Factset Research Systems Inc (FDS) 2008 Q3 法說會逐字稿

Excuse me, this is the conference coordinator.

And, welcome to do FactSet Research Systems Third 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, and, if we have any objections, you may disconnect at this time.

Now, I'd like to turn the call over to Peter Walsh, Chief Financial Officer.

Sir, you may begin.

Thank you, Operator.

Good morning, everyone.

Welcome to FactSet's Third Quarter Earnings Conference Call.

Joining us today are Phil Hadley, Chairman and CEO, Mike DiChristina, President and Chief Operating Office, 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 realtime by FactSet's Call Street Service and is being broadcast live via the Internet at FactSet.com.

A replay of this call will also be available on our Web site.

Our call will cain 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'll divide our time among four areas.

First, I'll 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's 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'll close with your questions.

Now, turning to the -- 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 cents a share in last year's third quarter, EPS grew by 25% to $0.65 cents per share.

This achievement is due to a combination of delivering world class service to a loyal client base by developing products and services at a 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 flow exceeded net income by 41%, and, over last 12 months, free cash flow net income are nearly identical.

We will 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 a AHP integrity main frames 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 AFC increased $14.7 million.

The change in ASV in the third quarter was derived from FactSet Investment Management client base.

Over are 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 31st, 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 AS V of $107 -- $187 million, representing 32% of the company-wide total.

As a remind 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 31st, a net increase of 23 clients during the quarter.

The moderate gross -- growth in user count reflects the difficult operating environment for investment banks.

The user count change from the IP 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 please 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 who recognize efficiencies.

We are delighted with the progress of Marquee.

Marquee users are up 47% year-over-year.

Demands for portfolio analytics continues.

This suite is comprehensive and includes eight applications that each producers a separate revenue stream.

The suite is centered on applications for portfolio attribution, portfolio publishing, risk and quantitative analysis.

The Portfolio Analysis Workstation is the largest revenue contributing member of this product suite.

At May 31st, there were 607 clients, representing approximately 5,500 users who subscribe to this service.

Client retention remained above 95%, once again confirming breadth -- a breadth and depth of a product suite that is employed 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 -- 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 and $9.4 million respectively.

Moving to expenses for the quarter.

Operating expenses were $99 million, and our operating margin was 32.5%, up ten basis points from Q3 last year.

Cost of sales as a percentage of revenue was ten basis points higher than the prior year.

Higher compensation and proprietary content collection was partially offset by lower computer depreciation and maintenance.

The increases in compensation was driven by new employees.

Higher proprietary content collection represents investments to capitalize on 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 HPs 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 and 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 March by 50 basis points.

Employ count at May 31st was 1,826.

Headcount 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, and the majority of which will expands 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 a $1.9 million of tax benefits, primarily related reductions 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 some it all up EPS grew to $0.65 as much as, 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

Thank you, Peter.

Good morning everyone.

My objective today is to cover three areas.

One, to provide backgrounds 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 collections operations for FactSet Fundamentals.

Now, moving to the transaction details.

FactSet signed an agreement dated as of April 22nd, 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 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 statement, balance sheet and cash flows and the related underlying data from footnotes and financial statements.

Thomson Fundamentals is the leading global fundamental database with coverage of 43,000 companies and history back to 1980 and has been available and distributed by FactSet since 1991.

The sale will includes copies of the Thomson Fundamentals, source documents, collection software and collection training materials.

Thomson retains full ownership of the original Fundamentals database and associated intellectual property.

Thomson Worldscope Fundamentals will continue to be a product on the FactSet system.

FactSet my acquire revenue pertaining to certain comps and contracts upon clients consent.

We're forecasting annual revenues of $2 to $5 million will be included in the transaction and transfer to FactSet.

At closing, FactSet and Thomson will be 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 Fundamental database.

Daily updates will be provided on the same schedule with the same timeliness, content and quality as the updates as we will receive from Thomson for Thomson fundamentals.

The TS A 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 for collection employees.

Thomson agreed to facilitate a hiring process of key employees connected with the database and related assets.

18 employees have accepted employment offers to join 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 a 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 the 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 inputs to the database require source documents going back to 1980 on a global basis.

Needless to say, I view this as a special opportunity and feel fortunate that 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.

On completion of the transaction, FactSet will own all three core content sets on a global basis.

In addition to owning fundamentals removes of supplier risk this 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 Copystat.

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 banking clients alone.

FactSet shares 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 to this transaction pay off.

FactSet has been the largest distribution of Thomson Fundamentals, and we are keenly familiar with this database given our seventeen-year history of support and distribution since 1991.

Our experience not only reduces execution risk, but it provides us with a clear path forward.

