Factset Research Systems Inc (FDS) 2009 Q4 法說會逐字稿

Welcome to the FactSet Research Systems fourth quarter fiscal 2009 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'll turn the call 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 and Mike Frankenfield, Director of Global Sales .

This conference call is being transcribed in realtime by FactSet CallStreet 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 managements 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 can be found in FactSet's filings with the SEC.

In an effort to provide additional information, our comments may include non-GAAP measures such as free cash flow.

Any non-GAAP measures discussed today has been reconciled to the related GAAP measure in our earnings press release and SEC filings.

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

On our agenda today we'll cover three topics - - First, we'll review fourth quarter results.

Then I'll cover guidance for the upcoming first quarter fiscal 2010, finally we'll close with our management team addressing your questions.

Before covering results I'd like to take a moment to highlight three items.

One, FactSet's acquisition of a copy of the Thomson Fundamental Database was completed in Q4 last year.

At that time, we estimated that our investment would dilute earnings by $0.16 a share in fiscal 2009.

We're proud that actual dilution was $0.09 in fiscal 2009 including a $0.01 in the just completed fourth quarter.

More importantly, FactSet Fundamentals is now break-even on a run rate basis.

This is will be the last quarter in which actual revenues and earnings of FactSet Fundamentals are included in our press release.

Looking ahead and consistent with our presentation of other products, we'll continue to provide color and discuss FactSet Fundamentals when it's a driver of quarterly ASV change.

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

This revenue is not material but historically has been disclosed to aid in investors ability to make more precise interpretations and forecasts of FactSet's revenue.

Given the immaterial size of this revenue stream and to simplify analysis we plan to include the trailing 12 months of non-subscription revenue in future calculations of ASV.

The effective date of this change will be November 30 and the trailing 12 month amount was $4 million as of August 31.

Three, in conjunction with the management changes announced in August, Rachel Stern will be responsible for Investor Relations effective October 1.

Please direct any follow-up questions on this quarter to me and as a part of the process I will also introduce you to Rachel.

Rachel's contact information can be found in the Investor Relations section of our website.

Moving on to the fourth quarter results.

Our performance was solid in Q4.

ASV grew by $4 million, operating margins were 35%, EPS grew 10% year-over-year, and our business again generated more than $60 million of free cash flow.

Each of our key metrics improved from the third quarter.

ASV, clients and users all grew in Q4.

Our Investment Management business proved its resiliency and was the primary driver behind the positive sequential changes.

It's premature to classify this as a recovery for our industry but we see it as a step in the right direction.

To accelerate future growth we have been both deliberate and aggressive on investing for the future.

Over the past 12 months our headcount increased 25% even after normalizing for ending a BPO relationship in Q3.

Our philosophy of reinvesting in the business is not new and will continue.

Our current headcount plan for 2010 reflects a double-digit employee growth rate.

We believe that one of FactSet's strengths has been our ability to invest during the recent market downturn.

Our need is not just to grow but to execute in the marketplace to cause a return to our historical double-digit revenue growth rate.

We believe our investments will help accelerate this outcome.

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

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

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.

During the last year, free cash flows rose to $184 million, up 71% over the last 12 months.

Free cash flow over the last year exceeded net income by 27%.

We believe this is illustrative of the high quality of our earnings.

For the fourth quarter, free cash flows double to $60 million compared to the year ago period.

Drivers of free cash flow during Q4 were increased levels of net income and non-cash expenses, positive working capital changes and lower CapEx.

The improvement in working capital was driven by 11% decrease in then accounts receivable during the quarter.

Over the last 12 months, accounts receivable have decreased 16% while ASV increased 1%, a 17% threat.

DSO at the quarter end is now a record low 37 days down from 44 days a year ago.

Our ending cash and marketable securities balance was $216 million at quarter end, up 13% sequentially and a 51% increase over the last year.

