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FactSet Research Systems Inc. (NYSE:FDS)

F1Q08 Earnings Call

December 18, 2007, 11:00 a.m., ET

Executives

Philip A. Hadley – Chairman, Chief Executive Officer

Michael F. DiChristina – President, Chief Operating Officer

Michael D. Frankenfield – Senior Vice President, Director of U.S. Investment Management Services

Peter Walsh – Senior Vice President, Chief Financial Officer

Kieran Kennedy – Senior Vice President, Director of Investment Banking and Brokerage Services

Scott L. Beyer – Senior Vice President, Director of International Operations

Analysts

Peter Appert – Goldman Sachs

John Neff – William Blair & Company

Randy Hugen – Piper Jaffray

Kevin Doherty – Banc of America Securities

Giasone Salati – Execution

Operator

Welcome to the FactSet Research Systems’ first quarter fiscal 2008 quarterly earnings conference call. At this time all participants are in a listen-only mode. During the question and answer session please press *1 on your touchtone phone. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

Now I will turn the call over to Mr. Peter Walsh, Chief Financial Officer. Sir, you may begin.

Peter Walsh

Thank you, Operator. Welcome, everyone, to your earnings call for the first quarter of fiscal 2008. Joining me are Phil Hadley, Chairman and CEO, Mike DiChristina, President and Chief Operating Officer, Mike Frankenfield, Director of the U.S. Investment Management Business, Kieran Kennedy, Head of Investment Banking, and Scott Beyer, Director of our non-U.S. business.

This conference is being transcribed in real time by FactSet's CallStreet service and is being broadcast live via 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 are in FactSet’s filings with the SEC. Lastly, FactSet undertakes no obligation to publicly update any forward-looking statements as a result of new information, future events, or otherwise.

We’ll organize our call today around three topics. First, we’ll review first quarter results. Second, I’ll move to guidance for the upcoming quarter. Third, we’ll close with our management team addressing your questions.

Before we begin I’d like to take a moment to highlight one item. As you know, the U.S. dollar weakened significantly during the first quarter, particularly against the Euro. The decline in value had the following effects in Q1 when holding currencies constant from the recently completed fourth quarter of fiscal 2007. Foreign exchange increased revenues by $400,000 and operating expenses by $900,000. It decreased income from operations by $500,000 and our operating margin by 50 basis points. EPS declined one penny from foreign exchange.

To facilitate factoring currency into your understanding of historical and future results on an annual basis, FactSet currently has non-dollar expenses of $110 million partially offset by non-dollar revenues of $44 million. This translates to a net exposure of $66 million per year or $17 million per quarter.

Now let’s move on to first quarter results. Overall FactSet turned in a very strong financial performance during the last three months. We again delivered record revenues in earnings. ASV increased $21 million on a constant currency basis during the first quarter, up 29% from the $16 million change in Q1 last year. This increase is double the average increase for this period in the last three years.

On a year-over-year basis our subscriptions growth rate increased sequentially from Q4 to 22.2%. The catalyst behind our top-line performance was healthy increases in new users and new clients and the sale of additional services to existing clients, especially to investment management professionals. We achieved this growth despite an environment where many large banks are carefully managing expenses. Earnings per share were $0.58, representing 23% growth from the year-ago quarter.

Let’s begin the highlights of the quarter with 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 costs for taxes and changes in working capital less capital spending. Free cash flows generated during the first quarter were $8 million, down from $15 million a year ago. The decrease was a result of a $24 million decline in working capital partially offset by higher levels of net income.

As I mentioned in our last call, please factor into your free cash flow analysis that FactSet pays variable employee compensation related to the previous fiscal year in the first quarter. This cash outflow reduced working capital by $29 million.

In addition, please recall that FactSet also remits estimated tax payments for the first half of the year during the second quarter. In December we paid $14 million representing our estimated tax payment for the just completed first quarter. The timing of estimated tax payments is consistent with prior years, nevertheless it distorts free cash flow in both the first and second quarters.

Accounts receivable increased $3.4 million during the quarter to $63 million. Over the last 12 months receivables have increased just 3% while subscriptions advanced 22% over the comparable period. At November 30th our DSO stands at an impressive 45 days. We do expect receivables to increase during Q2. Like we did last year, FactSet invoices a small portion of its clients annually in advance. When the annual invoices are circulated accounts receivable and deferred revenues will increase by $11 million in Q2.

