Factset Research Systems Inc (FDS) 2008 Q2 法說會逐字稿

Welcome to FactSet Research Systems second quarter fiscal 2008 quarterly earnings conference call.

At this time all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS) 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.

Thank you, operator, and good morning, everyone.

Welcome to FactSet's earnings conference call for the second quarter of fiscal 2008.

Joining me are Phil Hadley, Chairman and CEO; Mike DiChristina, President and Chief Operating Officer; Scott Beyer, head of our non-U.S.

operations; Kieran Kennedy, Director of Investment Banking; and Mike Frankenfield, Director of our U.S.

Investment Management business.

This conference call is being transcribed in real time by FactSet's call tree 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 expectation based on currently available information.

Actual results may differ materially.

More information about factors that could affect FactSet's business and financial results can be found in FactSet's filing 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'll divide our time among three areas.

First I'll review Q2 results, then I'll cover guidance for the upcoming third quarter, finally we'll close by addressing your questions.

Before I talk about results I'd like to take a moment to highlight three items.

One, please recall revenues in the prior-year quarter were aided by a $1.2 million of incremental nonsubscription revenue from FactSet's Partners product.

Excluding the incremental $1.2 million, revenues were up 22% for the second quarter of 2008.

Partners is a software product used to author equity research reports.

Implementation fees related to Partners are not included in the calculation of annual subscription value, also known as ASV.

To aid investors' ability to make more precise interpretations of FactSet's financial results, a supplementary schedule was included with today's press release that summarizes nonsubscription revenue.

Two, included in this quarter's EPS was a charge of $2.4 million related to an increase in the estimate of the number of performance-based stock options that will vest in August 2008.

During the second quarter FactSet estimated that it was probable that the Company would achieve ASV and diluted earnings per share growth of at least 20% on a compounded annual basis for the two years ended August 31, 2008.

This reflects a higher performance level than previously estimated and accordingly increased the number of options that are estimated to vest at the end of fiscal 2008.

This change in estimate reduced diluted earnings per share by $0.03 and decreased operating margins by 180 basis points from 32.6% to 30.8%.

We have included non-GAAP financial measures to adjust operating and net income for the incremental stock-based compensation.

Reconciliations between GAAP and non-GAAP financial measures are included in the earnings press release, which can be found at our website under Investor Relations.

We hope that utilizing these reconciliations will help you understand our results and our performance versus the year-ago period.

Three, the U.S.

federal R&D tax credit expired on December 31, 2007.

Our effective tax rate is based on current enacted tax laws and appropriately reflects the credit only for the first four months of fiscal 2008.

The expiration of the R&D tax credit caused FactSet's fiscal 2008 effective tax rate to rise by 70 basis points in Q2.

Moving on to the review of the second quarter.

Q2 was another excellent quarter for FactSet.

This is evident in our strong organic ASV growth rate of 22.5% and higher levels of profitability.

Excluding the DealMaven acquisition and currency effects, ASV increased by a record $30.3 million during the quarter.

Top-line growth is also contributing to higher margins and earnings per share.

Excluding incremental stock-based compensation, our operating margin accelerated to 32.6%, up 90 basis points sequentially from the first quarter, and EPS was up 19% over the last 12 months.

These results were achieved despite a difficult selling environment to IB clients.

Our performance this quarter is indicative of broad-based growth among our investment management client base.

Our growth came from all geographies and across many product lines.

The key ingredient enabling us to attract more clients and users continues to be a -- combining expansive functionality and premium content choices with first-class client service.

Let's begin the highlights of the quarter with free cash flow.

Free cash flow captures all the balance sheet and P&L movement.

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 rose 23% to [$115] million.

Free cash flows generated during the second quarter were $23.7 million, up 33% over the year-ago quarter.

Drivers of free cash flow during Q2 were record levels of net income and higher noncash expenses, partially offset by a decline in working capital.

The decrease in working capital was caused by an $8 million increase in accounts receivable and the timing of U.S.

federal estimated tax payments.

We believe the increase in accounts receivable is not a concern for two reasons.

