Factset Research Systems Inc (FDS) 2003 Q3 法說會逐字稿

Good morning.

And thank you for standing by.

All participants will be able to listen to the call.

You may disconnect at this time if you have any objections.

I would like to introduce Ernest Wong, Chief Financial Officer for FacSet Research Systems Inc..

Mr. Wong, you may begin.

Thank you.

Good morning.

And welcome to your conference call.

With me today here are Philip Hadley our CEO Michael DiChristina and Michael Frankenfield Senior Vice President and in charge of our sales and consulting group.

All of them will be available with me to answer any questions that you may have following my review of our 2003 fiscal third quarter.

Throughout this conference call.

There will be certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on management's current expectations and beliefs under guarantees of future per for handsets and involve certain risks, urn certainties which are you difficult to predict.

Actual results may differ materially (inaudible) competitive factors more information about these and other potential aspects that could result effect the results, annual form 10-K for the year August 31, 2002 and quarterly reports on form 10-Q November 30th, 2002 and February 28th 2003.

All of which are on file with the Securities and Exchange Commission.

FactSet under takes no obligations to publicly update any forward looking statements as a result of new information future events or otherwise.

Earlier this morning, we announced that FactSet had posted record revenues and profits for the fiscal quarter that ended May 31st.

Compared to the same period a year ago ago revenues rose 12.8% to $59.1m and operating income increased to 21% to $19.5m.

Aided by a lower effective tax rate and a one time income tax benefit of $1.3m net income 37.8% to $14.3m.

EPS on a fully diluted basis was 41 up from 29 cents in the third quarter of fiscal 2002.

Excluding the tax benefits fully diluted EPS would have been 37 cents for the nine months ended May 31 revenues were $170.6 m up 12.4% compared to the same period a year ago.

Operating income advanced 26.2% to $56.3m a higher rate of growth and what we experience in the third quarter alone in part because our operating income in fiscal 2002 included a $904,000 charge we took in connection with relocation of data center from New York to New Hampshire.

Net income for the first nine months and fully loaded EPS rose 27.9% and 29.4% respectively.

Note that in fiscal 2002, we also recognize a tax benefit of $893,000 which were netted against the data center relocation charge resulted in a 1 cent increase in EPS.

Although conditions in the markets we serve have generally not improved since we last spoke with you three months ago, we were able to grow commitments to $235.9m as of May 31st.

Which respects 11% gain over $213m reported over a year ago and nearly $6m during the fiscal quarter.

Additional subscription to databases and applications from our clients as well as the net edition of 14 new clients to 942 were the drivers of this growth.

Continued to see additional demand for our portfolio analytics during the quarter.

And we now have 340 clients representing 2500 users as of the end of May an increase of 30 clients and 400 users during the past 12 months.

Tempering our subscription growth with a slight decline in network station count decreased in 19,000 as of May 31 from 19,400 at the end of February.

Client retention continued to remain above 95% during the quarter.

Once again, affirming our importance of FactSet Research Systems to our client.

As we noted in press release this morning including in $59.1m of revenues this quarter is approximately $400,000 of revenues derived from merger stat publications which we do not include in the calculation of total subscription.

These are recognized when the publications are given to clients with much of this occurring in April of this year.

Revenues of domestic clients grew 13.2% to $47.9m to in the quarter.

Compared to the same quarter if fiscal 2002.

Additional subscriptions to data bases and applications as well as new clients were the principle drivers of this growth.

Also included in the domestic revenue number is $400,000 publications revenues from merger stat that I mentioned even that we just acquired the merger stat business in January no publications revenue was recognize is fiscal 2002 International revenues rose 11% for the fiscal quarter to $11.2m.

By region revenues from our European and Pacific rim operations rose 13% and 4% to $8.7m and $2.5m respectively.

Total international subscriptions continued to represent 19% of total subscriptions or $44.6m as of May 31st.

On the expense side of our P&L we continued to remain cautious in managing cost structure in order to sustain profitability in prolonged period of economic uncertainty.

Cost of sales declined 100 basis points compared to same quarter a year ago.

Largely due to lower depreciation on computer related equipment and compensation expense as a percentage of revenues.

Depreciation expense on our technology assets has been flat due to lower levels of capital spending over the past two years.

Partially offsetting these improvements was increase in communications expenses as a percentage of revenues.

General and administration expenses as percentage of revenues improved by 130 basis points benefiting largely from lower occupancy costs, professional fee as miscellaneous expenses as a percentage of revenues.

