Zacks_Analysts' Blog : FDS Revenue Ups, EPS Lags Estimate - Analyst Blog

FactSet Research (FDS) reported second quarter 2011 EPS of 85 cents, below the Zacks Consensus Estimate of 87 cents.

Revenue

The company reported revenue of $177.6 million in the second quarter of 2011, up 13.0% from $157.3 million reported in the year-ago quarter.  FactSet witnessed some benefits from the increase in demand in its served markets, and also witnessed improvement in the annual subscription value and client count.

Revenues from the U.S. were $121.5 million, up 14.0% compared to the year-ago quarter. Non-U.S. revenues also increased 11.0% to $56.1 million.

Annual Subscription Value

Annual Subscription Value (ASV) increased $27.9 million organically to $723.0 million in the second quarter. Of this, 82.0% was from buy-side clients and the remainder from sell-side firms performing M&A advisory work and equity research. ASV from FactSet's U.S. operations was $496.0 million, while ASV from international operations amounted to $227.0 million.

The company exited the quarter with 44,800 users, an increase of 1200 users during the quarter. Client count was 2,161 at quarter end, a net increase of 38. The annual client retention rate was greater than 95.0% of ASV or 90.0% of the total client base.

Operating Results

FactSet’s operating margin was 32.7% in the quarter, down 193 basis points year over year. The reduction in the 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 $45.2 million, an increase of 25.2% from $36.1 million reported in the year-ago period. On a fully diluted basis, the quarterly EPS of 85 cents was an increase from 75 cents in the year-ago quarter.

Balance Sheet & Cash Flow

FactSet exited the quarter with $203.1 million in cash and short-term investments, compared to $202.3 million in the previous quarter. The company has no long-term debt. During the quarter, the company repurchased 506,706 shares for $49.0 million. Moreover, $84.0 million remains authorized for future repurchases.

Guidance

For the third quarter of fiscal 2011, FactSet expects revenue in the range of $181 million to $184 million. Diluted EPS for the third quarter is expected to be in the 90 to 92 cent range.

For full fiscal year 2011, capital expenditures, net of landlord contributions, is expected to be $22 million to $28 million.

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

Additionally, with the gradual recovery in the financial markets, spending on investment tools is also showing an 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.