Factset Research Systems Inc (FDS) 2010 Q3 法說會逐字稿

Welcome and thank you for standing by.

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

At the end of the presentation, we will conduct a question-and-answer session.

(Operator Instructions).

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Mrs.

Rachel Stern.

Ma'am you may begin.

Thank you, Operator.

Good morning and thanks to all of you for participating today.

Welcome to FactSet's third quarter earnings conference call.

Joining me today are Phil Hadley, Chairman and Chief Executive Officer, Peter Walsh, Chief Operating Officer, and Mike Frankenfield, Global Director of Sales.

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 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 can be found in FactSet's filings with the SEC.

In an effort to provide additional information, our comments may include nonGAAP measures such as free cash flow.

Any nonGAAP measures discussed today have been reconciled to the related GAAP measures in our earnings press release and our SEC filings.

Lastly, FactSet undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.

I'd like to turn the discussion over now to Peter Walsh, Chief Operating Officer.

Thank you, Rachel, and good morning, everyone.

Today we'll divide our time among three areas.

First I'll review Q3 results.

Second I'll cover our recent acquisition of Market Metrics and guidance for the upcoming fourth quarter.

Finally, we'll close by addressing your questions.

Before I talk about results, I'd like to take a moment to highlight one item.

Included in this quarter's EPS was an income tax benefit of $1.6 million, or $0.03 per share, as we finalized our US tax return for 2009.

Prior year EPS also include income tax benefits in the amount of $3 million or $0.06 per share.

Excluding the income tax benefit in both the current and prior year periods, EPS grew 7% to $0.78 from $0.73 a share a year ago.

Moving on to a review of the third quarter.

Q3 was a solid quarter for FactSet as our key metrics were up across the board.

Annual subscription value, or what we call ASV, grew organically by $12.3 million during the quarter to $646 million.

This quarter's growth continues to build upon the modest growth we experienced last quarter.

As we promote the new FactSet, our sales teams have been successful in a range of client categories.

We have gained new clients at traditional money managers, regional broker dealers and research and sales department among other types of clients both domestically and abroad.

Both new and existing clients value our functionality and content.

Our user count rose this quarter by 1,600 users to a total of just over 40,000, continuing the growth in users from last quarter.

Upgrades to the new FactSet are occurring at an attractive pace and in line with our internal goals.

Let's begin the highlights of the quarter by discussing 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 flow rose 22% to $187 million.

Excluding working capital and tax benefits from stock options, free cash flow rose 12% year-over-year.

Free cash flow generated during the third quarter was $66 million, up 4% over the year ago quarter.

Drivers of free cash flow during Q3 were positive working capital changes and tax benefits from stock options.

The improvement in working capital of $24 million was driven by a 17% decrease in accounts receivable and tax benefits from stock options exercised in Q1.

As a reminder -- as we reminded listeners on last quarter's call, it is normal for our receivables to rise during Q2 and fall in Q3.

Accounts receivable decreased in the quarter to $58 million, the lowest quarterly total since May 2007.

DSO at quarter end was at an all time low of 33 days, a decline of 21% compared to 42 days a year ago.

Capital expenditures were $4.6 million during the quarter.

Of that total, $4 million were for computer equipment and the remainder for office expansions.

In the past three months, we added four Hewlett Packard Integrity mainframe machines to increase the capacity of our data centers and continue the buildout of office space in our Hyderabad and Manila locations.

Our ending cash and marketable security balance was $225 million.

During Q3 we bought back $46 million of FactSet stock.

Our Board of Directors yesterday approved $150 million expansion of our existing share repurchase program.

Including this additional expansion, we now have $198 million authorized under our share repurchase program.

On May 14th, our Board also increased our quarterly dividend by 15% from $0.20 to $0.23 per share.

We paid a quarterly dividend of $9 million in Q3.

Over the last year, we have returned $224 million to shareholders in the terms of dividends and share repurchases.

Now moving to the P&L.

Revenue was $160.3 million, up 4% versus a year ago.

Operating income increased 4% to $56 million compared to the same period in fiscal 2009.

Net income rose to $39 million in Q3.