Our ending cash and marketable security balance was $171 million, a decrease of $15 million since August 31st. The source of the decrease was the previously mentioned variable compensation payment and share repurchases. During Q1 we invested $30 million to repurchase common stock and paid a quarterly dividend of $5.8 million. Currently there is $28 million in remaining share repurchase authorization and shares outstanding at quarter end were $48.2 million.

Capital expenditures in the first quarter were $5.7 million net of landlord contributions for construction. Expenditures for computer equipment were $5.6 million and the remainder covered office space expansion. Major expenditures included adding eight HP Integrity mainframes to our data centres.

To recap where we stand on the technology transition, 12 Integrity mainframes had been deployed in the last five months and four additional machines will be purchased in early 2008. The full and successful upgrade to HP Integrity mainframes is scheduled to be completed in the second quarter. As a result, our system capacity will have expanded by 40% and the system speed will be 20% faster. The cost per Integrity mainframes is 35% less than an Alpha mainframe and the power consumption has been reduced by a third. Please also note that when we return to the normal useful life of three years when depreciating Integrity mainframe.

Now moving to the P&L. Revenue was $134.2 million, up 23.2% versus a year ago. Operating income advanced 20% to $42.5 million. Excluding currency, revenues increased 22% and operating income rose 23% over a year-ago quarter.

Net income rose 24% to $29.4 million in the first quarter. The growth rate of net income was favourably impacted by other income in a lower tax rate. Other income advanced 37% to $2 million. Our effective tax rate declined 150 basis points from Q1 last year to 34%.

Now let’s take a look at the revenue drivers. Subscriptions increased $24.3 million during the quarter and totalled $541.2 million at November 30th. Excluding FX, the subscription increase was $21.1 million. On a constant currency basis, subscriptions have advanced $97.2 million over the last 12 months, up 22%. As a reminder, we define subscriptions as the forward-looking revenues for the next 12 months from all subscription services currently being supplied to our clients.

Now let’s walk through our key operating metrics and trends we see happening at our client base. We’re especially pleased about our ability to expand FactSet’s user base at new and existing clients. We welcomed 2,800 new users on a net basis and exited the quarter with 37,800 users. Client count was 1,193 at quarter end; a healthy net increase of 40 clients during the past three months.

Portfolio analytics continues to be a source of growth. This suite is comprehensive and included the applications for portfolio attribution, risk, and quantity of analysis.

Demand for our quantitative services was strong. Clients have been receptive to our suite of advance applications and a wealth of fully integrated data.

The portfolio analysis work station is the largest revenue contributing member to the portfolio analytics product suite. At November 30th there were 565 clients representing approximately 5,070 users who subscribe to this service.

As widely reported, many of the sell-side [inaudible] banks are in a mode of carefully managing their expenses. This mindset was very much present before the dislocation of the credit market, although since then it has increased.

When calibrating expenses it’s important to recognize the five following facts: One, 77% of FactSet’s revenues relate to buy-site clients and only 23% to sell-site firms. Two, our sell-site revenues are well diversified between equity research professionals and investment bankers. Three, performance with most investment banking groups has been very strong. Four, our products do not address the need of professionals involved in creating or trading credit-related instruments. As such, revenue exposure is very low in the area of the bank that is enduring the greatest level of turmoil. Five, there is a potential to see liquidity shift out of the credit markets into the equity markets which plays to our core product strength.

Now taking a look at geographic performance. Our U.S. business produced revenues of $93.9 million, up 22% excluding non-subscription revenues. On the international front revenues increased 24% to $40.3 million. On a constant currency basis, and excluding non-subscription revenues, the increase was 22%.

Quarter revenues from Europe were $32.3 million, up 21%.

Looking beyond our two largest geographic markets we were particularly pleased with ASV growth emanating from Asia Pacific. Our business there experienced its best quarter ever following money flows into that region. Revenues from our Pacific Rim operations advanced 34% to $8 million.

Subscriptions by non-U.S.-based clients now are $167.5 million or 31% of the client-wide total. Client retention continued to remain above 95%, once again confirming the breadth and depth of a product suite that is deployed by a stellar client base.

Moving to expenses for the quarter. Operating expenses were $91.7 million. Q1’s operating margin was a healthy 31.7%, albeit a decline from Q4 and towards the low end of our guidance.

