Factset Research Systems Inc (FDS) 2008 Q4 法說會逐字稿

Good morning and welcome to the FactSet Research Systems fourth quarter fiscal 2008 quarterly earnings conference call.

At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS).

Today's conference is being recorded.

If you have any objections you may disconnect at this time.

Now I will turn the meeting over to Mr.

Peter Walsh, Chief Financial Officer.

Sir, you may begin.

Thank you, operator.

Good morning and thanks to all of you for participating today.

Welcome to FactSet's fourth quarter earnings conference call.

Joining me today are Phil Hadley, Chairman and CEO, Mike DiChristina, President and Chief Operating Officer, Mike Frankenfield, Director of our US Investment Management Business and Scott Beyer, Head of our Non-US Business.

This conference call is being transcribed in real time by FactSet's call Street Service and is being broadcast live via the Internet at FactSet.com.

A replay of this call will also be available on our website.

Our call will contain forward-looking statements reflecting management's current expectations, based on currently available information.

Actual results may differ materially.

More information about factors that could affect FactSet's business and financial results are in FactSet's filings with the SEC.

Lastly, FactSet undertakes no obligation to publicly update any forward-looking statements as a result of new information, future events or otherwise.

We'll divide our time today in three ways.

First, we'll review fourth quarter results.

Then, I'll cover guidance for the upcoming first quarter of fiscal 2009, including our current thinking on the AIC impact from historic changes and consolidation in the financial services industry.

Finally, we'll close with our management team addressing your questions.

Before covering results, I would like to take a moment to highlight two items.

One, on July 24th, FactSet competed its acquisition of a copy of the Thomson Fundamentals database.

Our product line is now branded as FactSet Fundamentals and resulted in EPS dilution of $0.01 per share in Q4.

We reported in our earnings release GAAP and non-GAAP financial measures.

Operating income, net income and EPS have been adjusted where appropriate to exclude the acquisition of Thomson Fundamentals, and the $1.1 million tax benefit in Q4 last year.

Reconciliations between GAAP and non-GAAP financial measures are also included in the earnings press release which can be found at our website under the Investor Relations section.

Two, like last year, we added a supplementary schedule in today's press release that summarizes revenues related to FactSet services that are not included in our calculation of ASV or annual subscription value.

These revenues are not material but we disclosed it to aid in investor's ability to make more precise interpretations and forecasts of FactSet's revenues.

Moving on to the fourth quarter.

Overall, we had a strong quarter.

We delivered revenue growth of 19%, operating margins of 33%, and another quarter of impressive free cash flow.

Performance was driven by our investment management business.

During Q4, our US investment management team added more clients on a net basis than any quarter since February 2007.

Our non-US business continued to expand its presence using marquee MPA which contributed to the 23% revenue growth rate outside the US.

On the sell side, why the positive ASV change was not significant, user account rose again on a net basis during the quarter.

Since the turmoil in the credit markets commenced more than a year ago, our IB team has increased users by 16%.

This performance contrasts very favorably to the last period of prolonged disorder in the world financial markets.

During a similar time, post 9/11, we lost 3,000 sell side users, resulting in a decline of users of 22%.

The increase in users this year demonstrates a significant improvement in our product offerings and our sales and consulting talent continue to deliver superlative service that's synonymous with FactSet.

Finally, we continue to invest for the future in areas very familiar to us.

FactSet fundamentals was released in August, and our buy and sell side teams have begun to chip away at what we believe is a $100 million annual revenue opportunity just among our existing clients.

Let's begin the highlights of our quarter with free cash flow.

Free cash flow captures all the balance sheet and P&L movements.

As a reminder, we define free cash flow as cash generated from operations which includes the cash cost for taxes and changes in working capital, less capital spending.

Excluding FactSet fundamentals, free cash flows generated during the fourth quarter were $39 million and $116 million over the fiscal year.

Drivers of free cash flow during Q4 were record levels of net income, a 19% increase in non-cash expenses, a $6 million improvement in working capital, partially offset by a $10 million of capital expenditures.

When considering free cash flow for the upcoming first quarter, please factor in that FactSet pays variable employee compensation related to the previous fiscal year in the first quarter.

This cash outlay will approximate $33 million in the first quarter of fiscal 2009.

