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FactSet Research Systems Inc. (FDS)

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FactSet Research Systems Inc. (FDS)

Q1 2019 Results Earnings Conference Call

December 18, 2018, 11:00 AM ET

Executives

Philip Snow - CEO

Helen Shan - Executive VP & CFO

Rima Hyder - VP of IR

Analysts

Joseph Foresi - Cantor Fitzgerald

Toni Kaplan - Morgan Stanley

Manav Patnaik - Barclays

Hamzah Mazari - Macquarie Capital

Shlomo Rosenbaum - Stifel

George Tong - Goldman Sachs

Ashish Sabadra - Deutsche Bank

David Chu - Bank of America

Peter Appert - Piper Jaffray

Peter Heckmann - Davidson

Tim McHugh - William Blair

Keith Housum - Northcoast Research

Alex Kramm - UBS

Bill Warmington - Wells Fargo

Presentation

Operator

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I'd like to welcome everyone to the FactSet First Quarter 2019 Earnings Call. 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, Matthew, and good morning, everyone. Welcome to FactSet's first fiscal quarter 2019 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 webcast on the Investor Relations section of our website at factset.com. The 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. [Operator Instructions]

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 comparable GAAP measures are in the Appendix to the presentation and in our earnings release issued earlier today.

Joining me today are Phil Snow, Chief Executive Officer; and Helen Shan, Chief Financial Officer.

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

Philip Snow

Thanks, Rima, and good morning to everyone. We began fiscal '19 with a positive first quarter and are encouraged by the continuing demand for our data and technology offerings. Clients are turning to us for smarter, better connected solutions to drive their investment workflows. Our Wealth business drove higher results than usual for the quarter with strong support from our Content and Technology Solutions, or CTS business.

We entered the year with good momentum and a strong product pipeline to execute on our growth strategy, but remained cautiously optimistic given the current uncertainty in global markets. This quarter, we delivered ASV and professional services of $11 million. This includes both organic ASV and professional services for a total of $1.42 billion and a growth rate of 6.6%.

As we explained last quarter, professional services are a component of our sales goals, and as a reminder, when we give guidance or refer to our top line growth rate, we will be referring to ASV plus professional services.

Moving on to other key metrics. Organic revenue grew over 6% and adjusted operating margin for the first quarter came in at 31.5%, 20 basis points better than the fourth quarter of 2018.

We continue to target a 100 basis point margin improvement year-on-year as we get benefits from greater productivity from ongoing investment in solutions and infrastructure and tighter expense management.

This fiscal year, adjusted diluted EPS increased 15% to $2.35, primarily boosted by the U.S. tax reform and higher revenues this quarter. Wealth and CTS were the two largest drivers of ASV growth this quarter. Last quarter, we said that we expected most of the impact of the Bank of America Merrill Lynch wealth deal to come in the first half of our fiscal 2019 and the majority of the incremental impact to ASV came in this quarter.

CTS or increased sales of enterprise fees and trials of FactSet data exploration, a cloud-based data platform we launched this past summer [Technical Difficulty] demand. Open:FactSet, our marketplace for unique and diversified datasets, continues to capture growing client interest with ESG and sentiment data feeds garnering the most attention.

In research, workstations grew this quarter mainly from adding more buy-side and corporate users. This was partially offset by seasonal churn in banking, which is typical at this point in the year.

Analytics started the year with softer results relative to last year, but we're excited about our analytics product pipeline as we head further into 2019. New solutions include opening up our portfolio analytics suite through APIs, a unified risk platform and the vault. We also see continued success with risk, adding a number of new Multi-Asset Class clients this quarter.

We believe our analytics solutions will result in higher growth in the quarters ahead. We were aware of a few larger cancellations coming into the quarter and outside of these, the rate of churn remained flat and in line with last year.

Our sales teams, particularly in the Americas region has worked hard to minimize the rate of cancellations and their efforts have improved client retention in our largest region, and our overall client retention remains very high at over 95%.

Read the rest of this transcript on seekingalpha.com