On a normalized basis, operating margins in Q1 have declined sequentially from the previous fourth quarter in each of the last five years. As we covered on last quarter’s call, we did anticipate the key component to the change. Quarterly revenues decreased sequentially from the sale of workstations to summer interns in Q4. However, we did not factor into our guidance that operating margins would be reduced by 50 basis points from the sizeable change in foreign exchange rate over the last 90 days. Excluding currency, our operating margin would have been 32.2%.

Cost of sales as a percentage of revenues was up 140 basis points over prior year. Higher compensation and data costs were partially negated by lower amortization of intangible and computer related expenses. Increased compensation was driven by more employees and data costs were up from higher levels of proprietary content collection.

Our computer-related expenses declined from consulting fees incurred only in the prior period related to our transition to HP’s new Integrity mainframe machine. The decrease in amortization expenses caused by a decline in acquisition activity compared to previous years.

SG&A expense expressed as a percentage of revenues declined 55 basis points year over year. This decrease was driven by lower compensation costs and marketing expenses partially offset by higher T&E.

Lower compensation was the effect of leveraging staff during enhanced internal information systems. Marketing expenses declined by replacing a third-party event company with in-house employees.

T&E was higher due to more employees travelling and a meaningful increase in the average cost per trip.

FactSet’s total head count reached 1,743, up 5% during the quarter and up 22% over the last 12 months.

Our effective tax rate for the quarter was 34%, a decline of 150 basis points over the prior year quarter. This decline was driven by tax planning steps implemented over the last 12 months.

EPS advanced 23% year over year to $0.58 per share. Sequentially, EPS rose one penny from Q4 after adjusting for the one-time tax benefit in Q4 and the seasonal benefit from intern workstations.

Let’s now move to our outlook for the second quarter of fiscal 2008. The projected revenue range for Q2 is $137 million to $141 million. Operating margins are expected to range between 30.5% and 32.5%. This operating margin guidance holds currencies constant from Q1 and assumes no change in the expected outcome of performance-based stock options.

The effective tax rate should range between 34% and 35%.

Finally, as previously noted, other income was $2 million during the first quarter. In November of 2007 we moved all our cash to securities backed by U.S. Government agencies. The effect of this in Q2 should be a reduce in other income by approximately $300,000 as our yield will decline by 85 basis points if we maintain this position.

The guidance for capital expenditures net of landlord contributions in fiscal 2008 remains at $38 million to $44 million.

Overall, the first quarter was a great start to our fiscal year. Revenues and earnings per share were up more than 20%. While we continue to grow our business at a pace many companies would envy, we recognize our opportunities in front of us. With a $10 billion growth opportunity our mandate is clear: To invest for the future in the form of more people, content, and new products to win business from a blue chip institutional client base.

While we like our competitive position in the market place and are pleased with our progress, we have an ambitious agenda and there’s a lot of work ahead.

Thank you for your participation in today’s call and we’re now ready for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question will be from Peter Appert. Your line is open. Please state your company name.

Peter Appert – Goldman Sachs

Thanks. It’s Peter Appert, Goldman. So, Peter, can you give us any additional colour in terms of what you’re seeing currently in the business trends, sales trends buy-side versus sell-side?

Peter Walsh

I’ll pass that on. Thank you, Peter, I’m going to pass that on to Phil.

Philip A. Hadley

Hi, Peter. Good morning.

Peter Appert – Goldman Sachs

Good morning.

Philip A. Hadley

I think that if you take our business, obviously we’re a very diverse business in both U.S. and non-U.S. The buy-side business has historically always been very stable and very rational in purchase decisions. The sell-side business changed dramatically I would say three or four years ago, in the last cycle, in that they became very precise in how they mange products like ours and other players in the space as well. I would say that the good part of our business is that we’re not in the part of those firms that are directly affected, for the most part. So our fixed income exposure and even the product line we have in fixed income isn’t a sell-side product.

And we’re probably only affected to the extent that there’s just generic earnings pressure in some firms. Other firms, like yours, has done quite well through this cycle. So I guess as you look at it, and I look at our whole business, we’re fortunate to have a very diverse business of which I’ve never in my career ever had every single piece in every single region of our business doing, on fire. But I feel very comfortable that because of our diverse product line and relationship with the clients and the opportunities we have that help them with costs savings and greater functionality that we’re well positioned at this point and very optimistic about our future.

