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 FactSet Reports Strong Revenue and EPS Growth in Fourth Quarter 2018
   Tuesday, September 25, 2018 7:00:00 AM ET

NORWALK, Conn., Sept. 25, 2018 (GLOBE NEWSWIRE) -- FactSet (the “Company”) (NYSE:FDS) (NASDAQ:FDS), a global provider of integrated financial information, analytical applications, and industry-leading service, today announced its results for the fourth quarter ended August 31, 2018.

Fourth Quarter Fiscal 2018 Highlights

  • Revenues increased 5.9% or $19.2 million to $345.9 million compared with $326.6 million for the same period in fiscal 2017. Organic revenues grew 5.3% to $347.1 million during the fourth quarter of 2018 from the prior year period. The increase is primarily due to higher sales of research and analytics products, content and technology solutions (CTS) and wealth management solutions.

  • Annual Subscription Value (ASV) increased to $1.39 billion at August 31, 2018 compared with prior year ASV of $1.32 billion. Fourth quarter organic ASV growth of $38.6 million is the highest in the history of the Company. The organic ASV growth rate, which excludes the effects of acquisitions, dispositions, and foreign currency, was 5.7%.

  • Operating margin increased to 25.5% compared with 25.2% for the same period last year. Adjusted operating margin rose to 31.3% compared with 31.2% in the prior year period.

  • Diluted earnings per share (EPS) advanced to $1.77 compared with $1.52 for the same period in fiscal 2017. Adjusted diluted EPS rose 15.8% to $2.20 compared with $1.90 in the prior period boosted primarily by the U.S. Tax Cuts and Jobs Act (TCJA).

  • The Company’s effective tax rate for the fourth quarter was 18.0% compared with 25.3% a year ago, primarily due to the TCJA.

  • FactSet celebrated 40 years as a company achieving 38 consecutive years of revenue growth and 22 years of consecutive adjusted diluted EPS growth.

“We are proud to have reached many milestones in fiscal 2018.  We celebrated 40 years as a company with 38 years of consecutive revenue growth and 22 years of consecutive adjusted EPS growth. This quarter we had the highest reported quarterly ASV in our history. We enter fiscal 2019 with strong momentum and an expanding suite of innovative workflow solutions to drive our growth plans,” said Phil Snow, FactSet CEO.

Key Financial Measures*

(Condensed and Unaudited)   Three Months Ended

  August 31,
     Twelve Months Ended

  August 31,
 
(In thousands, except per share data) 2018  2017 Change  2018  2017 ChangeFY 2018
Guidance
GAAP revenues$345,861 $326,642  5.9% $1,350,145 $1,221,179  10.6%$1.34-$1.36b
Organic revenues$347,102 $329,597  5.3% $1,294,260 $1,225,443  5.6% 
Operating income$88,356 $82,428  7.2% $366,204 $352,135  4.0% 
Adjusted operating income$108,684 $102,735  5.8% $425,510 $395,514  7.6% 
Operating margin 25.5% 25.2%    27.1% 28.8%  27.5%-29.0%
Adjusted operating margin 31.3% 31.2%    31.3% 32.2%  31.0%-32.5%
Net income$68,823 $59,552  15.6% $267,085 $258,259  3.4% 
Adjusted net income$85,492 $74,721  14.4% $335,816 $289,587  16.0% 
Diluted EPS$1.77 $1.52  16.4% $6.78 $6.51  4.1%$6.92-$7.17
Adjusted diluted EPS$2.20 $1.90  15.8% $8.53 $7.31  16.7%$8.37-$8.62
               


 * See reconciliation of U.S. GAAP to adjusted key financial measures in the back of this press release

Annual Subscription Value (ASV)

ASV was $1.39 billion at August 31, 2018, up $74.4 million organically from the prior year. The organic ASV growth rate was 5.7%.  Organic ASV, which excludes the effects of acquisitions, dispositions and foreign currency, increased $38.6 million over the last three months. ASV at any given point in time represents the forward-looking revenues for the next twelve months from all subscription services currently supplied to clients and excludes professional services fees billed in the last 12 months, which are not subscription-based.

