Factset Research Systems Inc (FDS) 2012 Q2 法說會逐字稿

Welcome and thank you for standing by.

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

(Operator Instructions).

And now, I will turn the meeting over to Ms.

Rachel Stern, Senior Vice President, Strategic Resources and General Counsel.

Ma'am, you may begin.

Thank you, operator.

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

Welcome to FactSet's second-quarter 2012 earnings conference call.

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

This conference call is being transcribed in real time by FactSet's CallStreet 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 include non-GAAP financial measures.

The non-GAAP measures we will discuss today have been reconciled to the related GAAP measures in our earnings press release and our SEC filings.

Annual subscription value, or ASV, is a key metric for FactSet.

Please recall that ASV is a snapshot view of client subscriptions and represents our forward-looking revenues for the next 12 months.

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

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

Thank you, Rachel and good morning, everyone.

Here is how I plan to spend our time today.

First, I will highlight a matter involving taxes.

Second, we will review our second-quarter results.

Third, I will provide guidance for the third quarter.

Finally, we will end with Q&A.

In prior quarters, we had discussed the impact of the US Federal R&D tax credit, which expired on December 31, 2011.

We expect that it will be reenacted as it has been for the past 30 years.

However, we are not permitted to factor it into our effective tax rate unless it is part of the currently enacted tax law.

The expiration of the R&D credit increased our annual effective tax rate by 1.3% and reduced second-quarter GAAP and non-GAAP EPS by $0.02 per share.

Now, let's review our second-quarter results.

ASV was $803 million at February 29, 2012, up 11% over last year.

This quarter, ASV rose $21.7 million.

ASV growth was driven by expanding our marketshare in buy side clients.

We added 53 new clients on a net basis, our highest number since 2006.

Users declined among sell side clients, but overall the user count still increased by 400 on a net new basis due to penetration on the buy side.

Q2 EPS was $1.02, exceeding Street consensus estimates and our guidance range.

Non-GAAP diluted EPS grew 16% to $1.14 in the quarter.

Free cash flow, which is defined as cash generated from operations, less capital spending, was $39 million during the second quarter.

High levels of net income and lower capital expenditures were offset by higher income tax payments and lower accrued compensation.

Over the last 12 months, free cash flow grew to $209 million, up 12%, and was 18% higher than net income, which illustrates the high quality of our earnings.

Accounts receivable increased by $1 million over the last 12 months while ASV increased by $80 million.

Our DSOs were 32 days at quarter-end compared to 36 days a year ago.

As of February 29, our cash and investment balance was $200 million, down $7 million from November 30, 2011.

Capital expenditures were $5 million and $45 million was spent on share repurchases during the second quarter.

As of quarter-end, $83 million still remained authorized for future share repurchases.

During the second quarter, we paid a regular quarterly dividend of $0.27 per share for a total of $12 million.

If you aggregate our dividends with share repurchases, we have returned $248 million to shareholders over the past 12 months.

Let's now turn to the P&L.

FactSet's revenues increased this quarter to $199 million, a rise of 12.2% compared to last year.

Our operating income for the second quarter increased to $67 million, up 15% from $58 million in Q2 2011.

Net income rose to $47 million compared to $45 million in the same quarter last year.

Non-GAAP net income increased to $52 million, rising 12.3% compared to the year-ago period.

Non-GAAP EPS rose 16.3% to $1.14.

In terms of geography, our US operations generated $548 million in ASV.

International operations accounted for $255 million in ASV or 32% of the total.

US revenues rose in Q2 to $136 million, an increase of 12.2% over the same period a year ago.

Non-US revenues also grew 12.2% to $63 million compared to last year's Q2.

Europe and the Asia-Pacific region revenues for the second quarter were $49 million and $14 million respectively and the growth rates in each of those regions was 11.3% and 15.7% respectively year-over-year.

Let's look at some of the revenue drivers for this quarter.

We added 53 net new clients this quarter compared to 38 net new clients in the same quarter a year ago.

We are proud of this accomplishment despite the tight spending environment and one in which purchasing decisions often take longer than they used to.

The addition of new clients is important as we expect that it lays the groundwork for future sales consistent with our long-standing strategy of increasing sales of workstations, applications and content at existing clients.

Annual client retention this year was greater than 95% of ASV and our retention rate in terms of numbers of actual clients was 92% versus 90% a year ago.

