Q4 2005 FactSet Research Systems Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Hello and welcome to the FactSet Research Systems' fourth quarter fiscal 2005 quarterly earnings conference call. [OPERATOR INSTRUCTIONS] I'd now like to introduce today's conference host, Mr. Peter Walsh, Chief Financial Officer. Sir, you may begin.

PETER WALSH, CFO, FACTSET RESEARCH SYSTEMS: Thank you and good morning to everyone. Welcome to FactSet Research Systems' fourth quarter earnings conference call. Joining me on the call are Phil Hadley, Chairman and CEO, Mike DiChristina, our President, Scott Beyer, Director of non-U.S. Operations and Mike Frankenfield, Director of our U.S. Investment Management Business.

FactSet lost a brilliant leader and visionary in early September with the passing of Howard Wille, our Co-Founder and former Chairman and CEO. It was his vision of FactSet as a premium service for financial professionals that set the table for what FactSet has become today. Howard embodied the spirit of our Company. We know the best way to pay him tribute is to continue to build this business, using the service-oriented culture he created. It's a culture that still strives at our Company today, across all departments and remains one of the keys to our success.

I'd like to remind you this conference call is being transcribed in real-time by FactSet's Call Street service and being broadcast live via the Internet at factset.com. The replay will also be available on our Website. Our call this morning may contain forward-looking statements, reflecting management's current expectations, based on currently available information. Actual results may differ materially from what is expressed or forecasted in such forward-looking statements. More information about factors that could affect FactSet's business and financial results are in FactSet's filings with the SEC, including its most recent 10K and 10Q. During the call, we may also refer to various non-GAAP financial measures. In such cases, the legally required comparable GAAP measures and reconciliations are included in our earnings release. Lastly, FactSet undertakes no obligations to update any forward-looking statements as a result of new information, future events or otherwise.

We'll organize today's call around three topics: First, we'll cover our performance during the fourth quarter. Second, I'll provide guidance for fiscal 2006, including financial details from recent acquisitions and the impact we expect from the adoption of FAS 123R to account for stock-based compensation. Third, after our comments, our management team will be happy to address your questions.

Now, turning to our results. FactSet continued to outperform in the fourth quarter. It marked our 36th consecutive quarter of revenue and operating income growth. FactSet continues to deliver superior returns to its shareholders. During the past three years, our average return on invested capital was more than two times higher than the weighted average return on invested capital of companies included in both the S&P 500 and the Russell 2000. Our fourth quarter results are indicative of a very strong sequential quarterly growth in new subscriptions, users and clients. We were able to deliver while investing in and pursuing new opportunities, showing the power of our business model.

This is a very exciting and busy time for our Company, filled with significant opportunities. We have a lot of work ahead but feel good about our progress and the value created for shareholders. Let's talk about the highlights of the quarter, starting with free cash flow. Free cash flow captures all the balance sheet and P&L movements and we believe it is an important metric to measure financial success. 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 flow generated during the fourth quarter was 26.6 million, up 47% on a year-over-year basis. This percentage increase excludes CapEx related to FactSet's new headquarters, incurred in the year ago quarter. Record levels of net income and strong cash …