Buy-side and sell-side ASV growth rates for the fourth quarter of fiscal 2018 were 5.4% and 7.3%, respectively. Buy-side clients accounted for 83.9% of organic ASV while the remainder is derived from sell-side firms that perform mergers and acquisitions advisory work, capital markets services and equity research. Supplementary tables covering organic buy-side and sell-side ASV growth rates may be found on the last page of this earnings release.

ASV from U.S. operations was $868.7 million, increasing 5.3% over prior year of $825.1 million and 5.3% organically. U.S. revenues for the quarter were $213.9 million compared with $204.1 million in the fourth quarter last year. Excluding the effects of acquisitions and dispositions completed in the last 12 months, the U.S. revenue growth rate was 4.7%. ASV from international operations was $524.4 million, increasing 6.7% over prior year of $491.5 million and 6.3% organically. International ASV now represents 37.6% of total ASV, up from 37.3% a year ago. International revenues were $131.9 million compared with $122.6 million from the fourth quarter of fiscal 2017. Excluding the effects of acquisitions and dispositions completed in the last 12 months and foreign currency, the international revenue growth rate was 6.3%.

Organic ASV from FactSet’s workflow solutions at August 31, 2018 was as follows:

  • Research ASV was $637.2 million and remained flat versus the same period a year ago.

  • Analytics ASV was $475.0 million and grew 9.8% year over year.

  • Content and Technology Solutions ASV was $147.8 million, increasing 18.6% year over year.

  • Wealth ASV was $131.1 million, increasing 10.0% from the prior year.

Operational Highlights – Fourth Quarter Fiscal 2018

  • Client count as of August 31, 2018 was 5,142, a net increase of 167 clients in the past three months, primarily driven by institutional asset managers and wealth management. The count includes clients with ASV of $10,000 and above.

  • User count increased by 2,391 to 91,897 in the past three months primarily driven by an increase in investment banking workstation sales. FactSet defines users as workstation and StreetAccount users.

  • Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention was 91%.

  • Employee count was 9,571 as of August 31, 2018, up 5.5% in the past 12 months.

  • Net cash provided by operating activities was $106.3 million compared with $100.2 million for the fourth quarter of 2017. Quarterly free cash flow was $91.2 million compared with $89.3 million a year ago, an increase of 2.1% primarily due to an improvement in working capital.

  • Capital expenditures increased to $15.1 million, compared with $10.9 million a year ago primarily due to office space build out and technology upgrades.

  • A regular quarterly dividend of $24.4 million, or $0.64 per share, was paid on September 18, 2018, to common stockholders of record as of August 31, 2018.

  • Helen Shan was appointed as the new Chief Financial Officer for FactSet in September 2018.

  • FactSet was selected by Merrill Lynch Wealth Management to be the primary market data provider for more than 15,000 wealth management professionals. This wealth deployment is FactSet’s largest date and allows the Company to expand further in the wealth management space.

  • FactSet added Data Exploration, a cloud-based data platform in July, 2018. FactSet Data Exploration will allow financial professionals to instantly evaluate alternative and financial datasets and build investment applications in a fully hosted environment provided by Microsoft Azure. It will offer content from the Open:FactSet Marketplace alongside programming tools, including Microsoft SQL, RStudio, and Python, in a single location.

Full Year 2018 Highlights

  • ASV rose to $1.39 billion, up 5.7% organically. Organic ASV plus professional services resulted in a growth rate of 5.9%.

  • Revenues increased 10.6% to $1.35 billion, up 5.6% organically. 

  • Diluted EPS increased 4.1% to $6.78. Adjusted diluted EPS increased 16.7% to $8.53.

  • Net cash provided by operating activities totaled $385.7 million. Free cash flow increased 24.1% to $352.1 million.

  • Client count increased by 8.4% or 398 during the year, while users grew by 3.4% or 3,051 from the prior year.

  • In May, 2018, FactSet increased its quarterly dividend by $0.08 or 14.3% per share to $0.64, marking the 13th consecutive year the Company has increased dividends, highlighting its continued commitment to returning value to shareholders.