Peter Appert – Goldman Sachs

How about, Phil, physically, would the sell-side component of the business – and I don’t know what the metric we should look at is, if its subscribers or password count – is it running up on a year-to-year basis?

Philip A. Hadley

Yes. In fact, we had a very strong password count on the sell-side in the first quarter.

Peter Appert – Goldman Sachs

Okay. Great.

Philip A. Hadley

A big portion of the password count growth in the quarter happened to be sell-side clients.

Peter Appert – Goldman Sachs

Okay. The pace of buy-back activity, you’ve been pretty aggressive. What should we be anticipating over the course of the next 12 months in that regard?

Peter Walsh

Thanks, Peter. It’s Peter. Yeah, we purchased, we deployed 105 million over the last 20, over the last 12 months that we repurchased shares. For a company that has $171 million cash, no debt, and is generating more than $100 million of free cash flow a year, unless we become more aquisitional we’ll deploy our cash either in the form of dividends or repurchases in order to avoid a drag on return of capital.

Peter Appert – Goldman Sachs

Okay. And on that front, that actually brings me to the next question, which is, you haven’t actually been particularly active from an acquisitional standpoint in the last year or so having been fairly active in the prior year. Should I read into that just lack of opportunity or are returns not there in terms of things you’d like to buy, or you’re feeling comfortable with your internal development prospects?

Peter Walsh

I think internally we’ve always had a very organic approach to the marketplace. We’ve been opportunistic as opportunities have presented themselves. They kind of came in bunches, and as you’ve pointed out, there haven’t been any opportunities recently. Not that we wouldn’t, it’s just that there haven’t been any that have been interesting to us.

Peter Appert – Goldman Sachs

M-hm. And still on that front, the fixed income product has been a particular focus to accelerate or jump start the growth of that offering. Would acquisitions be part of the thought process?

Peter Walsh

I think we’d look at anything that we think would be accretive to our business strategy in the long run, but I don’t look at that particular product line with some greater needs than other areas of opportunity that we have. So I’m very comfortable with the pieces we have to deliver the functionality to the marketplace we’re currently approaching.

Peter Appert – Goldman Sachs

Okay. Last question and then I’ll let someone else speak. Again, you’ve been pretty aggressive in terms of headcount expansion the last couple of years. Does the headcount growth slow just in the context of sort of dicier macro-economic conditions?

Peter Walsh

I think the headcount growth is one where we’re always deploying capital with headcount or with technology or in lots of areas of our firm and it reflects the level of investment we have to do to grow our business.

Peter Appert – Goldman Sachs

Okay, so you haven’t scaled back at this point in the context of expectations that growth decelerates given the market environment.

Peter Walsh

Our headcount growth year over year first quarter was?

Unidentified Male Speaker

Twenty-three percent.

Peter Walsh

Yeah. So it’s right in line with revenue.

Peter Appert – Goldman Sachs

Right. Okay. Great. Thanks very much.

Operator

Thank you. Our next question will come from Randy Hugen. Your line is open. Please state you company name.

Randy Hugen – Piper Jaffray

Piper Jaffray. Thanks. How do you think the company will fare if we see another downturn in the equity markets? You guys managed to grow revenues by 12% to 13% in 2002 through 2004. If we enter a similar market environment in 2008 how do you think the company will perform?

Peter Walsh

Just to answer the question in two parts. One, I’d have a hard time believing that we would enter that kind of cycle that we’d be that deep, just based on where we are and how the markets are currently affected. And secondly, I think we’d be in a stronger position this cycle than we were even last cycle based on the press of our product line.

Randy Hugen – Piper Jaffray

Okay. And then how long does it typically take for a change in market demand to really flow through your model and have an impact on the business?

Peter Walsh

I think our business is a pretty real-time business and we’re a subscription model, so clients can adjust their subscriptions up or down based on their current needs. So if you think the market’s already been affected then you need to factor that in in our current performance and our current performance is still pretty strong.

Randy Hugen – Piper Jaffray

Yup. Okay. And could you give us an update on the Thomson-Reuters merger, how it’s impacting your business, how it’s affecting demand for your products? And then also maybe some insights into if the company’s forced to divest in businesses is there anything out there that might be of interest to you?

