Factset Research Systems Inc 10-Q for FY2020 Q1

Factset Research Systems Inc (FDS)

10-Q 2020-01-09 For: 2019-11-30

Added on April 11, 2026

About this 10-Q

Factset Research Systems Inc filed this 10-Q on January 9, 2020, covering the quarter ended November 30, 2019 (FY2020 Q1).

Headline figures

Quarter ended November 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $366.66M; up 4.3% from $351.64M a year earlier
Net income: $93.96M; up 11.5% from net income of $84.3M a year earlier
Diluted EPS: $2.43; up 12.0% from $2.17 a year earlier

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Delaware			13-3362547
(State or other jurisdiction of incorporation)			(I.R.S. Employer Identification No.)


45 Glover Avenue, Norwalk, Connecticut			06850
(Address of principal executive office)			(Zip Code)


		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income for the three months ended November 3 0 , 2019 and 2018	3
	Consolidated Statements of Comprehensive Income for the three m onths ended November 3 0 , 2019 and 2018	4
	Consolidated Balance Sheets at November 3 0 , 2019 and August 31, 201 9	5
	Consolidated Statements of Cash Flows for the three months ended November 3 0 , 2019 and 2018	6
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended November 3 0 , 2019	7
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended November 3 0 , 2018	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	40
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	Signatures	43


	Three Months Ended November 30,
(In thousands, except per share data)	2019		2018
Revenue	$	366,658	$	351,640
Operating expenses
Cost of services	164,957		166,776
Selling, general and administrative	88,515		84,325
Total operating expenses	253,472		251,101

Operating income	113,186		100,539

Other expenses
Interest expense, net	(3,131)		(4,459)
Other expense, net	(1,314)		(137)
Income before income taxes	108,741		95,943

Provision for income taxes	14,784		11,647
Net income	$	93,957	$	84,296

Basic earnings per common share	$	2.47	$	2.21
Diluted earnings per common share	$	2.43	$	2.17

Basic weighted average common shares	37,978		38,106
Diluted weighted average common shares	38,587		38,809


	Three Months Ended November 30,
(In thousands)	2019		2018
Net income	$	93,957	$	84,296

Other comprehensive income (loss), net of tax
Net unrealized gain on cash flow hedges*	2,051		1,038
Foreign currency translation adjustments	7,787		(9,504)
Other comprehensive income (loss)	9,838		(8,466)
Comprehensive income	$	103,795	$	75,830


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(In thousands, except share data)	November 30, 2019		August 31, 2019
ASSETS
Cash and cash equivalents	$	336,217	$	359,799
Investments	26,051		25,813
Accounts receivable, net of reserves of $8,901 at November 30, 2019 and $10,511 at August 31, 2019	145,434		146,309
Prepaid taxes	—		15,033
Prepaid expenses and other current assets	38,513		36,858
Total current assets	546,215		583,812
Property, equipment and leasehold improvements, net	137,726		119,384
Goodwill	691,321		685,729
Intangible assets, net	131,679		133,691
Deferred taxes	10,514		7,571
Lease right-of-use assets, net	216,957		—
Other assets	27,820		29,943
TOTAL ASSETS	$	1,762,232	$	1,560,130
LIABILITIES
Accounts payable and accrued expenses	$	87,172	$	79,620
Current lease liabilities	29,406		—
Accrued compensation	18,632		64,202
Deferred fees	41,325		47,656
Taxes payable	3,825		—
Dividends payable	27,290		27,445
Total current liabilities	207,650		218,923
Long-term debt	574,219		574,174
Deferred taxes	13,471		16,391
Deferred fees	9,932		10,088
Taxes payable	25,115		26,292
Lease liabilities	237,040		—
Other non-current liabilities	2,927		42,006
TOTAL LIABILITIES	$	1,070,354	$	887,874
Commitments and contingencies (see Note 16)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued	$	—	$	—
Common stock, $0.01 par value, 150,000,000 shares authorized, 40,239,308 and 40,104,192 shares issued, 37,904,178 and 38,117,840 shares outstanding at November 30, 2019 and August 31, 2019, respectively	402		401
Additional paid-in capital	835,968		806,973
Treasury stock, at cost: 2,335,130 and 1,986,352 shares at November 30, 2019 and August 31, 2019, respectively	(519,678)		(433,799)
Retained earnings	439,892		373,225
Accumulated other comprehensive loss	(64,706)		(74,544)
TOTAL STOCKHOLDERS’ EQUITY	$	691,878	$	672,256
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,762,232	$	1,560,130


(in thousands, except share data)	Common Stock							Additional Paid-in Capital	Treasury Stock						Retained Earnings		Accumulated Other Comprehensive Loss	Total Stockholders’ Equity
		Shares			Par Value				Shares		Amount
Balance as of August 31, 2019	40,104,192		$	401		$	806,973	1,986,352	$	(433,799)	$	373,225	$	(74,544)	$	672,256
Net income											93,957				93,957
Other comprehensive (loss) income													9,838		9,838
Common stock issued for employee stock plans	119,740		1			19,181									19,182
Vesting of restricted stock	15,376							5,778	(1,456)						(1,456)
Repurchases of common stock								343,000	(84,423)						(84,423)
Stock-based compensation expense						9,814									9,814
Dividends declared											(27,290)				(27,290)
Balance as of November 30, 2019	40,239,308		$	402		$	835,968	2,335,130	$	(519,678)	$	439,892	$	(64,706)	$	691,878


