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FactSet Research Systems Inc. (FDS) reported fourth quarter 2012 earnings per share (EPS) of $1.11, ahead of the Zacks Consensus Estimate of $1.07.

Revenue

FactSet reported total revenue of $207.7 million in the fourth quarter of 2012, up 8.2% from $191.9 million in the year-ago quarter. This includes $1.8 million contribution from the StreetAccount acquisition made in June 2012.

Excluding StreetAccount, FactSet’s total user count increased by 1,100 users. At the quarter end, total user account was 49,500, which is a result of increase in the investment banking client base.

The company generated U.S. revenues of $141 million, up 7% compared with the year-ago quarter, whereas the Non-U.S. revenues increased 10% year on year to $66 million. European and the Asian revenue for the fourth quarter jumped 9% and 14% year on year to $51 million and $15 million, respectively.

Annual Subscription Value

The Annual Subscription Value (ASV) for the company improved by $20.4 million organically, which is inclusive of the StreetAccount acquisition amount of $11.4 million. Moreover, ASV for the company increased $31.9 million over the last three months. Total ASV for the company stood at $843 million as on August 31, 2012, moving up 7% compared with the prior-year period. Buy-side clients contributed 81% of the total ASV.

Operating Results

FactSet’s revenue growth exceeded the growth rate of operating expenses. This led to a 330 basis points expansion in operating margin. Operating margin was 34.0% in the quarter versus 30.7% in the year-ago quarter. Moreover, cost of services as a percentage of revenues improved by 70 basis points compared with last year. The increase was attributable to the higher expenses that were incurred for hiring software engineering and consulting professionals coupled with the increase in headcount in content operations and StreetAccount employees.

Net income during the quarter came in at $48.5 million, up 18.7% from $40.88 million in the year-ago period. On a fully-diluted basis, quarterly EPS was $1.08 versus 88 cents in the year-ago quarter. Adjusted net income (excluding amortization of intangible assets from acquisitions, but including stock based compensation) of $1.11 per share was ahead of the year-ago level of 91 cents per share.

Balance Sheet, Cash Flow

FactSet exited the quarter with $189.0 million in cash and cash equivalents, compared with $228.5 million in the previous quarter. The company has no long-term debt. The company generated free cash flow from operations of $51 million, down from $64 million in the same quarter last year.

Guidance

The company expects first quarter fiscal 2013 revenues to be in the range of $210 million to $213 million, operating margin is expected to range between 33.5% and 34.0%. GAAP diluted EPS is expected between $1.10 and $1.12, which tantamount to a year-over-year growth rate of 11% and 13%.

For fiscal 2013, the company expects capital expenditures, net of landlord contributions, to be in the range of $20 million to $28 million.

Our Take

FactSet reported decent fourth quarter 2012 results by beating the Zacks Consensus Estimate on bottom line. The company’s revenue growth was supported by an increase in the number of users, which in turn improved the business volume. The company also witnessed growth across most of its geographic region.

The company continues to launch new applications and new data in its system, which includes its own data or something secured from other sources such as the new bank loan data from Markit, ace provider of independent loan market data and loan portfolio management software. This also includes fixed income in the company’s Portfolio Analytics products.

Although new products and services are offered by the company regularly, but we believe adding new customers is a challenge as the European weakness has resulted in a slowdown of business activity in the region. Moreover, FactSet faces stiff competition from MSCI Inc. (MSCI), which is also coming up with new solutions to increase its market share.

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

 
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