FactSet Research Systems Inc. (FDS)
Q2 2010 Earnings Call Transcript
March 16, 2010 11:00 a.m. ET

Executives

Rachel Stern – Senior Vice President, Investor Relations
Philip A. Hadley – Chairman and Chief Executive Officer
Peter G. Walsh – Executive Vice President and Chief Operating Officer
Michael D. Frankenfield – Executive Vice President and Director of Global Sales

Analysts

Kevin Doherty – Bank of America Merrill Lynch
Shlomo Rosenbaum – Stifel Nicolaus
Glenn Greene – Oppenheimer
John Mietta – Analyst
Edward Atorino – The Benchmark Company
Dave Lewis – Morgan Stanley
George Tong – Analyst
Robert Riggs – William Blair & Company

Presentation

Operator

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session of today''s conference. At that time, you may press star one on your touchtone phone to ask a question. I would also like to remind parties this call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Ms. Rachel Stern. Thank you. You may begin.

Rachel Stern

Thank you, operator. Good morning and thanks to all of you for participating today. Welcome to FactSet''s second quarter earnings conference call. Joining me today are Phil Hadley, Chairman and CEO, Peter Walsh, Chief Operating Officer, and Mike Frankenfield, Global Director of Sales. This conference call is being transcribed in real-time by FactSet''s CallStreet service and is being broadcast live by 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 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 have been reconciled to the related GAAP measures in our earnings press release and our SEC filings. Lastly, FactSet undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. I would like to turn discussion over now to Peter Walsh, Chief Operating Officer.

Peter G. Walsh

Thank you, Rachel and good morning, everyone. Today, we will divide our time among three areas. First, I will review Q2 results. Second, I will cover guidance for the upcoming third quarter. Finally, we''ll close by addressing your questions.

Moving on to the review of the second quarter. Q2 was a solid quarter for FactSet as our clients continued to stabilize. Annual subscription value or what we call ASV, grew by $14 million during the quarter to $635 million. Excluding foreign currency effects, organic ASV grew $15 million during the quarter. Half of the $15 million organic ASV growth was derived from sales to new and existing clients and the other half from our annual price increase for U.S. investment management clients.

Revenues advanced to $157 million in the quarter, an increase of 50 basis points compared to the prior year. We believe that even modest growth in the current quarter''s environment, though hard one is encouraging. Our sales staff continue to sell our broad range of product with success across all global regions. They have been focusing on promoting our new work station which we call the new FactSet and upgrading existing clients to this more intuitive, easier to use platform.

We believe the results of their efforts are beginning to take root. For example, our user count increased by 1,400, the best quarterly growth in two years.

Let''s begin the highlight of the quarter by discussion 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.

During the last 12 months, free cash flows rose 37% to $185 million. Excluding working capital changes the increase was 13%. Free cash flows generated during the second quarter were $43 million compared to $18 million in Q1.

Please recall that during the second quarter, we typically issue invoices for services to be provided over the next 12 months. This year, those invoices aggregated to $11 million and our account receivable rose as expected in the same pattern over the last five years. DSOs at quarter end were 39 days this year versus 48 days a year ago, a decrease of 19%.