Excluding tax benefits recognized in the current and prior year third quarters, net income was up 5% year-over-year, while diluted EPS grew 7% to $0.78 from $0.73 in the prior year period.

Let's look at the revenue drivers in more detail.

Once again, we are proud that even through -- even though the economic storm of the past two years has not yet passed, we were able to highlight the key indicators of all our Company's health were all up.

In the third quarter, we were able to advance our metrics of ASV, subscriptions to content and analytical services, clients and users.

Organic ASV grew $12.3 million.

82% of ASV at quarter end was from buy-side clients and the rest from sell-side M&A advisory and equity research firms.

Despite ongoing volatility in global markets, our client count grew to 2,075 at the end of the quarter, a net increase of 23 clients.

The pace of client losses slowed this quarter.

Consistent with previous experiences, most losses are also due to the closure of small firms rather than any other phenomenon.

Our clients and prospects have instead begun to make new and incremental purchases of our services and content as they recognize the value we can provide.

Against this backdrop, existing clients have signed on for additional FactSet proprietary content, portfolio analytics, and new users as the main drivers of our growth.

Our sales personnel are by now well versed in demonstrating to clients the savings we can offer compared to other choices in the marketplace.

Our clients are willing to investigate the robust, yet cost effective choices we can offer them.

Our global banking and brokerage, or sell-side clients, rose again and contributed to growth in ASV this quarter.

This expansion follows the modest growth we saw beginning in the last quarter.

Total user count across all product areas increased by 1,600 users, continuing the growth we experienced last quarter.

Net client count was up to 2,075, a net increase of 23 clients.

We are now seeing the success of some longer term sales efforts, as firms are more willing to commit to FactSet to replace other systems.

Consolidation remains a strong theme, enabling us to demonstrate value to new and existing clients.

Our client retention rate remains above 95% in ASV terms and improved to 89% of clients, reflecting a reduction in client turnover.

Similar to prior quarters, international operations accounted for 32% of our total ASV.

ASV from our US operations was $437 million, while $210 million relates to our international operations.

US revenues were $108.6 million in the third quarter, an increase of 3%.

Non-US revenues increased 5% to $52 million.

By region, quarterly revenues from our European and Pacific Rim operations were $41 million and $11 million respectively.

Our ASV successes this quarter were derived from a few notable events and changes.

Let's talk more specifically about some of the drivers of sales.

First, the new FactSet is beginning to be rolled out across our client base, as we press to upgrade our users.

The response continues to be positive, as clients and prospects alike enjoy using the new interface.

They like the way it looks and find it easier to use.

We have previously used a number of users of Real Time Quotes as a proxy for our clients' increasing engagement with the new FactSet.

The number of users of Real Time Quotes has increased approximately 40% during the last nine months.

Second, our core applications are still in demand.

Portfolio Analytics subscriptions rose to 671 clients and almost 6,000 users at quarter end.

These figures represent an increase of 16 clients and 185 more PA users.

PA is a strong contributor to FactSet's core products, including applications for portfolio attribution, risks, quantitative analysis, portfolio publishing and returns-based style analysis.

Third, our proprietary content remains a focus of our development and sales efforts.

This quarter we successfully released FactSet economics and many of our clients are already realizing the benefits of using our new comprehensive data set.

As a result, we reduced our annual data costs, as clients selected FactSet's economic database in lieu of a third party provider.

Our other proprietary content set, including FactSet Estimates and FactSet Fundamentals, have continued to be strong sellers.

Clients recognize the value of our integrated content and applications, as we make strides in differentiating our content and functionality in response to client needs.

We also provide a broad array of third party content on our system, helping to show off the data supplied by our valued partners, including Dow Jones, MSCI, Russell, S&P and Thomson Reuters.

We also partnered again this year with the Wall Street Journal to calculate the 2010 rankings of the best equity analysts.

Finally, we haven't rested on our laurels in striving to develop new software that makes our clients' workflow easier and smoother.

Little things sometimes can make a great impact.

This quarter, we released Fact Search, making it even easier for our clients to locate equity and fixed-income content and functionality within the breadth of services available to our clients on our platform.

