FactSet Research Systems Inc. (FDS) Q3 2008 Earnings Call Transcript

Peter Walsh – Chief Financial Officer Philip A. Hadley - Chairman, Chief Executive Officer Michael D. Frankenfield – Director of U.S. Investment Management Services

Peter Appert - Goldman Sachs David Lewis – JPMorgan Aaron Cadle Ashley Hemphill – William Blair & Company Michael Meltz – JPMorgan Randall Reiss

Welcome to the FactSet Research System’s third quarter fiscal 2008 quarterly earnings conference call. (Operator Instructions) Now I will turn the call over to Peter Walsh, Chief Financial Officer.

Welcome to FactSet’s third quarter earnings conference call. Joining us today are: Phil Hadley, Chairman and CEO; Mike DiChristina, President and Chief Operating Officer; Mike Frankenfield, head of our U.S. Investment Management business; and Scott Beyer, Director of FactSet’s non-U.S. operations. This conference call is being transcribed in real time by FactSet’s CallStreet service and is being broadcast live via the Internet at www.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. Today we will divide our time among four areas: First, I will review third quarter results; second, Phil will provide more detail regarding FactSet’s agreement with Thomson and will enumerate how we expect to convert this opportunity into significant incremental value for our shareholders. It is important to note this transaction is still subject to regulatory approval. Third, I will provide guidance for our fiscal fourth quarter and also cover the estimated financial impact related to our pending purchase of a copy of Thomson Fundamentals. Finally, we will close with your questions.

