FactSet Research Systems Reports Results for the First Quarter of Fiscal 2014

NORWALK, Conn., December 17, 2013 - FactSet Research Systems Inc. (NYSE:FDS) (NASDAQ:FDS), a leading provider of integrated global financial information and analytical applications to the investment community, today announced its results for the first quarter of fiscal 2014.

For the quarter ended November 30, 2013, revenues were $223.0 million, up 6% compared to the prior year. Operating income for the first quarter advanced to $74.7 million from $71.1 million last year. Net income rose to $52.2 million as compared to $49.8 million in the year ago quarter. Diluted earnings per share increased to $1.19, up from $1.11 in the same period of fiscal 2013.

Adjusted net income increased 7% to $53.3 million, while adjusted diluted EPS grew 10% to $1.22.

Consolidated Statements of Income 

“Our investment discipline and proven business model continues to generate shareholder value as illustrated by our 10% adjusted EPS growth. Our buy-side client base is experiencing a healthy business cycle, but we are facing a challenging sell-side environment, which reduced organic ASV,” says Philip Hadley, Chairman and CEO. “As we continue to generate record levels of quarterly free cash flow, I’m pleased to announce a $300 million expansion to our existing share repurchase program. We also completed the acquisition of Revere Data in September and acquired a 60% ownership interest in Matrix Data Limited in December 2013.”

Annual Subscription Value (“ASV”)

ASV totaled $890 million at November 30, 2013, up 5% organically over the prior year. Including $5 million from the acquisition of Revere and a $1 million reduction from currency, ASV increased $2 million over the last three months. Approximately 82.2% of ASV is derived from buy-side clients and the remainder is from the sell-side firms who perform M&A advisory work and equity research. ASV at any given point in time represents the forward-looking revenues for the next 12 months from all services currently being supplied to clients.

Financial Highlights – First Quarter of Fiscal 2014

Operational Highlights – First Quarter of Fiscal 2014

Expansion of the Share Repurchase Program

On December 16, 2013, the Board of Directors approved a $300 million expansion to the existing share repurchase program. Including the recently approved $300 million expansion to the program, $305 million remains authorized for future repurchases. Over the last 12 months, FactSet has returned $421 million to shareholders in the form of share repurchases and dividends.

Revere Data Acquisition

On September 5, 2013, FactSet announced it had acquired the assets of Revere Data, LLC (“Revere”) for $15.3 million. Revere classifies companies into a unique industry taxonomy and offers a database of supply chain relationships. At the time of acquisition, Revere had annual subscriptions of $5 million. The acquisition of Revere reduced the Company’s first quarter operating margin by 30 basis points and diluted earnings per share by $0.01. For the full year fiscal 2014, Revere is expected to dilute earnings per share by $0.02.

Matrix Data Limited Investment

On December 10, 2013, FactSet acquired a 60% ownership interest in Matrix Data Limited (“Matrix”) for £12 million with the ability to acquire the remaining 40% interest. Headquartered in London, England, Matrix’s primary line of business is a provider of intelligence to the UK financial services industry, covering market share of mutual fund distribution. Matrix has developed customer, channel and market benchmarking solutions that help clients optimize product distribution and improve marketing effectiveness to drive revenue growth. The Company employs 85 individuals in England and at the time of acquisition had annual subscriptions of $7 million. Matrix is expected to reduce FactSet’s second quarter operating margin by 50 basis points and diluted earnings per share by $0.01. For the full year fiscal 2014, Matrix is not expected to have an impact on diluted earnings per share. 

Business Outlook

The following forward-looking statements reflect FactSet’s expectations as of today’s date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. The Company does not intend to update its forward-looking statements until its next quarterly results announcement, other than in publicly available statements.

Second Quarter Fiscal 2014 Expectations 

Conference Call

The Company will host a conference call today, December 17, 2013, at 11:00 a.m. (EST) to review the first quarter fiscal 2014 earnings release. To listen, please visit the investor relations section of the Company’s website at www.factset.com.

Forward-looking Statements

This news release contains forward-looking statements based on management's current expectations, estimates and projections. All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, subscriptions, expected expenditures and financial results are forward-looking statements. Forward-looking statements may be identified by words like "expected," "anticipates," "plans," "intends," "projects," "should," "indicates," "continues," "subscriptions" and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in FactSet's filings with the Securities and Exchange Commission, particularly its latest annual report on Form 10-K and quarterly reports on Form 10-Q, as well as others, could cause results to differ materially from those stated. These factors include, but are not limited to, the current status of the global economy; the ability to integrate newly acquired companies and businesses; the stability of global securities markets; the ability to hire qualified personnel; the maintenance of the Company's leading technological position; the impact of global market trends on the Company's revenue growth rate and future results of operations; the negotiation of contract terms with corporate vendors, data suppliers and potential landlords; the retention of key clients; the successful resolution of ongoing audits by tax authorities; the continued employment of key personnel; the absence of U.S. or foreign governmental regulation restricting international business; and the sustainability of historical levels of profitability and growth rates in cash flow generation.