We present our clients with an enormous array of data analytics.

Fact Search is simple, easy tool to help clients quickly search for and locate exactly what they want.

Moving on to expenses for the quarter.

Operating expenses were $105 million, down 3% from the same period a year ago.

Operating margins rose 20 basis points year-over-year at 37.7% in Q3 compared to 34.5% a year ago.

In March 2010, we entered into foreign currency forward contract to hedge our euro dollar exposure for the next 18 months and our exposure to the British pound for the next year.

Given the strength of the US dollar, we saw an opportunity to lock in favorable future rates and provide ourselves with better visibility for future expense planning.

In terms of impact, currency, including our hedging program, increased operating income by $900,000 this quarter compared to a year ago.

Cost of services as a percentage of sales decreased 90 basis points.

Lower levels of third party data costs and a decline in data vendor royalty payments were partially offset by higher compensation expenses.

The reduction in external collection costs was the result of ending a BPO relationship in May 2009.

A reduction in royalty payments was a result of increased client usage of FactSet proprietary content, including broader use of FactSet's fundamental and economic data.

Higher compensation is due to the rise in headcount in our offshore facilities, as well as increased variable compensation.

SG&A expressed as a percentage of sales rose 70 basis points year-over-year.

This increase was driven by higher TV expenses and a rise in our marketing costs.

The increased travel reflects more client visits in support of our expanding content development footprint in Hyderabad and Manila.

Marketing costs increase as we have increased the number of advertising campaigns to market the new FactSet especially in London, New York, Chicago and Canada.

Our total headcount rose to 3,631 employees at quarter end.

Year-to-date, employee count has risen 23%.

The increase was driven by expansion of our proprietary selection operations.

Our effective tax rate for the quarter was 30.7%.

The components of the effective tax rate are 33.5% for the full fiscal 2010 year, partially offset by income tax benefits of 2.8%.

Included in the third quarter were income tax benefits of $1.6 million related to finalizing prior year's tax return.

The fiscal 2010 rate appropriately reflects the R&D credit only for the first four months of our 2010 fiscal year.

The expiration of the R&D credit caused FactSet's fiscal 2010 effective tax rate to rise by 1%, or 100 basis points.

If Congress reconciles the legislation and reinstates the R&D credit, annual EPS will increase by $0.04 per share, or $0.01 per quarter.

Before we turn to our guidance for the fourth fiscal quarter, I'd like to take a moment to say a few words about the Market Metrics acquisition, which closed on June 1.

Even though the deal closed only two weeks ago, we are already working hard at integrating this latest addition to our FactSet family.

Market Metrics is the leading market research firm in the US, focused on advisor-sold investments and insurance products.

Each year, Market Metrics conducts more than 20,000 in-depth surveys of financial advisors, brokers, research analysts and gate keepers.

Market Metrics uses its vast proprietary database of customer surveys to provide senior managers with the day-to-day means to make strategic decisions to increase their asset base via mutual funds, managed accounts, EPS, annuities and life insurance products.

Market Metrics currently has annual subscriptions of $16 million and 25 employees.

We have not disclosed the purchase price of the acquisition because it's not material.

We do expect the acquisition -- we do not expect the acquisition to have a material impact on our fiscal 2010 fourth quarter or our fiscal 2011 diluted earnings per share.

We believe operating margins in Q4 will decrease by approximately 70 basis points from adding nearly an equal amount of revenue and expenses to our P&L.

Market Metrics does not have an international presence.

We believe that we can leverage FactSet's international network to sell Market Metrics' products outside the US.

Many of Market Metrics' existing clients would like to see it expand its reach into Europe.

Market Metrics also represents a new unique content set for FactSet.

The analytical content Market Metrics creates is original and is in demand in the industry, but is now available -- but it's not available from any other source.

We believe that FactSet can continue to grow by providing this type of unique content to our clients worldwide.

Now let's turn to our guidance for the fourth quarter of fiscal 2010.

Revenues are expected to range between $165 million and $169 million.

This revenue guidance includes $4 million in revenues from Market Metrics.

Please note after this quarter we do not expect to break out Market Metrics' revenues separately.