Now, turning to our performance for the third quarter. We are pleased to report that we have met, again, the key financial guidance previously shared with you. First, quarterly revenues reached $147 million, an increase of 22%. Second, operating margins were steady at 32.5%. And third, when excluding the tax benefit of $0.04 a share in last year’s third quarter, EPS grew by 25% to $0.65 per share. This achievement is due to a combination of delivering world-class service to a loyal client base, while developing products and services that are highly integrated with our clients’ work flow. FactSet Fundamentals should arrive in the near future. This is a very exciting and busy time for our company, filled with significant opportunities. We have a lot of hard work ahead but feel good about our progress and the value created for shareholders. 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 cost for taxes and changes in working capital, less capital spending. During the last 12 months free cash flows generated were $120 million. Free cash flows for the third quarter were a record $46 million. One very interesting relationship is the comparison of our earnings to our free cash flow. Third quarter free cash flows exceeded net income by 41% and over the last 12 months free cash flow and net income are nearly identical. We believe this illustrates the high quality of our earnings. Drivers of free cash flow during Q3 were record levels of net income, $9 million of non-cash expenses, and a $17 million improvement in working capital, partially offset by $13 million in CapEx. Capital expenditures for computer equipment were $7.6 million and the remainder covered office space expansion. Major expenditures included adding eight HP Integrity mainframes and building out new space in our Chicago, Paris, and Norwalk locations. Our ending cash and marketable securities balance was $192 million, up $45 million over the past three months. During the quarter we paid a dividend of $5.7 million. The quarterly dividend paid will increase 50% to approximately $8.6 million starting in Q4. During Q3 we did not repurchase common stock and at quarter end there was $117 million in remaining share repurchase authorization. Now moving to the P&L. Revenue was $147 million, up 22% versus a year ago. Operating income advanced 22% to $48 million. Other income declined 60% to $900,000. Our effective tax rate rose 2.4% to 33.3%. Net income rose 14% to $33 million in the third quarter. Excluding the tax benefit of $1.9 million in the year-ago quarter, the percent increase in net income was 22%. Let’s take a look at the revenue drivers. On an organic basis ASV increased $18.2 million during the quarter, or 20%. Including currency and the cancellation of services to Bear Stearns, ASV increased $14.7 million. The change in ASV in the third quarter was derived from FactSet’s investment management client base. Our overseas client base contributed very strong ASV growth of 26%, including currency effects. Investment banks continue to manage expenses during the current market conditions. The adverse ASV change due to Bear Stearns was $2.6 million during the third quarter. At May 31, 2008, ASV was $590 million, up 21% over the last 12 months. Of this total, ASV from FactSet’s domestic operations was $403 million. Overseas operations supported ASV of $187 million, representing 32% of the company-wide total. As a reminder, ASV at any given point in time represents the forward-looking revenues for the next 12 months from all annual subscription services currently being supplied to clients. Now allow me to provide color behind the recent client trends we are seeing. Professionals using FactSet increased to 39,600, up 500 users from the beginning of the quarter. Client count was 2,044 as of May 31, 2008, a net increase of 23 clients during the quarter. The moderate growth in user count reflects the difficult operating environment for investment banks. The user count change from the ID side was flat in the third quarter, even when including the cancellation of 300 seats from Bear Stearns. Net new client growth, while healthy, was lower than previous quarters due to a reduction in new firm creation. We are especially pleased about the deepening engagement of existing FactSet users. The ability to consolidate multiple services into one through the FactSet platform has proven to be a compelling opportunity for our clients to recognize efficiencies. We are delighted with the progress of Marquee. Marquee users are up 47% year-over-year. Demand for portfolio analytics continues. This suite is comprehensive and includes eight applications that each produces a separate revenue stream. The suite is centered on applications for portfolio attribution, portfolio publication, risk and quantitative analysis. The portfolio analysis workstation is the largest revenue contributing member of this product suite. At May 31, 2008, there were 607 clients, representing approximately 5,500 users, who subscribe to this service. Client retention remained above 95%, once again confirming a breadth and depth of a product suite that is deployed by our high quality client base. Taking a look at geographic performance, our U.S. business produced revenues of $102 million in the third quarter. The U.S. business grew 18% over the year-ago. On the international front, revenues increased to $46 million. Excluding currency, the growth rate from overseas operations was 29%. By region, quarterly revenues from our European and Pacific Rim operations were $36.3 million and $9.4 million respectively. Moving to expenses for the quarter. Operating expenses were $99 million and our operating margin was 32.5%, up 10 basis points from Q3 of last year. Cost of sales as a percentage of revenue was 10 basis points higher than the prior year. Higher compensation and proprietary content collection was partially offset by lower computer depreciation and maintenance. The increase in compensation was driven by new employees. Higher proprietary content collection represents investments to capitalize and the future data needs of our clients. Computer depreciation declined from utilizing a shorter useful life for mainframes in Q3 last year to account for our transition to HP’s new Integrity machines. The decrease in computer maintenance is a result of retiring alpha mainframes and the maintenance cost being included in the price of Integrity mainframes for the first year. SG&A expenses, expressed as a percentage of revenue, were flat year-over-year. Efficiencies in rent and T&E were offset by our global engineering conference held in May 2008. The conference was not held in the prior year and reduced our SG&A margin by 50 basis points. Employee count at May 31, 2008, was 1,826. Head count did not change during the third quarter. Over the last 12 months the number of employees is up 18%. We already have accepted offers from 80 new employees for Q4, the majority of which will expand our sales and consulting and engineering departments. Our effective tax rate for the quarter was 33.3%, an increase of 2.4% over a year ago. The rate in the year-ago quarter was lower due to $1.9 million of tax benefits primarily related to deductions for fiscal 2006. Other income was $900,000, a decline of 60%, or $1.3 million. This decline resulted from lower