FactSet Fundamentals will be available to sell to clients and prospect on the day the transaction closes.

Now, let's speak about the progress to establish our collection operations for FactSet Fundamentals.

FactSet has been collecting proprietary data since 2001.

Our onshore collection content teams now represent one-fifth of our employees.

In addition, we established offshore collection teams on the ground in India back in 2005 through a BPO.

These times are dedicated to numerous FactSet proprietary content databases, including institutional holdings, private company, private equity, (inaudible) capital, people data, earnings estimate and deal data.

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 our strategy for collecting own fundamental database from scratch.

We have space plans in Hyderabad, India to base our Fundamental collection operation of 500 plus people.

We have recently hired talented employees with industry experience and soon expect to add the eight key employees from Thomson for 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 updates for Fundamentals every day for the next 18 months.

Our engineers have scoped out specific details of steps necessary to install full production version 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 Fundamental Collection system.

We have the transaction our time to market for FactSet Fundamentals has been accelerated by at least three years.

FactSet is excited to do enter the fundamental data business with such a high quality assets.

Our strategy is to use our market experience to win based on futures 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 impact of the transaction as well as guidance for our upcoming fourth quarter.

Peter?

Thanks, Phil.

I'll begin this discussion on guidance with the pending purchase from Thomson.

The cash consideration to be paid by FactSet is $48.8 million plus five times 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 (inaudible), including database updates for 18 months after closing.

Under the TSA, FactSet is scheduled to pay Thomson an 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 and $80 million.

This range assumes that annual revenues of $2 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 eighteen-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 cents per share.

EPS dilution for each fiscal quarter and fiscal 2009 should be approximately $0.04 cents per share, or $0.16 cents for the full 2009 FY.

A primary expense driver is the cost of the TS A from Thomson.

The quarterly cost of transition services on a pretax basis should approximately $1.6 million, or $6.5 million for the full 2009 FY.

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 and $154 million.

Operating margins should be between 31% and 33%.

The 50 basis points increase in the margin guidance reflects the seasonal revenue benefit from workstations used by summer interns.

This benefits 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% and 34.6% and assumes the U.S.

Federal R&D credit is not reenacted.

Our Capex range for fiscal 2008 remains at $32 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%.

And the range for other income decreased to $600,000 to $900,000.

The effective tax rate guidance is not affected.

To some 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 are proud of our achievements, at the same time we see great opportunity ahead.

We believe the current market opportunity is at least 15 times the size of FactSet's annual revenues and that our new FactSet Fundamentals product will only improve our probabilities 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

Thank you.

(OPERATOR INSTRUCTIONS)

Operator, we cannot hear any questions currently.

Our first question, Peter Appert Your line is open.

Hi, thanks.

Hey, Phil, can you help us better understand how you come up with the estimate of the $100 million revenue opportunity?

Is the concept that the Thomson Fundamentals basically just replaces things like Compustate, and therefore you are capturing revenues that are going to others?

In addition to that will you be selling the FactSet Fundamentals database to other third party distributors?

So, the $100 million is just our knowledge of what the data revenues are in -- to our clients, and it's certainly just an estimation, but probably a good approximation.

But, roughly that's roughly what you're generating currently or what you're selling currently.

Right.

Either directly or indirectly, yes.

Okay.

And the answer to the third-parties, certainly, if the opportunity is there we will certainly investigate that.

What's the -- so -- rough estimate, if we look at the TSA cost should we think about that as sort of the incremental operating cost even once the deal is over on a go-forward basis what it costs to you maintain the database?

No, I think I would look at the TSA cost Peter of something of overlap.

So, while we are having our database updated on a daily basis it's important for us to build up our own stats to perpetuate the collection that thereafter.

So I -- a nd I wouldn't correlate the two together.

So, is the key to getting to earnings accretion then convincing clients to switch from Compustat or other fundamental databases to the FactSet Fundamentals?

Well, our revenue sources from the data basis 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'll certainly try and make Worldscope the best product.

And, we certainly believe as you can tell from our acquisition of this product that we -- we'll have a very competitive product in the marketplace.

Is there any, World scope historically has been at least as I understand it, particularly strong internationally, maybe less so domestically, can you comment if that's accurate or not?

And, are there any holes in the database that you are going to need to fill and spend some money on near term?

I guess 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 the dominant global database on our system, both U.S.

and non -U.S.

So, if you were the a global investment worldwide, it would be the database of choice.

And, with any product, it's not always things to everybody, and if you wanted to be able to supply a brought 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 reason and are very excited to do attack it at this point.

No obvious holes in terms of coverage as far as you're concerned.