During Q4, we invested $33 million to repurchased common stock, paid a quarterly dividend of $9 million and incurred Capital Expenditures of $5 million.

There is $102 million in remaining share repurchase authorization.

Now moving to the P&L.

Revenues were $155.5 million, up 1% versus a year ago.

Operating income advanced 8% to $54 million.

Net income also rose 8% to $36 million.

EPS was $0.74 a share, a year-over-year increase of 10%.

Let's look at the revenue drivers during Q4.

ASV increased $4 million organically, increased earnings for the quarter was the result of improved performance from both the US and non-US Investment Management businesses.

At August 31, ASV was $619 million, up 1% from a year ago.

As a reminder we define Annual Subscription Value or ASV as a forward-looking revenue for the next 12 months from all subscription services currently being supplied to our clients.

Let's highlight some trends we see at our client base.

Compared to Q3 there was an improvement in all key metrics, ASV, users, clients all showed progress on sequential quarterly basis.

Our five sites stabilized during the quarter and with the catalyst behind the ASV growth in Q4.

The sell-side business improved from Q3 but we have not seen a step up in spending by Investment Banks.

At quarter end, the buy side accounted for 82% of our total ASV.

As you know, factor enabled clients to change service on a monthly basis.

This quarter represented a stabilization of cancellation rates since the credit crisis emerged last fall.

Annual client retention rate was greater than 95% of ASV in 87% of clients.

Professionals using FactSet increased to 37,300 up 200 users, the best quarterly performance of our fiscal year.

Q4 was also the best quarter of the fiscal year in terms of attracting new clients and top line performance from our suite of portfolio products.

The client count rose by 12 to 2045 as of August 31.

The increase in new clients is a function of FactSet's ability to consolidate applications and data into a single platform.

The improved performance around the PA Suite is evidenced by the reduction in the cancellation rate of products and growth in the number of PAs to subscribers.

PA 2.0 users rose by 40 during the quarter while a number of clients remain the same.

We are also pleased with the adoption rate of FactSet content by both new and existing clients.

Client use of proprietary content decreased in (Inaudible) earnings solution from our investment in FactSet Fundamentals.

The investment in FactSet Fundamentals diluted earnings by only $0.01 a share an improvement for the second consecutive quarter.

The quarterly operating loss decreased 58% to $700,000 or $1.6 million last quarter.

FactSet Fundamentals is now break-even on a run rate basis.

Demand for FactSet estimates also continues to ramp up nicely.

Estimates is a data set desired by a high percentage of existing and perspective users.

The quality of our offering has improved from expanded coverage in technical research.

We believe this expansion has made our product more competitive in the marketplace.

Usage of FactSet's Global realtime news and quotes continues to be strong.

(Inaudible) It is ramping up nicely with user growth of 27% off a difficult comparable last year.

Realtime users have increased during every month of this just completed fiscal year.

Since our realtime offering is relied upon on a daily basis, this statistic is significant and means to us the overall engagement level of existing users is increasing.

As we see it, the FactSet realtime users increased during a shrinking environment also tells us the marketplace recognizes the value proposition of our realtime offering.

Turning to geographic performance the US business produced revenues of $106 million, the same as the year ago quarter.

Revenues from overseas increased 3% to $50 million.

By region, quarterly revenues from our European and Pacific Rim operations were $39 million and $11 million respectively.

ASV by non-US base clients grew to $200 million representing 32% of the Companywide total.

Moving to expenses for the quarter, operating expenses were $101 million, down 2% from the year ago quarter.

The source of this decline was favorable currency movements in a successful cost savings plan.

As we covered on last quarters call, our annual expense base has been reduced by $16 million or $4 million per quarter due to a stronger US dollar compared to last year.

This benefit didn't change from Q3 because we hedged a majority of currency exposure for Q4 early in the calendar year.

Looking ahead, the Euro and pound have gained on the US dollar over the past six months.

We are currently insulated through mid January 2010 from hedging 90% of our Euro and pound exposure last spring.