  • FactSet returned $393.4 million to stockholders in the form of share repurchases and dividends during the fiscal year. This return represents an average cash return of 91%, as a percentage of free cash flow and proceeds from employee stock plans.

  • FactSet won numerous awards including Excellence in Asset Management and Servicing, Data and Technology at the CIO Industry Innovation Awards, Best Overall Technology Provider at the Buy-Side Technology Awards from Waters Technology and Data Vendor of the Year at the Risk.Net Market Technology Awards. Additionally, FactSet was ranked 21 on the RiskTech100® 2018, the flagship report of Chartis Research.

  • FactSet expanded its Multi-Asset Class (MAC) risk models, leading to several global client wins and strengthening its position in the analytics market.

  • FactSet launched Open:FactSet Marketplace , a new online platform that offers both financial and alternative data such as satellite, sentiment, and environmental, social, and governance (ESG) data to address the growing demand for integrated data.

  • The Company released its first annual Corporate Social Responsibility Report , which covered the fiscal year ending August 31, 2017. The report highlights FactSet’s recent achievements and sets a trajectory for the future CSR goals.

  • FactSet expanded its global footprint by opening a new office in Shanghai, China. The Shanghai office supports FactSet's presence in the rapidly expanding, sophisticated, and technology-driven Chinese market.

Share Repurchase Program

FactSet repurchased 329,478 shares for $67.5 million during the fourth quarter under the Company’s existing share repurchase program. Over the last 12 months, FactSet has returned $393.4 million to stockholders in the form of share repurchases and dividends, funded by cash generated from operations. Under the Company’s existing share repurchase program, $241.7 million is currently available for share repurchases.

Annual Business Outlook

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

Fiscal 2019 Expectations

  • Organic ASV plus professional services is expected to increase in the range of $75 million and $90 million over fiscal 2018.

  • GAAP revenues are expected to be in the range of $1.41 billion and $1.45 billion
  • GAAP operating margin is expected to be in the range of 29% and 30%.
  • Adjusted operating margin is expected to be in the range of 31.5% and 32.5%.
  • FactSet’s annual effective tax rate is expected to be in the range of 17.5% and 18.5%, primarily as a result of the TCJA.  
  • GAAP diluted EPS is expected to be in the range of $8.70 and $8.90. Adjusted diluted EPS is expected to be in the range of $9.45 and $9.65. The mid-point of this guidance represents a 12% growth over the prior year.

Both GAAP operating margin and GAAP diluted EPS guidance do not include certain effects of any non-recurring benefits or charges that may arise in fiscal 2019. Please see the back of this press release for a reconciliation of GAAP to adjusted metrics.                                                                                                                                                                         

Conference Call

The Company will host a conference call today, September 25, 2018 at 11:00 a.m. Eastern Time to discuss the fourth quarter results. The call will be webcast live at FactSet Investor Relations . The following information is provided for those who would like to participate:

U.S. Participants:833.231.8259
International Participants:647.689.4104
Passcode:8586805
Moderator:Rima Hyder, Vice President, Investor Relations


An archived webcast with the accompanying slides will be available at investor.factset.com for one year after the conclusion of the live event. The earnings call transcript will also be available via FactSet CallStreet. An audio replay of this conference will also be available until October 2, 2018 via the following telephone numbers: 800.585.8367 in the U.S. and 416.621.4642 internationally using passcode 8586805.