U.S. interest rates over the last nine months. To sum it all up, EPS grew to $0.65 per share, up 25% versus the year-ago quarter, when excluding the $1.9 million tax benefit last year. Now please allow me to introduce Phil Hadley who will detail why we are so excited about FactSet’s opportunity to purchase a copy of Thomson Fundamentals. Take it away, Phil. Philip A. Hadley: My objective today is to cover three areas: one, to provide background on the transaction to build a common ground regarding the details; two, to review why this is a significant event for FactSet; and three, to cover FactSet’s progress in establishing our collection operations for FactSet Fundamentals. Now moving to the transaction details. FactSet signed an agreement dated as of April 22, 2008, with Thomson Reuters to purchase a copy of the Thomson Fundamentals database and related assets. The agreement is subject to regulatory approval by both the European Commission and the U.S. Department of Justice. The transaction is expected to close before, or during, July 2008. Fundamental data is historical financial information. For example, income statements, balance sheet and cash flows and the related underlying data from footnotes and financial statements. Thomson Fundamentals is a leading global fundamental database with coverage of over 43,000 companies and history back to 1980 and has been available and distributed by FactSet since 1991. The sale will include copies of the Thomson Fundamentals database, source documents, collection software, and collection training materials. Thomson retains full ownership of the original Fundamentals database and the associated intellectual property. Thomson Worldscope Fundamentals will continue as a product on the FactSet system. FactSet may acquire revenue pertaining to certain Thomson contracts upon client consent. Report casting annual revenues of $2 million to $5 million will be included with the transaction and transferred to FactSet. At closing, FactSet and Thomson will enter into a transition services agreement, or TSA. Under the TSA Thomson will provide services for 18 months from the day of close, including daily updates to FactSet’s Fundamentals database. Daily updates will be provided on the same schedule with the same timeliness, content, and quality as the updates we will receive from Thomson for Thomson Fundamentals. The TSA also outlines consulting and support services Thomson will provide FactSet to give us a full understanding of the structure and content of the database and the know-how to conduct training programs for collection employees. Thomson agreed to facilitate a hiring process of key employees connected with the database and related assets. Eight key employees have accepted employment offers to joining FactSet effective on the close of the transaction. Let’s change gears and speak to why this is a very important transaction for FactSet. We expect the proposed transaction will add significant shareholder value for the four primary reasons: First, the opportunity to buy a trusted, premium, global fundamental database with history back to 1980 is rare and unlikely to repeat itself in the foreseeable future. The alternative of building a comparable offering from scratch would be extremely challenging from both an operational and financial perspective. The added degree of difficulty is very high since the entrance to the database requires source documents going back to 1980, on a global basis. Needless to say, I view this as a special opportunity and feel fortunate FactSet is in a position to capitalize on it. Second, fundamental financial data is one of three core content sets, along with security prices and estimates that virtually all of our clients require. Upon completion of the transaction, FactSet will own all three core content sets, on a global basis. In addition to owning fundamentals removes supplier risk, but it concerns some of our investors. The transaction also preserves our competitive advantage of providing choice of the finest fundamental databases, including Thomson Worldscope, Reuters Fundamentals, and S&P Compustat. We are very excited to add FactSet Fundamentals to that list. Third, there is at least a $100 million direct opportunity for fundamental data from our current universe of clients, 2,044 investment manager and investment clients alone. FactSet’s share of this market opportunity currently is near zero. Fourth, and finally, our deep understanding of fundamental data is a great advantage to make our allocation of capital for this transaction pay off. FactSet has been the largest distributor of Thomson Fundamentals and we are keenly familiar with this database given our 17-year history of support and distribution since 1991. Our experience not only reduces execution risks but it provides us a clear path forward. FactSet Fundamentals will be available to sell to clients and prospects on the day the transaction closes. Now let’s speak about the progress to establish our collection operation for FactSet Fundamentals. FactSet has been collecting proprietary data since 2001. Our on-shore collections content teams now represent one-fifth of our employees. In addition, we established off-shore collection teams on the ground in India back in 2005 through a BPO. These teams are dedicated to numerous FactSet proprietary content databases, including institutional holdings, private companies, private equity, venture capital, people data, earnings estimates, and deal days. In anticipation of creating FactSet Fundamentals, during the last year we assigned a team of 40 people in India the task of collecting fundamentals on a test basis. Our product development team had developed a strategy for collecting our own fundamental database from scratch. We have space plans in Hyderabad, India, to base our fundamental operation of 500+ people. We have recently hired talented employees with industry experience and soon expect to add the eight key employees from Thomson to our team. Tom Thomas, a 23-year veteran of FactSet and our Chief Content Officer, is personally leading this project. Regarding the near term, we have carefully and thoughtfully arranged transition services with Thomson, including complete database updates for Fundamentals, every day for the next 18 months. Our engineers have scoped out specific details and steps necessary to install full production versions of the Thomson Fundamentals database collection software, which will be purchased as part of the transaction. Our HR infrastructure is in place in India to hire several hundred new employees. We feel good about the time we have to hire, train, and test our fundamentals collection system. With this transaction, our time to market for FactSet Fundamentals has been accelerated by at least three years. FactSet is excited to enter the fundamental data business with such a high quality asset. Our strategy is to use our market experience to win based on features and value. We believe our deep understanding and 30-year history of working with fundamental data will aid us significantly in this process. Our entire company is energized by this enormous opportunity. I will now turn the call back over to Peter Walsh who will provide details about the financial facts of the transactions, as well as guidance for our upcoming fourth quarter. Peter.