These statistics, which have increased since last year, remind us that our clients continue to be engaged with our services and derive value from them.

Our net user count increased by 400 users this quarter to 47,300 from additions at buy side firms.

Although headcount at our sell side clients is still under pressure, we continue to make gains as demonstrated by this increase in users.

One new product that we hope will attract users is the addition of StreetAccount to our news lineup.

We are excited to be able to offer distilled company news and market summaries from StreetAccount over the FactSet platform that will complement our strong partnership with Dow Jones and other vendors we already carry.

We are making solid gains at existing clients with continuing growth from our portfolio analytics suite of products, including growing demand for our fixed income NPA product.

We have seen growth come also from our proprietary content.

We have been successful in licensing proprietary FactSet data, especially FactSet Fundamentals and FactSet Estimates.

The type of data license and fee form includes ownership, transcript, M&A, corporate hierarchal data as well.

Data feeds are consumed by a range of clients, including existing large FactSet clients and some who do not manage money or provide sell side services.

We are beginning to see some of the fruits of our investments in making our content sets as broad and comprehensive as our clients require.

Lastly, as we have been doing for the past several years, we issued our annual price increase during the second quarter.

This price increase impacts the majority of our US investment management clients.

This year, the price increase accounted for $10 million of Q2's ASV growth compared to $9 million last year.

Let's take a look at the expense side now.

Operating expenses for the quarter were $132 million, up 11% from the same quarter a year ago.

Operating margins were 33.7%, up from 32.7% in Q2 last year.

Cost of services as a percentage of revenues was consistent with the prior year as higher compensation expense associated with new hires and consulting, engineering and content was offset by lower depreciation and third-party data costs.

SG&A expenses as a percentage of revenues decreased 95 basis points compared to the same period last year due to lower stock-based compensation and monetization of state tax credits.

This quarter, our headcount increased by 66 employees to over 5,500 employees at quarter-end, growth of 16% over the last year.

Most of the employees related to our regular January classes of new engineers and consultants.

The effective tax rate for Q2 was 30.9% compared to 22.3% a year ago.

Excluding the $4.9 million income tax benefit from reenactment of the R&D tax credit, the effective tax rate in Q2 last year was 30.7%.

The expiration of the R&D tax credit increased the 2012 effective tax rate by 1.3%.

Now let's turn to our guidance for the third quarter of fiscal 2012.

Revenues are expected to range between $200 million and $204 million, which represents year-over-year growth of 9% and 11% at each end of the range.

Operating margins are expected to range between 33.5% and 34%.

The effective tax rate is expected to range between 31% and 32%.

GAAP diluted EPS should range between $1.03 and $1.05 per share.

Non-GAAP diluted EPS should range between $1.14 and $1.16, which represents year-over-year growth of 12% and 14% at each end of the range.

Both GAAP diluted EPS and non-GAAP diluted EPS include a $0.02 reduction to reflect the expiration of the US Federal R&D tax credit on December 31, 2011.

For those of you who have been following our Company's story for some time, you will know that we view our success over the long term.

But, of course, we are still pleased to recognize shorter-term wins.

This past quarter has been a great, but hard-won success for us.

Despite difficult market conditions, we continue to grow.

Our revenues, ASV, net client and user count were all higher this quarter.

We have been building our business carefully by investing in our platform, our content and our people.

We believe those investments are giving our clients a powerful research tool.

Coupled with industry-leading customer service by a knowledgeable consulting staff, FactSet's products have become a part of our clients' workflow that is difficult to replace.

We expect to help our clients continue to grow over the long term even through these challenging economic times.

We love that our market opportunity is 15 times our current size by our estimates.

Meaning that a growing market is not necessary for our success.

We are confident as we continue to focus on the long term we will achieve our long-term goals with wins along the way.

Thank you for your participation in today's call.

We are now ready for your questions.

(Operator Instructions).

Peter Heckmann, Avondale Partners.

Good morning, can you hear me all right?

Yes, we can hear you, Peter.

Okay.

Just wanted to see if you feel like there has been a change in the underlying growth of the industry.

Clearly, there has been some turmoil in both domestic and international markets and probably global securities industry headcount has flatlined here for the last six months or so.

But when you think about the growth of the industry, do you think it is positive low single digit growth over the next three to five years?

Hi, Peter.

How are you?

It's Phil Hadley.