Forward-looking Statements

This news release contains forward-looking statements based on management's current expectations, estimates, forecasts and projections about industries in which FactSet operates and the beliefs and assumptions of management. All statements that address expectations, guidance, outlook or projections about the future, including statements about the Company's strategy for growth, product development, revenues, future financial results, anticipated growth, market position, subscriptions, expected expenditures, trends in FactSet’s business and financial results, are forward-looking statements. Forward-looking statements may be identified by words like "expects," “believes,” "anticipates," "plans," "intends, "estimates, "projects," "should," "indicates," "continues," “may” 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 ability to integrate newly acquired companies, clients and businesses; strains on resources as a result of growth, the volatility and stability of global securities markets, including declines in equity or fixed income returns impacting the buying power of investment management clients; the ability to hire and retain qualified personnel; the maintenance of the Company's leading technological position and reputation; failure to maintain or improve FactSet’s competitive position in the marketplace; fraudulent, misappropriation or unauthorized data access, including cyber-security and privacy breaches; failures or disruptions of telecommunications, data centers, network systems, facilities, or the Internet; uncertainty, consolidation and business failures in the global investment banking industry; the continued shift from active to passive investing, the negotiation of contract terms with vendors, data suppliers and landlords; the retention of clients and the attraction of new ones; the absence of U.S. or foreign governmental regulation restricting international business; the unfavorable resolution of tax assessments and legal proceedings; and legislative and regulatory changes in the environments in which FactSet and its clients operate.  Forward-looking statements speak only as of the date they are made, and FactSet assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

About Non-GAAP Financial Measures

Financial measures in accordance with U.S. GAAP including revenue, operating income and margin, net income, diluted earnings per share and cash provided by operating activities have been adjusted.

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 they permit 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.

Organic revenues exclude the effects of acquisitions and dispositions completed in the last 12 months and foreign currency in all periods presented. Adjusted operating income and margin, adjusted net income and adjusted diluted earnings per share exclude both intangible asset amortization and non-recurring items. The Company believes that these adjusted financial measures better reflect the underlying economic performance of FactSet. 

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. 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 (NYSE:FDS | NASDAQ:FDS) delivers superior analytics, service, content, and technology to help more than 91,000 users see and seize opportunity sooner. We are committed to giving investment professionals the edge to outperform, with fresh perspectives, informed insights, and the industry-leading support of our dedicated specialists. We're proud to have been recognized with multiple awards for our analytical and data-driven solutions and repeatedly ranked as one of Fortune's 100 Best Companies to Work For® and a Best Workplace in the United Kingdom and France.  Subscribe to our thought leadership blog to get fresh insight delivered daily at insight.factset.com . Learn more at www.factset.com  and follow on Twitter: www.twitter.com/factset .

FactSet
Media & Investor Relations Contact:                                                            
Rima Hyder                                                                                 
857.265.7523                                                                               
rima.hyder@factset.com                                                             

Consolidated Statements of Income (Unaudited)

 
   
 

 
 Three Months Ended
August 31,
 
  Twelve Months Ended
August 31,
 
(In thousands, except per share data)  2018    2017    2018    2017 
        
Revenues$345,861  $326,642  $1,350,145  $1,221,179 
        
Operating expenses       
Cost of services 169,467   161,269   659,296   566,580 
Selling, general and administrative 88,038   82,945   324,645   302,464 
Total operating expenses 256,505   244,214   983,941   869,044 
        
Operating income 88,356   82,428   366,204   352,135 
        
Other expense       
Loss on sale of business? ? ?  (1,223)
Interest expense, net of interest income (4,421)  (2,655)  (14,366)  (6,600)
  Total other expense (4,421)  (2,655)  (14,366)  (7,823)
        
Income before income taxes 83,935   79,773   351,838   344,312 
        
Provision for income taxes 15,112   20,221   84,753   86,053 
Net income$68,823  $59,552  $267,085  $258,259 
        
Diluted earnings per common share$1.77  $1.52  $6.78  $6.51 
        
Diluted weighted average common shares 38,879   39,281   39,377   39,642 


Consolidated Statements of Comprehensive Income (Unaudited) 
 

 
 

 

Three Months Ended
August 31,
  

 

Twelve Months Ended
August 31,
 
(In thousands)  2018    2017   2018    2017
        
Net income$68,823  $59,552 $267,085  $258,259
        
Other comprehensive income (loss), net of tax       
Net unrealized (loss) gain on cash flow hedges*  (3,183)  784  (7,288)  5,017
Foreign currency translation adjustments (7,171)  18,136  (9,431)  28,816
Other comprehensive (loss) income (10,354)  18,920  (16,719)  33,833
Comprehensive income$58,469   $78,472   $250,366  $292,092
        

*For the three and twelve months ended August 31, 2018, the unrealized loss on cash flow hedges was net of tax benefits of $1.4 million and $3.5 million, respectively. For the three and twelve months ended August 31, 2017, the unrealized gain on cash flow hedges was net of tax expense of $0.5 million and $3.0 million, respectively.