No, that -- you're right, that would certainly be a difficult thing to go back and backfill data that is missing.

It is actually a leader in the space when it comes to depth of coverage historically.

So, we'll have to -- it's really just focusing on the current process, the items your collecting, the timeliness of how you're collecting them and the presentation of that information.

Okay, and then one last thing, and I will let someone else speak.

The -- how do you think about your hiring plans, Bill or Peter, over the course of the next year --the 00 sort of the flattish staffing levels here in the current quarter, is that the normal seasonal pattern.

Or, have you actually stepped back a little in terms of pace of hiring?

I think, well internally, we step back a little bit.

We knew we were going to go into Fundamentals one way or the other either with purchase or build.

So, we were -- and, seasonally, the third quarter for us is not a strong hiring quarter since we deal 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 Fundamental product internally as a -- as a separate project and then run the rest of the business as we run normally.

So, the hiring plans -- the preliminary hiring plans for fiscal '09 would they be similar to what you've done this year?

I think we would probably certainly try and keep it line with revenue growth rates, whatever revenue growth rates would be.

I think we were probably heavy this year.

I don't know.

Where did we ends up this year?

We were up 17%.

Peter, I think our hiring and our revenue will stay very close together.

Okay.

And, then last -- this will really be the last one, the 500 plus data collection people in India.

I didn't follow, those people are already on staff, or that's a group you are staffing up now?

To be hired.

To be hired.

And, that specifically relates to the FactSet Fundamentals business?

Yes.

And, maybe to clarify a little bit there because headcount is definitely going to be something that is going to show change in the next year in away it hasn't shown historically.

So, the BPO that we have had 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.

Those are run separate entities?

They're not -- they are part of a BPO instead of FactSet employees.

Right.

Versus the Fundamental project is in a captive and is the FactSet employee.

But, the 350 what are they working on?

What I listed in the call, everything from private company, private equity, venture capital, people, earnings estimates, institutional holdings, all kinds of content for us.

Okay.

500 exclusively on Fundamentals and no expectation combining those two operations?

Well, always looking for operational efficiency as we move forward.

Got it.

Okay, thank you.

Next question comes from David Lewis.

Your line is open.

Hi, guys.

I was wondering if you guys could give us an update on the new products we've seen launched over the course of, I guess, the past eight months, Simulator.

You guys touched on Marquee, but Simulator, Publisher, Mobile, thanks.

Hi, it's Mike 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 is 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 sort of an ongoing process that's happening now.

And, all of them are doing very well.

Okay.

Thanks.

Can guys give us an estimate for incremental revenue from FactSet Fundamentals fiscal 2009?

I think to keeping with history we've given guidance for the next quarter, and I think we will probably stay with that at this point.

Okay.

A lot of variables as to exactly what happens.

So, at this point we haven't given guidance that far out.

I would add to that, Dave, we always make sure though break out our organic revenue growth rate X acquisition.

So, we will certainly do that in the coming first quarter.

Okay.

Just ast one, and I'll get off.

If we see potential -- consolidation among investment manager, hedge funds in the last few years how does that change your sales strategy if at all?

I guess I would answer that question by, 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 deem a firm on the of any size and not name any more five or more prior firms that it became whether it's JPMorgan or anyone else.

So for me, it's built into our organic growth rate over the last 23 years.

It's mergers, failures, acquisitions, whether it's Bear Stearns or Robinson Stevens or whether it's huge mergers of clients that we have.

So, I look at it as just a normal course of business.

Okay, thank you.

Next question comes from Erin Caddell.

Your line is open.

Hi.

Can you hear me okay?

Yes.

Thanks for taking my questions.

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

So, it's -- hi, Erin, it's Peter.

The break out is 79% buy-side, 21% sell-side.

Okay.

And, then, maybe some people were trying to get to this, but what is kind of the potential earnings accretion in fiscal '010 or fiscal '10 from the Thomson Fundamentals?

I mean, you talked in a fair bit of detail about the dilution and then the potential opportunity, but what do you think the accretion could be if all goes as you hope?

So, Thomson is really 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 the market opportunity.

I think that 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 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 in 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.

Okay.

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

I just didn't catch that.

Fifty basis points, Erin.

Fifty basis points.

Fifty bits.

And, then last question.

As you're FactSet kind holding back on share repurchase at all related to the cash you're going to -- the cash you need for the Thomson deal, and thus would you kind of hold off maybe for the fourth quarter while you are waiting for that deal to close on buying back stock?

It's not related.

Soon after we release 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 available in our capital allocation process.

Okay.

Thank you very much for taking my questions.

Next question will come from Ashley [Hemphill].

Your line is open.

