FactSet Research Systems Exec Insights: European Success, ASV Growth

On Tuesday, FactSet Research Systems, Inc. (NYSE:FDS) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

European Success:

William Warmington – Raymond James: One of the questions I have been getting from investors this morning is that given the move of ASV from double digit growth to upper single digit growth and revenue growth guidance next quarter of 6% to 8%, is there something in the competitive or macro environment that’s changed that would likely prevent FactSet from returning to double digit revenue growth over the next few quarters?

A Closer Look: FactSet Research Earnings Cheat Sheet>>

Philip A. Hadley – Chairman and CEO: It’s Phil Hadley. If you look at our ASV and you put it on a trailing 12-month basis, it certainly changes direction over time. I think we’re definitely still in a market that’s very choppy for both our buy-side and sell-side clients globally, and that would be the macro environment. The microenvironment that FactSet (is seeing), we continue to invest very heavily in our products. So, it feels very good that the content investment we’ve made over the last five years is paying off handsomely. I feel very strong that the interface that we’re providing to our clients is delivering a great deal of value in the marketplace. I’m very comfortable from a competitive position and I feel that when I look at the players in our space, that we’re making gains and when our client’s business model figure out when Europe gets stabilized, when the elections happens, when the equity markets do what they always do and find an equilibrium, that FactSet would be in a very strong competitive position.

William Warmington – Raymond James: I wanted to ask a few quick comment on geography, and it looked like Europe was strong for you this quarter, but looking out, your thoughts on how that’s likely to play out over the next few quarters for your business?

Philip A. Hadley – Chairman and CEO: I think you have to be a little bit careful, because as Peter pointed out, the TMC data feed that we had was a U.S. based data feed, which is going to certainly affect the numbers in this particular quarter. I think overall, the buy side and the sell side act very similarly globally. Obviously there are pockets of strength in the world, the emerging markets for us are still very strong and there are pockets of disruption as well. But all-in-all I think it’s a healthy business and I would also remind everyone that the first and third quarter for us are always a bit choppy just because it’s not the buying cycle for our clients and it is not our fiscal year end so there is always volatility in these two quarters.

William Warmington – Raymond James: Last question I was going to ask is, how you would characterize the buy side and the sell side environment today versus six months ago in terms of their appetite for your products and cost sensitivity?

Philip A. Hadley – Chairman and CEO: I think that if I had a choose a word I would say cautious, but yes, I feel like when we deliver value, as Peter illustrated, the PA product line is going very, very well. Certainly very excited to the sell side peak count growth, with the client that made a decision based on price three years ago and came back to us and reaffirming to believe that your pricing and the value that you are delivering your clients depreciated by your clients, so I think it’s one that’s never easy, but we feel pretty good about where we stand.

ASV Growth:

Shlomo Rosenbaum – Stifel Nicolaus: I want to ask about the buy side is the TMT $4.3 million of ASV that came out would that come out of a buy-side numbers or sell-side numbers. Is it fair to assume buy-side?

Peter G. Walsh – EVP and COO: Hey Shlomo, its Peter. That is coming out of our buy-side numbers.

Shlomo Rosenbaum – Stifel Nicolaus: So, if I kind of normalize for that, it looks like the buy-side ASV would be growing kind of 10.2% year-over-year. The last three quarters, the ASV growth is like 12.5% consistently. Does it feel like the environment is just getting tougher to sell into? Can you just give us a little color around that?

Michael D. Frankenfield – EVP and Director of Global Sales: It’s Mike Frankenfield. I will sort of reiterate what Phil said. Clients are in a cautious mode. When I look at my internal benchmark and the statistics in my sales process, there is no question that decision-making process has slowed and we – more of our opportunities are spending longer periods of time in the valuation or awaiting decisions. Overall though, we’ve got some great products that are continuing to sell well through, and the other thing you should keep in mind is that the large increase in users on the sell-side, those users come on typically at lower average ASV per user number, which you want to be careful you don’t overstate the amount of ASV that we are deriving from that segment.

Shlomo Rosenbaum – Stifel Nicolaus: Then in terms of the headcount going down by 61. I think, if I go back till like 2006, I only saw the headcount go down one other quarter, and that was only like two people. So, anything I should be reading into that or you said it seasonality, but despite seasonality, even through the down term we really didn’t see much headcount shrinkage?

Peter G. Walsh – EVP and COO: Hey Shlomo, its Peter. I don’t think there is much to read into it in terms of maybe contrasting your observation of 2006 versus today. In some of those periods, we were investing more aggressively in content and that was offsetting the seasonality of where we source most of our hires for all our other groups, which is directly from college. The growth rate of our headcount has been slowing and I think consistent with what we’ve been indicating on previous calls where we think our headcount growth rate is going to modify a more closely towards our overall ASV growth rate, and we expect in the upcoming fourth quarter as I mentioned in our comments to see headcount growth reflecting aggressive hiring out of college for both consulting and engineering.

Philip A. Hadley – Chairman and CEO: Shlomo, if you are thinking about the collection cycles of our collection teams, a lot of them are focused around fiscal year-end collections, both in Earnings Estimates and the Fundamentals, and that January to June cycle is their peak period of collection. So, their ability to (inject) new employees in that part of the cycle is very difficult. They pretty much need to be pretty trained before that cycle and that would also play into them not hiring in this particular window and not even hiring a replace.

Shlomo Rosenbaum – Stifel Nicolaus: So, in general, when I think of our headcount from an overall company perspective, what should now that we are getting to a more kind of normalized growth. It seems like you guys have gotten the people where you want them in data collection. How should we think of growth on kind of a quarterly basis? Can you give us some ways to think about that? The bulk of growth come in one quarter and then we should start – should we every May quarter kind of see a little bit of decline?

Peter G. Walsh – EVP and COO: I think we have certainly – I guess let me back up. In terms of overall growth rate, our headcount growth rate has been moderating. If you went two years ago, our year-over-year growth rate was in the high 30s, so it’s definitely been moderating towards our ASV over – ASV growth rate as we’ve reached critical mass in our content operations. Seasonality I think it’s – the fourth quarter is likely to be our strongest headcount quarter in terms of consulting and engineering and our content operations is a little more consistent from quarter-to-quarter but the third quarter likely to be our (lightest).

Shlomo Rosenbaum – Stifel Nicolaus: Then just on the sell-side, it seems like you had the one day takeaway that kind of moved in numbers. If you would remove that from the ASV what would we see, I don’t know for exact numbers but would we see kind of a flattish number or would you start to see that continuing to go down?

Philip A. Hadley – Chairman and CEO: I think – I’m not sure I’m going to give you exact color on that because it’s not – it’s probably not appropriate to do so. But I would say that a large sell-side deal like that is not (indiscernible) and the reason we gave color on this particular situation is just in the particular quarter there was enough choppiness and it happened to be in the third quarter. If that was in the fourth quarter and less material to the total we probably wouldn’t have called it called out.