One, as we reported on last quarter's call, during the second quarter we issued invoices for services to be provided over the next 12 months that aggregated to $11 million, Accordingly, this increased accounts receivable.

Two, it's normal for our receivables to rise during Q2.

The increase this year was 12%, which was lower than the 14% increase in the year-ago period.

Over the last 12 months accounts receivable has increased 1% while ASV has advanced 22%.

DSOs at quarter end were 45 days versus 55 days a year ago.

Regarding taxes, on our last earnings call I spoke about how FactSet remits two estimated tax payments for the first half of the year during the second quarter.

This additional tax payment reduces free cash flow in Q2.

Estimated tax payments during the second quarter were $33 million, up from $23 million in the year-ago quarter.

Our ending cash and marketable security balance was $147 million, down $24 million from November 30th.

During Q2 we invested $35.7 million to repurchase common stock, acquired DealMaven for $14 million, and paid a quarterly dividend of $5.8 million.

Including the $125 million increase the share repurchase program announced this past January there are $117 million remaining in repurchase authorization.

Capital expenditures during the quarter were $7.4 million.

Expenditures for our computer equipment were $5.2 million and the remainder covered office space expansion.

Major computer expenditures included adding six Hewlett Packard Integrity mainframes to the Company data centers, which successfully completed the transition to HP Integrity mainframes in both data centers well ahead of schedule.

Now moving to the P&L.

Revenue was $140.2 million, up 21% versus a year ago.

Excluding nonsubscription revenues the growth rate was 22%.

Non-GAAP operating income, which excludes the $2.4 million incremental charge related to performance options, advanced 21% to $45.7 million.

Non-GAAP net income rose 17% to $31.1 million in the second quarter.

Non-GAAP EPS rose 19% to $0.62 per share.

The growth rates of non-GAAP net income and EPS were adversely impacted by a 20% decline in other income to $1.4 million for the quarter.

Let's take a look at the revenue drivers.

ASV increased $33.9 million during the quarter.

Excluding $3.2 million from the acquisition of DealMaven and $400,000 from foreign exchange, ASV increased $30.3 million, or 22.5%.

As a reminder, we define annual subscription value, or ASV, as the forward-looking revenues for the next 12 months from all subscription services currently being supplied to our clients.

The ASV change for the quarter was almost entirely derived from FactSet's global investment management client base.

As disclosed last quarter, investment banking clients are carefully managing expenses during the current market cycle downturn.

While we're not pleased with ASV growth from the sale side, we've been encouraged by the fact that our user count from IB clients rose during each of the past two quarters.

FactSet's Investment Management business is accelerating across all geographies and represents 78% of total ASV.

ASV growth rates in the U.S., Europe and Asia all exceeded 20% at quarter end.

During the second quarter, $6 million of the $33.9 million increase in ASV was due to a pricing change for most U.S.

investment management clients.

A 3% price change was announced in the summer of 2007 and took effect on January 1, 2008.

While this cost of living price adjustment to U.S.

clients was the first for FactSet, we expect to repeat this practice on an annual basis.

ASV was $575 million at February 28th.

On a constant currency basis, ASV advanced $104 million over the last 12 months, an organic growth rate of 22.5%.

We believe our ASV performance this quarter demonstrates that it's important not to underestimate the value buy-side clients place in FactSet.

This value is driven by a combination of three things.

First, our advance applications, such as PA, Risk in PA, the Portfolio Optimizer, Portfolio Publishing, Alpha Testing, Portfolio Stimulation and Marquee are all very powerful applications for end users.

Second, on top of these advanced applications is a wealth of data with global coverage that is completely integrated from premium content providers.

It's not just access to data from more than 100 premium third-party providers, but the ease in which clients can mix and integrate their own data, especially their portfolios, into the advanced application.

Third, and finally, what brings the applications and data together is our drive to solve client problems.

Our client-friendly culture has translated into one of the best service reputations in our industry.

More specifically, let me turn to the trends we recognized from a product perspective this quarter.

