Fitch Ratings has upgraded
The Rating Outlook is Stable.
The upgrade reflects FactSet's sustained improvements in operating performance, which are expected to drive consistent growth, enhanced profitability, increased scale, and lower financial leverage. The upgrade considers the significant debt reduction achieved since the completion of the
Key Rating Drivers
Strong DAP Operating Profile: Similar to its direct and indirect data, analytics and transaction processing (DAP) peers, FactSet benefits from providing critical inputs that are integrated into its clients' workflows. This yields a substantial portion of recurring subscription-based revenue (more than 98% of Annual Subscription Value) and high client retention rates (90% in 2024 YTD), resulting in a high degree of revenue visibility. These results, at the high end of Fitch's DAP rated universe, are driven primarily by FactSet's flexible open platforms, which allow clients to directly access proprietary, industry and third-party data and feeds.
Solid Operating Performance: FactSet has generated relatively consistent growth across a number of operating metrics, and Fitch expects growth to continue over the rating horizon. Since the CGS acquisition's closing, the number of FactSet users has grown about 20% to 206,000 as of
Strong Credit Metrics: Fitch expects EBITDA leverage to decline to 1.5x or lower by fiscal 2025 as the company pays the remaining
Strengthening Margins: FactSet's EBITDA margins have strengthened to around 40% from the mid 35% area since Fitch's initial rating of the company. Improvement has been largely the result of recent cost reductions and CGS's significantly higher profitability. Even with these gains, EBITDA margins are at the lower end of Fitch's rated DAP universe largely due to substantial internal investments, which include costs related to the acquisition and upkeep of an extensive database. Cash flow profitability and leverage should be comparable to DAP peers rated 'BBB+' and above with FCF margins in the 20% range and CFO minus Capex to Debt in the 40%-50% range over the forecast period.
Competitive Landscape: FactSet lacks the depth of proprietary offerings of
Derivation Summary
FactSet's percentage of recurring revenues is among the highest of the data and analytics sector. However, relative to
FactSet's leverage profile is in-line or better than 'BBB+' rated peers, with EBITDA leverage at 1.7x as of
Key Assumptions
The base case reflects revenues of
Total Fitch-calculated EBITDA margin around 40%, supported by continued expense management;
Capex in the range of 3%-4% of revenues, a slight uptick as % of revenue from prior years;
Dividends in the range of 25%-30% of net income;
Term loan is sequentially repaid until maturity;
Excess cash flow used for share repurchases or tuck-in acquisitions.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Fitch does not expect near-term upward rating momentum given the company's scale;
Increased diversification without loss of revenue visibility;
A stated commitment to maintain EBITDA leverage below 1.5x.
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
EBITDA leverage sustained over 2.5x without a credible plan to delever;
EBITDA margins in the mid 30% range or lower;
Competitive threats leading to stagnant or declining revenue.
Liquidity and Debt Structure
Solid Liquidity: FactSet had
Debt Structure: As of
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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