Consolidated Balance Sheets (Unaudited)
   
   
  August 31,August 31, 
(In thousands)   2018 2017 
       
ASSETS      
Cash and cash equivalents $208,623  $194,731 
Investments 29,259 32,444 
Accounts receivable, net of reserves 156,639 148,331 
Prepaid taxes  6,274 7,076 
Deferred taxes ? 2,668 
Prepaid expenses and other current assets  30,121 24,127 
Total current assets

 
  430,916 409,376 
Property, equipment, and leasehold improvements, net 100,545 100,454 
Goodwill   701,833 707,560 
Intangible assets, net   148,935 173,543 
Deferred taxes   9,716 7,412 
Other assets   27,502 14,970 
 Total Assets  $1,419,447$1,413,315 
       
LIABILITIES   
Accounts payable and accrued expenses$72,059$59,214 
Accrued compensation  66,479 61,083 
Deferred fees  49,700 47,495 
Taxes payable  8,453 9,112 
Deferred taxes ? 2,382 
Dividends payable  24,443 21,853 
 Total current liabilities  221,134 201,139 
Deferred taxes   21,190 24,892 
Deferred fees   7,833 3,921 
Taxes payable   29,626 11,484 
Long-term debt 574,775 575,000 
Deferred rent and other non-current liabilities 38,989 37,188 
 Total Liabilities $893,547$853,624 
       
STOCKHOLDERS’ EQUITY    
 Total Stockholders’ Equity $525,900$559,691 
 Total Liabilities and Stockholders’ Equity$1,419,447$1,413,315 


Consolidated Statements of Cash Flows (Unaudited)

 
 
(In thousands)Twelve Months Ended
August 31,
     2018    2017  
CASH FLOWS FROM OPERATING ACTIVITIES       
Net income $267,085  $258,259  
Adjustments to reconcile net income to net cash provided by operating activities    
  Depreciation and amortization 57,285   48,294  
  Stock-based compensation expense 31,516   34,183  
  Loss on sale of business?  1,223  
  Deferred income taxes (1,910)  4,879  
  Loss on sale of assets 140   59  
  Tax benefits from share-based payment arrangements?  (10,331) 
Changes in assets and liabilities, net of effects of acquisitions    
  Accounts receivable, net of reserves   (8,417)  (29,502) 
  Accounts payable and accrued expenses   12,077   (2,226) 
  Accrued compensation 5,735   6,427  
  Deferred fees 6,035   (229) 
  Taxes payable, net of prepaid taxes 27,659   7,877  
  Prepaid expenses and other assets (11,224)  (850) 
  Deferred rent and other non-current liabilities (465)  2,331  
  Other working capital accounts, net 151   132  
Net cash provided by operating activities  385,668   320,527  
      
CASH FLOWS FROM INVESTING ACTIVITIES     
Acquisition of businesses, net of cash acquired  (15,000)     (303,086) 
Purchases of investments  (12,470)     (30,757) 
Proceeds from sales of investments   12,459      23,399  
Purchases of property, equipment and leasehold improvements, net of
proceeds from dispositions
   (33,520)     (36,862) 
Net cash used in investing activities  (48,531)  (347,306) 
CASH FLOWS FROM FINANCING ACTIVITIES     
Dividend payments  (89,408)  (80,898) 
Repurchase of common stock  (303,955)  (260,978) 
Proceeds from debt  ?  575,000  
Repayment of debt  ?  (300,000) 
Debt issuance costs  ?  (438) 
Proceeds from employee stock plans   71,610   50,045  
Tax benefits from share-based payment arrangements   ?  10,331  
Other financing activities   1,718   (1,223) 
Net cash used in financing activities   (320,037)  (8,161) 
       
Effect of exchange rate changes on cash and cash equivalents  (3,208)  1,264  
       
Net increase (decrease) in cash and cash equivalents    13,892   (33,676) 
       
Cash and cash equivalents at beginning of period   194,731   228,407  
Cash and cash equivalents at end of period  $208,623  $194,731  

Reconciliation of U.S. GAAP Results to Adjusted Financial Measures

Financial measures in accordance with U.S. GAAP including revenues, operating income and margin, net income, diluted EPS and cash provided by operating activities 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 they permit 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.