Peter Walsh

So, the merger hasn’t occurred yet.

Randy Hugen – Piper Jaffray

Yes.

Peter Walsh

Obviously it’s with the regulators at this point. And I don’t think it’s really affected the marketplace yet either. So the market dynamics of the merged identity and how they’ll play out, their subscriptions with their clients is yet to come. We certainly are, obviously pay attention to it. It’s certainly in our industry. But we couldn’t comment and wouldn’t comment on any MNA activity that we have related to any of the assets that would be available with that merger with any specific MNA activity in the marketplace.

Randy Hugen – Piper Jaffray

All right. Fair enough. And then the current state of the credit market, does that change your outlook for growth in the fixed income products realizing that it’s a very small component now? And then also, does it change your outlook for your level of investments there?

Peter Walsh

No. No. Our product line is, in fact we just released our, or did a road show in Europe on our fixed-income TA product for the non-U.S. marketplace and feel very bullish about where we think we can go with that product. Keeping in mind from an analyst perspective that it’s immaterial coming off an immaterial base. So it would be years before it would be a true revenue driver. But the way our product line is set up is really, it’s not on a part of the market that’s affected.

Randy Hugen – Piper Jaffray

All right. Thanks.

Operator

Thank you. Our next question is from Kevin Doherty. Your line is open. Please state your company name.

Kevin Doherty – Banc of America Securities

Banc of America Securities. Good morning, guys. I just have a follow up question about the user groups. It’s really the first time in a few years where it’s been a bit above 20%. A couple questions there. How sustainable is that basic growth going forward? You mentioned that you didn’t really see much impact from constant voyeurs, but were there any large customer wins or migrations in the quarter?

Peter Walsh

So, when you look at our revenue growth as a business the full ASV is the most important number because obviously we can grow that through same-store sales of products to current clients, which is really the biggest driver, plus incremental clients, the 40 new clients, plus the user count change. So as you point out, it is lumpy. In this particular case it is a large deployment at a couple firms is the material component of that number. So is it sustainable? I think when you think about sustainability you always want to look at ASV as the driver in our business.

Kevin Doherty – Banc of America Securities

Okay. And I guess as a follow up, when I look at the revenue for subscriber numbers that had been tracking a little higher. It looks like it’s probably only up about 1% year over year. Were there any customer, maybe product mix-shift in the quarter, any pricing changes?

Peter Walsh

I think the way you have to look at our product is that new clients and new fees always come on at lower than the average. So if we’re very successful at adding new clients in a quarter or new fees in a quarter it will put pressure on the average. Because they’re not coming on at the average, they’re coming in below the average. So looking at our, at those few metrics, you want to look at them as gaining share on clients, gaining share on users and then step away from that and look at it from the macro level and saying are they getting real revenue on the marketplace.

Kevin Doherty – Banc of America Securities

Okay. That’s fair. Maybe just to tie in, might have a possibility impact as well because I know you took down your margin range a bit and especially at the well in there. Are there any unusual expenses that you expect to incur next quarter or maybe, you know, maybe a possibility drag from all the new users you just got on this quarter?

Peter Walsh

Thanks, Kevin. First off, when you look at our margins I think it’s important to know that our operating margin has declined substantially from Q4 to Q1 in each of the past five years. And you know, I outlined some of the reasons for that decline during the call. The reasons why our margin declined, our margin (inaudible) declined by 50 basis points on both ends of the range are just purely related to currency. Because we think it’s obviously most appropriate to use the current exchange rate when you’re forecasting your immediate expenses. There is no unusual items that we’re forecasting to occur in Q2 relative to year-ago periods or the immediate previous periods.

Kevin Doherty – Banc of America Securities

Well, I guess that range would have excluded currency and I believe your range last quarter would have been the same. Was there anything incremental?

Peter Walsh

Our range last quarter didn’t, included currency. We didn’t factor in the decline in the, during our fiscal first quarter.

Kevin Doherty – Banc of America Securities

But that’s just wrong (inaudible).

Peter Walsh

I’m sorry?

Kevin Doherty – Banc of America Securities

But that’s just wrong for now this quarter. Got it.

Peter Walsh

Okay.

Kevin Doherty – Banc of America Securities

Yeah.

Peter Walsh

Thank you.

Operator

Thank you. Our next question is from John Neff. Your line is open. Please state your company.