I would love to know what our growth rate would be or what the industry is going to grow in the next three to five years.

Unfortunately, I live in a world where I kind of have to just react to what the market is currently doing.

And I would certainly characterize -- if you took our first quarter, we were coming off an incredibly volatile equity market both in Europe and the US at the end of the summer and into our first quarter and obviously, the market has kind of stabilized and started to head in the right direction.

Our clients tend to react differently as a group.

The sell side goes into shutdown mode immediately and takes them some time to recover.

The buy side kind of gets cautious and takes a wait-and-see attitude.

So I think, obviously, what starts to happen is the market starts to fix itself and our client base gets a little bit more confident.

All I can comment on really is just kind of how it feels relative to prior periods and it feels a little better than it did in the first quarter.

Certainly not a raging bull market, but one that has got a little bit more health to it than it did 90 days ago.

Okay.

And then I have noticed a new branding program that I think looks particularly nice on the iPad.

Is that something new?

Can you talk about how you're trying to brand FactSet and whether you're spending a little bit of extra money in that area?

Hey, Peter.

It's Mike Frankenfield.

We have a fairly conservative marketing budget relative to our size.

We spend most of our resources on our direct sales model.

That is the way we feel we can best connect with our clients and prospects in the marketplace.

Having said that, we are always looking to optimize our spend on the marketing side and we have allocated some money toward updating, freshening our brand and I am pleased that you have seen it come flying through your iPad.

(inaudible), Peter, when I saw it, one night I am sitting there flipping through reading the Wall Street Journal and up pops it.

It put a big smile on my face.

Definitely.

Have you noticed any change in the competitive environment?

There has been a little bit of media coverage more recently of the two larger competitors (technical difficulty) in data maybe increasing their spend on development, rolling out some new products and platforms.

Do you feel like that is contributing to the slowdown in the decision cycle?

Hey, Peter, it's Mike.

The competition changes very slowly quarter-to-quarter and you certainly here about press releases, but what you actually see happening in clients happens over a much, much longer cycle.

We operate under the assumption that our competitors are going to continuously improve their product and get better and with that assumption, we know that we have to work hard to stay ahead of them.

So we focus on what we can control and we execute to deliver the best product we can.

And I would say that when I look at internal metrics that I measure within our firm, I am very pleased with what I am seeing relative to our competition.

Okay, I will get back in the queue and maybe come back with another question later.

Thank you.

Jennifer Wang, UBS.

Hi, how are you?

Good morning, Jennifer.

Good morning.

I was just wondering on the pricing increase, is that all in the ASV as of the end of the second quarter?

Yes, Jennifer, it is 100% in the ASV as of February 29.

How have clients reacted to -- maybe you can just characterize the reaction to the pricing increase.

Was it, okay, we will take it?

Was there any (technical difficulty)?

Hi, Jennifer, it's Mike.

The price increase in the second quarter affected our US investment management clients.

We increased the price of our base workstation from $6,000 to $6,600 per year.

Not every client was affected as large clients have their own separate contracts and price increases for those clients come over the course of the year based on when those contracts were signed.

And this year, I would say that the price increase was a relative nonevent for clients.

We've added a lot of great value to our workstation and I think clients recognize that we are working hard to improve our offering and it more than justifies the small increase that we placed on our clients.

Okay.

Great, thanks.

And maybe I could just sneak one more in on just the environment that you are seeing out of Europe and Asia.

Maybe you could just characterize how they may have changed over the past couple of months.

We continue to see good progress in our Asian operations in the Middle East, India.

Those areas are all growing faster than our overall growth rate and Europe continues to be a steady performer.

There hasn't been any significant negative fallout from some of the turmoil in that region.

Our salesforce there continues to plug along and deliver great results.

Okay, great.

Great, thank you very much.

Dave Lewis, JPMorgan.

Hey, guys.

Good morning.

The first question on the client growth.

Obviously very strong this quarter.

Is there anything else besides simply greater -- strong execution on your part and I am targeting change in sales strategy, targeting the different markets or changing the incentive comp there?

Hi, Dave.

I really think one of the biggest contributors to our progress in terms of new clients is the progress we have made with our proprietary content.

Having our own content eliminates a lot of friction in the sales process, makes it easier for FactSet to obtain decisions from clients.

But more importantly, the content is really good and the content is unique whether you are looking at earnings estimates or debt capital structure or other types of data and I think clients are finding great value in what we are producing because it is unique.