It is included in accrued compensation and is represented as a liability on our balance sheet at August 31st.

Capital expenditures net of landlord contributions in the fourth quarter were $9.6 million.

Expenditures for computer equipment were $5.7 million and the remainder covered office space expansion.

Major expenditures included adding four HP integrity mainframes to our data centers and building out new space in Paris, Chicago and Norwalk.

Our ending cash and market ability security balance was $143 million, down $49 million over the past three months.

During Q4, we invested $67 million in connection with the purchase of Thomson Fundamentals.

$12 million to repurchase common stock, and paid a dividend of $9 million, up 50% from Q3.

At quarter end, there was $105 million in remaining share repurchase authorization and shares outstanding were 48 million.

Now, moving to the P&L.

Revenues were $153.7 million, up 19% versus a year ago.

Our revenue growth rate was unaffected by FactSet Fundamentals.

Excluding FactSet Fundamentals, non-GAAP operating income advanced 20% to $51.3 million, and non-GAAP net income rose 16% to $34.3 million in the fourth quarter.

The growth rate of net income was tempered by a 65% decline in interest income from lower US interest rates over the past 12 months.

Let's take a look at the revenue drivers during Q4.

ASV increased $25.5 million organically when excluding currency and $2 million acquired from Thomson.

The increase during the quarter was derived from strong performance from both the US and non US investment management businesses.

At August 31, 2008, ASV was $615 million, up 19% from a year ago.

Excluding acquisitions and currency, ASV grew 18% organically or $92.6 million over the last year.

As a reminder, we design annual subscription value, or ASV, as the forward-looking revenues for the next 12 months from all subscription services currently being supplied to our clients.

Professionals using FactSet increased to 40,100, up 500 users during the quarter.

Client count rose to 2,085 as of August 31st, a net increase of 41 clients.

Let's turn to the trends we see in our client base.

On the sell side, obviously these are the most difficult times in recent history.

Nevertheless, while the positive ASV change was not significant, user count rose again on a net basis during the quarter.

Over the last 12 months, FactSet's sell side user base has grown 16%.

We're very proud of that growth and the effort our product development, sales and consulting teams have put forth to improve our market share.

While the overall franchise value of large investment banks has declined significantly, our user count signals that the business groups that FactSet services is not where the problems lie for our sell side clients.

As a reminder, our services are focused on M&A bankers and equity research professionals, both long-time low-risk activities that we expect will continue far into the future.

The company is normally impacted by the fortune of their clients and FactSet is no different.

While our guidance for Q1 quantified the short-term ASV exposure from the disruption among sell side firms, it also indicates that our correlation is not one to one.

Our investment management business had a very strong quarter, and is 79% of total ASV.

In the United States, the sequential quarterly change in ASV doubled compared to the just completed third quarter.

New clients were a significant contributor.

In Q4, US IM business registered the highest quarterly change in net new clients since the February 2007 quarter.

FactSet's ability to offer firms the opportunity to consolidate services and recognize cost savings is real.

The combination of advanced applications including Marquee and PA20 with a vast array of data supported by blue chip services appeals to both existing and prospective clients.

Outside the US, the story is similar.

Our investment management business delivered healthy growth driven by portfolio analytics Risk and Marquee.

We're beginning to see demand for Marquee from managers focused on global equity.

Marquee users outside the US more than doubled over the past year.

Looking ahead, we think FactSet Fundamentals will simplify the sales process.

The number of instances where a competitor to FactSet is entangled in a new sales opportunity is likely to decline.

Worldwide, Marquee users are up 45% year-over-year.

Demand for advanced services in computing power related to portfolio analysis, risk and quantitative analysis also continues throughout the client base.

At quarter end, PA20 was deployed by 637 clients, up 18% over the prior year.

There were 5,730 users of PA at quarter end, an increase of 22%.

We are also pleased with the sales of FactSet's proprietary content, particularly FactSet estimates.

The US business produced revenues of $106 million in the fourth quarter, up 16%.

Revenues from overseas increased to $48 million.

Keeping currencies constant and the growth rate from the non-US Operations was 23%.

By region, quarterly revenues from our European and Pacific Rim Operations were $38 million and $10 million respectively.

As the non-US based clients grew to $195 million, representing 32% of the Company wide total.

Client retention remained above 95%, once again, confirming the high quality of our product suite and of our client base.

