Factset Research Systems Inc 10-Q for FY2020 Q3

Factset Research Systems Inc (FDS)

10-Q 2020-07-09 For: 2020-05-31

Added on April 11, 2026

About this 10-Q

Factset Research Systems Inc filed this 10-Q on July 9, 2020, covering the quarter ended May 31, 2020 (FY2020 Q3).

Headline figures

Quarter ended May 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $374.08M; up 2.6% from $364.53M a year earlier
Net income: $101.22M; up 9.7% from net income of $92.27M a year earlier
Diluted EPS: $2.63; up 11.0% from $2.37 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 and nine months ended May 31, 2020 and 2019	3
	Consolidated Statements of Comprehensive Income for the three and nine months ended May 31, 2020 and 2019	4
	Consolidated Balance Sheets at May 31, 2020 and August 31, 2019	5
	Consolidated Statements of Cash Flows for the nine months ended May 31, 2020 and 2019	6
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended May 31, 2020	7
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended May 31, 2019	8
	Notes to the Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	50
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
	Signatures	55


	Three Months Ended						Nine Months Ended
(In thousands, except per share data)	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
Revenue	$	374,083	$	364,533	$	1,110,521	$	1,071,068
Operating expenses
Cost of services	170,703		163,832		511,878		495,716
Selling, general and administrative	81,740		83,461		257,560		248,885
Total operating expenses	252,443		247,293		769,438		744,601

Operating income	121,640		117,240		341,083		326,467

Other expenses
Interest expense, net	(2,211)		(4,377)		(8,003)		(13,046)
Other (expense) income, net	(289)		521		(2,090)		255
Income before income taxes	119,140		113,384		330,990		313,676

Provision for income taxes	17,924		21,119		47,131		52,413
Net income	$	101,216	$	92,265	$	283,859	$	261,263

Basic earnings per common share	$	2.67	$	2.41	$	7.49	$	6.85
Diluted earnings per common share	$	2.63	$	2.37	$	7.36	$	6.73

Basic weighted average common shares	37,885		38,223		37,912		38,128
Diluted weighted average common shares	38,481		38,993		38,548		38,807


	Three Months Ended						Nine Months Ended
(In thousands)	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
Net income	$	101,216	$	92,265	$	283,859	$	261,263

Other comprehensive (loss), net of tax
Net unrealized (loss) gain on cash flow hedges*	(3,948)		(160)		(2,105)		1,405
Foreign currency translation adjustments	(4,633)		(11,326)		1,589		(15,804)
Other comprehensive (loss)	(8,581)		(11,486)		(516)		(14,399)
Comprehensive income	$	92,635	$	80,779	$	283,343	$	246,864


☒			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)	May 31, 2020		August 31, 2019
ASSETS
Cash and cash equivalents	$	457,707	$	359,799
Investments	22,606		25,813
Accounts receivable, net of reserves of $7,357 at May 31, 2020 and $10,511 at August 31, 2019	151,398		146,309
Prepaid taxes	42,250		15,033
Prepaid expenses and other current assets	34,468		36,858
Total current assets	708,429		583,812
Property, equipment and leasehold improvements, net	136,655		119,384
Goodwill	688,484		685,729
Intangible assets, net	127,207		133,691
Deferred taxes	—		7,571
Lease right-of-use assets, net	254,391		—
Other assets	32,539		29,943
TOTAL ASSETS	$	1,947,705	$	1,560,130
LIABILITIES
Accounts payable and accrued expenses	$	80,048	$	79,620
Current lease liabilities	29,225		—
Accrued compensation	50,114		64,202
Deferred fees	58,725		47,656
Dividends payable	29,188		27,445
Total current liabilities	247,300		218,923
Long-term debt	574,309		574,174
Deferred taxes	15,502		16,391
Deferred fees	8,885		10,088
Taxes payable	26,816		26,292
Lease liabilities	276,019		—
Other non-current liabilities	5,916		42,006
TOTAL LIABILITIES	$	1,154,747	$	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, 40,556,920 and 40,104,192 shares issued, 37,907,127 and 38,117,840 shares outstanding at May 31, 2020 and August 31, 2019, respectively	406		401
Additional paid-in capital	900,663		806,973
Treasury stock, at cost: 2,649,793 and 1,986,352 shares at May 31, 2020 and August 31, 2019, respectively	(606,405)		(433,799)
Retained earnings	573,354		373,225
Accumulated other comprehensive loss	(75,060)		(74,544)
TOTAL STOCKHOLDERS’ EQUITY	$	792,958	$	672,256
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,947,705	$	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 February 29, 2020	40,452,351		$	405		$	875,488	2,603,104	$	(593,980)	$	501,326	$	(66,479)	$	716,760
Net income											101,216				101,216
Other comprehensive loss													(8,581)		(8,581)
Common stock issued for employee stock plans	104,388		1			14,832		32	(9)						14,824
Vesting of restricted stock	181							21	(6)						(6)
Repurchases of common stock								46,636	(12,410)						(12,410)
Stock-based compensation expense						10,343									10,343
Dividends declared											(29,188)				(29,188)
Balance as of May 31, 2020	40,556,920		$	406		$	900,663	2,649,793	$	(606,405)	$	573,354	$	(75,060)	$	792,958