EPS is expected to range between $0.78 and $0.80 per share.

Reinstatement of the R&D tax credit would add $0.01 to each end of the range.

Capital expenditures for the full 2010 fiscal year net of landlord contributions should range between $16 million and $22 million.

As we wrap up this portion of the call, let's take a brief look over our shoulders.

The past two years have been remarkably challenging.

Though -- through prudent management and a lot of hard work, we have managed to continue to grow and position ourselves well for the future.

We believe the growth we've seen this quarter is reflective of that groundwork we laid during the downturn.

The increases in ASV, revenues, clients and user account are, we hope, indicative of renewed economic activity and the increasing health of our clients.

During the downturn, we focused on new areas, while maintaining our expertise and furthering our competitiveness in our traditional areas of strength.

We have invested in our people and in our content operations, pouring resources into fundamentals, earnings estimates, research reports, earnings call transcripts and global economic data.

For the global banking and brokerage community, we have developed private equity, venture capital, private company and M&A content.

We know just that building new databases for our clients to use within our software is not enough to keep and grow our market position.

We strive to enhance those databases, making them more complete, timely and pertinent to our clients' needs, as we integrate them into our applications.

On the software side, the traditional core of our business, we work hard every day to incorporate changes clients want into our robust platform and are very pleased with client adoption of new FactSet since its release last September.

Our consultants, the backbone of our support around the world, cater to our clients' requests to make our clients' workflow seem as effortless as possible.

We believe that we've used the time during the downturn to be diligently busy in building the applications and content to lead us forward.

Over the last year, our return on average shareholder equity was a healthy 29%.

We believe that we are still at the beginning of a path towards increased growth.

We expect that we are well positioned to keep pace with the changes in our industry and in our clients' industries.

We plan to keep working hard to seize those new opportunities.

Thank you for your participation in today's call.

We are now ready for your questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions).

Our first question is from Peter Appert.

Your line is now open.

Thanks, good morning.

Peter, could you give us any insight in terms of the drivers of revenue per password?

You're getting this tremendous reacceleration in password growth.

Your overall revenue growth is slightly offset by lower revenue for passwords.

So I'm just trying to understand the dynamic there.

Peter, how are you?

This is Phil.

Hi, good morning.

We had a strong quarter this quarter when it came to password growth, it was in the 1,600.

You can really look at password growth as a positive for the business and it means that we're gaining share on per seat basis within our clients and with new clients.

The mix of that always-- comes in a combination sometimes of large gains in some clients and maybe two seats in a new client.

As we've always stated in the past, a large increase in password account will always reduce the average revenue per password and it stems from the fact that the marginal cost per password at list price is $6,000 a seat and our average revenue per password is roughly $16,000 a seat, so a healthy forward password growth will create production in passwords.

But I would turn it around and characterize it as a positive quarter for us.

We felt good about our gain in share this quarter when it came to password growth.

Phil, is the implication then that the bulk of the password growth is coming as incremental subscribers at existing accounts?

Yes, yes.

If you took the 1,600 and said that the average new client would come on with just a few passwords, clearly most of those passwords are same-store sales with current relationships.

Got it.

And then one other question.

On the Market Metrics transaction, I guess I don't fully understand what the product is.

It's a market research product basically, is that correct?

Correct.

So it's a--

Go ahead.

I'm sorry, I was just going to say it's somewhat different than the traditional FactSet offering.

And I'm wondering if it implies not necessarily a shift in strategy, but a little expansion in strategy perhaps in terms of the focus in your offerings?

I would agree.

It's a slight expansion in strategy, except for the fact that 100% of the clients are our core clients.

Okay.

And so it's a market research firm.

And truly the relationship between those firms and filling their products through financial advisors, all constituents that are core FactSet constituents in the marketplace certainly gives us the ability to expand our relationship with those clients in a different dimension than we have historically.

Got it.

And then this will be really the last thing.

The-- in terms of understanding how the FX hedge works, you've effectively locked in the rates as of March 2010 and that's the rate we should assume going forward in terms of trying to do conversions of your results?