Assuming no further hedging activity, when the hedge expires in early 2010, quarterly operating income would decrease by $1.2 million based on today's rate.

Our operating margin was 35%.

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

Fiscal 2009 operating margin was 34% and we believe is a better metric to gauge the profitability of the business in future quarters.

Turning to the specifics of the quarter.

Cost of sales as a percentage of revenues increased by 90 basis points over last year.

Higher compensation in computer maintenance was partially offset by lower data cost.

Higher compensation as a result of expanding the number of employees particularly outside the US.

Computer maintenance begins one year after mainframe servers are deployed, and increased due to capacity expansions during Fiscal 2008.

The decline in data cost services was the result of adding a VPO relationship during Q3 and lower royalty payments because of increased content use of FactSet proprietary content.

SG&A expenses expressed as a percentage of revenues declined 3.1% year-over-year.

This decrease was driven by lower compensation in C&E, offset by higher occupancy cost.

Lower compensation is driven by favorable currency rates and T& E decline due to a proven approach to interoffice travel.

Occupancy costs increased because of the expansion of our office space primarily in offshore locations.

Our employee count was 3000 as of August 31, an increase of 400 employees during the quarter.

The rise in headcount was driven by expansion of FactSet's proprietary content operation, a majority of the new employees are members of FactSet Fundamentals collection team.

Lower interest rates caused interest income to decline by 89% in earnings per share to decrease by a $0.01.

The average annualized return on cash and cash equivalents was just 20 basis points during the quarter.

Our effective tax rate for the quarter was 33.4%.

This rate is consistent with Q3 and down 80 basis points compared to the fourth quarter last year.

EPS was $0.74 in Q4, a growth rate of 10% year-over-year.

Let's move to our outlook for the first quarter of fiscal 2010.

The projected revenue range for Q1 is $152 million to $157 million.

EPS should range between $0.73 and $0.75.

The 2010 guidance for capital expenditures net of landlord contributions is $20 million to $26 million.

To sum it up, both the fourth quarter and fiscal 2009 demonstrates the strength of FactSet's business model.

In our view, our stability was evident by sequential quarterly growth in ASV, users and clients during Q4.

Against the most difficult operating environment on record, we delivered double-digit EPS growth in every quarter during the just completed fiscal year.

At the same time, we continue to invest for the future.

Our headcount grew 25% over the last year and our plan is for double-digit increase in fiscal 2010.

Last week, we announced the release of the Company's newest product platform.

We believe this release will expand our competitive position through a striking improvement in users experience be it new functionality, greater ease-of-use and appealing new interface.

We have a lot of work ahead but we're excited and focused on a forward opportunity that we believe is enormous relative to our current size.

Thank you, and we are now ready for

Thank you, we'll now begin the question and answer session.

(Operator Instructions).

Our first question comes from a Mr.

Gregg Moskowitz with Auriga.

Your line is open.

You may ask your question.

Yes, thank you.

Good morning, guys.

Peter, I was just wondering if you could talk to user count.

It's the first time that we've seen user count grow sequentially since the November 2008 quarter.

Do you think we're at a point or a potential point of stabilization or how should we be thinking about that?

I'm going to redirect that over to Mike Frankenfield.

Hi there.

I think that it's early in the cycle to really definitively say that headcount has stabilized.

As we look back over what happened during the periods, when we first went into this downturn, the first thing that happened was our cancellation rate went up and then only later did the rate of adds begin to decline.

Now that we think things are beginning to stabilize, the evidence we have of that is that our cancellation rate has stabilized and it is our expectation that the adds will then follow on a forward going basis, but your typical money manager, even though equity returns are positive, I think we still have a lot of time to go throughout the end of this year before we can definitively say that the market did stabilize and we're ready to move forward.

Okay, that's very helpful.

And then in terms of ASV, obviously up 1% sequentially in year-over-year and you had referenced I believe both international and domestic Investment Management business showing some improvement there.