I will begin this discussion on guidance with the pending purchase from Thomson. The cash consideration to be paid by FactSet is $48.8 million plus 5x annual revenues assigned to FactSet after the consent of certain clients of the Thomson Fundamental database. FactSet will also enter into a transition services agreement, or TSA, with Thomson for the provision of certain consulting, training, and other services, including database updates for 18 months after closing. Under the TSA, FactSet is scheduled to pay Thomson and aggregate amount of $9.1 million, a significant part of which is consideration for the daily database updates over the next 18 months. Total cash consideration to be paid by FactSet should range between $67 million to $80 million. This range assumes that annual revenues of $2 million to $5 million will be included in the transaction and transferred to FactSet. FactSet anticipates that this transaction will be dilutive to earnings per share until the 18-month transition period concludes, after which the transaction is expected to be accretive. In the fourth quarter of fiscal 2008 EPS dilution should be approximately $0.03 per share. EPS dilution for each fiscal quarter in fiscal 2009 should be approximately $0.04 per share, or $0.16 for the full 2009 fiscal year. A primary expense driver is the cost of the TSA from Thomson. The quarterly cost of transition services on a pre-tax basis should approximate $1.6 million or $6.5 million for the full 2009 fiscal year. These costs are eliminated at the end of the 18-month transition period. The transaction is expected to be accretive to EPS in fiscal 2010. Regarding the upcoming fourth quarter, our guidance is as follows. Excluding the purchase of FactSet Fundamentals, revenues are expected to range between $150 million to $154 million. Operating margins should be between 31% to 33%. The 50 basis points increase in the margin guidance reflects the seasonal revenue benefit from workstations used by summer interns. This benefit is temporary and is not expected to repeat in Q1 2009. Other income is expected to be $900,000 to $1.2 million. The effective tax rate is expected to range between 33.8% to 34.6% and assumes the U.S. Federal R&D credit is not reenacted. Our CapEx range for fiscal 2008 remains at $32 million to $38 million. When the pending purchase from Thomson is factored into our guidance, the high end of the revenue range increases by $1 million, to $155 million. The low end of the revenue guidance does not change. Our operating margin guidance declines by 150 basis points, to 29.5% to 31.5%. The range for other income decreased to $600,000 to $900,000. The effective tax rate guidance is not affected. To sum it up, Q3 adds to our impressive string of successful quarters. Our results clearly highlight the continued strength of our products, a proven business model, and a very talented employee base. While we’re proud of our achievements, at the same time we see great opportunity ahead. We believe the current market opportunity is at least 15x the size of FactSet’s annual revenues and that our new FactSet Fundamentals product will only improve our probability of increasing our share at a rate that would be enviable in our industry. Thank you for your participation in today’s call. We are now ready for your questions.