For the Nine Months Ended May 31, 2020
(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											283,859				283,859
Other comprehensive income													(516)		(516)
Common stock issued for employee stock plans	436,071		5			65,318		75	(20)						65,303
Vesting of restricted stock	16,657							6,230	(1,581)						(1,581)
Repurchases of common stock								657,136	(171,005)						(171,005)
Stock-based compensation expense						28,372									28,372
Dividends declared											(83,730)				(83,730)
Balance as of May 31, 2020	40,556,920		$	406		$	900,663	2,649,793	$	(606,405)	$	573,354	$	(75,060)	$	792,958


	Three Months Ended May 31,						Nine Months Ended May 31,
(in thousands)	2020		2019		2020		2019
Americas	$	230,992	$	226,961	$	695,053	$	672,479
EMEA	105,420		102,499		308,355		299,197
Asia Pacific	37,671		35,073		107,113		99,392
Total Revenue	$	374,083	$	364,533	$	1,110,521	$	1,071,068


	Fair Value Measurements at May 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Corporate money market funds ⁽¹⁾	$	211,752	$	—	$	—	$	211,752
Mutual funds ⁽²⁾	—		17,599		—		17,599
Certificates of deposit ⁽³⁾	—		5,007		—		5,007
Derivative instruments ⁽⁴⁾	—		418		—		418
Total assets measured at fair value	$	211,752	$	23,024	$	—	$	234,776

Liabilities
Derivative instruments ⁽⁴⁾	$	—	$	6,274	$	—	$	6,274
Total liabilities measured at fair value	$	—	$	6,274	$	—	$	6,274


	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


(in thousands, in U.S. dollars)	Gross Notional Value
			May 31, 2020			August 31, 2019
Foreign currency forward contracts	$	45,242		$	113,700
Interest rate swap agreement	287,500			—
Total cash flow hedges	$	332,742		$	113,700


	Fair Value of Derivative Instruments
Derivatives designated as hedging instruments		Derivative Assets							Derivative Liabilities
				May 31, 2020		August 31, 2019			May 31, 2020		August 31, 2019
		Balance Sheet Classification		Fair Value		Fair Value	Balance Sheet Classification		Fair Value		Fair Value
Foreign currency forward contracts	Prepaid expenses and other current assets	$	418	$	520	Accounts payable and accrued expenses	$	1,010	$	3,575
Interest rate swap agreement	Prepaid expenses and other current assets	—		—		Accounts payable and accrued expenses	1,786		—
												Other non-current liabilities	3,478	—
Total cash flow hedges		$	418	$	520		$	6,274	$	3,575


(in thousands)	Loss Recognized in AOCL on Derivatives					Location of Loss Reclassified from AOCL into Income		Loss Reclassified from AOCL into Income
Derivatives in Cash Flow Hedging Relationships	2020		2019					2020		2019
Foreign currency forward contracts	$	(1,040)	$	(822)	SG&A	$	(1,019)	$	(597)
Interest rate swap agreement	(5,264)		—		Interest expense, net	—		—
Total cash flow hedges	$	(6,304)	$	(822)		$	(1,019)	$	(597)

The following table provides the pre-tax effect of derivative instruments in cash flow hedging relationships for the nine months ended May 31, 2020 and May 31, 2019, respectively:

(in thousands)	(Loss) Gain Recognized in AOCL on Derivatives					Location of Loss Reclassified from AOCL into Income		Loss Reclassified from AOCL into Income
Derivatives in Cash Flow Hedging Relationships	2020		2019					2020		2019
Foreign currency forward contracts	$	362	$	1,442	SG&A	$	(2,101)	$	(1,381)
Interest rate swap agreement	(5,264)		—		Interest expense, net	—		—
Total cash flow hedges	$	(4,902)	$	1,442		$	(2,101)	$	(1,381)


	Nine Months Ended
(in thousands)	May 31, 2020		May 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	283,859	$	261,263
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	41,333		43,943
Stock-based compensation expense	28,372		24,135
Deferred income taxes	7,230		1,294
Loss on sale of assets	166		195
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable, net of reserves	(5,091)		3,112
Accounts payable and accrued expenses	10,400		(4,783)
Accrued compensation	(14,154)		(23,672)
Deferred fees	9,856		4,826
Taxes payable, net of prepaid taxes	(27,088)		(2,232)
Other, net	11,530		(2,757)
Net cash provided by operating activities	346,413		305,324