For the result of these improvements and those expenses related to our cost of sales ore operating margin rose to 33% for the quarter up from 30.8% a year ago.

Net income for the quarter was impacted by $1.3m income tax benefit.

Which as I mentioned earlier in the call translates to a 4 cent benefit in EPS.

In federal tax planning we determined we qualified for EIE or Extra Territorial Exclusion (ph) which relates to legislation enacted by congress to permits a company exclude certain non-U.S. income -- from the company's U.S. tax computation.

The majority of the tax been take therein the fiscal third quarter was related to reduction to fiscal 2002 federal income tax.

Our effect active tax rate declined to 35.2%.

And going forward in the next quarter will be approximately 36.7% primarily as a result of Federal income tax planning.

With respect to capital spending our capital Expenditure were relatively modest these past three months totaling over a little over $1m.

Virtually all the CAPEX was directed towards the purchase of technology assets including net working and other IT equipment.

Our capital spending totaled $5m for the first nine months of the fiscal year.

And as you may have noticed in press release, we have lowered our guidance on capital expenditures for the full fiscal year to $9m from our previous guidance of $12m.

As we have indicated our capital spending continues to be relatively low in the large part due to significantly improved systems performance that system engineers have achieved through software enhancements as well as CPU and upgrades.

These enhancements and upgrades have provided additional capacity as permitted us to defer major purchases of additional hardware.

We have been encouraged to see improvement in financial markets over past several months.

Our healthier economic climate will have positive impact of client spending and in turn on performance.

We are all operate anything the challenging environment.

But our financial performance this past quarter.

Once again confirms strength of business model we continue to be confident about opportunities both here and abroad.

We remain committed to investing in products development to enhanced our (inaudible) of applications and our sales force continues to be very active.

All of these efforts should keep us in a strong position or continued growth.

At this time, I would be happy to take any questions that you might have

If you would like to ask a question, you can press star one.

You to withdraw your question, you may press star two.

Once again, please press star one to ask a question.

One moment please.

Okay Craig Huber of Morgan Stanley you may ask your question.

Good morning.

Couple of questions first.

Can you give us if you would the number of the employees for sales and marketing for both this quarter and also three months ago and also the consultant about you have?

Craig, we haven't disclosed that information publicly.

And I can tell you that our totals employee count is 743 at the end of --

Was that number 3 months ago?

The number 3 months ago was -- was actually 743, not changed

Flat okay.

And then concerning your CAPEX you lowered it by $3m.

What should we expect CAPEX budget for next year and maybe for the next few years.

When do you expect to ramp up your CAPEX?

Part of the reason for the decline in our CAPEX by $3m is related to timing.

Another part of the reason is due to actually lower equipment costs.

But you know, we're in the throws of doing budgeting right now for our CAPEX budget in 2004.

You envision it being $25m, $30m again or nowhere near that?

I don't anticipate it being at this those levels at this point.

I guess a question for Phil.

It's my understanding that you have a new version of premium workstation coming out Marque (ph) can you just update us on that, what the new enhancement will be on that, Just be curious also to hear which your client is telling you about your new product?

This was released almost exactly a year ago.

Had itself first upgrade somewhere in the middle of the year of 1.7 and we will continue to have upgrades coming forward.

Exact timing of that I’m not sure at this point but it will be enhanced regularly through time.

One or two versions a year for a long time.

So when -- give me a broad idea when the next new version is coming out?

You know, at this point I would be guessing.

I'm going to guess some time in the fall.

And can you give us at all what the changes might be and I'll let you go?

It's a substantial upgrade to the product to pull in many of the features that earlier versions didn't have.

It's significantly more powerful in the news filtering.

Brings it up where most players in the marketplace and ahead of many.

It's got lots and lots of features in it.

Thank you.

Keith Gay Thomas Weisel Partners, you may ask your questions.

Good morning and also congratulations on a nice quarter

The macro perspective with the market looks like security industry and employment numbers have been at least be stabilizing over the last few months and your user count dropped 400.

That was certainly a lot better than the develop drop you had in the last quarter or so.

Can you comment on whether are you seeing at least the user perspective are you seeing stabilization in the industry just your view of the macro perspective?

Mike you want to comment on that?

I think the result that we continue to see in the marketplace are really mixed.

There's a lot of ambiguous information.

Some firms appear to be stabilizing, excelling, even hiring in some cases.

Other firms still face challenges.

Overall -- I think things are stabilizing.

Probably take several quarters to confirm that definitely.

If you look at the user base, can you give us an idea what percent are now on the higher annual subscription price?