From a sell-side perspective how did ASV do overall kind of on the similar metric?

It remains a challenging market.

The sell-side firms are strong managers of their costs.

They have a very very organized procurement process and it's global.

They track their spending very, very closely.

And they probably adjust their workforce more quickly and are more nimble in the way they adjust the size of their business than the buy-side, so we seen a big headcount reduction on the sell-side, it's very difficult to predict the trends going forward, but like the buy-side, with the equity Markets being up, we also seen a recent increase in Capital Market transactions, M&A, filings for IPOs, but many of those deals while announced haven't actually closed, so it will be still remains to see what happens with that business going forward.

Okay, great and then just one last one for Peter if I may.

How are you planning to manage operating margins over say the next 6 to 12 months or so?

Our operating margins consistently remain the same.

It's just that we operate with a flat operating margin.

It's in the Fiscal 2009 operating margin as a guide for the future and we will balance our investments for the future based on what our ASV growth rate is going forward.

Okay, great.

Thanks very much guys.

Our next question comes from a Mr.

Dave Lewis.

Your line is open.

You may ask your question.

Hi guys, good morning.

First question SKU guys talk about what pricing expectations are for this coming fiscal year?

Should we expect the similar modest I guess 3% increase to the buy-side in line with the previous I think it's now two years?

Hi, it's Mike again.

We're currently evaluating our strategy when it comes to price for this upcoming fiscal year and we have not, for the next calendar year and we haven't made a decision yet.

We do know that we have pricing power in the marketplace and the question will be whether we decide to go ahead with a traditional price increase or if we adopt a different strategy.

Okay.

Thanks, and then with regard to the fundamentals, you guys have increased all of the proprietary content but you guys could provide a little more color on like what the win rate has been there currently versus your competitors and I guess a question number two related to that would be why or what are you hearing from some, how is it priced differently and when you aren't winning what's the feedback you're getting in response from some customers?

Thanks.

This is Phil.

I think you could tell from the color that Peter gave you in the dialogue that the fundamental pricing is very well in the system, as to be expected, there are definitely core content set for us and for it to be successful it's certainly gaining share in the system.

We have known for a long time what features are in the marketplace that we want to put into that product and have continued to invest heavily in that product and I would say that on a competitive basis, there's no such thing as 100% win rate but within the context of the FactSet system and the value that we can create, it's been very much successful.

Great, thanks.

And last one for me, just ASV average, ASV was roughly equal this quarter versus last quarter.

What should we read into that other than the fact that users have now turned and have increased so lower rate users have I think caused that metric to stabilize.

So it's average revenue per user per quarter it's stable this quarter versus last quarter.

Anything more than that than just the sequential improvement in users?

Thanks.

This is Phil again.

I think certainly the stabilization of the client growth and the user count is a positive indicator in the marketplace.

I think as Mike was giving you a little bit earlier color, to try and predict the future at this point is a little vague based on we come from a place we've never been before, but we're certainly optimistic about how we can execute against our plan.

As Peter highlighted, we've got a great opportunity for us as long as other proprietary content and in addition for us, a new interface for a FactSet workstation is a very exciting opportunity for us to deliver the marketplace.

Thanks, guys.

Our next question is from Mr.

John Marietta with Needham & Company.

Your line is open.

You may ask your question.

Thanks very much.

Mike Frankenfield, I was wondering if you could comment on what you're seeing in the sales pipeline.

It sounds like you're probably seeing more in the way of deals moving through the pipeline whereas maybe three months ago or so things were kind of frozen in the pipeline.

Is that kind of an accurate characterization?

I think that's an accurate characterization.

Our traditional product pipeline is very strong and we have new opportunities now with FactSet content, fixed income, and the deployment of the new FactSet which is very exciting for clients and quite frankly very exciting for the sales force, so there's a lot of good sales activity going on that we're optimistic about.

Okay.