Revenues (Details may not sum to total due to rounding)

(Unaudited) Three Months Ended
August 31,
 
(In thousands)  2018   2017   Change 
GAAP revenues $  345,861  $326,642 5.9% 
Deferred revenue fair value adjustment (a)  1,397   2,955   
Currency impact (b)  (156)     
Organic revenues $347,102  $329,597 5.3% 
  1. The adjustment relates to deferred revenue fair value adjustments from purchase accounting.
  2. The impact from foreign currency movements over the past 12 months.
(Unaudited) Twelve Months Ended
August 31,
 
(In thousands)  2018   2017    Change 
GAAP revenues $  1,350,145  $1,221,179  10.6% 
Deferred revenue fair value adjustment (a)  7,691   5,486    
Acquired revenues (b)  (58,624)  (1,222)   
Currency impact (c)  (4,952)      
Organic revenues $1,294,260  $1,225,443  5.6% 
  1. The adjustment relates to deferred revenue fair value adjustments from purchase accounting.

  2. Acquired revenues from acquisitions and divestitures completed within the last 12 months.
     
  3. The impact from foreign currency movements over the past 12 months.


Operating Income, Margin, Net Income and Diluted EPS (Details may not sum to total due to rounding)

(Unaudited)   Three Months Ended
  August 31,
(In thousands, except per share data)  2018  2017   Change 
GAAP Operating income $88,356 $82,428 7.2% 
Intangible asset amortization (a)  6,079  6,159   
Deferred revenue fair value adjustment (b)  1,397  2,955   
Other non-recurring  items (c)  12,852  11,193   
Adjusted operating income $108,684 $102,735 5.8% 
Adjusted operating margin (d)  31.3% 31.2%  
      
GAAP Net income $68,823 $59,552 15.6% 
Intangible asset amortization (a)(e)  4,985  4,601   
Deferred revenue fair value adjustment (b)(e)  1,146  2,207   
Other non-recurring  items (c)(e)  10,538  8,361   
Adjusted net income $85,492 $74,721 14.4% 
      
GAAP Diluted earnings per common share $  1.77 $  1.52 16.4% 
Intangible asset amortization (a)(e)  0.13  0.12   
Deferred revenue fair value adjustment (b)(e)  0.03  0.06   
Other non-recurring  items (c)(e)  0.27  0.21   
Adjusted diluted earnings per common share $2.20 $1.90 15.8% 
Weighted average common shares (Diluted)  38,879  39,281   

(a)    GAAP operating income in the fourth quarter of fiscal 2018 was adjusted to exclude $6.1 million of pre-tax intangible asset amortization, which reduced net income by $5.0 million and diluted earnings per share by $0.13. GAAP operating income in the fourth quarter of fiscal 2017 was adjusted to exclude $6.2 million of pre-tax intangible asset amortization, which reduced net income by $4.6 million and diluted earnings per share by $0.12. The income tax effect related to intangible asset amortization was $1.1 million in the fourth quarter of fiscal 2018 compared with $1.6 million for the same period in fiscal 2017.

(b)    The adjustment relates to deferred revenue fair value adjustments from purchase accounting. The income tax effect related to deferred revenue fair value adjustments was $0.3 million in the fourth quarter of fiscal 2018 compared with $0.7 million from the prior year period.

(c)    GAAP operating income in the fourth quarter of fiscal 2018 was adjusted to exclude $12.9 million of pre-tax expenses primarily related to severance, stock-based compensation acceleration, other restructuring actions and legal matters, which reduced net income by $10.5 million and diluted earnings per share by $0.27. GAAP operating income in the fourth quarter of fiscal 2017 was adjusted to exclude $11.2 million of pre-tax expenses primarily related modifications of certain share-based compensation grants, restructuring actions and acquisition related costs, which reduced net income by $8.4 million and diluted earnings per share by $0.21. The income tax effect related to the other non-recurring items was $2.3 million in the fourth quarter of fiscal 2018 compared with $2.8 million for the same period in fiscal 2017.  