Moving to expenses for the quarter, operating expenses were $103.5 million, and our operating margin was 32.7%.

Excluding FactSet Fundamentals, operating margins were 33.4%, a 90 basis increase from Q3.

This margin increase is temporary and primarily the result of workstations sold to summer interns in the fourth quarter.

The change in expenses that I will now reference exclude the impact of FactSet Fundamentals.

At the end, I'll sum up the financial effect of FactSet Fundamentals on the fourth quarter.

Cost of sales as a percentage of revenues was very consistent with Q4 last year.

Up just 10 basis points.

Higher compensation was partially offset by lower computer maintenance and amortization of intangibles.

The decrease in computer maintenance is a result of replacing all mainframes in both data centers over the past year.

The decrease in amortization expense was caused by the full amortization of certain assets from previous acquisitions, compared to previous years.

The increase in compensation was driven by new employees.

SG&A expressed as a percentage of revenues declined 60 basis points year-over-year.

This decrease was driven by lower occupancy cost and marketing expenses, partially offset by higher compensation costs.

The decrease in occupancy costs was caused by leveraging our existing space.

Lower marketing costs were the result of keeping our investment levels consistent with last year, while growing our revenue base.

Higher compensation costs were driven by more employees.

Employee count as of August 31st, 2008, was 1,934, up 6% during Q4.

Excluding acquisitions, headcount rose 16% from a year ago.

Regarding FactSet Fundamentals, these activities reduced Q4 operating income by $1.1 million in EPS by $0.01.

The EPS dilution was lower than guidance provided on last quarter's call, due to the transaction closing in late July.

As mentioned earlier, the revenue was immaterial and did not impact our overall revenue growth rate.

The majority of costs were from amortization of deal costs including the daily database updates.

We did add incremental employees, but the large majority of hiring will occur over the next 12 months.

Lower US interest rates caused interest income to decrease 65% to $800,000 versus prior year.

This decline is the reason why our growth rates in revenues and operating income were higher than net income and EPS.

At no time during the year did a component of FactSet's cash investments encounter a write-off or a decline in value due to a ratings change, default or increase in counterparty credit risk.

Our effective tax rate for the quarter was 34.2%.

This rate is consistent with the prior year, excluding the $1.1 million tax benefit in Q4 last year.

Let's now turn to the outlook for fiscal 2009's first quarter.

Revenues are expected to range between $154 million and $157 million.

The high and low end of the range has been decreased to account for potential future reduction in services to Lehman Brothers, Merrill Lynch, AIG and Washington Mutual.

FactSet believes that related exposure is approximately 1.5% of ASV or $10 million.

The midpoint of this range represents 16% revenue growth year-over-year.

Also, as a reminder, the just completed fourth quarter also included $1.4 million in non-subscription revenues from workstations sold to summer interns.

Operating margins, excluding FactSet Fundamentals are expected to range between 31.5% and 33%.

This guidance assumes a reduction in sequential quarterly margins of 90 basis points due to workstations sold to summer interns in the fourth quarter.

Other income is expected to be between $600,000 and $1 million.

The effective tax rate is expected to range between 33.8% and 34.6% and assumes the US federal R&D tax credit is not reenacted.

EPS dilution from FactSet Fundamentals remains at $0.04 per share.

The primary expense drivers are the amortization of deal costs including the database updates from Thomson and new employee growth to support the collection operations.

For the full year of fiscal 2009, capital expenditures net of landlord contributions are expected to range between $32 million and $38 million.

In closing, as a public company, we have reported results for 50 fiscal quarters.

Our revenues and ASV have grown sequentially every quarter for the last 12 years.

There are only three other US public companies that can state that claim.

Our model is fueled by broad-based growth along several vectors.

We're not relying on a single client, application, database, or geography.

Today, FactSet's base of 40,000 users represents a single digit percentage of the total professional investment user community.

It will remain that way after the dust settles on the recently announced mergers involving several large financial service firms.

Our largest competitor has produced revenues in aggregate that exceed $12 billion, an amount that is 20 times our trailing 12 month revenues of $575 million.

To sum it up, the good news for our shareholders and our employees is that we're not relying on a growing market to be successful.

Thank you.

We're now ready for your questions.

Thank you.

At this time we are ready to begin the question-and-answer session.