And Peter, I couldn't quite hear you, in your prepared remarks did you say after the hedge expires in mid January, you would expect Op income to increase by about 1.2 million each quarter?

Thanks, John.

The way to analyze fact set's FX exposure is that we're insulated through January 2010.

If you used toes rate, our quarterly operating income would decrease by 1.2 million, if you're going to calibrate overall FX exposure as it relates to the pound and Euro, for every 1% change the pound and Euro would have against the dollar, our operating income would change by 800,000 in annual terms and 200,000 in quarterly terms.

Okay.

And last question, tax rate, Peter?

Is this Q4 rate a good proxy for Fiscal 10?

Yes, yes it is, John.

Okay.

Thanks very much.

Our next question is from a Mr.

John Neff with William Blair.

Your line is open.

You may ask your question.

Hi guys.

A few questions for you.

Fundamentals revenue was up 200,000 sequentially, the operating loss was down 900,000 sequentially.

Just wondering if you could explain that dynamic and also remind us of when the TSA payments expire.

Thanks, John.

Fundamentals is a product that's selling well for us both to existing and new users.

When existing users convert to FactSet fundamentals, the positive impact on operating income can come from either higher revenues or lower expenses.

Many clients who switch to FactSet fundamentals it causes us to reduce our payments to vendors that we pay out for client use of their content over our platform.

So for Fiscal 2009, this reduced our annual expense base by 7 million.

Obviously this was a significant contributor to making FactSet break-even on a run rate basis.

$7 million in lower third party royalty fees?

Correct.

In annual terms.

Okay, great.

The 412 employees that you hired this quarter, can you give us a sense for were they hired relatively evenly, early, or late in the quarter, how many of those are sort of content oriented hires versus sales and product development, and sort of digesting that, the ASV per employee down this quarter to about 209,000 historically it's been around 300,000, is that a metric you even consider as you're managing the business and if so, do you envision an eventual return to that kind of level?

Thanks, John.

As it relates to employee headcount, the large majority of our hiring related to offshore employees to support our content operations particularly FactSet fundamentals that the hiring happened evenly over the quarter.

We do focus historically on revenue per employee.

We just have to adjust our historical trends because of the buildout of investment in proprietary content collection particularly offshore, we just have to adjust that metric and to pick up our investment in a high level of growth offshore.

Okay, great.

An update on the fixed income product.

I know you signed some customers in recent months.

I was just curious how those were progressing and how is that offering benefiting if at all from the new platform?

Hi, John, it's Mike Frankenfield.

We're very pleased with the progress in fixed income.

The problems we're trying to solve are very complicated and they're well suited to what we do well.

The problems are complicated because they're a large number of fixed income instruments and it's very difficult to model their valuation.

For anyone to be successful delivering value to clients, you're going to need a strong combination of computing power, data expertise and data integration and we feel that it's our core competencies.

We're very encouraged by the early success we've had in some of the larger institutions that are our clients and it's our expectation to continue to refine our process, to build a scalable offering that we'll be able to deploy widely to all of our clients.

Good and then last question for you.

Peter, if you could just maybe comment on I heard you correctly, why the change in the treatment of non-subscription revenue now on a trailing 12 month basis being included in ASV, and I think you mentioned it was 4 million trailing in the fourth quarter.

Was that part of the reported ASV this quarter?

Thank you.

Thanks, John.

Appreciate the questions and giving me an opportunity to clarify.

The 4 million was not included in the ASV change for the quarter.

The reason for our change here is just really due to the size and to make things more simplistic, so the 4 million number is less than 1% of total ASV, and by adding it to our methodology for future ASV tabulations starting on November 30, we just feel like it's a simpler more straightforward presentation.

Thanks very much.

Our next question comes from a Shlomo Roseenbaum with Stifel Nicolaus.

Hi.

Thanks for taking my questions.

I just have basically housekeeping questions that are left.

Could you just go into why the DSO dipped so much in the quarter?