	Three months ended November 30,
(in thousands)	2019		2018
Americas	$	231,330	$	222,203
Europe	100,830		97,765
Asia Pacific	34,498		31,672
Total Revenue	$	366,658	$	351,640


	Fair Value Measurements at November 30, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Corporate money market funds ⁽¹⁾	$	76,293	$	—	$	—	$	76,293
Mutual funds ⁽²⁾	—		18,710		—		18,710
Certificates of deposit ⁽³⁾	—		7,341		—		7,341
Derivative instruments ⁽⁴⁾	—		984		—		984
Total assets measured at fair value	$	76,293	$	27,035	$	—	$	103,328

Liabilities
Derivative instruments ⁽⁴⁾	$	—	$	1,275	$	—	$	1,275
Total liabilities measured at fair value	$	—	$	1,275	$	—	$	1,275


	Fair Value Measurements at August 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Corporate money market funds ⁽¹⁾	$	75,849	$	—	$	—	$	75,849
Mutual funds ⁽²⁾	—		18,583		—		18,583
Certificates of deposit ⁽³⁾	—		7,090		—		7,090
Derivative instruments ⁽⁴⁾	—		520		—		520
Total assets measured at fair value	$	75,849	$	26,193	$	—	$	102,042

Liabilities
Derivative instruments ⁽⁴⁾	$	—	$	3,575	$	—	$	3,575
Total liabilities measured at fair value	$	—	$	3,575	$	—	$	3,575


Currency Hedged (in thousands, in U.S. dollars)	Gross Notional Value									Fair Value Asset (Liability)
			November 30, 2019			August 31, 2019			November 30, 2019			August 31, 2019
Euro	$	24,932		$	40,854		$	(826)		$	(1,230)
Indian Rupee	12,920			20,410			(449)			(998)
Philippine Peso	19,000			26,000			955			520
British Pound Sterling	16,587			26,436			29			(1,347)
Total	$	73,439		$	113,700		$	(291)		$	(3,055)


Designation of Derivatives (in thousands)	Balance Sheet Location	November 30, 2019		August 31, 2019
Derivatives designated as hedging instruments	Assets: Foreign Currency Forward Contracts
	Prepaid expenses and other current assets	$	984	$	520

	Liabilities: Foreign Currency Forward Contracts
	Accounts payable and accrued expenses	$	(1,275)	$	3,575


(in thousands)	Gain Recognized in AOCL on Derivatives (Effective Portion)					Location of (Loss) Gain Reclassified from AOCL into Income (Effective Portion)		Loss Reclassified from AOCL into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	2019		2018					2019		2018
Foreign currency forward contracts	$	2,030	$	1,943	SG&A	$	(734)	$	(399)


	Three Months Ended November 30,
(in thousands)	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	93,957	$	84,296
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	14,390		14,241
Stock-based compensation expense	9,814		8,435
Deferred income taxes	(6,624)		(689)
Loss on sale of assets	—		181
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable, net of reserves	875		(3,583)
Accounts payable and accrued expenses	13,165		(10,522)
Accrued compensation	(45,780)		(44,051)
Deferred fees	(6,483)		(7,250)
Taxes payable, net of prepaid taxes	16,616		7,489
Other, net	5,861		(2,227)
Net cash provided by operating activities	95,791		46,320

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements, net of proceeds from dispositions	(26,780)		(9,526)
Purchases of investments	(2,620)		(4,356)
Proceeds from maturity or sale of investments	2,257		6,573
Net cash used in investing activities	(27,143)		(7,309)

CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock	(84,423)		(64,718)
Dividend payments	(27,259)		(24,252)
Proceeds from employee stock plans	16,727		13,965
Net cash used by financing activities	(94,955)		(75,005)

Effect of exchange rate changes on cash and cash equivalents	2,725		(2,251)
Net decrease in cash and cash equivalents	(23,582)		(38,245)
Cash and cash equivalents at beginning of period	359,799		208,623
Cash and cash equivalents at end of period	$	336,217	$	170,378


November 1, 2019 Grant Details
Term structure of risk-free interest rate						1.59% - 1.79%
Expected life (years)						7.22
Term structure of volatility						23% - 26%
Dividend yield						1.09%
Estimated fair value						$ 60.19
Exercise price						$ 255.87
Fair value as a percentage of exercise price						23.5%


(in thousands)	November 30, 2019		August 31, 2019
2019 Revolving Credit Facility (maturity date of March 29, 2024)	$	575,000	$	575,000


(in thousands)	Minimum Lease Payments
Years ended August 31,

Remainder of 2020	$	28,448
2021	36,561
2022	31,601
2023	28,318
2024	26,888
Thereafter	173,946
Total Undiscounted lease Payments	325,762
Less: Imputed Interest	59,316
Present value of total lease payments	$	266,446