Portfolio Analytics remains a strong and consistent source of growth.

This suite is comprehensive and includes applications for portfolio attribution, risks, quantitative analysis, portfolio publishing and returns-based style analysis.

The portfolio analyst workstation is the largest revenue contributing member of the Portfolio Analytics product suite.

At quarter end there were 595 clients who subscribe to this service.

Users increased to 5,248, a growth rate of 25% over the prior year.

We've been pleased with the demand for our risk products and the effect of integrating and offering clients the choice of first-class risk providers, such as Barra, Northfield and APT.

Higher demand for the portfolio analysis workstation and quantitative products also have the effect of increasing subscriptions to our vast benchmark content, such as MSVI,, Russell, SMP and [FTSI].

Marquee is now able to service the needs of a global investor.

Its deployment is ramping nicely with user growth over 50% on a year-over-year basis.

We've also been successful in selling our proprietary content, including FactSet Estimates, ownership data and information related to shareholder activism.

On the user side, professionals subscribing to FactSet increased to 39,100, up 1,300 since November 30th.

Client count was 2,021 at quarter end, a net increase of 28 clients during the past three months.

Client retention remained above 95%, once again confirming the breadth and depth of a product suite that is deployed by a high-quality client base.

Taking a look at geographic performance, our U.S.

business produced revenues of $97.1 million in the second quarter.

Excluding nonsubscription revenues, the growth rate was 20%.

On the international front, revenues increased 25% to $43.1 million.

Excluding nonsubscription revenue and holding currencies constant, revenue growth from overseas operations advanced 26%.

By region, quarterly revenues from our European and Pacific Rim operations were $34.3 million and $8.8 million, respectively.

Subscriptions by non-U.S.

based clients were $179.1 million, representing 31% of the Company-wide total.

Moving to expenses for the quarter, operating expenses were $78.5 million and our non-GAAP operating margin expanded 90 basis points from Q1 to 32.6%.

Cost of sales as a percentage of revenue was up 2.3% over prior year.

Drivers of the increase were higher compensation, performance-based stock-option expense and additional data costs.

Higher compensation was driven by new employees.

The rise in stock-based compensation reflects the incremental charge from performance-based stock options.

The increase in data cost was driven by variable payments to data vendors from additional content subscriptions and more proprietary data collection.

SG&A expense, expressed as a percentage of revenue, declined 600 -- [50] basis points year over year.

This decrease was driven by lower compensation and marketing expenses partially negated by the one-time charge related to performance options.

Lower compensation came from leveraging nonsales staff through enhanced internal information systems.

Marketing expenses declined from a higher number events in the prior year.

Employee count at February 29, 2008, was 1,828.

Excluding DealMaven, our headcount is up 22% from a year ago and 10% over the past six months.

Our annual effective tax rate for the quarter was 34.2%.

This -- included in this rate was the effect from expiration of the U.S.

federal R&D tax credit in December 31, 2007.

Our effective tax rate is based on current enacted tax laws and fiscal 2008 rate now appropriately reflects the R&D credit only for the first four months of the fiscal year.

The expiration of the R&D tax credit caused FactSet's fiscal 2008 effective tax rate to rise by 70 basis points in Q2.

To provide context, the R&D credit was originally enacted in 1981.

Over the last 27 years the credit has lapsed once for almost a full year between 1995 and 1996.

Congress has extended the credit 13 times with extensions ranging from five years to six months.

On several occasions the credit has been extended retroactively, including the last extension in December 2006.

Moving on to other income, it was $1.4 million for the quarter, a 20% decline year over year.

The decrease was caused by FactSet's reallocation of its investments to U.S.

government backed securities in late 2007 and the Federal Reserve lowering U.S.

interest rates by 150 basis points during Q2.

Let's move to our outlook for the third quarter of fiscal 2008.

Revenues are expected to range between $145 million and $149 million.

This revenue guidance assumes zero revenues from Bear Stearns and that its pending sale will not result in any additional revenues at new or existing clients.