(d)   Adjusted operating margin is calculated as adjusted operating income divided by GAAP revenues plus the deferred revenue fair value adjustment.

(e)    For purposes of calculating adjusted net income and adjusted diluted earnings per share, intangible asset amortization, deferred revenue fair value adjustments and other non-recurring items were taxed at the annual effective tax rates of 18.0% for fiscal 2018 and 25.3% for fiscal 2017.

(Unaudited)   Twelve Months Ended
  August 31,
(In thousands, except per share data)  2018  2017   Change
GAAP Operating income $366,204 $352,135 4.0%
Intangible asset amortization (a)  24,665  19,924  
Deferred revenue fair value adjustment (b)  7,691  5,486  
Other non-recurring  items (c)  26,950  17,969  
Adjusted operating income $425,510 $395,514 7.6%
Adjusted operating margin (d)  31.3% 32.2% 
     
GAAP Net income $267,085 $258,259 3.4%
Intangible asset amortization (a)  19,723  14,845  
Deferred revenue fair value adjustment (b)  6,084  4,093  
Other non-recurring  items (c)  21,614  14,308  
Income tax items (e)  21,310  (1,918) 
Adjusted net income $335,816 $289,587 16.0%
     
GAAP Diluted earnings per common share $  6.78 $  6.51 4.1%
Intangible asset amortization (a)  0.50  0.37  
Deferred revenue fair value adjustment (b)  0.15  0.10  
Other non-recurring  items (c)  0.56  0.35  
Income tax items (e)  0.53  (0.05) 
Adjusted diluted earnings per common share $8.53 $7.31 16.7%
Weighted average common shares (Diluted)  39,377  39,642  

(a)    GAAP operating income in fiscal 2018 was adjusted to exclude $24.7 million of pre-tax intangible asset amortization, which reduced net income by $19.7 million and diluted earnings per share by $0.50. GAAP operating income in fiscal 2017 was adjusted to exclude $19.9 million of pre-tax intangible asset amortization, which reduced net income by $14.8 million and diluted earnings per share by $0.37. The income tax effect related to intangible asset amortization was $5.0 million in fiscal 2018 compared with $5.1 million for fiscal 2017.

(b)    The adjustment relates to deferred revenue fair value adjustments from purchase accounting. The income tax effect related to deferred revenue fair value adjustments was $1.6 million in fiscal 2018 compared with $1.4 million from the prior year.

(c)    GAAP operating income in fiscal 2018 was adjusted to exclude $27.0 million of pre-tax expenses primarily related to severance, stock-based compensation acceleration, other restructuring actions and legal matters, which reduced net income by $21.6 million and diluted earnings per share by $0.56. GAAP operating income in fiscal 2017 was adjusted to exclude $18.0 million of pre-tax expenses primarily related modifications of certain share-based compensation grants, restructuring actions and acquisition related costs, which reduced net income by $14.3 million and diluted earnings per share by $0.35. The income tax effect related to the other non-recurring items was $5.4 million in fiscal 2018 compared with $3.7 million for fiscal 2017. 

(d)   Adjusted operating margin is calculated as adjusted operating income divided by GAAP revenues plus the deferred revenue fair value adjustment.

(e)    GAAP net income in fiscal 2018 was adjusted to exclude $21.3 million of tax charges primarily related to the one-time deemed repatriation tax on foreign earnings. This reduced diluted earnings per share by $0.53. Fiscal 2017 GAAP net income was adjusted to exclude $1.9 million of income tax benefits related to finalizing previous years’ tax returns and other discrete items. GAAP diluted EPS was adjusted to exclude $0.05 from these same income tax benefits.