There is no question also we have a sales initiative focused on targeting new client acquisitions.

We have dedicated resources internally, solely focusing on that task and that also is playing a role in helping increase our count.

Is that a recent change, Mike?

It has been evolutionary.

It takes a long time for us to move our salesforce from one role to another.

So in selective markets as we have the right HR opportunities, we move people into those roles.

That's great.

And I will just ask one more and hop off here.

Can you comment on the growth in revenues at your core buy side customer base that is not tied to headcount growth?

I mean clearly you have cited on this call and in recent calls getting into -- are you being able to integrate services that -- or in some cases potentially replacing headcount or can you talk about data feeds and the other services that aren't tied or increasingly less tied to headcount growth?

Thanks.

Dave, I am going to take a stab at it.

We take our total ASV -- revenues really break down into three categories.

One is base fees, which you could certainly argue is less feed dependent, might be feed revenue would fall in that same category.

The second big category would be applications that people would subscribe to.

Our portfolio suite would be the primary example of that.

A component of that is kind of base fee-oriented.

Some of it is workstation-oriented.

And then the third piece is just pure workstation revenue that is headcount-based.

I'd put it in those big buckets, but we don't decompose publicly exactly what those buckets are.

And quite honestly, it becomes an accounting exercise to try and decide whether the value is in the base or in the feeds or in the applications.

So it is one we don't spend time internally really decomposing down to a number that I could even deliver if I had it.

Great, thanks, Phil.

Shlomo Rosenbaum, Stifel.

Hi, good morning.

Thank you for taking my questions.

Just focusing a little bit on the ASV breakdown that you guys broke out between buy side and sell side.

Historically, you've kind of tweaked it.

Based on the numbers, it looks like the buy side has been kind of steady for 12.5% year-over-year growth in each of the last three quarters and it is really sell side that is causing all the noise.

I mean you guys have commented a little bit about that, but can you give any more color on that?

Is that really fairly accurate that it has been kind of a steady flat, but healthy growth on the buy side and all the noise really is just sell side?

I can comment kind of in two dimensions.

One, over the long term, that has always been true in our business that when the sell side is hot, it is really hot and when it is not, it is horrendous.

And fortunately for us as you can see from the chart, a big chunk of our business is the buy side and they are far more stable in how they purchase product.

I think in the last few quarters, we've specifically said the seat count -- the negative part of the seat count is coming from the sell side, so it would certainly support your thesis.

Okay, then when I think about the sell side relationship between revenue and ASV, I know there is a 90-day kind of notice period that clients have to give before they can take somebody off of FactSet.

The ASV number that we had at the end of the quarter, did that reflect all the notifications that you guys received intra-quarter about any headcount reductions or is there kind of a lag effect there?

Hi, Shlomo, it's Peter.

The ASV at the end of the quarter represents ASV on that date.

So if we have any notifications of any service expansions or reductions in the next 90 days or any other period after that date, they won't be reflected in the number at February 29.

But if you got a notification on February 28 that someone is going to cut off in the next -- within the next quarter or let's say was the beginning of February, is that reflected in the ASV number already that is adjusted downward?

No, that is the ASV on that date.

Okay, okay.

But the converse, as Peter pointed out, if somebody has signed a contract that is going to start 60 days from now, that is also not reflected in the number as well.

Got you.

Okay, that is fair.

That's fair, okay, that's good.

I am just hearing a little bit more chatter in the marketplace from the two areas in competition that we talk about from time to time.

There is the Bloomberg port product and then just in general what is going on with Thomson Reuters.

And there is a focus certainly being conveyed publicly from management at Thomson Reuters to try and reignite growth.

How long do you estimate that it would take even if there would be a big focus over there for that to make a change in the marketplace to the extent that that would filter up that you guys would notice it?

It is very difficult for me to comment on what would be going on inside of other firms.

I think we can really just live the world that we see and we experience in the marketplace.

As Mike said, and I will reiterate, our natural assumption is our competitors are going to get better.

This is a software industry and if you don't keep moving forward, you are going to be done very quickly.

So I think, as a business, we constantly focus on our opportunity, which is to double our business and we believe to double our business, we have to do two things.

We have to make sure we double the value we can deliver to our clients, which is defined by whatever the clients perceive the value is in the marketplace, which means that we have to deliver a great deal of content that is going to change their workflows and make their investment process better and write the software to make that data come alive.

