FactSet Research Systems' CEO Discusses F2Q12 Earnings Results - Earnings Call Transcript

FactSet Research Systems, Inc. ( FDS)

F2Q12 Earnings Call

March 13, 2011 11:00 am ET

Executives

Rachel Stern – Senior Vice President Strategic Resources & General Counsel

Philip A. Hadley – Chairman of the Board & Chief Executive Officer

Peter G. Walsh – Chief Operating Officer & Executive Vice President

Michael D. Frankenfield – Executive Vice President & Director Global Sales

Analyst

Peter Heckmann – Avondale Partners, LLC.

Jennifer Wang – UBS

David Lewis – JP Morgan

Shlomo Rosenbaum – Stifel Nicolaus & Company, Inc.

Analyst for Peter Appert – Piper Jaffray

Glenn Greene – Oppenheimer & Co.

Robert Riggs – William Blair & Company, LLC.

Bill Warmington – Raymond James & Associates

John Neff – [Inaudible] Capital Management

Jason Rodnick – Raub Brock Capital Management

Presentation

Operator

At this time all participants are in a listen only mode. (Operator Instructions) Now, I’ll turn the meeting over to Ms. Rachel Stern, Senior Vice President Strategic Resources & General Counsel.

Rachel Stern

Welcome to FactSet’s second quarter 2012 earnings conference call. Joining me today are: Phil Hadley, Chairman and CEO; Peter Walsh, Chief Operating Officer; and Mike Frankenfield, Global Director of Sales. This conference call is being transcribed in real time by FactSet call street service and is being broadcast live via the Internet at www.FactSet.com. A replay of this call will also be available on our website.

Our call will contain forward-looking statements reflecting managements’ current expectations based on currently available information. Actual results may differ materially. More information about factors that could affect FactSet’s business and financial results can be found in FactSet’s filings with the SEC.

In an effort to provide additional information, our comments include non-GAAP financial measures. The non-GAAP measures we will discuss today have been reconciled to the related GAAP measures in our earnings press release and our SEC filings. Annual subscription value or ASV is a key metric for FactSet. Please recall that ASV is a snapshot view of client subscriptions and represents our forward-looking revenues for the next 12 months.

Lastly, FactSet undertakes no obligation to update publically any forward-looking statements as a result of new information, future events, or otherwise. I’d like to turn the discussion over now to Peter Walsh, Chief Operating Officer.

Peter G. Walsh

Here’s how I plan to spend our time today. First, I’ll highlight a matter involving taxes. Second, we’ll review our second quarter results. Third, I’ll provide guidance for the third quarter. Finally, we’ll end with Q&A. In prior quarters we had discussed the impact of the US Federal R&D tax credit which expired on December 31, 2011.

We expect it will be reenacted as it has been for the past 30 years. However, we’re not permitted to factor it into our effective tax rate unless it’s part of the currently enacted tax law. The expiration of the R&D credit increased our annual effective tax rate by 1.3% and reduced second quarter GAAP and non-GAAP EPS by $0.02 per share.

Now, let’s review our second quarter results. ASV was 803,000,000 at February 29, 2012 up 11% over last year. This quarter ASV rose 21.7 million. ASV growth was driven by expanding our market share and [buy side clients. We added 53 new clients on a net basis, our highest number since 2006. Users declined among sell side clients but overall the user count still increased by 400 on a net new basis due to penetration on the buy side.

Q2 EPS was $1.02 exceeding street consensus estimate and our guidance range. Non-GAAP diluted EPS grew 16% to $1.14 in the quarter. Free cash flow which is defined as cash generated from operations less capital spending was $39 million during the second quarter. High levels of net income and lower capital expenditures were offset by higher income tax payments and lower accrued compensation. Over the last 12 months free cash flow grew to $209 million up 12% and was 18% higher than net income which illustrates the high quality of our earnings.

Accounts receivable increased by $1 million over the last 12 months while ASV increased by 80 million. Our DSOs were 32 days at quarter end compared to 36 days a year ago. As of February 29 th our cash and investment balance was $200 million down $7 million from November 30, 2011. Capital expenditures were $5 million and $45 million was spent on share repurchases during the second quarter.

As of quarter end, $83 million still remained authorized for future share repurchases. During the second quarter we paid a regular quarterly dividend of $0.27 per share for a total of $12 million. If you aggregate our dividends with share repurchases, we have returned $248 million to shareholders over the past 12 months.

Let’s now turn to the P&L. FactSet’s revenue increased this quarter to $199 million, a rise of 12.2% compared to last year. Our operating income for the second quarter increased to $67 million up 16% from $58 million in Q2 2011. Net income rose to $47 million compared to $45 million in the same quarter last year. Non-GAAP net income increased to $52 million, rising 12.3% compared to the year ago period. Non-GAAP EPS rose 16.3% to $1.14.

In terms of geography, our US operations generated $548 million in ASV. International operations accounted for $255 million in ASV or 32% of the total. US revenues rose in Q2 to $136 million, an increase of 12.2% over the same period a year ago. Non-US revenues also grew 12.2% to $63 million compared to last year’s Q2. Europe and the Asia Pacific revenues for the second quarter were $49 million and $14 million respectively and the growth rates for each of those regions was 11.3% and 15.7% respectively year-over-year.

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