We haven't disclosed that information historically.

Okay.

All right.

I'll try and follow-up with you guys on that.

Also and then just finally.

If we look at now average contract, the base subscription price and additional data bases and services, can you either update or refresh us on how those averages breakdown on average preparation per client?

Well, the average subscription per client is the one we published a $250,000.

Obviously that's skewed by the high end of the base.

You know, the typical entry level package for FactSet probably is somewhere around $100,000.

It really depends on the size of the firm.

A larger firm will sign up with a much bigger subscription.

A smaller firm, might be less than that

But on average 250,000 CV per client.

How does that break down into the base subscription price the (inaudible) revenue and the additional database of the services.

If you took at 250 client and broke it down

Right

Well the base is somewhere around $60,000 .

That client probably subscribes to another $50,000 of data bases.

And again, it's going to be very different depending on whether product they would be a buy side or sell side.

If the buy side firm more than likely they're going to have PA which might be another $50,000 for that.

You're going to be end up with users on top of the that that would pick it up at another $50,000.

Probably getting close at this point.

Thanks great.

It's pretty diverse mix.

But our client base is pretty diverse in their types so that you might have one client that’s very heavy on data bases and light on applications and one the other way.

Thank you.

Brett Manderfeld (ph) of US Bancorp Piper Jaffray.

You may ask your question.

My question relates to the MARQEE product.

Was curious as to how far along are you in introducing the product or offering the product to existing installed base and maybe give us some color in term of the number of people who have accepted thus far and where you are in the roll out?

It's product that part of our workstation at this point.

All of the clients have access to it.

In some case, there's a IT hurdle you need to go over to make sure it's able to be installed inside of clients (inaudible) 100% in some clients, to none or very new in others.

At this point, you know, we're not quantifying that.

But the long-term assumption that all our 19,000 plus workstations will have access to the product

In terms of pricing strategy there, are you increasing if price for those people who do have access MARQUE to this program from the base the 36 hundred I believe was the base and even absent the Marque have you changed the pricing to increase that from the $3600 mark.

That's a price that hasn't existed for a year at this point.

The $6,000 workstation is part of -- (inaudible) station at this point.

That's certainly based on the current Marquee speeches we have.

We certainly -- determine your value point in the marketplace to change that number.

But at this point, that's the number we're comfortable

In term of the people that have declined it thus far, are you still charges them the $3600 price tag or more closing to $6,000.

Well, the entire client base is on a transition.

And we deal with that on a client by client basis to see what their particular needs are and what fits in their business plan.

But them not having the program is not the choice in that particular sequence.

You know, if you on the investment banking side, you got other product that justify the value product at $6,000 beside the Marque.

Is it fair to say that most people have moved to that $6,000 price?

It's not something that we quantify at this point.

Okay.

Thanks

Joseph LaManna, William Blair ,you may ask your question.

Yes.

Is it safe to assume for modeling purposes that the effective tax rate for fiscal ’04 will be at that 36.7% rate?

I think it's fair, Joe to assume that the tax rate is not going to vary significantly from where we are anticipating the tax rate for the fourth quarter of fiscal '03.

Secondly what is your take on the SEC look in to soft dollar arrangements if they were to curtail significantly the use of soft dollars of payments.

Well, Joe, it's something that's been around for the long time.

I did a little bit of research on it.

For those of you that want to do some research the SEC website. sec.gov It will give you an idea of how long this has been around.

It dates back to 1975.

The issues that exist today are the same ones that they talked about for the last 30 years almost.

The reports that I saw and I actually haven't seen it.

But I did see it in a CBI World market reports and it was a response to the SEC to the house subcommittee.

And the gist of it -- I didn't actually see the report.

I got the feeling that there potentially maybe more disclosure.

But it's fair the SEC was not the change things dramatically.

With all of that said, I don't really honestly think it would effect our business so much.

I think it would effect your business more than ours.

We got a tangible price or our (inaudible) I feel very comfortable that the value our exists in cash as well as the commission dollars.

And through my tenure through the industry, I think the prudence of the buy side in valuing commission dollars much closer to what you would think of in cash dollars seems to be the case these days.

You might have gone back in the mid 80s and firm might be flush with commission dollars and bold to purchase services.

I haven't felt that way probably for the last ten years.

It's a very tight budget.

They monitor what they're going to buy and make their decisions cordially.

I don't think it's materially impact to us in the fore seeable future from what I could tell

Okay.

Thank you, that was helpful.

Charlie Carter of Credit Suisse First Boston.

I had a question of 14 new clients that were picked up in the quarter.