Business Outlook Operating Margin, Net Income and Diluted EPS

(Unaudited)  
    Annual Fiscal 2019 Guidance
(In thousands, except per share data) Low end of rangeHigh end of range
GAAP Operating margin   29.0% 30.0%
Intangible asset amortization (a)   1.7% 1.7%
Deferred revenue fair value adjustment (b)   0.4% 0.4%
Other non-recurring items (c)   0.4% 0.4%
Adjusted operating margin   31.5% 32.5%
    
    
GAAP Net income $ 333,506 $341,406 
Intangible asset amortization (a)   19,746  19,746 
Deferred revenue fair value adjustment (b)   4,378  4,378 
Other non-recurring items (c)   4,970  4,970 
Adjusted net income $ 362,600 $370,500 
    
GAAP Diluted earnings per common share $ 8.70 $8.90 
Intangible asset amortization (a)   0.51  0.51 
Deferred revenue fair value adjustment (b)   0.11  0.11 
Other non-recurring items (c)   0.13  0.13 
Adjusted diluted earnings per common share $ 9.45 $9.65 

(a)    GAAP operating income for the full fiscal 2019 year was adjusted to exclude $23.9 million of pre-tax intangible asset amortization, which reduced the GAAP operating margin by 1.7%, GAAP net income by $19.7 million and GAAP diluted earnings per share by $0.51. The income tax effect related to intangible asset amortization was $4.2 million for the period presented above.

(b)    The adjustment relates to deferred revenue fair value adjustments from purchase accounting. The income tax effect related to deferred revenue fair value adjustments was $0.9 million for the period presented above.

(c)    GAAP operating income for the full fiscal 2019 year was adjusted to exclude $6.0 million of pre-tax expenses primarily related to restructuring actions, which reduced net income by $5.0 million and diluted earnings per share by $0.13. The income tax effect related to other non-recurring items was $1.0 million for the period presented above.


Free Cash Flow

(Unaudited)   Three Months Ended
  August 31,
 
(In thousands)  2018  2017   Change
Net cash provided by operating activities $  106,324 $100,215  
Capital expenditures  (15,145)   (10,880) 
Free cash flow $91,179   $89,335 2.1%


(Unaudited)   Twelve Months Ended
  August 31,
 
(In thousands)  2018  2017   Change
Net cash provided by operating activities $  385,668 $320,527  
Capital expenditures  (33,520)   (36,862) 
Free cash flow $352,148  $283,665 24.1%

Supplementary Schedules of Historical ASV by Client Type

The following table presents the percentages and growth rates of organic ASV by client type, excluding currency, and may be useful to facilitate historical comparisons. Organic ASV excludes acquisitions and dispositions completed within the last 12 months and the effects of foreign currency. 

 Q4’18Q3’18Q2’18Q1’18Q4’17Q3’17Q2’17Q1’17
% of ASV from buy-side clients83.9%84.4%84.4%84.2%84.1%84.4%83.2%83.0%
% of ASV from sell-side clients16.1%15.6%15.6%15.8%15.9%15.6%16.8%17.0%
         
ASV Growth rate from buy-side clients5.4%5.3%6.0%5.3%5.9%5.7%6.8%8.3%
ASV Growth rate from sell-side clients7.3%5.0%4.6%3.9%4.6%5.8%4.9%6.3%
Total Organic ASV Growth Rate5.7%5.3%5.8%5.1%5.7%5.7%6.5%7.9%

The following table presents the calculation of the above-mentioned ASV growth rates from all clients.
(Details may not sum to total due to rounding)

(In millions)Q4’18Q4’17
As reported ASV (a)$1,393.1 $1,316.6
Currency impact (b) 1.6  3.7 
Organic ASV total$1,394.7 $  1,320.3
Total Organic ASV Growth Rate 5.7% 
  1. Beginning with the fiscal third quarter of 2017, FactSet excluded professional services fees billed within the last 12 months, which are not subscription based. ASV excludes $21.6 million and $17.2 million, respectively, in professional services fees as of August 31, 2018 and 2017.
     
  2. The impact from foreign currency movements was excluded above to calculate total organic ASV.

FactSet Research Systems Inc.

Source: FactSet Research Systems Inc.


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