FactSet Research Systems Inc. (FDS)

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FactSet Research Systems Inc. (FDS)

Q1 2018 Earnings Conference Call

December 19, 2017, 11:00 AM ET


Rima Hyder - VP, IR

Phil Snow - CEO

Maurizio Nicolelli - CFO


Bill Warmington - Wells Fargo Securities

Anj Singh - Credit Suisse

George Tong - Goldman Sachs

Toni Kaplan - Morgan Stanley

Hamzah Mazari - Macquarie Capital

Manav Patnaik - Barclays

Shlomo Rosenbaum - Stifel

Alex Kramm - UBS

Mike Reid - Cantor Fitzgerald

David Chu - Bank of America

Kevin Barker - Piper Jaffray

Ato Garrett - Deutsche Bank

Peter Heckmann - D.A. Davidson

Tim McHugh - William Blair & Company

Glenn Greene - Oppenheimer

Keith Housum - Northcoast Research



Good morning. My name is Jamie and I will be your conference operator today. At this time, I'd like to welcome everyone to the FactSet First Quarter Webcast.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Rima Hyder, Vice President of Investor Relations, you may begin your conference.

Rima Hyder

Thank you, Jamie and good morning, everyone. Welcome to FactSet’s first quarter 2018 earnings conference call.

Before we begin, I'd like to point out that the slides we will reference during the course of this presentation can be accessed via the website on the Investor Relations section of our website at factset.com. These slides will be posted on our website at the conclusion of this call. A replay of today’s call will be available via phone and on our website. The conference call is being transcribed in real-time by FactSet’s CallStreet Service and is being broadcast live at FactSet.com. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question plus a follow-up.

Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our Form 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements.

Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, the reconciliation to the most directly comparably GAAP measures are in the appendix to the presentation and in our earnings release issued this morning. This non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these GAAP financial measures may not be the same as similarly entitled measures reported by other companies.

Joining me today are Phil Snow, Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. I'd like to now turn the discussion over to Phil.

Phil Snow

Thanks, Rima and good morning, everyone and welcome to today's call. At FactSet, we're rapidly responding to the dynamics of market change. Our platform content, award-winning analytics and service, position us well to partner with our clients and to provide innovative workflow solutions to meet the challenges facing our industry head on.

The first quarter is generally a lighter quarter for us versus the rest of the year and is really not a good indicator for the full year. We gave you annual guidance this quarter and the midpoint of this guidance indicates higher growth in ASV than you are seeing in our first quarter. And looking out at the remainder of the first half, we feel much better about Q2 ASV than we did for Q2 the same time last year.

A quick note on annual guidance and why we made this change. As our business evolves, we've taken a look at our key metrics and the information we provide you and we believe annual guidance more closely aligns the focus of the investment community with the goals of our company. The move to annual guidance has received core shareholder support and Maurizio will provide you more detail during his comments.

Let's take a quick look at first quarter results. We saw the continuation of themes from prior quarters, the shift from active to passive, focus on total cost of ownership and ongoing consolidation in the industry.

Against this backdrop, we grew organic revenues at 6% and organic ASV at 5% year-over-year. Adjusted diluted EPS increased 17% to $2.04 and adjusted operating margin was 31.7%, which was within the range we expected.

We acknowledge the deceleration in the ASV growth rate this quarter and are laser focused on executing on our strategy to reaccelerate. We saw quite a bit of churn with increased add-on sales and the addition of new clients being offset by cancellations.

The increase in ASV this quarter was driven by Analytics in CTS. Within Analytics, we saw strong contribution from risk, portfolio reporting, portfolio of services and fixed income. CTS had a strong quarter with continued momentum around our expanding suite of standard data feeds. Wealth was also a solid performer this quarter.

Within the Analytics product, we enhanced our multi-asset class risk offering, adding a linear factor risk model to our existing Monte Carlo model. Clients can now integrate equity, fixed income, alternatives, private assets and currency factors to gain a full transparent view of risk distribution at the portfolio, factor and asset levels, using a Monte Carlo or a linear approach. This increases our competitive positioning in the market and makes us stickier with clients already using our Analytics suite.

Turning to our international business. International ASV grew organically by 7%, fueled by growth in the Asia-Pac region. International ASV now represents over 37% of our total ASV. Asia-Pac grew almost 13% with increased analytics and workstation sales to asset managers. Europe ASV grew 5%.

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