This estimate might be conservative since it's not unusual for displaced FactSet users to resurface at existing clients or prospect's firms and for some ASV to carry over and remain at the purchasing firm in a merger.

Operating margins are expected to range between 30.5% and 32.5%.

Operating margin guidance includes $900,000 of expenses related to the biannual FactSet engineering conference scheduled for May 2008.

Other income is expected to be between $700,000 and $1.3 million.

The midpoint of this range represents a 53% decline compared to the third quarter last year.

The effective tax rate is expected to range between 34% and 35% and assumes the R&D tax credit is not reenacted.

Capital expenditures, net of landlord contributions, should range between $35 million and $41 million, a reduction in both ends of the range by $3 million from our guidance at the end of last quarter.

In summary, we've made great strides over the past few years.

We have consistently delivered record revenues and EPS by maintaining an impressive operating margin of approximately 32.5%.

Over the last 12 months ASV rose by $104 million, approximately the same organic ASV growth for fiscal 2005 and 2006 combined.

We've generated free cash flow of [$115] million over the last year, an increase of 23%.

Results halfway through fiscal 2008 contributed to and perpetuate our strong results despite challenging market conditions.

During the past six months, organic ASV grew $51 million, a compounded annual growth rate of 21%.

We believe that our ASV performance this quarter is clearly messaging that FactSet can put up strong results when the sell side is struggling.

Q2 results adds to our string of 11 consecutive years and 47 sequential quarters of revenue growth as a public company.

This would not be possible if we didn't operate in an industry where our clients are very profitable and where our opportunity is enormous relative to our current size.

Our view is that this long-term record of consistency clearly demonstrates the power of FactSet's business model in any market cycle.

Thank you for your participation in today's call.

We are now ready for your questions.

Thank you.

(OPERATOR INSTRUCTIONS) Peter Appert, you may ask your question --

Thank you.

-- from Goldman Sachs.

Thanks.

Peter, something you could maybe give us a little more color on the drivers of password growth, where you're seeing the growth, how many of the growth is related to new versus existing clients, for example.

Peter, it's Phil, morning.

Morning.

The majority of our password growth comes from existing clients, and as Peter mentioned, in the first half and even in this quarter it was both buy and sell side growth, but it's traditionally large clients expanding our footprint.

Marquee happens to be a driver like that in many of our clients.

Okay.

And then the -- I noticed that the revenue per password is down a little bit on a year-to-year basis in the current quarter, how do I interpret that?

I think it goes back to the most important metric being looking at total ASV.

Anytime we have growth in passwords in large clients, like we did this quarter, it's going to be lower than the average total password.

A new client that comes on with two passwords, those two passwords are more expensive on a per password basis than the marginal password, so it's just a mix on a quarter to quarter, but not anything I would be alarmed at.

Although I guess the reason I note it is just in the context of the discussion of your great success in migrating customers to some of the more advanced products, which presumably carry higher fees per user, right?

I would think that maybe more of the growth would then be coming from effectively pricing than units?

I think we did -- the majority of the application growth would probably be on an existing user that would be upgrading and then new passwords would tend to be -- might be on marquee seat, which on the margin would not be loaded with all of the applications.

They would potentially then progress to being a fully-loaded seat with PA.

Got it.

Okay, great.

And then, Phil, the -- what should we anticipate in terms of cost growth over the next four to six quarters, and specifically I'm thinking about as you implemented the change in the computer systems, presumably there are higher depreciation expenses.

Should we look for a percentage growth rate in expenses to accelerate a little bit over the next few quarters?

Hello, it's Peter.

Thanks, Peter.

Really it's -- the beauty of our ASV model is that it provides visibility in time to adjust our investment rates quarterly to future revenue growth.

If you look historically it's not unusual for ASV to closely track revenues on an LCN basis six months into the future.

That's important and valuable to FactSet since compensation represents 65% of our total cost.

Now, if our ASV growth rate changes substantially up or down, our focus on ASV will allow us to be thoughtful and calibrate our plans to adjust our expense level, which is most likely to be in the area of head count.

Okay, fair enough, and then just one more and I'll let someone ask a question.