If I, if I was going to take a step back, Peter, on that question, we have about $100 million of FX exposure and we're now obviously net long in our expenses since we billed 95% of our revenues in US dollars.

Of that $100 million, 70% of it is split between the euro and the pound.

We've locked in for the next 18 months our euro exposure and for the next 12 months our pound exposure.

On a year-over-year basis, it benefited Q3 by approximately $900,000.

We expect to see on a year-over-year basis continued benefits, not only in Q4, but also in fiscal 2011.

You have continued benefit because the rates you've locked in are still more advantageous than where it was a year ago?

Correct.

Got it.

Okay.

Thank you.

Our next question is from Shlomo Rosenbaum.

Your line is now open.

Hi, thank you very much for taking my questions.

I just want to ask, starting out, what the competitive environment is like with regard to pricing?

You got a lot of new workstations and wondering if there is-- have been able to hold pricing with that, or have you been kind of pressured in order to grow there?

And I have some follow ups to that.

Thanks, Shlomo, it's Mike Frankenfield.

The competitive environment has not changed significantly.

We always are in a competitive environment, which requires FactSet to continually add value to its product offering for the prices we charge.

So our product continues to improve.

We continue to be able to maintain the price point that we have historically charged, and I think as you can see from the subscription growth and from the user account growth that we are being successful in that effort.

Okay.

And then just competitively, I hear a little bit more about capital IQ coming at your main Portfolio Analytics product, sort of from the lower end and then Bloomberg investing in Project ALPHA.

Is there anything that your clients are telling us that there are products that could be a potential replacement for the Portfolio Analytics workstation, which has typically had very good market position?

As you know, Shlomo, Portfolio Analytics is one of our flagship products.

It's a product that FactSet has done-- had tremendous success with and I think that success has been noted by everybody in the industry, not only our clients, but also our competitors.

So I think it's natural that our competitors would want to devote some of their efforts to going after the market that in essence we've created.

Our strategy is to continue to build out the features of that product, to continue to maybe expand our capabilities.

And it's important to think of Portfolio Analytics has a suite of products, it's not just a single workstation, but rather multiple products that help address the workflow problems that our clients have.

So it includes both processing of portfolios and it includes publishing of results to large groups of people, so on and so forth.

Shlomo, I'd augment that by saying that Portfolio Analytics process is a 15-year project at this point that we've invested significantly in over time and continue to invest very heavily in.

And to date, we haven't seen any impact in the marketplace by other providers, either CapIQ or Bloomberg.

Okay.

Can I ask one, just one kind of housekeeping question?

The DSO went down to like 33 days.

I don't know if-- I have to look back at my model, I don't remember them being this low ever.

Do you expect-- what should be kind of a normalized level for you guys going forward?

It's certainly an all-time low, Shlomo for us.

Receivables are-- certainly go up and down, I would expect -- I wouldn't expect us to keep this all-time low forever, particularly as our revenue growth rate continues to increase.

We have just -- the reason why it's declined over time is we've just been focused operationally in centralizing our billing function in one location.

So should we see a reversal next quarter?

I wouldn't, I wouldn't be surprised to see it trend up.

I wouldn't think that it's going to reverse to Q2's amount.

Okay.

Thank you very much.

Our next question is from Mac Sykes.

Your line is now open.

Good morning, everyone.

Just thinking about Europe, how are you thinking about the weakness there?

Is this an opportunity to take share with the buy-side managers, or do you think about it being a tougher sales environment where you might want to redeploy resources to US or Asia?

Hi, Mac, it's Phil.

Hi, Phil.

When we look at our global opportunity, our belief is that there's a 50/50 opportunity.

Roughly one-third of our revenue currently comes from non-US, which means that we just don't have the same share outside the United States as we do have inside the United States.

Certainly one of our areas of focus for a long time, and it's just because it's a huge task in front of us, is to continue to expand our product and meet the needs of any investment manager worldwide.

So our opportunity in Europe and Asia is still substantial.

When I look the prospect list, and who doesn't have FactSet and who should have FactSet, it's an exciting opportunity for us.

With that said, I would say the turmoil in the equity markets really is more-- affects us globally more than anything else and that we're just like-- we're in your business and we need to you do well and feel good about the market, to be optimistic about changing your work flows to products like FactSet.