(OPERATOR INSTRUCTIONS).

Our first question comes from Peter Appert with Goldman Sachs.

Thank you.

As you think about the expectation or the growth prospects for fiscal '09, how are you thinking about your hiring plans for the year ex the increments from FactSet Fundamentals?

Peter, it's Phil.

Over the years we've always kept our headcount plan kind of in line with what we think revenue growth is.

We have an ability to adjust that on a real time basis.

But at this point, you saw in this quarter that we hired quite strongly over the summer, so -- and it's in line with what we believe our ASV growth is.

Okay.

And on that, I guess, just help us better understand the degree of flexibility and costs in the context of any changes in revenue growth dynamic.

Go ahead.

Peter, it's Peter Walsh.

Thanks for the question.

FactSet's -- when you look at FactSet's operating costs, 65% are compensation related.

So our degree of flexibility all relates to compensation and that would include obviously our hiring plans and our compensation to existing employees.

Okay.

And then when you -- just back to the hiring issue, then.

In terms of the hiring cycle, I guess I had thought that most of your folks were hired right out of school and therefore substantial commitment sort of a year ahead in terms of hiring.

Is that not the way it works?

Certainly the fourth quarter for us is the highest headcount come on line, but if you looked at prior history, we're hiring throughout the year.

So we're picking some people up from industry and not all college grads start in what we think of as our fourth fiscal quarter.

Okay.

And then on the 1.5% of ASV from the four firms you cited, just so I understand that number, that's meant to be your expectation of the portion of their spending that goes away, that's not to suggest that those four in total represent 1.5% of ASV; correct?

That is correct.

Okay.

And can you give us any insight into the assumptions you're making in terms of what portion of the business from those firms you think you lose?

I think we went through a rational approach of looking at the firm's complexion of their subscription and our experience with firms that merge and what we think the exposure is and came up with what we think is our expectation is as to what's at risk.

The one thing I made add to that, like Bear Stearns, I think if there is a material change in ASV, once we understand that in actual terms, we'll certainly highlight that when we speak at the end of next quarter.

Okay.

And so you're not assuming that the Lehman business goes totally away?

We took an approach where based on the market information we have, we took each one of the four clients there that are of different sizes and overlaid their businesses with what we think will occur.

And came up with the $10 million.

Can you share with us what percent of the ASV those four were in fiscal '08?

At this point in time, I think the best way to describe the complexion of our client base is that our largest client is less than 3% of our total ASVs.

And that our top 10 are less than 15% of total ASV.

And I also could characterize that none of those four were the largest clients.

Okay.

And last thing, I'll let someone else speak, the repurchase activity, how do you see that playing out in fiscal '09?

Thanks, Peter.

You know, as we think about how we allocate capital, , the repurchase activity has been a part of our capital allocation process and primary reason is because we have a very high quality problem.

We have $150 million of cash and we generate $116 million of free cash flow over the last 12 months.

If you look at the repurchase activity historically, over the last eight quarters, it's bounced around quite a bit.

We had a low of $5 million a high of $46 million and over the last 12 months it's been $77 million.

So I think we'll continue to evaluate the data in front of us and it's difficult to project what it will be in '09 but it's -- that historical perspective hopefully gives you some understanding of how it's moved

I understand how it's moved around but I guess I don't understand the decision making process.

Is it specifically that you're trying to be opportunistic in the context of share price movement?

Our decision making process is really looking at a few factors.

One is we're really analyzing how much cash we need to run the business, not only includes operating expenses but what has been our historical track record of making small tuck-in acquisitions.

Then we're simply analyzing what our return on cap -- drag on return on capital would be as to holding onto our existing cash and that drag is only increasing as interest rates decline.

Right.

So, you know, as you see in our capital allocation process, not only have we been stepping up our buybacks, '07 and '08 versus '06 and '05, but we've also been stepping up our dividend.

So if you add the buyback and the dividend together in '08 it almost matched up to our free cash flow.

So we'll continue to be aggressive doing that, especially if our acquisition activity isn't high.

But what I'm really signaling is that the amount that we'll buy each quarter is always dependent on the facts that are in front of us at that time.

This will really be the last question.

In the context of having to integrate FactSet Fundamentals, would it be fair to assume that you would perhaps be less inclined to be acquisition focused in fiscal '09?