	November 30, 2019						November 30, 2018
(in thousands)	Pre-tax		Net of tax		Pre-tax		Net of tax
Foreign currency translation adjustments	$	7,787	$	7,787	$	(9,504)	$	(9,504)
Net unrealized gain on cash flow hedges recognized in AOCL	2,765		2,051		1,626		1,038
Other comprehensive income (loss)	$	10,552	$	9,838	$	(7,878)	$	(8,466)


(in thousands)
For the three months ended November 30, 2019	Americas		Europe		Asia Pacific		Total
Revenue from clients	$	231,330	$	100,830	$	34,498	$	366,658
Segment operating income	$	49,623	$	41,218	$	22,345	$	113,186
Total assets	$	954,636	$	645,293	$	162,303	$	1,762,232
Capital expenditures	$	24,024	$	1,168	$	1,588	$	26,780


(in thousands, except per share data)	Net Income (Numerator)		Weighted Average Common Shares (Denominator)	Per Share Amount
For the three months ended November 30, 2019
Basic EPS
Income available to common stockholders	$	93,957	37,978	$	2.47
Diluted EPS
Dilutive effect of stock options and restricted stock			609
Income available to common stockholders plus assumed conversions	$	93,957	38,587	$	2.43
For the three months ended November 30, 2018
Basic EPS
Income available to common stockholders	$	84,296	38,106	$	2.21
Diluted EPS
Dilutive effect of stock options and restricted stock			703
Income available to common stockholders plus assumed conversions	$	84,296	38,809	$	2.17


Weighted average remaining lease term (in years)						10.5
Weighted average discount rate (IBR)						3.8%
Cash paid for amounts included in the measurement of lease liabilities (in millions)						$ 10.5


	As of and for the Three Months Ended November 30,						Change
(in thousands, except client and user counts and per share data)	2019		2018
Revenue	$	366.7	$	351.6	4.3	%
Operating income	$	113.2	$	100.5	12.6	%
Net income	$	94.0	$	84.3	11.5	%
Diluted EPS	$	2.43	$	2.17	12.0	%
Clients	5,601		5,297		5.7	%
Users	126,785		115,209		10.0	%


	As of November 30,						Change
(in millions)	2019		2018
As reported ASV⁽¹⁾	$	1,453.8	$	1,398.2
Currency impact to ASV	0.3		—
Organic ASV⁽²⁾	$	1,454.1	$	1,398.2	4.0	%


	Three Months Ended November 30,
(in thousands, except for per share data)	2019		2018		Change
Provision for income taxes	$	14,784	$	11,647	26.9	%
Net income	$	93,957	$	84,296	11.5	%
Diluted earnings per common share	$	2.43	$	2.17	12.0	%


	Three Months Ended November 30,
(In thousands, except per share data)	2019⁽¹⁾			2018⁽²⁾			Change
Operating income	$	113,186		$	100,539		12.6	%
Intangible asset amortization	5,152			5,893
Deferred revenue fair value adjustment	1,216			1,350
Other items	5,168			3,484
Adjusted operating income	$	124,722		$	111,266		12.1	%
Adjusted operating margin	33.9		%	31.5		%

Net income	$	93,957		$	84,296		11.5	%
Intangible asset amortization⁽³⁾	4,181			4,792
Deferred revenue fair value adjustment⁽⁴⁾	987			1,098
Other items⁽⁵⁾	4,011			2,832
Income tax items	(3,481)			(1,709)
Adjusted net income	$	99,655		$	91,309		9.1	%

Diluted earnings per common share	$	2.43		$	2.17		12.0	%
Intangible asset amortization	0.11			0.12
Deferred revenue fair value adjustment	0.03			0.03
Other items	0.10			0.07
Income tax items	(0.09)			(0.04)
Adjusted diluted earnings per common share	$	2.58		$	2.35		9.8	%
Weighted average common shares (Diluted)	38,587			38,809


Period	Total number of shares purchased⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽²⁾	Maximum number of shares (or approximate dollar value) that may yet be purchased under the plans or programs (in US$)⁽²⁾
September 2019	40,000	$	242.18	40,000	$	228,932
October 2019	231,620	$	244.37	229,000	$	172,980
November 2019	77,158	$	253.91	74,000	$	154,196
Total	348,778			343,000


			FACTSET RESEARCH SYSTEMS INC. (Registrant)

Date: January 9, 2020			/s/ HELEN L. SHAN
			Helen L. Shan
			Executive Vice President and Chief Financial Officer (Principal Financial Officer)

			/s/ GREGORY T. MOSKOFF
			Gregory T. Moskoff
			Senior Vice President, Controller
			(Principal Accounting Officer)


EXHIBIT INDEX

EXBHIT NUMBER			DESCRIPTION

10.1			Expatriation Agreement for Franck A.R. Gossieaux, dated June 1, 2019
10.2			Amendment for Expatriation for Franck A.R. Gossieaux, dated June 1, 2019
31.1			Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2			Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
32.1			Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)