But most of our clients have a pretty long view and assuming we don't go back into where we were two years ago, I think we feel comfortable the market's stabilized at this point and people are making positive decisions.

Terrific.

And then the change of ownership, or the potential change of ownership at IDC, do you expect this to change industry competitive dynamics, maybe more or less industry collaboration, pressure on pricing?

I don't really view it as a significant change in the marketplace primarily because it wasn't a strategic buyer, it was a financial buyer.

So it's still an independent entity.

My assumption is it will execute its prior strategy, maybe with some refinements.

Great.

Thank you.

Hello?

Hello?

Good morning, Edward.

Oh, hi, it's me.

Hi, how are you?

Sort of following up on Peter's question, the acquisition seems sort of out of your core competency.

I know they're the same clients, et cetera.

Could you-- I don't want to belabor this, but sort of can you go through the thinking of why this is a nice acquisition?

I think as I articulated before, it's 100% in our core client base.

The primary contacts in-- of Market Metrics with those clients are at the C level, so you're dealing with the CIOs, the Chief Marketing Officers, and how they sell their products through to financial advisors.

All of those relationships and the relationship of the financial advisor and the fact that it's proprietary content, using survey technology were all areas of interest for us.

Now so their product, you might be able to expand their market or sell your stuff to their clients?

There's certainly some overlap in the marketing area where our product gets sold, the Portfolio Analytics product line extends into the marketing area, so there's some opportunities there.

But really it's a partnership of one where we bring a great deal of scale to a smaller business and allow them to invest, reinvest in their business and expand their market opportunity globally.

It's not-- this is not a database then; this is service, answers--

It's a combination-- think of it as two parts.

Plucking lots of proprietary data and then applying consulting and human capital on top of it, deliver that data to the client, much the same way that we collect a lot of financial data and then use software and human capital to produce productivity for our clients.

And then to sort of ask you to, as Peter said, is this a new direction or sort of trial run?

I think we saw it as a market opportunity that was presented to us that was attractive based on the people who have been in the group and the team that we have acquired.

We're very excited about the quality of business that they have, as well as the people, and how well we can integrate that and expand that opportunity.

Terrific.

Thanks a lot.

Are there any more questions at this time?

Our next question is from Dave Lewis.

Your line is now open.

Hey, guys, good morning.

I just have a few questions.

The first is, I think at the investor day you guys cited the 1,400 users in the previous quarter, much of that was from share gains and yet that you guys cited Bloomberg.

I'm just curious with-- if the split was fairly similar this quarter, I think that users picked up 200 from last quarter, but was it a similar mix of share gains and new business, or did that shift?

Hi, Dave, it's Mike.

There wasn't a significant shift versus the last quarter.

And I think the user count is a function of the continued appeal of the new FactSet and the effect of [Greywell] versus many of the incumbents that are in the marketplace today.

Okay, great, thanks.

And Peter, I was wondering if you could just comment on royalty payments going forward?

I know they've been reduced for some time now with the introduction of FactSet Fundamentals, but you cited that economics is your partnership there, as we've introduced your own proprietary data.

How should we think about royalty payments going forward the next few quarters?

Yes, we integrate content from many, many third parties.

There's multiple ways in which those third parties get paid for their content.

One is, as you relate, Dave, royalty payments through FactSet and-- but the primary mechanism is most third party providers billed directly are common clients.

So as I would think going forward, there isn't a tremendous amount of data royalty payments that run through our P&L.

And almost all of the relationships are direct bills from the third party data providers to clients.

I don't think you'll see material changes in our P&L from changes in data royalty payments going forward.

Okay.

Thanks.

And just two more quick ones here.

I think the XBRL rollout, or filings, have picked up over the course of the past nine months and I think that they're due to accelerate in the coming year.

Can you provide some insight over what conversations you're having with your buy-side customers over XBRL, the format, and how can FactSet turn that into buy-side product?

So the business of collecting financial data really is collecting it in the granularity that the client wants to see it and the standardization so that it's not just the context of one period in time, it's connected through history.

