Long bull markets are great for Wall Street, and they've contributed substantially to the growth that financial information provider FactSet Research Systems (NYSE: FDS) has seen in recent years. Yet over the past year, market volatility and weak conditions in certain areas have led some to fear a possible end to the bull market.
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Coming into Tuesday's fiscal first-quarter financial report, FactSet shareholders had hoped that the recent upsurge in the U.S. stock market might create a positive environment for the company going forward, and FactSet's results largely supported that assessment. Let's look more closely at the latest from FactSet Research Systems to see what its prospects look like for the future.
Image source: FactSet Research Systems.
FactSet delivers the goods
FactSet's fiscal first-quarter results largely gave investors what they wanted to see from the company. Sales climbed 6.5% to $288.1 million, which was just a bit short of the 7% growth that most of those following the stock had hoped to see. On the bottom line, adjusted net income of $70.1 million was up a stronger 12%, and that produced adjusted earnings of $1.75 per share. That was $0.05 per share higher than the consensus forecast among investors.
Taking a closer look at some of FactSet's fundamental performance, the company's resiliency in the face of less-than-perfect conditions remained impressive. Annual subscription value was up 8% on an organic basis to $1.17 billion, with modest gains of about $8 million over the past three months. Growth rates were slightly higher for buy-side clients than sell-side clients, with a difference of about 2 percentage points between the two. Geographically, annual subscription value grew more quickly from FactSet's international operations, seeing a better than 9% growth rate. Domestic growth in ASV was just over 7%, and the company has about a two-thirds/one-third split in both annual subscription value and revenue from domestic and international sources, respectively.
Operationally, FactSet's success remained stable. When measured in terms of subscription value, retention rates remained at 95%, with a 93% retention rate when measured in terms of the number of clients kept. Client counts eased higher by 24 to 3,116, with new acquisitions providing most of the increase over the past three months. User counts approached the 67,000 level, and employee counts continued to rise, surpassing 8,700 at the end of the quarter.
CEO Phil Snow was happy about FactSet's ability to keep doing well. "We delivered another solid quarter of revenue and earnings growth in a climate that remains challenging for some segments of the market," Snow said, and "FactSet's resilient business model and partnership with our clients continues to be a winning formula." The CEO also pointed to internal efforts that are making its products more attractive to customers.
Can FactSet keep climbing?
FactSet also sees potential for further growth from its recent acquisitions of U.K.-based investment management solutions provider CYMBA and global client reporting software specialist Vermilion. In Snow's words, "CYMBA and Vermilion are outstanding additions as FactSet strives to more holistically address the portfolio life cycle through both innovation and acquisition." By broadening FactSet's capabilities and geographical footprint, the acquisitions should help foster future gains.
FactSet's guidance for the current quarter was also solid. For the fiscal second quarter, FactSet expects sales of $293 million to $298 million, which is roughly in line with what most investors have been looking to see. Similarly, adjusted earnings guidance of between $1.78 and $1.82 per share would be higher than the current $1.73-per-share forecast, showing the upward impact of favorable markets early in the new quarter.
FactSet investors didn't react particularly strongly to the news, sending the stock up by less than 1% in pre-market trading on Tuesday following the announcement. Given the opportunities that the financial industry has right now to grow faster, the prospects for FactSet to boost its growth going forward haven't been this attractive in quite a while.
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