MSCI MSCI Inc

FactSet Research (FDS) reported third quarter 2011 earnings per share (EPS) of 92 cents, in line with the Zacks Consensus Estimate.

Revenue

The company reported total revenue of $183.6 million in the third quarter of 2011, up 15.0% from $160.3 million reported in the year-ago quarter.  FactSet benefited from the surge in demand in its server markets and also witnessed improvement in the annual subscription value and client count.

Revenues from the U.S. were $126.0 million, up 16.0% compared with the year-ago quarter. Non-U.S. revenues also increased 12.0% to $58.0 million.

Annual Subscription Value

Annual Subscription Value (ASV) increased $17.0 million organically to $741.0 million in the third quarter. Of this, 82.0% was from buy-side clients and the remainder from sell-side firms performing Mergers & Acquisitions advisory work and equity research. ASV from FactSet's U.S. operations was $507.0 million, while ASV from international operations amounted to $234.0 million.

The company exited the quarter with 45,600 users, an increase of 800 users from the previous quarter. Client count was 2,187 at quarter end, a net increase of 26. The annual client retention rate was greater than 95.0% of ASV or 92.0% of the total client base.

Operating Results

FactSet’s operating margin was 33.7% in the quarter, down 100 basis points year over year. The reduction in operating margin was due to the fact that operating expenses increased at a higher rate than revenue. The increase in operating expense may be attributed to the increase in cost of service and SG&A expenses.

Net income for the quarter came in at $43.3 million, an increase of 12.0% from $38.6 million reported in the year-ago period. On a fully-diluted basis, quarterly EPS was 92 cents, up from 81 cents reported in the year-ago quarter.

 Balance Sheet & Cash Flow

FactSet exited the quarter with $208.7 million in cash and short-term investments, compared with $203.1 million in the previous quarter. The company has no long-term debt.

During the quarter, the company repurchased 552,864 shares for $58.0 million. The company has $226.0 million remaining under its existing share repurchase program  Capital expenditures were $7.4 million, with approximately $5.0 million for computer equipment and the remainder for office expansion.

Guidance

For the fourth quarter of fiscal 2011, FactSet expects revenues in the range of $187.0 million to $191.0 million. Diluted EPS for the fourth quarter is expected in the 93 to 95 cent range.

For fiscal year 2011, capital expenditures, net of landlord contributions, is expected in the range of $24 million to $30 million.

The company is witnessing some benefits from growing demand  overseas, which also helped raise the client count. This apart, FactSet has a healthy cash balance.

Additionally, with the gradual recovery in the financial market, spending on investment tools is also showing signs of improvement. On the other hand, FactSet faces competition from MSCI Inc. (MSCI) that might rationalize the growth prospects of the company in the coming quarters.

We have a short-term Buy rating (Zacks Rank #2) on FactSet shares.

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