And at the same time, there is the brute force salesforce part of it where we have got a worldwide salesforce and we have to teach and train and make sure that those people understand that we are the best product in the marketplace and that they should move from whatever they are currently doing to FactSet.

Well, let me just ask the question a different way.

I understand with the moves that you are making, but I am saying if someone wants to make a change in the marketplace in terms of being more competitive, either on pricing or throwing product at the clients, how long does that take given the sales cycles and what you know about the industry for that to filter that you notice that coming up in competitive situations?

Theoretically, you can change price anytime you want, so that could happen very quickly.

The thing that is not easy to change is that value is something you have to build in the product.

We do live in a marketplace that really places a premium on information that helps them make a difference.

So it becomes very important that you are the best at what you do and you can give lots of stuff away that is not worth much.

It doesn't really move the needle.

It is really about producing better products.

Okay, fair.

Thank you very much.

Peter Appert, Piper Jaffray.

Thank you.

This is George Tong for Peter Appert.

First question revolves around competitive dynamics.

FactSet has been consistently taking marketshare from the competition and I just wanted to get some color, in your view, what is driving a customer to leave the competition and adopt FactSet and what you see in terms of future marketshare evolution.

Hey, George, it's Mike.

There are several reasons why FactSet is successful in the marketplace and whether it is our software offering or our content.

I have spoken a little bit about the improvements we have made to our content and some of the unique offerings we have.

We still deliver very powerful software that is both intuitive and very flexible, which is able of solving a wide range of client problems.

And then we cover all of that or enhance all of that with a world-class client support team.

And I think our client service and our philosophy of client service is a big differentiating factor for us in the marketplace.

Got it.

Very helpful.

Others have touched on this prior, but in terms of Bloomberg and Thomson, both of them having launched updates to their product platforms, how is FactSet's own platform evolving and expanding?

I am sure we will hear more of this during the investor day, but just wanted to get some color on how much of that evolution is offensive versus defensive and how the customer upsell opportunity increases as you grow your product portfolio.

Several years ago, we launched a major facelift to our product called, at the time, the new FactSet.

It replaced a legacy application we called Direction.

We know that when we release software, it takes us a long time to ultimately perfect it and we are still in the process of perfecting the new FactSet.

We have a weekly build where new enhancements get introduced into our system and every week, we are making progress to make our application better.

We are continuing to explore new platforms to deliver our information across, whether it is mobile devices, iPads, etc.

and I think we will continue to invest in those areas as the users in our community have demand for accessing our information in that way.

Great and then last question.

I just wanted to see if you guys had some anecdotal evidence perhaps from your sales people with feet on the street that we are seeing an inflection point in terms of buy side headcount.

I kind of made the macro comment that I thought the marketplace felt a little bit better this quarter than it did in the first quarter.

It's not surprising given what is going on in the equity markets.

As to specific headcount plans, I think it is probably too early to make a comment on what we see.

I don't know, Mike, if you have anything to add.

Yes, I would agree.

Thank you.

Glenn Greene, Oppenheimer.

Thank you, good morning, guys.

I guess the first question, looking at sort of ASV growth, the 11% growth versus the user growth, it looks like in the 5%, 6% range, so clearly outpacing.

I was maybe wondering, Peter, if you could sort of help us sort of parse how much of that greater growth from ASV is coming from mix versus pricing or perhaps selling more sort of value added content into that user base.

Any way to sort of directionally think about that?

Glenn, it is coming from all of the above.

We have been very successful in terms of not only expanding users, but expanding our add-on applications, particularly in our portfolio suite.

And we have been also successful in expanding our distribution points outside of the platform.

And we talked a little bit about that in the comments about our proprietary fee business and also been selling more FactSet content.

So it is coming from all the above and I think that is one of the beauties of our model is that we are not reliant on a single source to be successful.

Any way to think -- like I mean is there a couple points of that from pricing, a couple points for mix and also just trying to get a sense for how sustainable it is going forward?

This quarter is no different than previous quarters, so we certainly think that it is sustainable.

The price increase we certainly quantified as $10 million this quarter, so you can derive the points from that number.

Okay.

And then it has been a while, but I was wondering if you could give us an update on PA adoption, sort of like the proportion of your user base that might be using it?

Really what we are focused on internally is obtaining greater adoption of all PA products across the clients who subscribe to it.