If you can comment at all on what the breakdown was in terms of buy side, sell side, international domestic and any of your expectations for each of those and any segments.

Thanks

I guess the generic answer to the question is pretty similar to history.

You would be surprised to see that we were actually net on the sell side.

But, you knows if you took those and relative to current revenue, they probably fall under the categories that I don't any they fall in to on a net basis.

So the mix is very typical for to us.

Some large, some small, some buy side some sell side but pretty close to where revenue really exist.

And your expectations I guess any change there?

I don't.

No I really continue to see thing.

We have a diverse client base and there's a diverse group of clients out there.

And can see new clients coming from all different areas.

Thanks very much

John Neff from William Blair.

What do you expect the merger stats revenue for the year?

We haven't disclosed that, Jon, I think when we made the acquisition back in January this year or when we announced earnings last quarter, we did give an indication that margin states margin states does somewhere $2m.

Okay.

Great.

And last question.

Sort of a nitpicky question.

Sort of think about the net -- should we think of those of that revenue contribution as being lumped under the revenue contribution from incremental work stations or from the contribution from data bases and applications?

The answer is kind of all of the above.

John Neff Okay.

But, you know, I guess internally we kind of look at things as data bases applications and work stations.

But we also look at things all mashed together.

So I'm not sure there is a good answer to that question.

Okay.

Great.

That's all I have.

Thank you.

Neil Godsey, of ThinkEquity Partners.

Couple of questions for you.

First of all of powering plants going forward your employee count remains steady from February.

I was curious if you comment on what you expect over the remainder of the year as well as areas where you might be adding people secondly I was wondering about the potential for either dividend increase or increase in your stock buy back program given the $150m plus in cash you have?

Thanks.

I'll have Mike and Christina answer your first question

We have tow full classes coning in as far as consulting group top replenish that and one class for our software engineering group.

So you're going to see the number of employees pick up over the summer here for us.

And we also listen continue to invest in data base collection efforts.

We continue to invest within is scope of our budgets.

And nothing that's out of the norm from what we've done from previous sum mores.

And with respect to your second question concerning dividends, as you're probably aware the board of directors recently did improve an increase in dividends so that the dividends did increase from 20% from 5 cents to 6 cents a quarter.

And that dividend policy does get reviewed by the board on a periodic basis.

And with respect to stock repurchases as we said in the past, we will continue to be optimistic.

Okay.

Thanks.

To ask a question, please press star one.

If you have a follow-up question from Craig Huber .

You may ask your question.

Just to clarify an Earlier question about Marque.

With the client nowadays.

They're only being sold a $6,000 workstation, correct?

If they're new client or old client.

Generally he or she get the $6,000 workstation.

So you have a mix of $6,000 and $3600 of all you r clients?

We do have a mix of some clients that haven't been -- we have a mix of old clients, yes.

Okay.

But only new people that come in the door are sold a $6,000 workstation, correct?

Correct.

And then I've got to think some time over the next two years you're going to flipping the switch where all people of $3600 and flipped over to $6000 workstations is that still is game plan.

Roughly two years out?

And many clients are in transition at this point.

Yes.

Just back to the CAPEX question.

When are you expecting a major wrap up in CAPEX or are you?

The big CAPEX year we had a couple of years ago was when we replaced all the mainframes in our data center and new technology that came along I think from memory it was a $20 million purchase to buy all the hardware we had in that room.

Roughly at this point to replace all of that hardware and give us more capacity, you know, the estimates I’ve seen are $10m or less so our replacement cost for what we had is dramatically less in history.

Part of that is because we've done a lot of the system's efficiency side.

Part of that is just because of change of technology on the hardware sides.

I don't think we're going to have the return to that level that we had prior any time in the foreseeable future.

We do have leases and we sold improvements that are irregular capital expenditure that will kid depending on what kind of decisions we make on our various offices the last couple of years have been very minimal.

As time travels, you know, we'll guide you as to when we think those will occur.

Can you maybe just update us on what you see on the marketplace from your competitors such as Thompson with the equity one product?

The competitive landscape there's always been strong competitors in the there in the marketplace for as long as all of us have been here.

And the facts -- the FactSet offering is very broad.

And it's a very strong offering. that makes it very difficult to for our competitors to really come in with a complete solution to displace us.

So while individual competitors may develop certain technologies or capabilities that are strong in a particular area, FactSet offers a very broad package that stands up extremely well against the competition.

Great.

Thank you.

At this time, there are no further questions.

Okay.

Well, thank you all for listening in.