Fitch Affirms FactSet at 'BBB+'; Outlook Stable

Published: 2025-04-14 05:09:13 ET FDS

Fitch Ratings has affirmed FactSet Research Systems, Inc.'s (FactSet) 'BBB+' Long-Term Issuer Default Rating (LT IDR) and 'BBB+' senior unsecured issue ratings.

The Rating Outlook is Stable. In addition, Fitch has assigned 'BBB+' issue ratings to FactSet's new $1 billion revolving facility and $500 million term loan. Proceeds from the term loan were used to refinance revolving debt under FactSet's 2022 credit agreement, which was terminated.

The ratings are supported by the integration of the company's offerings into global financial services workflows, leading to a high proportion of recurring revenue, positive free cash flow and low leverage.

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 integrated into its clients' workflows. This yields a substantial portion of recurring subscription-based revenue (more than 95% of annual subscription value) and high client retention (90% in 2025 year to date), making for high revenue visibility. These results are driven primarily by flexible open platforms, which allow clients to access proprietary, industry and third-party data and feeds.

Solid Operating Performance: FactSet has generated consistent growth across several operating metrics and will do so over the rating horizon. Since the CGS acquisition, the number of FactSet users has increased by more than 25% to 220,000 as of February 2025, from 174,000 as of May 2022. We expect revenues to reach $2.5 billion by FY 2027, from $2.2 billion in FY 2024. This compares with $1.8 billion pro forma after the CGS acquisition. Fitch expects EBITDA to increase to over $1 billion by FY2027, from about $800 million in 2023.

Strong Credit Metrics: We expect EBITDA leverage to hover around 1.5x or lower. It has fully repaid the $1 billion it borrowed to fund the CGS acquisition. Leverage declined steadily since a pro forma peak of 3.2x with the acquisition due to prepayments and EBITDA growth. Over the last 12 months, as of Feb. 28, 2025, Fitch-calculated EBITDA leverage was 1.5x, slightly lower than a year ago despite completing a $250 million acquisition aimed at enhancing FactSet's order workflow capabilities.

Strengthening Margins: EBITDA margins have risen solidly above 40%, from mid-35% in our initial rating. Improvement is mainly due to cost reductions and CGS's far higher profitability. These margins are at the lower end of our rated DAP universe, largely due to big internal investments including acquisition costs and the upkeep of an extensive database. Cash flow profitability and leverage should be comparable to DAP peers rated 'BBB+' and above with free cash flow (FCF) margins in the 20% range and cash flow from operations (CFO) minus capex to debt at 40%-50%.

Competitive Landscape: FactSet lacks the depth of proprietary offerings of Moody's Corporation and S&P Global Inc. (corporate securities ratings). Heightened cost-cutting activities among global financial institutions over the past year and a slowdown in deal activity adds competitive pressure. However, CGS's highly defensible product set and FactSet's flexible open platform continue to drive industry-leading client retention levels.

Peer Analysis

FactSet's percentage of recurring revenues is among the highest of the data and analytics sector. However, relative to S&P Global Inc. (A-/Stable) and Moody's Corporation (BBB+/Stable), FactSet is smaller and has lower EBITDA margins due primarily to the lack of proprietary offerings.

FactSet's leverage profile is in line or better than 'BBB+' rated peers, with EBITDA leverage at 1.5x as of February 2025. Although FactSet and CoStar (BBB/Stable) are similar in terms of revenues, FactSet has higher margins and a significantly higher percentage of recurring revenue. Finally, while also similar in size to MSCI (BBB-/Stable), FactSet's lower margins are offset by lower leverage and no customer concentration.

Key Assumptions

The base case reflects revenues of $2.3 billion in FY 2025 and mid-single-digit revenue growth in subsequent years;

Total Fitch-calculated EBITDA margins north of 40%, supported by continued expense management;

Capex in the range of 4%-5% of revenues, a slight uptick as a percentage of revenue from prior years;

Dividends in the range of 25%-30% of net income;

Excess cash flow used for a combination of share repurchases or tuck-in acquisitions and debt repayment.

RATING SENSITIVITIES

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.

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.

Liquidity and Debt Structure

FactSet had $382 million of cash on hand as of Feb. 28, 2025. The company entered into a new credit agreement in April 2025 which includes a $1 billion unsecured revolver that was fully available at close. Fitch expects liquidity to remain adequate, including both cash balances and availability under its revolver. We expect FactSet's FCF in the $500 million range, which is more than sufficient to manage amortization and maturities.

As of Feb. 28, 2025, the company had $480 million under its revolving credit facility due in 2027 as well as two bond issues of $500 million which mature in 2027 and 2032. The balance drawn on the previous credit facility was refinanced with a $500 million senior unsecured term loan under the new agreement.

Issuer Profile

FactSet is a financial data and analytics company that provides critical financial data and market intelligence on securities, companies and industries. CGS's acquisition in 2022 provided additional product line diversification with proprietary offerings, very little competition and significant recurring revenue.

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.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

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.