Peter, it's Phil.

We've always been opportunistic when it comes to acquisitions and certainly look for businesses that fit into what we believe our objective is and that is to serve the financial professionals.

So it really depends on what's presented to us and whether we believe it's something that is going to be accretive to the FactSet shareholder in the long-term.

Okay.

Thank you.

Thank you.

Our next question comes from Kevin Doherty with Banc of America Securities.

Great.

Thanks, guys.

Just had a couple questions on the 1Q revenue guidance.

I guess first of all, could you just quantify the drag from those four customers that you're expecting in that period.

The second one is just specifically if you look at Merrill, would you expect that to be a little more of a 2Q event, just when they're talking about when that deal might close?

And then the third, just what sort of assumptions are you making for FactSet Fundamentals revenue coming through in 1Q?

Thanks, Kevin, it's Peter, how are you?

Good, how are you?

Good, thanks.

As far as the Q1 guidance on revenue, we didn't assume that all of the $10 million ASV would fall off on September 1st.

Like you cited, the Merrill transaction is -- it's hard to tell when it's closed but it certainly isn't on September 1st.

As it relates to FactSet Fundamentals, what we'll be doing going forward is exactly what we did in the fourth quarter.

We'll be highlighting what the impact on FactSet Fundamentals was on our revenue growth rate.

We'll tell you the impact on operating income as well as EPS.

And so in Q1 we'll do exactly that and we laid out the guidance at an EPS level.

To follow-up on that business.

If you're starting up on a base of about $2 million in revenue, how aggressively do you think that can ramp up?

And then maybe with the -- what's been the reaction of your customers and really what's the incentive for them to make that switch at this point in time and obviously there's an opportunity for new customers but maybe just talk about your existing base.

It's Phil.

Like all FactSet products, we won't give specific guidance on the revenue effects of fundamentals as we go forward because in all of our products they become deeply entwined with our product line and determine whether the value is actually the application or the content itself it becomes very gray internally.

We do believe that there's an $100 million opportunity for us within our client base as we cited when we made the acquisition and that's really the basis of what we know our clients currently spend on fundamental data.

As to the reaction of our clients, I think the initial reaction is very positive and very pleasing for them because we know there will be more competition on the marketplace for them.

They know we understand what their needs are in the fundamental area and are certainly confident that we'll be able to meet those needs.

We're actively selling FactSet Fundamentals, the $2 million in ASV that Peter highlighted is the ASV that we purchased from Thomson.

But since that time, we've been actively selling FactSet Fundamentals and it's contributing to our ASV growth as we speak.

And do you think that ramp-up is going to come more from new users or existing users?

It will be a combination of both.

It will be some of our clients choosing to switch from whatever product they currently have today to FactSet fundamentals and it will certainly be a portion of our new client revenue growth.

As you saw in this quarter, even in a tough environment, we're organically growing our user base as well as our client base and that exists on both the buy and the sell side, believe it or not, even in this tough time.

Okay.

And just one last separate question to wrap up.

We get the question pretty often about your exposure to hedge funds.

I know that's not your primary buy side customer but could you just provide a little more detail there just about what your exposure is and you're continuing to add kind of net new clients, is that primarily a hedge fund type clients or where is that incremental growth coming from?

If I were to characterize our whole business, it seems kind of interesting as you're looking at this cycle, look at both the buy and the sell side and say where is our exposure.

On sell side our exposure is in the equity research department of corporate finance.

Not that we don't serve other departments inside of those firms but that's where the majority of those firms come from.

The crisis that's occurring, clearly the firms are impacted as a whole but those particular areas of the firm aren't the part of the firm that's broken at this point in time, not that they don't have cyclicality in that area, but it's not the part of the firm where all the leverage occurred and all the layoffs are occurring.

So we're actually underweighted in the credit side of the business, and the parts of the business that aren't doing well.

If you come back to the buy side, the same is true in that our core client base on the buy side is a large traditional managers and coming down that food chain.

We do have hedge funds as clients but it's not the core of our client base.

The hedge funds we do have as clients tend to be the larger hedge funds where they ultimately have a strategy that fits into the style as opposed to trading energy or things that are not the core that FactSet service provides.

Okay.

And then how would you quantify who those new customers would be, then, what buckets would they fall into?