The PA suite is made up of six or seven different products, whether it is the traditional PA workstation, risk, fixed income, tools to publish results widely, so on and so forth.

And our efforts are focused on getting our clients to buy all of those modules, as well as acquiring new PA clients.

I would say we stopped disclosing that metric really for two reasons.

One, it was directionally correct, but the magnitude -- it wasn't really telling the story what was going on and we didn't feel like we had a better metric to produce.

And I think the second thing that has happened to our system as it continues to evolve is PA evolves into all kinds of different dimensions under system and many of our clients use shares in their new FactSet workstation, which is a PA-like functionality and then starts to get gray as to where the product really -- work flow starts and ends and what level of product they have.

So the general comment is clearly from each quarter when we talk about what is driving our business, our portfolio suite is still a factor.

Okay.

And then just finally your fixed income sort of product capability functionality.

Where would you say you are at this point?

And obviously, it is sort of a very small piece of your revenue, but you would think over time a big opportunity.

Maybe just some color on where you sort of think you are there.

So the great thing about fixed income is it is a huge marketplace.

There may be 50,000 equities that the institutional market trades, but there are millions and millions and millions every day produced of new fixed income instruments.

For us, it is an exciting opportunity.

We continue to invest very heavily in it and it has become an integral part of our portfolio suite.

And we continue to expand the content we have in that space, the user account we have in that space and the applications we use to display that information.

As far as where we are and the opportunity in the marketplace, I would classify it still as very early.

Okay, fair enough.

Thank you.

Robert Riggs, William Blair.

Hi, thanks for taking my question.

Maybe just an extension of that last line of questioning as it relates to the proprietary content.

Where are some maybe additional areas that you are really focused on right now in terms of building out your platform and the content?

Hi, Robert, it's Peter.

Our focus in content really continues to be on content that is used by many across our platform.

So we have a strong, strong focus on fundamentals.

We have a strong focus on earnings estimates.

We have embellished our debt capital structure content and we continue to bear down on our call transcripts and our ownership data.

And we have found that by doing that, we have the opportunity to monetize it across many, many users.

Great.

And then could you just provide us an update when it comes to kind of the trading solutions that you are looking to build out as well.

Hi, Robert.

We have a strategy that is focused primarily on buy side traders.

We continue to help connect all of the users within a buy side firm, so being able to provide connectivity between a portfolio manager and a buy side trader, loop in the analyst.

It's all part of our goal.

We are really -- you can think of it as just an extension of our existing strategy, adding on incremental functionality and then sometimes just [the amount of] content.

Great.

And maybe just to wrap up in terms of headcount, is the right way to think about it still growing the distribution part of things more in line with revenue growth and maybe content a little faster than that?

Is that the right way to think about that?

Hi, Robert, it's Peter.

In terms of headcount, I think the beauty of our ASV model is it gives us a nice forward-looking metric in terms of the next six months of revenue and we keep adjusting our headcount according to our growth.

So if we grow faster than our expectations, we will tune up headcount and we will do just the opposite if decelerating.

Overall, we think headcount is going to mirror or more closely follow our ASV growth than it has been in the past and I think it will -- the reason for that is that we will level off in terms of our content collection employee growth.

And I think it will be more evenly distributed between content, engineering and sales and consulting.

Great, thank you.

Bill Warmington, Raymond James.

Good morning and congratulations on a strong quarter given the environment.

The question for you on -- when you saw -- or if you did see the sell side impact decrease during the quarter, whether it was bunched more in the first half of the quarter or whether it continued all the way through the end of February.

We would say there was no particular timing to it.

We have seen the big sell side firms face pressures due to the macro environment.

They have been rationalizing their headcount and it has been going on for a couple of quarters now.

And we expect, like all things, that we will stabilize and the volatility will reduce, so it will move into an improved economy and things will start to pick up.

Got you.

And then if you would comment a little bit on the characteristics of the new clients that were added in the quarter.

Are you seeing a lot of new firm formation or a decent bid size or larger clients?

There is a little bit of firm formation, but the majority of it is just hard work on the part of the salesforce identifying opportunities.

The sell cycle for products in our industry is long because it is difficult to change a user's workflow.

And it is unusual that we would go into a sales situation and perform a demonstration and the client would immediately want to buy it.

There needs to be an evaluation period and then these things just take time.