John Neff – William Blair & Company

Good morning, guys. I was just wondering if you could give us any kind of an update on colour in terms of hedge funds, clients, the percentage of overall wins or deployments. I know in the past it’s been a tailwind, but not a real driver of your growth. Can you just give us an update or any colour on what that represents (inaudible) percentage of clients or users?

Peter Walsh

I think we’ve stated consistently over the years, it’s not a material number in the aggregate of our client base. Though if you took the hedge funds that our clients (inaudible) that they tend to be larger, more diverse funds in their investment strategy. So nothing significantly has changed in this quarter versus any prior quarter.

John Neff – William Blair & Company

And then, specifically on the gross margin line, you mentioned some of those factors there. One of them that was interesting was the more proprietary data episode. Could you give us a little more colour on those and how should we think about the trend or the outlook sort of remainder of the year at the gross margin line?

Peter Walsh

Sure. We have a number of different sources of proprietary data collection and they span the gamut. Particularly during, when you compare the year-over-year period, we’ve been investing certainly more in our call street product and we’ve been moving towards putting out every transcript through a very detailed Q&A process versus making available a raw transcript and that’s increased our cost-related, our investment and our cost-related (inaudible) results that obviously increase the value in the eyes of the end users.

We also continue to expand our filings operations that are collected through our global filings product and we continue to expand our operations in our off shore facility with respect to a variety of content that particularly those that are desired by our investment banking clientele.

John Neff – William Blair & Company

Okay. Great. And then also, could you give us a little bit of colour on capex? In years past it seemed like it was pretty much every three years you’d have kind of a capex spike. Now between last year and this year it seems to be sort of sustaining at a relatively elevated level compared to prior years. Is that a temporary phenomenon? Is that due to all the real estate consolidation that’s taking place?

Peter Walsh

Well, first off let me say that higher capex is a great sign of growth and access. Client usage of our products is the driver for expanding computer power. Revenue growth drives our headcount increase, which translate to a need for more real estate.

Obviously when you take our capex and you look at it in pieces, you know, when you transition 100% of your mainframes from one version, you know, the Alpha machine to the Integrity machine it does have a temporary increase in capex. So over, from a time paying from August this year to sometime early in the calendar 2008 we’ll have exchanged every mainframe.

That said, they cost less than the Alpha version. So the cost for mainframe is down 35% and the cost for technology has been moving in our favour.

The real estate projects are definitely lumpy quarter to quarter and we had very little in this quarter. We do have plans for several major real estate projects to accommodate our headcount growth over the remaining nine months of the year.

John Neff – William Blair & Company

And then Asia Pacific, I was just curious, you mentioned some of the growth there, following the money flows. But why the correction in terms of, what’s been happening in terms of the investment mandate? What I’m trying to get a sense for is are you adding Asia Pacific regional content that would also be helping you gain that traction? (Inaudible) change in the product because it’s not, clearly it’s people investing in Asia Pacific companies as opposed to money in, moving in there and then investing back in the U.S.

Scott L. Beyer

Hi, John. It’s Scott Beyer. I’ll take that question. You’re right. I would put it down to probably three different factors. The interest in the region and how a lot of the investment and investment focus moves into the (inaudible) managers that are located in that region. That’d be one as Peter described earlier. There are a few other things that are a little bit longer coming and that’s just having the right people and being right sized for the opportunity there. We’re certainly coming on stream in that respect. And finally, the thing that has the longest lead to it is the product. In Asia we’ve been investing for several years now and we’re just starting to see the fruits of that (inaudible).

John Neff – William Blair & Company

All right. Thank you.

Operator

Thank you. Our next question will be from Giasone Salati. Your line is open. Please state your company.

Giasone Salati – Execution

Hi. Good afternoon. It’s Giasone Salati from Execution in London. I’ve got three questions, please. The first on is on pricing. I imagine this is the time of year where all of your clients are preparing their IT budgets for the following year. What kind of environment are you finding to push through pricing increases for the whole of 2008?

Philip A. Hadley

This is Philip Hadley again. I think at this point FactSet’s philosophy has really been to do nothing more than inflation. Depending on what markets and where you are in the world the timing could be different, but nothing more than an inflation-range price increase.