I think they would certainly fall into mix.

We're not -- given that we only have 2,200 clients in the marketplace, and that there is an opportunity for 6,000, there are all kinds of clients we get.

Believe it or not there are clients that manage $100 billion in the United States that are not FactSet clients.

Not very many but they exist.

It's a complete spectrum of what the potential client base could be.

Thanks, Phil, thanks, Peter.

Next question comes from Randy Hugen from Piper Jaffray.

Thanks.

Are you seeing any changes in purchasing behavior from the investment management clients.

Is there any evidence they could be consolidating tools, or less likely to increase services.

Conversely, are you finding improving sales on some of your products used to replace operational employees?

In the fourth quarter, we actually had an outstanding fourth quarter on the buy side.

The US investment management group did very, very well and I think it plays into the theme that is really core to FactSet and that is that we have a very strong news and quotes product which is new to the industry on a relative basis and that with consolidation of content and the broad service that we provide, that we can actually provide cost savings with increased functionality to our clients.

So whether that's selling them FactSet Fundamentals or FactSet estimates on the content side or any of the other content that we have or the broad products starting with Marquee, on the application side, it's been certainly a driver in our business.

And that's true both US and non-US.

So I would say the characteristics through my history in the industry is the buy side is much less volatile than the sell side, both hiring and slowing hiring I guess would be the way that I would describe it and that their purchase patterns are far more consistent.

They are affected by the marketplace but that tends to be a quarterly thing, not something I would characterize over years.

So there weren't any I guess significant trends that the sales force they're seeing in Q4 versus previous quarters?

Certainly Q4 was very strong for us so we were able to get a lot done in the quarter.

As with anything, when you have a diverse client base you have some clients that are affected negatively and some are affected positive.

There are always winners and losers in this process.

You get a mix in the marketplace.

The other thing I would relate that's certainly pleasing in my perspective is when I'm looking at the data that comes back from the sales forces is competitively we're very strong which means I'm looking for gaining share in the marketplace and how we're doing on that front.

The macro market will take care of itself and we'll be able to participate at the higher rate than other place in our space.

Also, back to the hedge fund issues, there have been headlines about an increase in funds closing, consolidating and slowdown in new funds.

Is that something that at all impacts your client -- short-term client growth or are those new funds generally so small that it's not even something that impacts your short-term sales?

Well, certainly on the margin, we would love to have everybody healthy and all components of the industry and have new fund formations, but if we look at the core of where our ASV comes from, even though we participate on the tail with the smaller firms the core of our growth still comes from the large traditional managers.

Okay.

And then digging into the margins a little bit, so we're clear, that 31.5 to 33% op margin excludes the impact of the database; correct?

FactSet Fundamentals, yes.

And in addition, there's $1.6 million in cost for the TSA as well as increased amortization costs?

That's all included in FactSet Fundamentals.

So when I define FactSet Fundamentals I'm describing the whole business including our operating costs, our amortization of the TSA cost and the amortization of the deal costs.

And then what kind of a I guess sequential increase in amortization costs should we expect in Q1 versus Q4?

Related to what?

The stuff you just mentioned.

FactSet Fundamentals, I mean, is -- I would look at it as totally separately from the ongoing business is the way we parsed it out.

I think I indicated in our last call that the TSA is approximately 5 point -- an annual expense of $5.5 million in a complete fiscal year.

The amortization of our other deal costs is not going to change materially.

If you go into our Q, we have a runout of our amortization costs for the next five fiscal years that's disclosed every quarter.

Okay.

Thanks a lot.

Thank you.

Our next question comes from John Neff with William Blair.

Hey, guys.

A few questions here.

Does the $615 million in quarter-end annual subscription value, does that include Lehman, Merrill, AIG, Washington Mutual and if so, would that be in full or in part?

In terms of how you're thinking about it going forward.

That includes the in flow and it includes the ASV as it was on August 31st from all those firms.

Okay.

Okay.

That's good.

And then you talked in the press release about first quarter '09 revenue guidance being reduced.

I just wanted to confirm.

I mean, you had never had any estimate out there, so you just simply mean reduced from what it would have otherwise been?

Yes.

Okay.

Fundamentals question a little again here, but the $2 million in transferred fundamentals revenue, is there -- can we get a read on what total annual subscription value associated with fundamentals was as of the end of the quarter?

