %   9.9 %   9.9 %   9.7 %   9.4 %

The following table presents the calculation of the above-mentioned ASV growth rates from all clients.

(In millions) Q4’16 Q3’16 Q2’16 Q1’16 Q4’15  
As reported ASV $ 1,149.9   $ 1,156.3   $ 1,139.2   $ 1,108.7   $ 1,057.8    
Less acquired ASV (a)   (39.3 )   (39.3 )   (39.7 )   (49.0 ) -    
Less Market Metrics ASV -     (36.8 )   (38.2 )   (38.7 )   (39.0 )  
Less Currency impact (b)   (2.2 )     (0.6 )    0.8       1.8        0.1    
Organic ASV total $ 1,108.4   $ 1,079.6   $ 1,062.1   $ 1,022.8   $ 1,018.9    
Total Organic ASV Growth Rate       8.8 %   9.9 %   9.9 %   9.7 %   9.4 %  
(a) Acquired ASV from acquisitions completed within the last 12 months. 
 
(b) The impact from foreign currency movements over the past 12 months was excluded above to calculate total organic ASV.