(Operator Instructions) Your first question comes from Peter Appert – Goldman Sachs. Peter Appert - Goldman Sachs: Phil, can you help us better understand how you come up with the estimate of $100 million revenue opportunity? Is the concept that the Thomson Fundamentals basically just replaces things like Compustat, and therefore you are capturing revenues that were going to others? And in addition to that, will you be selling the FactSet Fundamentals database to other third-party distributors? Philip A. Hadley: The $100 million is just our knowledge of what the data revenues are to our clients. And it is certainly just an estimation but probably a pretty good approximation. Peter Appert - Goldman Sachs: That’s roughly what you’re generating currently, or what you’re selling rather currently? Philip A. Hadley: Correct. Either directly or indirectly. And then the answer to third parties, certainly. If the opportunity is there, we will certainly investigate that. Peter Appert - Goldman Sachs: As we look at the TSA cost, should we think about that as the incremental operating cost, even once the deal is over, on a go-forward basis, what it costs you to maintain the database?

No, I think I would look at the TSA cost, Peter, as something of overlap. So while we’re having our database updated on a daily basis it is important for us to build up our own staff to perpetuate the collections thereafter. So I wouldn’t correlate the two together. Peter Appert - Goldman Sachs: And is the key to getting to earnings accretion, then, convincing clients to switch from Compustat, or other fundamental databases, to the FactSet Fundamentals? Philip A. Hadley: Our revenue sources from the database, as you pointed out, will come from multiple sources. Certainly third party is part of our business model for distributing data. Our new client relationships certainly will have an opportunity, not to switch, but to choose that as a possibility. And then as we enhance the feature sets in the marketplace, our business model is to sell the best product to our clients and we will certainly try and make the best product and we certainly believe, as you can tell from our acquisition of this product, that we will have a very competitive product in the marketplace. Peter Appert - Goldman Sachs: Worldscope is currently, at least as I understand it, is particularly strong internationally and maybe less so domestically. One is that accurate or not? And two, are there any pulls in the database that you’re going to need to fulfill in the near term? Philip A. Hadley: The context of the database is always based on who the end user is and what they think is the best. But historically it’s been actually the dominant global database on our system, both U.S. and non-U.S. So if you’re a global investor worldwide it would be the database of choice. And with any product, it’s not all things to everybody and if you wanted to be able to supply a broader functionality set to meet everyone’s needs, there will certainly be features that we have to add to the product. But we have a long list and are very excited to attach it at this point. Peter Appert - Goldman Sachs: So obvious pulls for coverage as far as you’re concerned? Philip A. Hadley: No, you’re right, that would certainly be a difficult thing to go back and back-fill data that is missing. It actually is a leader in its space when it comes to depth of coverage, historically. So it’s really just focusing on the current process, the items you’re collecting, the timeliness of how you’re collecting them, and the presentation of that information. Peter Appert - Goldman Sachs: How do you think about your hiring plans over the next year, the flattish staff levels here in the current quarter? Is that the normal pattern or have you actually stepped back a little in terms of the pace of hiring? Philip A. Hadley: I think internally we stepped back a little. We knew we were going to go big into Fundamentals, one way or the other. Either with purchase or with build. And seasonally, the third quarter for us is not a strong hiring quarter, since we hire a great deal out of college, the summer hiring period is the largest hiring period. And I think going forward we will certainly separate the Fundamentals product internally as a separate project and run the rest of the business as we’ve run normally. Peter Appert - Goldman Sachs: So the preliminary hiring plans for fiscal 2009, would they be as far as what you have this year? Philip A. Hadley: I think we would probably certainly try and keep it line with revenue growth rates, whatever revenue growth rates be. I think we were probably heavy this year. Where did we end up this year?

17%, Peter, I think our hiring and our revenue will stay very close together. Peter Appert - Goldman Sachs: And then the 500+ data collection people in India, those people are already on staff on that’s the group you’re stepping-up now?

To be hired and that specifically relates to the FactSet Fundamentals. Philip A. Hadley: And maybe to clarify a little bit there because head count is definitely going to be something that is going to show change in the next year in a way that it hasn’t shown historically, so the BPO that we have has 350 people in it that are not FactSet staff at this point. The 500 people that will go into the fundamental collection team will be FactSet employees. Peter Appert - Goldman Sachs: Those are run as separate entities? Philip A. Hadley: They are part of a BPO instead of FactSet employees. Peter Appert - Goldman Sachs: And the 350, what are they working on? Philip A. Hadley: What I listed in the call, everything from private company, private equity, venture capital, people, earnings estimates, institutional holdings, all kinds of content. Peter Appert - Goldman Sachs: 500 exclusively with Fundamentals, no expectations for [inaudible] operations. Philip A. Hadley: We always look for operational [inaudible] as we move forward.