Any incremental thoughts in terms of the Thomson/Reuters transaction, and specifically given that they've identified the products and areas that they might have to exit opportunities for you from an acquisition or product expansion standpoint?

Well, certainly from an acquisition perspective it hasn't taken place yet, so it hasn't affected the marketplace in any material way yet.

I think that's yet to come.

We certainly are monitoring what the regulatory bodies have put out in the marketplace, but at this point can't comment on anything that (inaudible) doing.

Can't comment in the context of whether there'd be interesting products coming out of that that might be available for you from an acquisition standpoint?

Yes.

Okay, thanks.

Kevin Doherty of Bank of America Securities, your line is open.

Thanks, guys.

I wanted to see if you can give us a little more color about what impact, if any, you might be seeing from the sell-side weakness.

It seems like you've been doing a good job continuing to add new users and generate some Marquee penetration, so just curious, have you seen much an impact yet and when might that start to become a little more material in your business?

Well, I think that the impact for us, as far as just being able to notice something different in the marketplace probably started last summer.

As Peter said it's 22% of our business.

It's been softer in the first half than it probably had been in the year before, but at the same time, as he mentioned, we grew seats and client count in that area.

I do think that we're much better positioned in this cycle than we were in prior cycles to provide a better solution for our clients.

This cycle we've got IB Central, which is a specific product focused at corporate finance work flow, Marquee allows us greater opportunity inside those clients, and our content in the sell side and what we're able to sell there is significantly expanded from the last cycle.

So whether that's private company information, private equity, venture capital, enhanced M&A, shareholder activism data, transcript estimates, research, the list just continues to go on.

And lastly I would say that we have a wireless product that extends off our Marquee product that's also been very positive.

So I think all of those things provide us greater opportunity in this cycle than we had in the last cycle.

And if we were to see a little more sensitivity in terms of the user growth or the ASV how would that balance out once versus the other?

Can you clarify what specifically you're after?

Yes, if we would -- I guess historically in the last cycle we saw a lot more sensitivity on -- on the user count and then ultimately the ASVs were impacted so I'm just curious if you would see any of that playing out?

I know obviously it seems to be a lot more isolated this time versus the last cycle, but presumably if there was some slowdown, maybe -- what would maybe be the driver at this point?

Maybe just some characterizes that would differentiate where we sit today versus where we sat six years ago.

First of all, I think the buying patterns of our sell-side clients are far more prudent than they were in the last cycle.

There was a period of time in 2000 where anybody got anything they wanted, which we certainly benefited from, but as they contracted their businesses they became very efficient at allocating services, ours included, and you saw user count drop dramatically.

I think in this cycle they were very prudent even in the up part of the market, so I don't feel the users in places where our product was on a desk but not being used, I also think that because of the strength of our product that we're looked at as a potential consolidation source for them, and are invited into opportunities to provide a broader solution and actually reduce their cost.

Okay.

That's fair.

And could you just maybe just talk a little bit more about some of the growth opportunities you see now with your investment management customers as well as with the IB folks?

I guess maybe what areas you're most excited about here that might have changed over the trends you've seen over the last year or so?

Well certainly in effect that the trends tend to be very long-term trends.

Our product cycle from creation to the point where it makes impact in our product, it seems to be it's really five years before we create a product and it actually starts to become what we think of as a material product driver.

Whether that be PA or Marquee, they all tend to have a very long cycle to them and I think that's just because it takes a long time to create a product that's valuable to many as opposed to valuable to few.

So for us I think the key product drivers are very consistent and obviously the PA suite is very material to us and it continues to broaden, so it's not just attribution and has many other features that Peter mentioned.

Marquee, certainly a lot of us expand our footprint inside of a client and provide a greater value for our clients.

It's becoming far more material to us.

And lastly I'd throw on top of there just content in general and I'd split content really into two parties, our business model is one that supports third-party content very heavily.

Whether it be products from Reuters, Thomson, S&P, or any of the benchmark providers we're very successful at distributing anybody's third-party content that's needed by a financial professional.