So really what you are seeing is the result of a cumulative effort that is taking place over time and I feel like our strategy of improving our product, improving our content and focusing sales efforts on the problem is really paying dividends for us.

Are you seeing a pick-up in the momentum?

It sounds like you are.

Yes, I think we had good numbers this quarter and we hope we can continue that progress.

And then last question for you is if you could talk a little bit about what is driving the growth in international.

The international growth is really driven by the fact that we are a much smaller player in that arena and there is a large number of firms, large number of potential users.

There is a strong appetite for information services as those regions continue to grow faster than the US domestic economy.

So it is a combination of our own efforts to sell into those markets and just the general macro environment of those economies.

Thank you very much.

John Neff, Akre Capital Management.

Hi, I had two questions.

One just related to -- we have talked to Thomson Reuters and Bloomberg, but with McGraw-Hill sort of breaking out Capital IQ results in a more granular way, it looks like (technical difficulty) 13% top line last year.

I was curious if you could comment on Capital IQ a bit, sort of along what (inaudible) are.

Are you seeing them being competitive (technical difficulty)?

John, again, it is difficult for me to make comments on somebody else's growth rate because I really don't know.

S&P is a huge organization and there are lots of pieces that are now under the Capital IQ umbrella.

So what specifically their growth is and how they are doing it is difficult for me to tell.

I will just revert back to Mike's generic comment and that is I believe that we are gaining share in the marketplace and that we do very well and Cap IQ is one of the opportunities we have in the marketplace.

Okay, thank you.

And then a question I have was just the sequential jump in other income during the quarter.

I was just wondering if you were doing anything different with your cash or is that related to something on the balance sheet.

Thanks very much.

Hi, John, it's Peter.

Nice catch.

We are doing something a little bit differently this quarter.

We are investing -- we invested $15 million in short-term CDs in India.

We did it because the interest rate is a little more than 9%.

We thought the credit risk was reasonable and we don't have a need to repatriate the cash.

Ultimately, if we cash in, we will just use it to fund our operations locally.

All right, thanks so much.

Jason Rodnick, Raub Brock Capital Management.

Yes, thanks for taking my question.

I just have a quick follow-up on the sell side.

I was wondering if you are seeing the contractions stabilize there, accelerate, decelerate and do you have any view on when that will -- the cycle will turn around?

That's a great question.

I really wish I knew how -- if you really take our sell side client base, it really breaks into two big pieces.

There is the bulge clients, the largest firms and then the rest.

I would characterize the rest as actually a very healthy business that isn't nearly as volatile that seems to be that the big firms are.

And I would characterize the marketplace as one that they are much quicker to go into shutdown mode than they are to go into spend mode.

If they can shut down in a week, it will take them, I don't know, months, if not a longer period of a good market where they'd say, oh, wait, it's time to take the thumbscrews off and start hiring again.

Exactly the timing of that, other people in the industry probably have a better view of that than I might.

Okay, thanks.

And then -- so from the last couple of quarters [also] contracting, are you seeing the same sort of percentage declines or slowing down or has it jumped around a lot?

Specifically on the sell side, is that the question?

Yes, the sell side.

I would just characterize it as normal choppiness at this point.

After living through as many cycles as I have lived through in this business, not even as bad a cycle as three years ago or even seven years ago.

All right, great, thanks.

Peter Heckmann, Avondale Partners.

I just wanted to have a quick follow-up.

Now that we have seen headcount growth start to decelerate after you've built the content collection operations, as well we are seeing price increases continue to be levied in this tough market and seeing client additions, should we begin to start to anticipate some incremental margin expansion or are we really still thinking that really those incremental dollars are going to continue to be reinvested in the platform?

I can answer that question the same way I have answered that question for a long time and that is, to the best that we possibly can, we run margins to be flat and we will find a great place to invest it for our shareholders and produce a great long-term return for them.

Okay.

And then given the cash generation, do you have any thoughts about the dividend level?

Peter, we certainly have a high-quality problem in terms of having too much cash.

We have been allocating it aggressively to share buybacks and to dividends.

And historically, we have been increasing our dividend at a healthy double-digit rate.

We will certainly review that capital allocation process and we certainly would expect to be consistent with what we have done in the past.

Great, thank you.

Thank you and I am showing no further questions.

Thank you, everybody.

Thank you.

Thank you for participating on today's conference call.

You may disconnect at this time.