It's not a material change, because obviously we completed the transaction on July 24th.

That gave us 30 plus days to sell our own product.

So it didn't change materially between that and August 31.

Okay.

The $58.7 million paid for fundamentals, is that less than you had been expecting or did that just not include the TSA agreement?

Yeah, it's exactly what we're expecting.

The 50 -- the number you just quoted includes the TSA.

Okay.

Because I thought previously were you expecting final purchase price, 68 to $73 million.

That final purchase price included the cost of purchase revenues, which when you include it it's $67 million.

So the 58.7 was before the price for the transferred revenue?

Right.

Okay.

The decline in year-over-year in cash from Operations, I assume that's just due to the fundamentals acquisition and the resulting impact on year-end working capital items?

Yeah, it's -- if you look at -- you know, through the entire full year, we had a working cap, negative working capital change of $12 million.

It's almost just the opposite of the previous year which turned around.

We had a positive change of $16 million the previous year.

If we were to exclude the fundamentals acquisition, any sense of what cash from Operations growth would have been year-over-year, excluding that item or normalizing for it, I guess.

The TSA that we paid in advance was $8.25 million, so I would add back $8.25 million to get to the normalized ex fundamentals.

Great.

Kind of a big picture question, maybe for Phil.

Just the long-term impact on FactSet, if -- on the growth, sort of encroaching market share of passive management at the expense of active management, what if any impact longer term would you anticipate on FactSet from that trend?

I guess my experience would tell me that that's been a portion of the business for decades at this point.

And I guess the other thing that probably works in our favor there is there is passive and then there is passive plus a tilt and the second you say passive plus a tilt which seems to be the thing today, then our products go right back into play.

Because basically somebody who is quantitative needs all of our whole quantitative suite in a pretty significant way with all the content we have to be a real player in that space.

You don't view that as a threat?

No.

Okay.

All right.

That's good and then fixed income, your applications and offerings there, is all the turmoil here creating opportunities in terms of your ability to sell that product or interest in it and is that -- to this point is that growing in line with your expectations?

Yeah, so as I've articulated before, there's different components to that product.

There's there's our own fixed income explorer that we had on our system and then there's fixed income and PA.

All three of those really combine to become what we think of as our fixed income product.

They're doing quite well in the marketplace.

The strategy really there is to play off of fixed income PA which is doing quite well.

And it's also a very, very large complex problem for our clients.

It's not -- doesn't really have competition as much as it has just getting clients to understand what they actually could look at when they want to break down their contribution on a fixed income portfolio.

Would you care to give any kind of range in terms of percentage of ASV represented by fixed income suite?

No, not at this time.

Okay.

Thanks very much.

Congrats on a very good quarter.

Thank you.

Thank you.

Our next question comes from John Maietta with Needham & Company.

I was wondering if you could talk qualitatively on what you see in the pipeline.

Obviously in the last couple weeks a lot of negative news out there, but things seem to have calmed down.

Have you seen more activity in terms of customer conversations and being able to schedule demos and things like that?

I think our business is one that -- we don't depend on large sales.

So our quarter isn't made because we closed giant sales each quarter that changes our ASV and even if you did, each month we only get a twelfth of the value.

There isn't this huge incentive or big pipeline piece that you're staring at where big deals get deferred.

With that said, you take all of our products, by product, by client, by applications and all those dimensions, what really happens is it's lots of little transactions that make up our ASV each quarter.

I'm sure in the last couple weeks people spent a lot of time staring at their screens and I'm sure also at the same time something like analytics becomes much more valuable in a time of volatility.

You really need to understand what's happening to your portfolio on a real-time basis and we're the best product to do that.

It certainly plays into our hand and into our strength to have a product that tells you how you're performing and why you're performing your particular benchmark and gives them trading ideas and trading opportunities.

It kind of goes both ways.

I think net-net we'll do quite well in the marketplace.

Got it.

Okay.

And then Peter, with regard to the -- you know the expected $0.04 solution for next quarter, how much of that should we think about being a continuing cost of the business, headcount for example versus noise?

I think if you were going to exclude things that will go away, you would have to look at the cost of the TSA.

TSA will expense over an 18-month period and when that 18-month period ends we're going to lose approximately $5.5 million of annual costs.