But in addition to that, obviously our product strategy's changed over the last seven years as the market has changed and we that also have FactSet content that we've become very successful with.

So I think all three of those really couples to our future opportunity.

Okay, and just one follow up.

You mentioned some of the proprietary content.

Are there any new areas you're continuing to explore, maybe where might you be concentrating more of your resources these days?

No.

I would say making what we have better is always a focus.

It's one where the goal post continues to move when it comes to concent and what was acceptable as a level of content a year ago and a year from now, it's a constantly moving target ,so all of our content areas require continued focus and reinvestment.

Okay, thanks for the color, guys.

Randy Hugen of Piper Jaffray, your line is open.

Thanks, and thanks also for the disclosure on Bear.

Have you been getting any push back, specifically from the sell side, on the 3% pricing increases this year?

No.

I think it was just viewed as a normal and -- process and it was also just a buy-side increase.

All right.

And is the 3% similar to the price increases that were implemented back in the 2001 to 2003 timeframe?

I would say that if you called what we were doing back then a price increase, which it was for some and not for others, that was more of a reconfiguration of the price of our workstation, so it was taking the value and lowering the front-end cost for a new client, but increasing the tail-end cost or the price of the workstation, and I think it really reflected just a change in product mix as we continued to add Marquee and include that in the workstation and add other contents since that included in that workstation.

So I would characterize that as more of a reconfiguration than an inflationary price increase.

Okay.

Would you scale back your level of investment if the market did slow significantly or would you maintain the expected level of investment at the expense of margins?

I think our guidance historically has always been to track expenses with ASV or keep margins at constant.

Obviously, you continue to reevaluate how you allocate your resources in your business at any point in time in the cycle, but that's -- we've had the luxury of always having growth, so we've managed to accelerate or decelerate along with what the marketplace was willing to contribute to it.

Okay, thanks.

And generally speaking -- and realizing that the sell side is becoming a less significant piece of your overall business -- if a large sell-side firm were to lay off 10% of their equity research and investment banking employees who are using FactSet, how would this impact your revenues and also how long would it take for that to show up?

So a couple of things.

The how quickly does it take for it to show one, one of FactSet's unique position in the marketplace is our clients are able to adjust their subscriptions on a real-time basis, which I think makes the value of our ASV number much more relevant than it would be if it were contractually-based revenue.

So the answer is they can adjust it in real time on a monthly basis.

The answer goes back to the answer to Peter's question and that is the workstation on the margin aren't the average workstation price.

So the impact isn't nearly as material as if you took the total number of workstations into our ASV number to come up with the average per workstation.

But our clients are adjusting their workstation plans -- seats up and down in real time all the time, so in the last six months of the some large clients have shrunk their workstations, some of the large clients have increased their workstations, just depending on how they feel their business is doing in the marketplace.

So it's something that's happened already and continues to happen and will happen as time goes forward.

Okay.

And then finally, was Bear,Stearns a top-ten client?

No.

Our largest client is less than 3% of our total ASV and Bear,Stearns was significantly less than 1% of revenues.

I would characterize it, if you had put history to it, as similar in size to what Robertson Stephens to us was in last cycle, so it seem like every cycle one soldier goes down and this happens to be the one in this cycle, hopefully only one.

Let's hope so.

Thanks a lot.

John Neff of William Blair, you may ask your question.

Hi.

Good morning, guys.

The -- a little bit more color if you could on the incremental stock compensation expense.

This is from the performance-based options, I believe, and can you give us an update -- I believe it was previously 20%, what percentage do you now expect to vest?

Thanks, John.

It's Peter.

How are you?

Here in the quarter we estimated that it was probable that we would achieve ASV and diluted earnings per share growth of at least 20% on a compounded annual basis for the two years ending August, so that 20% is the new estimate.

This 20% estimate reflects a higher performance level than we previously estimated in Q1 and previous quarters.

It's important to know that there's times when proper accounting is predicated on an estimate and probable is a term in FAS 123 that's utilized to describe this type of accounting judgment, so we think a probable is the likelihood of occurring eight out of ten times.