Your next question comes from David Lewis - JPMorgan. David Lewis – JPMorgan: I was wondering if you could give us an update on the new products we’ve seen launched over the course of the past eight months, Simulator, you touched on Marquee, but Simulator, Publisher, Mobile. Michael D. Frankenfield: All of those products continue to make good steady progress in the client base. As with all of our FactSet products that are newly released. There’s a lot of collaboration that goes on between our development teams and the clients to refine the product once it’s been released. And that’s just an ongoing process that is happening now and all of them are doing very well. David Lewis – JPMorgan: Can you give us an estimate for incremental revenue from FactSet Fundamentals in fiscal 2009? Philip A. Hadley: I think in keeping with history, we have given guidance for the next quarter and I think we’ll probably stay with that at this point. A lot of variables as to exactly what happens, so at this point we don’t give guidance that far out.

I have an add to that, David. We always make sure to break out our organic growth rate ex-acquisition so we’ll certainly do that in the coming first quarter. David Lewis – JPMorgan: If we see consolidation among investment managers, hedge funds, over the next two to three years, how does that change your sales strategy, if at all? Philip A. Hadley: I’ve been in this business for 23 years and all I’ve seen is consolidation. Since the day I got in it. So, I don’t think you can name a firm on the Street that’s of any size and not name five or more prior firms that it became, whether it’s J.P. Morgan or anyone else. So, for me, it’s built into our organic growth rate over the last 23 years, is mergers, failures, acquisitions, whether it’s Bear Stearns or Robertson Stephens or whether it’s huge mergers of clients that we have. So, I look at it as just a normal course of business.

Your next question comes from Aaron Cadle

First, can you just remind us of the break out either via subscriptions or revenues between buy side and sell side as of the main quarter, in terms of your clients?

The break out is 70% buy side, 21% sell side.

And then, what is the potential earnings accretion in fiscal 2010 from the Thomson Fundamentals? You talked in fair detail about the dilution and then the potential opportunity, but what do you think the accretion could be if all goes as you hope? Philip A. Hadley: Costs are always easy to estimate, revenues aren’t as easy to estimate. But I think it’s one of those things where you go through the modeling of a transaction like this and you understand what the market opportunity, I think the point that I made that it’s core to our client base, it is a product that almost every single one of our clients needs. That we feel comfortable that after the transition services are over that we will be in an accretive state. And at that point it will be part of an organic growth rate at FactSet and won’t be broken out in any way shape or form. But I feel very comfortable that it will be a good transaction for our shareholders.

And can you just repeat the margin benefit from the summer interns in the fiscal fourth quarter?

50 basis points.

Is you’re holding back on share repurchase at all related to the cash you’re going to need for the Thomson deal and thus would you hold off for the fourth quarter while you’re waiting for that deal to close, on buying back stock?

It’s not related. Soon after we released second quarter earnings we really got engaged in this transaction and it wouldn’t have been appropriate or prudent to engage in share repurchases during the course of those discussions. Now that they have concluded and all the information is in the public domain, share repurchases is viable in our capital allocation process.

Your next question comes from Ashley Hemphill – William Blair & Company.

I was wondering if you could give us any increments of stock to higher vesting of performance-based units in the quarter. William Blair & Company: I was wondering if you could give us any increments of stock to higher vesting of performance-based units in the quarter.

During the second quarter we changed what we believe was our power of performance option vesting for our performance options to that in this coming August, 2008, because we believe that the organic ASV growth rate and the earnings per share growth rate over a two-year basis would reach 21%, and we still believe that, as of today. And so there’s been no change in our expensing of performance-based options.

And I know that excluding the tax benefit in Q3 2007 the effective tax rate would have been below the 33.3% we saw this quarter, but if you include it and ratchet up the tax rate, can you give us a better idea of why the tax rate was so low in this quarter? William Blair & Company: And I know that excluding the tax benefit in Q3 2007 the effective tax rate would have been below the 33.3% we saw this quarter, but if you include it and ratchet up the tax rate, can you give us a better idea of why the tax rate was so low in this quarter?

The tax rate has been continuing to slowly decline as FactSet becomes a more global company. You may notice just in our tax rate guidance, if you take the mid-point of our guidance for Q4 and compare it to Q3, the mid-point of the guidance has also dropped by 30 basis points. And that guidance doesn’t include and R&D tax credit, which currently is being discussed in U.S. Congress and has been a staple of our tax system for almost the last 20 years. So, we continue to work hard on taxes and being a bigger, accelerating our growth outside the U.S. has been positive for that rate.