The rest -- the remainder of it will be ongoing.

Okay.

Thanks very much.

(OPERATOR INSTRUCTIONS).

Our next question comes from Dave Lewis with JPMorgan.

Your line is open.

Hi, guys.

Was wondering if you could elaborate on a couple trends.

The first is Marquee, clearly it's been very robust on both sides of the business.

Could you elaborate how that's opening doors for you on the buy side?

I think what has changed for FactSet over the last 10 years is that we were very much not even an online product.

We were a dial-up product at one point.

As technology moved in our favor and we're a real-time product and then introduced Marquee, it's changed our product complexion from being a research analyst firm, to being a portfolio management product to even being a trader's product.

And the net effect of that is it allows us to sell percent of the financial professionals in a firm versus historically I would say we were limited to particular areas of interest that met our core product base.

The positive for us is really you see in fee growth and the positive for the client is a consolidated solution that's cost effective and very powerful and functional for their business team.

Great.

Thanks.

The second question I wanted to ask is the consolidation strategy, clearly that's been a strategy of yours for a long time.

And providing cost savings to clients.

Is that accelerating or is that picking up from prior years?

I know you guys have launched a series of new products since the fall of 2007.

But what's changing there, if anything?

Well, I think the consolidation theme for us is one we've been pushing for several years.

Obviously, clients come to the point where they find it interesting at various points in time based on what they think the market pressures are.

I think the market probably is moving in our favor in that perspective.

Financial turmoil is a little more than a year old at this point and people tend to have a desire to look at their cost structure at a time when their business is potentially at risk.

So I think definitely been a player in our organic ASV growth this year and I think it will certainly be a player as we look forward as well.

Okay.

Great.

Can you touch on just briefly the pricing environment on the sell side at the investment banks?

Can you be more specific?

Yeah, sure.

I mean, are you seeing increasing pricing pressure, I mean, clearly you guys are taking your share and doing very well but I was just curious, in the numbers it seems like there's been some pricing pressure.

I'm just curious if you see that stabilizing or what you think the outlook could be going forward.

So I haven't really seen pricing pressure on the sell side.

I think we've taken the strategy where we continue to increase the value for our clients and obviously value is a soft term and what we include in the product.

At the same time, since we continue to expand our count on the margin, whether it's the buy or the sell side, the marginal cost is always less than the average revenue per seat, just by definition.

So if you're getting there that way, it's really just because we're selling seats on the market.

Okay.

And last question from me is do you guys care to ballpark the number of clients that fall into that 21% sell side bucket?

Thanks, David.

At this time we haven't broken out our client base between buy and sell side.

Okay.

Thanks, guys.

Just wanted to add that as you know, the number of sell side firms is not significant relative to the number of buy side firms.

Thank you.

Our next question comes from Bill Ferdinand with US Trust.

This is for Phil.

Phil, you had mentioned earlier that the largest -- some of the largest clients out there are not FactSet users.

And it sort of begs the question as to why are they not FactSet users?

And two, who do you view as your I would say strongest competitor at this point in time?

I would love to be all things to everybody.

That would be a wonderful thing.

We would have 100% market share and I guess we would be done.

But the world of business is always very challenging and we continue to try and evolve our product to meet the needs of particular clients.

Some of it is just inefficiencies in the marketplace.

I believe they will become clients.

They just haven't yet.

A couple fall every year.

But it does present an opportunity for us which I guess is a good thing.

As far as competition, I don't think FactSet has a direct competitor that somebody can walk in and say I can replace FactSet in your firm for example because we do something very different than everybody else in the marketplace.

But if you break anybody's product down in this industry, there are different pieces of functionality that are available in multiple places.

In our particular place, portfolio analytics, which is one of our most powerful product lines, and on a feature-by-feature basis, there is no competition in the market place.

That's not to say you couldn't key create something in the spreadsheet that would give you 2% of the value and call it a competitor.

When you get to news and quotes there are lots of competitors in this space.

We like to believe we do it differently and more integrated than other players in the space.

It's kind of one of those things where everybody's a competitor and nobody's a competitor, depending on how you look at it.

Okay thank you.

We have no further questions.

Okay.

Thank you very much.

Thank you very much.

This concludes today's conference.

You may disconnect at this time.

Thank you.