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment, leasehold improvements and intangible assets, net of proceeds from dispositions	(62,909)		(32,906)
Purchases of investments	(2,736)		(8,180)
Proceeds from maturity or sale of investments	4,199		11,543
Net cash used in investing activities	(61,446)		(29,543)

CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock	(171,005)		(158,294)
Dividend payments	(81,438)		(75,769)
Proceeds from employee stock plans	65,323		78,926
Repayment of debt	—		(575,000)
Proceeds from debt	—		575,000
Other financing, net	(1,592)		(901)
Net cash used by financing activities	(188,712)		(156,038)

Effect of exchange rate changes on cash and cash equivalents	1,653		(4,406)
Net (decrease) increase in cash and cash equivalents	97,908		115,337
Cash and cash equivalents at beginning of period	359,799		208,623
Cash and cash equivalents at end of period	$	457,707	$	323,960


Year Ended	Dividends per Share of Common Stock		Record Date	Total $ Amount (in thousands)		Payment Date
Fiscal 2020
First Quarter	$	0.72	November 29, 2019	$	27,291	December 19, 2019
Second Quarter	$	0.72	February 28, 2020	$	27,251	March 19, 2020
Third Quarter	$	0.77	May 29, 2020	$	29,188	June 18, 2020

Fiscal 2019
First Quarter	$	0.64	November 30, 2018	$	24,372	December 18, 2018
Second Quarter	$	0.64	February 28, 2019	$	24,385	March 19, 2019
Third Quarter	$	0.72	May 31, 2019	$	27,506	June 18, 2019


November 1, 2019 Grant Details
Risk-free interest rate						1.59% - 1.79%

Expected life (years)						7.22

Expected 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%



January 15, 2020 Grant Details
Risk-free interest rate	1.64%

Expected life (years)	5.4
Expected volatility	22.0%

Dividend yield	1.11%

Estimated Fair Value	$54.74
Exercise price	$271.51
Fair value as a percentage of exercise price		20.2%


The components of other comprehensive loss for the three months ended May 31, 2020 and May 31, 2019 are as follows:
	May 31, 2020						May 31, 2019
(in thousands)	Pre-tax		Net of tax		Pre-tax		Net of tax
Foreign currency translation adjustments	$	(4,633)	$	(4,633)	$	(11,326)	$	(11,326)
Net unrealized loss on cash flow hedges recognized in AOCL	(5,285)		(3,948)		(225)		(160)
Other comprehensive loss	$	(9,918)	$	(8,581)	$	(11,551)	$	(11,486)

The components of other comprehensive loss for the nine months ended May 31, 2020 and May 31, 2019 are as follows:
	May 31, 2020						May 31, 2019
(in thousands)	Pre-tax		Net of tax		Pre-tax		Net of tax
Foreign currency translation adjustments	$	1,589	$	1,589	$	(15,804)	$	(15,804)
Net unrealized (loss) gain on cash flow hedges recognized in AOCL	(2,801)		(2,105)		2,107		1,405
Other comprehensive loss	$	(1,212)	$	(516)	$	(13,697)	$	(14,399)

The components of AOCL are as follows:
(in thousands)	May 31, 2020						August 31, 2019
Accumulated unrealized losses on cash flow hedges, net of tax	$	(4,371)					$	(2,266)
Accumulated foreign currency translation adjustments	(70,689)						(72,278)
Total accumulated other comprehensive loss	$	(75,060)					$	(74,544)


(in thousands)
For the three months ended May 31, 2020	Americas		EMEA		Asia Pacific		Total
Revenue	$	230,992	$	105,420	$	37,671	$	374,083
Operating income	$	54,019	$	43,638	$	23,983	$	121,640
Capital expenditures	$	8,160	$	520	$	2,330	$	11,010

(in thousands)
For the three months ended May 31, 2019	Americas		EMEA		Asia Pacific		Total
Revenue	$	226,961	$	102,499	$	35,073	$	364,533
Operating income	$	51,012	$	44,793	$	21,435	$	117,240
Capital expenditures	$	8,664	$	439	$	2,321	$	11,424


(in thousands)
Segment Assets	May 31, 2020		August 31, 2019
Americas	$	1,106,646	$	851,014
EMEA	633,398		588,911
Asia Pacific	207,661		120,205
Total assets	$	1,947,705	$	1,560,130


	Nine Months Ended
	May 31,	May 31,
(in thousands)	2020	2019
Balance, beginning of year at September 1, 2019 and 2018, respectively	38,118	38,192
Common stock issued for employee stock plans	452	719
Repurchase of common stock from employees⁽¹⁾	(6)	(28)
Repurchase of common stock under the share repurchase program	(657)	(665)
Balance at May 31, 2020 and May 31, 2019, respectively	37,907	38,218