I think our philosophy certainly is to collect the data at the lowest level of granularity that we can and roll it up into the variables that our clients think of as financial ratios, whether you go through the whole margin list starting from operating margin on down to net margin, or how ever you break up a particular P&L.

XBRL is certainly a positive for the industry in that it allows potentially an increased productivity in the data collection side.

But there's still a great deal more in collecting financial information than just lifting a table out of a document.

So I think from our perspective, we look at the opportunity of a 10-K or a 10-Q or the equivalent of those documents worldwide as a gold mine of opportunity for us to collect not just three main tables and some footnotes related to those, but everything that an analyst like yourself would find valuable in the context of that current document connected with history.

Terrific.

Thanks.

And my last one is just now with the completion of FactSet Fundamentals, are you seeing any change in interest level and in demand from customers, because it's completed at this point and there's perhaps a greater level of comfort from some customers at this stage of the development?

Thanks.

I think we've made a substantial progress when it comes to creating a brand of FactSet content.

And the most significant change that's really occurred is that we're able to basically sell our product today without a third party provider.

And what that does allow us to do is control the total cost of ownership for a client, which is very important, because historically, or for my entire tenure - in fact the last 25 years - there's always been a third party provider that could misprice the content value and make the total cost of ownership not the right answer for the client.

With that said, we're still a database integrator.

When I look at all of the content that we have in the system and the mix of clients that our core client subscribes to, many of them subscribe to three or four earnings estimates or fundamental databases and will continue to do so for a long period of time.

And that's just because there's different styles in how the data is collected.

This analyst group likes this flavor, that analyst group likes that flavor, this one wants this.

It would never be one where FactSet has 100% share when it comes to any content set from our system.

But the critical element, and I think you'll see it in new client growth, is our ability to control the 100% of the price in the marketplace for a core FactSet subscription.

Great.

Thank you.

Our next question is from Shlomo Rosenbaum.

Your line is now open.

Hi, just two quick follow ups.

I just want to understand, go over again the dynamics in the business where the gross margin is going up and the SG&A cost is going up as well.

And it's got-- if I understand it correctly, it's more work and data gathering going offshore plus more proprietary content, which is increasing the gross margin, but then more effort on the sales and marketing in TD, which is increasing SG&A costs, is that correct?

I think you -- it's nice, Shlomo -- it's Peter; I think you summarized that perfectly.

Okay, and then just in terms of talking about - you guys are in roughly 2,000 of 6,000 potential clients.

Is there-- for the foreseeable future, should we think about you guys' growth being more of a gain share in existing clients, or do you see a real room in the next couple of years to make a lot of penetration in, say, the next two-thirds of the client base that you, potential client base that you don't have?

Generally the answer is both.

Because new clients tend to come on as a smaller size than current clients who are of great scale already, on a percentage basis, I think for the last several years, selling more to our current clients is going to be a higher percentage of the pie than the revenue we generate from a brand new relationship.

But what happens to us is we'll sell a brand new relationship in year one and by the time it's year five that relationship is tripled or quadrupled as they've grown accustomed to FactSet as their productivity tool and expanded its use throughout a firm.

Okay, and when you -- how is fixed income product doing?

I mean we haven't heard that much about it.

It had been growing nicely, but you guys have never broken it out.

Can you give us more color on that?

Hi, Shlomo, it's Mike.

Fixed income is continuing to make good progress.

There's a couple of ways to think about the product.

First, we're taking fixed income data and integrating that into the Portfolio Analytics suite to providing more complete solution for that suite of products.

We're also integrating fixed income data throughout the entire new FactSet application, things like yield curves, terms and condition data, so on and so forth.

So FactSet as you think about it is covering more asset classes and becoming broader.

And finally, there's a stand-alone product that enables portfolio managers to analyze complex portfolios of fixed income instruments.

I think we're making solid progress in all three of those areas, because it's heavily integrated into new FactSet and into the portfolio suite.

We think of it as really just a driver of all of those things and not something we break out separately.

Okay, thanks a lot.

We have no further questions at this time.

Thank you very much.

Thank you very much.

This now concludes today's conference.

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