Could you actually give us the multiple for first year revenue that you paid for the Worldscope database? William Blair & Company: Could you actually give us the multiple for first year revenue that you paid for the Worldscope database?

I think all the information is in the press release, as far as the revenues we think to inquire, as well as the range of the purchase price. As soon as that information is final I think we would be able to [inaudible].

Your next question comes from Michael Meltz - JPMorgan. Michael Meltz – JPMorgan: One question that Peter had asked and I don’t know if I heard the answer. In terms of potential EBIT improvement, is there a sense that reliance on Compustat could go down, or cost savings could be realized from less use of Compustat going forward? Can you talk a little bit about that, please?

Compustat bills all it’s clients directly and there’s no cost in our cost structure related to Compustat so we wouldn’t expect that to be any changes in our cost structure as relates to that.

Your next question comes from Randy Reiss.

I was wondering if there will be any change in the level of CapEx going forward after the elevated levels we’ve seen recently. Philip A. Hadley: Randy, as you noticed, we maintained our CapEx guidance for the full fiscal year. And when we get through this fourth quarter we’re going through our allocation process for next year and we certainly will provide guidance for our fiscal 2009.

Could you just comment as far as real estate and computer hardware, do you have needs to increase levels of spending in those areas in the future? Near future? Philip A. Hadley: I think as FactSet continues to grow those are always two areas that I would consider to be signs of growth. So, increase in computer CapEx, other than the recent transition we did, always correlates to more system usage by clients and our employee head count growth overlaps to 17%. We don’t warehouse a lot of real estate because we find it very expensive. We think our real estate costs will continue to grown as our people costs do.

The transition you made in computers was intended to lower the incremental cost of adding capacity, is that correct? Philip A. Hadley: Yes. I think the cost per box, or CPU, is still moving in FactSet, so we’re just offsetting that cost with more system usage and more volume.

Your have a follow-up question from Peter Appert – Goldman Sachs. Peter Appert - Goldman Sachs: Could you just speak broadly about how you see the tone of business currently, the feedback you’re getting from the clients, whether the length of the sales cycle is changing? Anything that would give us any color on the current market environment as you’re seeing it? Philip A. Hadley: The one that I noticed in the last quarter that is probably the most pleasing is on a competitive level, as you’re looking at all of the sales notes of how we’re doing in a particular situation, very, very strong competitively. Gaining share, as you can see in client count and see even in a pretty tough time in the marketplace. So, I think that FactSet is well positioned to do well in any cycle, up or down. At the same time, I think everyone on this call is in the same business. Certainly our sell side clients need to stop losing billions of dollars for them to feel like spending money on market data but at the same time I think we’ve also presented them with the opportunity to save money and consolidate at FactSet and that’s showing in the seat count that Peter had mentioned. The buy side is one where on the non-U.S. side of the business I think things are still very strong. Obviously the strength of the economies outside of the U.S. and the fact that the sub-prime, or the credit crisis, is so far, more deeply affecting the U.S. market has left that alone to this point. And then I would say U.S. buy side, maybe slightly more cautious in their decision process. Some of those because they’re tied to big banks, some of them just because it depends really on what the benchmarks are doing in the particular quarter. But over time a quarter really doesn’t really affect them that much and they tend to look at their businesses on a much longer-term basis. Peter Appert - Goldman Sachs: I recognize that’s it’s early on this, but the impact of the Thomson Reuters combination from a bills perspective for you, any comments on that? Philip A. Hadley: I think I would go with your thought in that it’s still very early to understand exactly what the dynamics are going to be in the marketplace. I think they will certainly present some opportunities. It’s a very large company and they will focus on certain things and not focus on others and the things they choose not to focus on will be opportunities for all. It’s a very, very large company and they will make those decisions as time travels. Peter Appert - Goldman Sachs: You haven’t seen any early indications of changes in pricing strategy, for example, from them? Philip A. Hadley: It’s too early to see that at this point.

Your have a follow-up question from Randall Reiss.

Did you mention non-subscription revenue in the quarter?

No, I didn’t. It was flat year-over-year, Randy.

At this time I show no further questions. Philip A. Hadley: Thank you very much.