(in thousands, except per share data)	Net Income (Numerator)		Weighted Average Common Shares (Denominator)	Per Share Amount
For the three months ended May 31, 2020
Basic EPS
Income available to common stockholders	$	101,216	37,885	$	2.67
Diluted EPS
Dilutive effect of stock options and restricted stock			596
Income available to common stockholders plus assumed conversions	$	101,216	38,481	$	2.63
For the three months ended May 31, 2019
Basic EPS
Income available to common stockholders	$	92,265	38,223	$	2.41
Diluted EPS
Dilutive effect of stock options and restricted stock			770
Income available to common stockholders plus assumed conversions	$	92,265	38,993	$	2.37
For the nine months ended May 31, 2020
Basic EPS
Income available to common stockholders	$	283,859	37,912	$	7.49
Diluted EPS
Dilutive effect of stock options and restricted stock			636
Income available to common stockholders plus assumed conversions	$	283,859	38,548	$	7.36
For the nine months ended May 31, 2019
Basic EPS
Income available to common stockholders	$	261,263	38,128	$	6.85
Diluted EPS
Dilutive effect of stock options and restricted stock			679
Income available to common stockholders plus assumed conversions	$	261,263	38,807	$	6.73


(in thousands)	Minimum Lease Payments
Fiscal Years Ended August 31,
2020 (remaining three months)	$	9,684
2021	41,951
2022	39,546
2023	36,041
2024	34,238
Thereafter	216,710
Total undiscounted lease payments	378,170
Less: imputed interest	72,926
Present value of total lease payments	$	305,244


			As of May 31, 2020
Weighted average remaining lease term (in years)			10.3
Weighted average discount rate (IBR)			4.2%


(in thousands)			Nine Months Ended May 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities			$29.9
Operating lease ROU assets obtained in exchange for operating lease liabilities			$48.5


	As of and for the Three Months Ended						Change
(in thousands, except client and user counts and per share data)	May 31, 2020		May 31, 2019
Revenue	$	374.1	$	364.5	2.6	%
Operating income	$	121.6	$	117.2	3.8	%
Net income	$	101.2	$	92.3	9.7	%
Diluted EPS	$	2.63	$	2.37	11.0	%
Clients	5,743		5,455		5.3	%
Users	131,095		122,951		6.6	%


	As of						Change
(in millions)	May 31, 2020		May 31, 2019
As reported ASV⁽¹⁾	$	1,493.8	$	1,423.0
Currency impact to ASV	(0.1)		—
Organic ASV⁽²⁾	$	1,493.7	$	1,423.0	5.0	%


	Three Months Ended May 31,												Nine Months Ended May 31,

(in thousands, except for per share data)	2020		2019		Change		2020		2019		Change
Provision for income taxes	$	17,924	$	21,119	(15.1)	%	$	47,131	$	52,413	(10.1)	%
Net income	$	101,216	$	92,265	9.7	%	$	283,859	$	261,263	8.6	%
Diluted earnings per common share	$	2.63	$	2.37	11.0	%	$	7.36	$	6.73	9.4	%


	Three Months Ended May 31,

(In thousands, except per share data)	2020⁽¹⁾			2019⁽²⁾			Change
Operating income	$	121,640		$	117,240		3.8	%
Intangible asset amortization	5,107			5,928
Deferred revenue fair value adjustment	1,169			1,274
Other items	5,464			(1,647)
Adjusted operating income	$	133,380		$	122,795		8.6	%
Adjusted operating margin	35.5		%	34.0		%

Net income	$	101,216		$	92,265		9.7	%
Intangible asset amortization⁽³⁾	4,204			4,797
Deferred revenue fair value adjustment⁽⁴⁾	963			1,031
Other items⁽⁵⁾	4,436			(1,333)
Income tax items	(734)			5,296
Adjusted net income	$	110,085		$	102,056		7.9	%

Diluted earnings per common share	$	2.63		$	2.37		11.0	%
Intangible asset amortization	0.11			0.12
Deferred revenue fair value adjustment	0.03			0.02
Other items	0.12			(0.03)
Income tax items	(0.03)			0.14
Adjusted diluted earnings per common share	$	2.86		$	2.62		9.2	%
Weighted average common shares (Diluted)	38,481			38,993


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⁾
March 2020	7,922	$	261.28	7,922	$	299,256
April 2020	29,126	$	265.82	29,121	$	290,329
May 2020	9,641	$	270.85	9,593	$	287,616
Total	46,689			46,636


			FACTSET RESEARCH SYSTEMS INC. (Registrant)

Date: July 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 and Chief Accounting Officer
			(Principal Accounting Officer)