I would encourage everyone to look closely at our 10-K and 10-Q.

Ever since we issued performance options back in August 2006 we've been including a lot of transparency as to what is our estimate of performance-based options that would vest, and what would be the change if that estimate changed up or down from a one-times earnings impact as well as the ongoing stock-option expense.

Obviously, if actual results meet or exceeds our estimates coming this August 2008, we'll certainly be very proud that we've delivered an increase of our organic growth rate by 300 basis points over that two-year period.

And, again, the metrics -- the performance triggers are organic ASV and net income growth?

It's the minimum of organic ASV and EPS growth.

In terms of the stock-comp expense of $4.3 million versus the $2.7 million prior, is this a one-time adjustment you make during the quarter, or is this setting the bar at $4+ million in stock-comp expense on a go-forward basis.

The $2.4 million was a one-time incremental adjustment in this quarter.

If you go back to the disclosure it will also tell you how our ongoing quarterly charge will increment now that we estimate a higher number of performance options will vest.

Okay.

And then the three -- little bit more on the 3% price increase.

When was the -- I think you mentioned that you're going to start to do this on an annual basis.

Is that -- does that represent a change from past practice, when was the last similar price increase done, and where was -- where -- can you specify where the price increase was assessed?

Was it on the base fee, the incremental seats?.And then a final subquestion there is what's historically been the contribution to top-line growth from annual -- from price increases?

So, I think I'll get all those questions.

I can repeat them.

The first was -- it was on the base fee, it was in the U.S.

IM segment, it was the first time it was implemented in the U.S.

IM segment, but we plan to continue it as an annual policy going forward.

Did I miss one?

Just historically, is there a way to quantify what price increases have contributed to revenue growth on an annualized basis in a normalized a period, but if this is the first time you're doing it, maybe there's no --?

The first one, I don't think I could (inaudible).

Okay.

And then last question, what were the DSOs in the quarter, excluding DealMaven?

And thanks very much.

John, you should look at DSOs for the quarter as 45 days; the DealMaven AR that we picked up was immaterial.

Dave Lewis of JPMorgan, you may ask your questions.

Hi, good morning, guys.

I was wondering if you could address two secular trends because clearly the buy-side clients are doing well.

One, the impact of sovereign money moving into the buy-side clients and number two, the impact of U.S.

-- the U.S.

Pension Protection Act.

Is that increasing the money allocated in these buy-side clients where they're adding more -- have a need to add more services on the buy side?

I'm going to take a wild guess at trying to answer this but I'm not sure I'm -- other than just guessing.

If I look at our large top 100 clients on the buy side, they're so large and some of them are the sovereign funds themselves that money moving around isn't probably that material.

Okay.

For them it's just a big core healthy business that's been very traditional and core to us as time travels.

And the U.S.

Pension Protection Act?

Can you elaborate more?

Yes.

Well, I saw that Fidelity was -- they're increasing money -- the funds that they're receiving due to the U.S.

Pension Protection Act is increasing, and so I assume that benefits you guys.

I'm just curious if that's material.

It doesn't seem like it -- sound like it is, but that's the question.

No, but I would say that anything that helps the core large investment management clients worldwide is good for FactSet.

Got it, okay, and just one follow up.

The pricing on the sell side -- you guys touched on it on the buy side -- what are you seeing on the sell side?

Clearly, budgets are down across the investment banks.

How strong is the pricing pressure on the sell side?

I think that, as I said, their configuration of services has been much tighter in this cycle.

I think one of the big variables, just based on the way they deploy service and how large they are is certainly seat count, of which they'll adjust their head count accordingly based on who they think needs a product like FactSet.

At the same time I think that we're looked at with the broadening product suite of FactSet as an opportunity for them to consolidate onto a FactSet platform.

So, in a down cycle typically where an end user might be multiple services they have to choose one service and we believe that FactSet is a strong player in being that one service.

Thank you.

You have no further questions, sir.

Thank you very much.

Thank you.

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