FactSet Research Systems' CEO Discusses F3Q12 Results - Earnings Call Transcript

FactSet Research Systems Inc. (FDS)

Q3 2012 Earnings Call

June 12, 2012 11:00 am ET


Rachel Stern - SVP, General Counsel & Secretary

Phil Hadley - Chairman & CEO

Peter Walsh - EVP & COO

Mike Frankenfield - EVP, Director of Global Sales


Bill Warmington - Raymond James

Shlomo Rosenbaum - Stifel

Suzi Stein - Morgan Stanley

Peter Appert - Piper Jaffray

Peter Heckmann - Avondale Partners

Jennifer Huang - UBS

Fredric Russell - Frederic E. Russell Investment Management Company

Glenn Greene - Oppenheimer



Welcome and thank you for standing by. This is the FactSet third quarter fiscal 2012 earnings call. All participants will be in a listen-only mode. (Operator Instructions). I will now turn meeting over to Rachel Stern, Senior Vice President, Strategic Resources and General Counsel. You may begin.

Rachel Stern

Thank you operator. Good morning and thanks to all of you for participating today. Welcome to FactSet’s third 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 CallStreet 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 expectation 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 publicly any forward-looking statements as a result of new information, future events or otherwise.

I would like to turn the discussion over now to Peter Walsh, Chief Operating Officer.

Peter Walsh

Thank you, Rachel and good morning everyone. Here is how I plan to spend our time today. First, we’ll review third quarter results. Second, I’ll provide guidance for the fourth quarter and lastly we’ll end with Q&A.

Turning to third quarter results. ASV was $811 million at May 31, 2012, up 9% over last year. This quarter’s ASV growth of $8 million was driven by increased sales of our PA suite of products and additional users.

Bottomline, GAAP EPS grew 14% to $1.5. This marks the eighth consecutive quarter of double-digit growth. Looking ahead, our guidance suggest double digit EPS growth will again be achieved in the upcoming fourth quarter.

Our EPS performance was backed up by record levels of free cash flow generation. This quarter’s free cash flow was $70 million, a record number for FactSet and 23% higher than last year’s third quarter free cash flow of $57 million. Higher levels of net income, stronger accounts receivable collections and increased accrued compensation drove free cash flow.

Over the past year, free cash flow grew to $222 million, up 25% compared to the same period of fiscal 2011. Over the past 12 months, free cash flow was 22% higher than net income, which we believe illustrates the high quality of our earnings.

Over the last 12 months, accounts receivable decreased by $1 million even as ASV increased by $70 million over the same period. At the end of the third quarter, our DSOs were 30 days compared to 32 days last quarter and 33 days a year-ago.

Our cash and investment balance was $242 million as of May 31st, up $42 million from February 29th. CapEx was $6 million and we spent $27 million on share repurchases. On May 8th, our Board of Directors approved $200 million expansion to our existing share repurchase program. At the end of the third quarter, we had $256 million authorized for future share repurchases.

In the third quarter, we paid $12 million in dividends to shareholders. Also during the quarter, our Board of Directors approved a 15% increase in our regular quarterly dividend from $0.27 to $0.31 per share. This is the seventh consecutive year that our annual dividend has been increased by more than 10% translating into a five-year annual dividend growth rate of 21%. With our dividends and our share repurchases, in the aggregate, we have returned $219 million to shareholders over the past 12 months.

Now let's turn to the P&L. FactSet’s revenue this quarter were $202 million, an increase of 10% over the prior year. Operating income for the third quarter rose to $69 million, up from $62 million in Q3 of 2011.

Net income advanced to $48 million compared to $43 million in the year ago quarter. Non-GAAP net income rose to $53 million, a 9% increase compared to the year ago period. Non-GAAP EPS rose 13% to $1.15 compared to a $1.02 a year ago.

Looking at ASV by location, our US operations picked up to $549 million in ASV or a $262 million ASV is from our international operations representing 32% of the total. During the third quarter, US revenues rose $138 million, an increase of 10% over the third quarter of fiscal 2011. Non-US revenues rose 11% to $64 million compared to last year.

Revenues generated from an European and Asia Pacific reasons during the third quarter were $50 million and $15 million respectively and the growth rates in each of those regions were 10% and 15% respectively year-over-year.

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