FactSet Research Systems Inc. (FDS)

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FactSet Research Systems Inc. (FDS)

Q2 2018 Earnings Conference Call

March 27, 2018, 11:00 AM ET


Phil Snow - CEO

Maurizio Nicolelli - CFO

Rima Hyder - VP, IR


Bill Warmington - Wells Fargo

Peter Heckmann - D.A. Davidson

George Tong - Goldman Sachs

Joseph Foresi - Cantor Fitzgerald

Shlomo Rosenbaum - Stifel

Glenn Greene - Oppenheimer

Toni Kaplan - Morgan Stanley

Manav Patnaik - Barclays

Kayvon Rahbar - Macquarie

Peter Appert - Piper Jaffray

Kevin McVeigh - Deutsche Bank

David Chu - Bank of America

Tim McHugh - William Blair

Keith Housum - Northcoast Research

Alex Kramm - UBS



Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the FactSet Second Quarter Earnings Call. All lines have been placed on mute to avoid 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, Stephanie, and good morning, everyone. Welcome to FactSet’s second quarter 2018 earnings conference call.

Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the Web site on the Investor Relations section of our Web site at factset.com. These slides will be posted on our Web site at the conclusion of this call. A replay of today’s call will be available via phone and on our Web site. This 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 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 forms 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, 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.

Now, I'd like to turn the discussion over to Phil.

Phil Snow

Thank you, Rima. Good morning, everyone, and thanks for joining us on the call today. This past quarter, we executed well on our product and growth strategy. And while we’re pleased with the results, we continue to be aware of the difficult market and the cost pressures our clients face. We remain focused on executing on our plans for fiscal year '18 and expect to end the year within our ASV guidance range.

Turning to second quarter results, we saw new wins across our product portfolio in the U.S., Europe and Asia. We grew organic revenues and organic ASV at 6% year-over-year. Adjusted diluted EPS increased 17% to $2.12 boosted by the U.S. tax reform.

While the tax reform increased our tax rate this quarter due to one-time items, overall, we expect additional cash savings for the rest of the fiscal year and we continue to evaluate our plans to utilize the additional cash in fiscal year '18 and beyond.

In our press release this morning, we announced our plans to increase our share repurchase program by $300 million taking advantage of the $100 million in cash that we plan to repatriate from overseas. We also plan to invest a portion of cash savings into both our product and sales efforts.

This will have an impact on our full year adjusted operating margin and we believe we will end the year closer to the middle of our guidance range for adjusted operating margin. This quarter, our adjusted operating margin was 31.4%, slightly lower than our first quarter and last year as it was impacted by higher FX costs which Maurizio will go into, into more detail.

Now let’s get into the drivers of ASV. The increase in ASV this quarter was primarily driven by analytics, CTS and portfolio management and trading. Analytics added more than 50% of the net increase in ASV this quarter.

Within analytics we saw strong contribution from portfolio analytics, risk, fixed income and portfolio services. The product enhancements of our multi-asset class risk offering in the first half of FY 2018 allowed us to increase our competitive positioning in the market and secure important global wins.

CTS had another strong quarter continuing to grow in double digits year-over-year. The FactSet data feeds business contributed globally with major sales across asset managers and hedge funds. The demand for data feeds continues to be driven by a renewed rise in quantitative research across more of our client base.

We have plans to capitalize on this shift by extending our data feeds business allowing more investment professionals from around the world to connect with smarter data, and there’s more to come on this new initiative in the coming weeks and at our upcoming Investor Day next month.

Read the rest of this transcript for free on seekingalpha.com