About Adjusted Financial Measures

Financial measures in accordance with U.S. generally accepted accounting principles (“GAAP”) including net income and diluted earnings per share have been adjusted. These adjusted financial measures add back income tax benefits that were not able to be recognized by FactSet in the current year first quarter because the U.S. Federal R&D tax credit was not re-enacted by November 30, 2013, the end of FactSet’s first quarter of fiscal 2014. The loss of income tax benefits from the anticipated lapse in the U.S Federal R&D tax credit reduced GAAP net income by $1.1 million and GAAP diluted earnings per share by $0.03. FactSet uses these adjusted financial measures, both in presenting its results to stockholders and the investment community, and in its internal evaluation and management of the business. The Company believes that these adjusted financial measures and the information they provide are useful to investors because it permits investors to view the Company’s performance using the same tools that management uses to gauge progress in achieving its goals. Investors may benefit from referring to these adjusted financial measures in assessing the Company’s performance and when planning, forecasting and analyzing future periods and may also facilitate comparisons to its historical performance. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.  

About Non-GAAP Free Cash Flow

The GAAP financial measure, cash flows provided by operating activities, has been adjusted to report non-GAAP free cash flow that includes the cash cost for taxes and changes in working capital, less capital expenditures. Included in the just completed first quarter was $58 million of net cash provided by operations and $5 million of capital expenditures. The presentation of free cash flow is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. FactSet uses this financial measure, both in presenting its results to stockholders and the investment community, and in the Company’s internal evaluation and management of the business. Management believes that this financial measure is useful to investors because it permits investors to view the Company’s performance using the same metric that management uses to gauge progress in achieving its goals and is an indication of cash flow that may be available to fund further investments in future growth initiatives.

About FactSet

FactSet, a leading provider of financial information and analytics, helps the world’s best investment professionals outperform. More than 50,000 users stay ahead of global market trends, access extensive company and industry intelligence, and monitor performance with FactSet’s desktop analytics, mobile applications, and comprehensive data feeds. The Company has been included in FORTUNE's Top 100 Best Companies to Work For, the United Kingdom’s Great Places to Work and France’s Best Workplaces. FactSet is listed on the New York Stock Exchange and NASDAQ (NYSE:FDS) (NASDAQ:FDS). Learn more at www.factset.com, and follow us on Twitter: www.twitter.com/factset. 

* The unrealized gain on cash flow hedges disclosed above was net of tax expense of $1,581 and $771 for the three months ended November 30, 2013 and 2012, respectively.

Reconciliation of Adjusted and Non-GAAP Financial Measures

Financial measures in accordance with U.S. GAAP including net income and diluted earnings per share have been adjusted below. FactSet uses these adjusted financial measures, both in presenting its results to stockholders and the investment community, and in its internal evaluation and management of the business. The Company believes that these adjusted financial measures and the information they provide are useful to investors because it permits investors to view the Company’s performance using the same tools that management uses to gauge progress in achieving its goals. Adjusted measures may also facilitate comparisons to FactSet’s historical performance.

Three Months Ended November 30, 2013

History of the U.S. Federal R&D Tax Credit

The U.S. Federal R&D tax credit was first enacted in 1981 in an effort to encourage innovation and new technology, but was never made a permanent credit, resulting in 8 expirations and 15 extensions since 1981. Only once in its 32-year history was the tax credit not retroactively re-enacted, which was from July 1, 1995 through June 30, 1996.

In January 2013, the U.S. Congress re-enacted the U.S. Federal R&D tax credit, which had previously expired on December 31, 2011. The reenactment of the credit was retroactive to January 1, 2012 and extends through the end of the 2013 calendar year. As of November 30, 2013, the R&D tax credit had not been extended, and as a result, FactSet was not been permitted to factor it into its effective tax rate beyond December 31, 2013. The anticipated lapse is expected to reduce GAAP diluted EPS by $0.03 during the second quarter of fiscal 2014 unless it is re-enacted by February 28, 2014.

As depicted in the chart below, the timing of when FactSet is able to recognize the U.S. Federal R&D tax credit has been volatile due to the numerous lapses and retroactive re-enactments by legislation over the past 10 years. Refer to the chart below which summarizes the volatility in regards to the timing of when FactSet was able to recognize the R&D tax credit in each fiscal year.

Page 10 of 10