Was there someone who had an unusual payment?

Is this going to snapback in the next quarter, more into the 40s?

Hi, Shlomo.

AR is an area that we continue to be focused on.

As it relates to the quarter, it declined by 11% in the fourth quarter.

That's a significant movement, so it wouldn't be surprising at all to see our AR increase during Q1.

Our real focus is to make sure our AR, our rate of AR growth is less than our rate of ASG growth and we've been consistently delivering on that year in and year out.

So in AR, it's an area where it takes consistency to have a superlative record over the long term.

Do you have like a normalized level that you expect?

Do Do you guys think you're breaking new ground in general or it's just sort of a one-time thing?

Yes, I think what our expectations are is our AR should never grow more than our ASV growth rate so I wouldn't say we've broken new ground but it's something that we continually work on and we focus on.

Okay, just can you go over the FactSet fundamentals metrics again, the revenues and losses over there?

Just repeat it?

Sure.

I think if you looked at FactSet fundamentals of revenue for the quarter was 1.5 million.

Its loss was 700,000 and dilution to EPS was a $0.01.

Over the last 12 months, the dilution to EPS was $0.09 versus an estimate when we made the acquisition of $0.16, FactSet fundamentals is now breakeven on a going forward basis.

What was the growth in your fixed income product?

We talked about that a lot over the last two quarters.

Are you giving specific growth rates for that?

That's not something we disclose, Shlomo.

Okay, client retention just seemed to dip a little bit sequentially, 88 to 87%.

Is there anything to read into that?

I think the only thing to read into that is that it's a calculation that we use the trailing 12 four quarters to calculate so when you see the dip Q3 versus Q4 that you're pointing out, Q3 last year included the fourth quarter of 2008 which was one quarter prior to in the credit crisis, so when you replace that quarter with now a comparable back to the credit crisis that's why I adjusted it.

Okay.

Could you break out the international operating margin between Europe and Asia?

The operating margin is something that we really manage FactSet on a worldwide basis.

The reason why we don't have any further detail is because we would have to go through a massive cost allocation based on the way FactSet is operated and run, in order to get an accurate operating margin.

We just feel like the informational benefit even internally is very low versus all of the effort to allocate cost to try to refine that calculation to where it would have value.

But what about the numbers that are going to show up in the 10K?

We do break those out in the 10K, as we do in the segments and if you can look at that in the bottom of the segment disclosure, we always have a paragraph that has some caution after it language that basically explains every year that we haven't gone through the exercise of allocating costs that are centralized in the US that benefit the entire world.

Okay, and then the gross margin down sequentially, that was primarily hiring.

Is that the way we should understand that?

Again, we manage FactSet on an overall basis but if you're looking at that, it's hiring and higher computer maintenance costs because computer maintenance costs kick in a year after we purchase mainframe system and we purchased several of them in 2008.

Okay, great.

Thank you very much.

Our next question is from a Mr.

Chris Kennedy with Oppenheimer.

Your line is open.

You may ask your question.

Good morning.

Thanks for taking the call.

It's Chris Kennedy sitting in for Glenn Greene.

Any update on the competitive environment what you're seeing from Thomson as they integrate themselves?

Hi, Chris.

It's Mike Frankenfield.

The competitive landscape hasn't changed materially.

Our industry is really dominated by two significant players and our opportunity is very significant relative to their side.

I think the challenge for all of the suppliers in this industry is the clients more cost conscience and that's putting a burden on everyone to deliver more value.

We continue to be increasing the value of FactSet through our proprietary content and our new FactSet initiatives and I think that's improving our competitive position relative to the other players in the industry.

Okay, great.

And then just a last one.

Any, can you give us some type of preview on the upcoming management transition?

Sorry, can you repeat the question?

Just any type of preview as you transition into your new role, Peter?

Thanks, Chris.

I mean first off, it's important to note that I'm very fortunate to follow Mike.