Giasone Salati – Execution

Let me try and get some more colour on that. How does that compare to the last few years and (inaudible) at the end of year 2000? I would have expected that in, for the last couple of years you could have pushed prices up a little bit more than inflation. Is it that it’s low down in price increase or it’s just in line with (inaudible)?

Philip A. Hadley

You may be correct in that we probably could have pushed price increases historically. I think as a firm we’re just kind of coming around to being part of the product. Frankly we really haven’t pushed price increases, even back in 2000.

Giasone Salati – Execution

So can we quantify your price increases in at 3% for 2008? Is that fair?

Philip A. Hadley

In that range.

Giasone Salati – Execution

Okay. My next question is on your cost basis. Could you have the understanding how much of that would be fixed-cost basis moving into what could be a very volatile environment in 2008 in terms of revenues?

Peter Walsh

Thanks, Giasone. Our primary operating costs are people. And 60% of our total costs relates to people. The next biggest cost after that is depreciation related to our computer equipment and real estate costs. It’s all by CG. I think we have great visibility in our business and we can adjust our investment in people to handle any up or down turn that may be in front of us.

Giasone Salati – Execution

And these are all staff? These are all employees? Or are these working as consultants?

Peter Walsh

The large majority of our investment and compensation, I mean, the complete lion’s share is staff. (Inaudible) staff.

Giasone Salati – Execution

Okay. And another question on Thomson-Reuters. I don’t know if you want to answer this, but what we hear in Europe in terms of the latest development on the regulatory approval of the merger is that Thomson-Reuters might have suggested, might have proposed to sell a copy of databases in analytics. Without maybe asking your comment on whether you think this is right or not, would FactSet be interested in all in buying any of the databases from Thompson-Reuters?

Peter Walsh

I think I have to revert back to the way I answered the question the first time, and that is as a matter of policy we don’t know that on any opportunities we have in the marketplace that mergers or acquisitions.

Giasone Salati – Execution

Okay. Let me then conclude with a final question. How many of your users will have (inaudible) along side with any other source of financial information, any other terminal, from Bloomberger, Reuters, or other competitors? How many multiple terminal users do you have in your customer base?

Peter Walsh

At the end of the quarter we had 3,500 end users. It’s very difficult for us to know exactly what products (inaudible) vary dramatically by geography and client type. But I would guess, depending on how you define the product (inaudible) industry has mobile products of some mobile. As Newton quotes (inaudible) provider have multiple sources of financial analytics on every professional desktop.

Giasone Salati – Execution

Okay. Thank you.

Operator

Thank you. Our next question is from John Neff. Your line is open. Please state your company name.

John Neff – William Blair & Company

Hi. John Neff, William Blair. Phil, you mentioned something. I just want to get a little more colour in response to a previous question about how (inaudible) would perform in another down turn. I think you said something to the effect like you didn’t expect a down turn because it’s deep into your customer base. I’m just wondering if I heard you correctly, if you could elaborate. Thank you.

Philip A. Hadley

I guess I would take two factors into account there. One just in the tenure that I’ve been in the industry for the last couple of decades that that was an unusual event that I thought was maybe a once-in-a-lifetime event to that degree. The second was the factors in the last market, it was a very equity driven ITO capital markets group environment with lots of M&A that got very frothy. So that was the site of the investment firms that got hammered. This particular cycle has nothing to do with that side of the business and everything to do with the credit side of the business. So assuming that eventually the credit side of the business gets things figured out, which the markets always do, sometimes it takes them a little longer than one might expect, I would expect things to stabilize and wouldn’t expect it to affect our side of the business nearly as much as it did last time.

John Neff – William Blair & Company

Thank you.

Philip A. Hadley

I guess I’d throw out one thing on the end of that and it’s important for everybody to realize that in our particular client base that we’re 77% buy-side and 23% sell-side. Even in the sell-side there’s quite a bit of diversity in where that revenue comes from. The lion’s share, the bulk of it is from corporate finance professionals. But we’re also in many other segments of investment bank or commercial bank.

Peter Walsh

Thank you. Operator?

Operator

Thank you. I’m showing no further questions.

Peter Walsh

Great. Thanks. Thanks, everyone. We’ll see you next quarter. Happy Holidays.

Operator

Thank you. That will conclude our conference call for today. You may now disconnect.

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Source: FactSet Research Systems F1Q08 (Qtr End 11/30/07)Earnings Call Transcript
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