MSCI MSCI Inc

FactSet Research (FDS) reported decent first quarter 2012 earnings per share (EPS) of $1.01, just ahead of the Zacks Consensus Estimate by a penny.

Revenue

FactSet reported total revenue of $196.4 million in the first quarter of 2012, up 12.9% from $173.3 million delivered in the year-ago quarter. The company experienced strong growth in ASV (Annual Subscription Value) from the company’s portfolio analytics suite of products.

The company also experienced an improvement in the number of PA Workstations and the company’s portfolio publishing product line. U.S. revenues expanded 15.0% year over year to $132.0 million. Non-U.S revenues rose 12% year over year to $60.0 million.

Annual Subscription Value

ASV increased 12.5% year-over-year to $782.0 million in the first quarter. While the company’s U.S operation contributed 68.0% of the total ASV, international operation of the company generated the remaining 32%.

The company’s user count declined to 46,900 at the end of the first quarter, from 48,100 in the prior quarter. This was mainly due to lower subscriptions toward the sell-side firms. However, with 34 new clients being added in the first quarter, the client count increased to a total of 2,271.

Operating Results

FactSet’s operating margin was 33.9% in the quarter, versus 34.3% in the year-ago quarter. The drop in operating margin was due to the fact that operating expenses grew at a higher rate than revenues. The increase in operating expense may be attributable to higher cost of service and SG&A expenses, which was primarily a result of incremental headcount.

Net income during the quarter came in at $45.5 million, up 9.5% from $41.6 million reported in the year-ago period. On a fully-diluted basis, quarterly EPS was 99 cents, up from 88 cents reported in the year-ago quarter. Adjusted net income, (excluding amortization of intangible assets from acquisitions, but including stock based compensation) of $1.01 per share was higher than 91 cents per share reported in the year-ago quarter.

Balance Sheet & Cash Flow

FactSet exited the quarter with $193.7 million in cash and cash equivalents, compared with $202.3 million in the previous quarter. The company has no long-term debt.

During the first quarter, capital expenditures were $6.0 million, and $15.0 million was spent on share repurchases. At quarter end, a total of $128 million remains authorized for future share repurchases.

Guidance

The company expects second quarter fiscal 2012 revenues in the range of $197.0 million to $200.0 million, which represents a year over year growth of 11.0% to 13.0%, at each end of the range. This apart, operating margin is expected to range between 33.7% and 34.2%. The company expects GAAP diluted EPS between 99 cents and $1.01, whereas, the Non-GAAP diluted EPS should range between $1.10 and $1.12.

Our Take

FactSet reported decent first quarter result, with revenue increasing on a year-over-year basis and earnings exceeding the Zacks Consensus Estimates. The company is witnessing incremental demand for its products in overseas and developing markets, which helped raise the client count.

This apart, FactSet has a healthy cash balance. On the other hand, the recent economic turmoil in the US and other European markets could have a negative effect on the financial services companies, thereby restricting spending on investment tools. Moreover, FactSet faces competition from MSCI Inc. (MSCI), which might rationalize the growth prospects of the company in the coming quarters.

FactSet holds a Zacks #3 Rank, implying a short-term Hold rating.

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