His record at FactSet speaks for itself.

He built FactSet from the ground up and I'll be working with a well organized and experienced group of very talented employees, in both content and engineering.

Looking ahead, I've worked with Phil and Mike and we've collaborated on a very aggressive and achievable agenda.

My team will continue to focus on improving the utility at fact set for existing users, developing applications to solve problems for large institutions and expanding our investment in proprietary content.

Given our approach to work side by side with clients there's certainly a long list of opportunities we'll focus on and that impact our existing users and I feel like we're more fortunate that we don't have to reinvent ourselves or assume the risk of trying to create success.

Okay, great.

Thank you.

Our next question comes a Mr.

Kevin Doherty with Banc of America.

Your line is open.

You may ask your question.

Great.

Thanks guys.

I guess looking back over the last year, the revenue basis pretty stable from quarter to quarter but yet you guys ended the year down with about 3000 fewer users so just want to see first if you can put that in perspective how you're able to keep the revenue flat and then if you are seeing some of this continued stabilization in the subscriber count why shouldn't we expect the revenues to move a little higher?

Hi, Kevin, it's Phil.

So for those of you that aren't familiar with our revenue model, we get revenue from multiple dimensions.

There's a base client relationship where the core product clients get that's substantially a higher number and then we also sell content and applications above that as revenue dimensions, and the third is fees, so the fee count for us is only one dimension of our revenue.

We don't break out exactly how much it is but obviously you can tell there are other ways for us to grow than just fees so that would be the explanation of how you're able to grow revenue.

As to the trends, I think it's definitely one of those where if you take the color of Peter, Mike and I, you kind of get the feel for it's a greater forward view for us than it has been historically and that's true of everyone on this call but at the same time the fact that seats have stabilized and client counts have stabilized certainly puts us in a better position than we were two quarters ago.

And as we think about the stabilization out there right now, how much would you say is more broad based industry wide versus some of the share gains that you've seen over the last few quarters, specific to FactSet?

Hard to break out.

Certainly, the contracting industry I think data on the whole industry is hard to figure out but you definitely get the feeling that for at least several quarters there, client spend was not going in a positive direction for anyone.

At At the same time, I think our future opportunities because we're still really a small player in this industry with substantial upside and our goal is to just focus on the things that we know we can control and good things will happen.

Okay.

And you talked a bit about the new software platform.

Is Is there going to be an incremental revenue opportunity from that, meaning is that going to be a premium product or is that something that would more or less be included under existing contracts?

It's Mike.

The new FactSet has an exciting initiative for FactSet.

Clients have told us for a long time that we have great functionality but that they would deploy more FactSet if it was easier to use, and that's really the goal of the new FactSet and the early feedback from clients indicates that we are solving the ease-of-use question.

It will take a long time for us to roll that out.

We have 38,000 users and those users are used to using our existing products and our job is to improve client work flow so it will take a while for these users to adopt the new FactSet into the work flow.

You can really think about it as sort of an evolutionary process, the success of the initiative will be back end loaded towards the end of the year, but we're very very excited about it.

The new FactSet consolidates three platforms that are in the marketplace today, directions, marquise, and IV central and it combines the three applications into a single application that can be personalized to meet a specific users needs.

It gives us a great benefit to leverage our internal development efforts and really focus on building one excellent product and from the clients perspective, it's going to unlock a lot of hidden value and it gives clients a tremendous opportunity to explore FactSet and help them discover ways that FactSet can address their problems in ways they haven't done it before.

So was that a product where the client will actually make the initiative to upgrade to this and then again will there be any incremental cost to the client over time?

We have developed a or built a rollout plan and based on multiple criteria put each client into an individual slot when we think will be the best time to upgrade them and the sales force will be working with clients on an individual basis to determine what's going to be the best time to receive the upgrade as well as discuss any cost implications.

Okay, and then if I could just do one last one maybe for Peter.