Hi, guys, it's Ashley for John Neff.

I was wondering if you could give us any incremental stock -- stock comp to higher vesting of performance-based units in the quarter?

Ashley, it's Peter, how are you?

Good, thanks.

During the second quarter, we changed our -- we changed what we believe was our performance option investing for our performance options to invest in this coming August 2008 because we believe that the organic ASG growth rate and earnings per share growth rate over a two-year basis would reach 21%, and we still believe that as of -- as of today.

And, so there's been no change in our expensing of performance based options.

Okay.

And, I know that excluding the tax been physicians in three Q '07 the tax benefit would have been below the 33.4% we saw this quarter.

But, if you included and sort of 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 has FactSet has become a more global company.

And, you may have noticed just in our tax rate guidance if you took the mid-point of our guidance in Q4 and compared it to Q3, our, the midpoint of the guidance is also dropped by 30 basis points.

So, we -- and that guidance doesn't include an R&D tax credit, which -- which currently is being discussed in U.S.

Congress and has been a stable 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.

system has been positive to that rate.

Okay.

And, then just I was wondering if you could actually give us the multiple of first year revenue that you paid for the Worldscope database?

We -- I think all the information is in the press release as far as the revenues we think to acquire as well as a range of a purchase price.

As soon as that information is final, I think we will be able to calculate the multiple

Okay.

Thank you.

Next question comes from Michael [Metal].

Your line is open.

Great.

Thank you, I'm also over here at JP Morgan with Dave.

One question that Peter had asked us, and I don't know if I heard the answer.

In terms of potential EBIT improvement, is there a sense that relies 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 of its clients directly, and there's no cost in our cost structure related to Compustat.

So, we wouldn't expect that there would be any changes in our cost structure as relates to that.

Okay.

Okay, thank you.

(OPERATOR INSTRUCTIONS) At this -- I do have one more question.

It comes from Randy [Reese].

Your line is open, Randy.

I was wondering if there will be any change in the level of CapEx going forward after the elevated levels we've seen recently?

Randy, as you notice, we maintain our CapEx guidance for the full fiscal.

And, we get through the fourth quarter we are going through our allocation process for next year, and we certainly provide guidance for fiscal -- 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?

Yes, I would -- I think as FactSet continues to grow, those are always two areas that I would consider to be signs of growth.

So, increase computer CapEx other than the recent transition.

We did always correlate to more system uses by clients, and our employee -- employee headcount growth over the last 12 months is 17%.

We don't warehouse a lot of real estate because we find it very expensive.

And, we think our real estate cost will continue to grow as our people cost do.

Okay.

But, the transition you made in computers was intended to lower the incremental cost of adding capacity.

Is that correct?

Yes, I think the cost per box, or CPU, is still moving in FactSet's favor or all Company's favor.

So, we are just offsetting that cost with more system usage or more volume.

Okay.

Thank you very much.

Thank's, Randy.

One more question from Peter Appert.

Your line is open, sir.

Phil, apologies if I missed this along the way, but can you speak broadly about how you see the tone of business currently, feedback you are getting from 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?

Just a couple comments.

The one that I noticed in the last quarter that probably is the most pleasing is that on a competitive level which we are looking at all of the sales notes of how we are doing in a particular situation, very, very strong competitively, gaining share as you can see in client count and seats even in a pretty tough time in the marketplaces.

So, I think, in fact it's well-positioned to do well in any cycle up or down.

At the same time I think all, 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 more -- 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 consolidated in 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.

The, obviously, the strength of the a economies outside of the U.S., and the fact that the sub-prime or 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 are tied to big banks.

Some of them just because it extends really on what the benchmark could do in a particular quarter, but over time a quarter really doesn't affect them that much.

And, they tend to look at their businesses on a much longer-term basis.

Okay.

Thank you.

And, I recognize it's early on this, but the impact of the Thomson Reuters combination from a sales perspective for you, any comments on that.

I think I would go with your thought, and 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 that they choose not to focus on will be a large opportunity for all.

It's a very, very large company, and they will make those decisions as time travels.

You haven't seen any early indications of changes of pricing strategy, for example, from them?

It's too early to the see that at this point.

Okay.

Thank you.

Gentlemen, I have one more question from Randall [Reese] Would you like to take his question as well?

Absolutely, please.

Thank you.

Mr.

[Reese], your line is open, sir.

Quick one, did you mention a non-subscription revenue in the quarter?

No, I didn't.

It was flat year-over-year, Randy.

Thank you very much.

At this time I show no further questions, gentlemen.

Thank you very much.

Thank you.

At this time, that would conclude today's conference.

You may disconnect, and thank you for your attendance.