If we're assuming no benefit from FX, and this environment of roughly flattish revenue continues, do you think you can keep those margins flat without further cost savings and do you think some of the cost savings you rolled out over the past year are pretty much behind you?

As we look ahead, I think the beauty of our ASV model is the visibility that it provides us, and we'll always adjust our investment levels up or down to correlate our investment levels to keep our margins flat and most of those investments come in the form of headcount.

So while we've based our headcount plans on conservative ASV environment, certainly more constructive than it has been in the past 12 months.

Our cost savings initiatives while it's successful this will be the year where we get a full year value of the cost savings initiatives.

We don't have any material cost savings new initiatives planned for Fiscal 2010, and finally our headcount plan has an offshore tilt which is more cost efficient on a per person basis.

Okay, that's helpful.

Thanks, guys.

Our next question comes from a Mr.

Peter Appert with Piper Jaffray.

You may ask your question.

Thanks.

Peter, can you remind me what the seasonality of around passwords is and specifically, how many fourth quarter passwords are there associated with the summer intern associate classes?

So historically seasonality, Q4 has been our strongest quarter primarily to college hiring by Investment Banks.

I I would say that's probably not the case this year just because our own plans were impacted by the credit crisis.

As it relates to summer interns we do not include summer interns in our user accounts for any period so that's why we have just it has, it does impact revenues, the summer return revenue was this quarter about 900,000 and that's something that won't repeat itself in Q1.

Okay, so based on that, do you think then that the fourth quarter will mark the bottom in terms of password count?

Or I guess the quarter would mark the bottom?

I think what we really thought during the quarter was a stabilization of the cancellation rate which we see as a prerequisite to client demand improving to buy new or subscribe to new services.

There's a long way to go from the buy side perspective they're sitting on paper profits and the calendar year needs to turn before it translates into flexibility at a budget level and from the sell-side, there's lots of recent articles but they are very recent over the last couple weeks about increasing capital markets activity but as you know banks don't get paid until deals close or IPOs are launched and there's still a long way to go there too.

And then a follow on to the prior question.

You guys have done a masterful job in managing the cost in the past year and I'm wondering from your perspective, Peter, has there been any deferral of cost you might have to play catch up in the next year in terms of marketing, etc.?

From our cost savings plan strategy was long on the offense so when we started on cost savings, we started last Summer.

The way we started was we engaged a management group of FactSet called the operating committee and we asked that group to submit ideas on how to make FactSet more efficient and we got more than 100 ideas and we narrowed them down to 45 that we wanted to execute.

The idea is that it takes time to make yourself more efficient and because we gave ourselves time we're able to execute successfully.

The second benefit is that these are things that they didn't just last year but in the years going forward so it hasn't been, our approach hasn't been rationed anyway and we haven't been deferring on key investments that are important for FactSet to grow the top line.

Okay, and then for Fiscal 10, the double-digit increase in staff that you're tentatively thinking about, is that still primarily in data oriented position, so relatively low cost headcount?

Yes, it is.

Great.

Thank you.

(Operator Instructions).

Our next question comes from a John Neff with William Blair.

You may ask your question.

Just a quick follow-up from an earlier comment you made, Peter.

The double-digit employee increase that you're anticipating this year and the comments you made about ASV providing the kind of visibility you need to plan for those investments, does that mean we should expect or that you're expecting a double digit growth in ASV, and that employee count approximating what you expect in ASV growth?

Thank you.

John, as you know, we gave revenue guidance that goes out a quarter.

Historically when all our hiring was done onshore there was a stronger correlation between ASV growth and the in growth of our headcount.

Historically when all our hiring was done onshore there was a stronger correlation between ASV growth and the in growth of our headcount.

but our ASV growth was up a percent, so as we continue to invest offshore that historical metric isn't as useful as it once was.

Thank you.

At this time I show no further questions.

Thank you, everybody.

Thank you.

This concludes today's conference.

You may disconnect at this time.