Factset Research Systems Inc (FDS) 2012 Q3 法說會逐字稿

Welcome, and thank you for standing by.

This is the FactSet third-quarter fiscal 2012 earnings call.

All participants will be in a listen-only mode.

(Operator Instructions).

I will now turn the meeting over to Rachel Stern, Senior Vice President, Strategic Resources, and General Counsel.

You may begin.

Thank you, operator.

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

Welcome to FactSet's third-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'd 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, we will review third-quarter results.

Second, I will provide guidance for the fourth quarter.

And lastly, we will end with Q&A.

Turning to third-quarter results, ASV was $811 million at May 31, 2012, up 9% over last year.

This quarter's ASV growth of $8 million was driven by increased sales of our PA suite of products and additional users.

Bottom line, GAAP EPS grew 14% to $1.05.

This marks the eighth consecutive quarter of double-digit growth.

Looking ahead, our guidance suggests double-digit EPS growth will again be achieved in the upcoming fourth quarter.

Our EPS performance was backed up by record levels of free cash flow generation.

This quarter's free cash flow was $70 million, a record number for FactSet and 23% higher than last year's third-quarter free cash flow of $57 million.

Higher levels of net income, stronger accounts receivable collections and increased accrued compensation drove free cash flow.

Over the past year, free cash flow grew to $222 million, up 25% compared to the same period of fiscal 2011.

Over the past 12 months, free cash flow was 22% higher than net income, which we believe illustrates the high quality of our earnings.

Over the last 12 months, accounts receivable decreased by $1 million, even as ASV increased by $70 million over the same period.

At the end of the third quarter, our DSOs were 30 days compared to 32 days last quarter and 33 days a year ago.

Our cash and investment balance was $242 million as of May 31, up $42 million from February 29.

CapEx was $6 million and we've spent $27 million on share repurchases.

On May 8, our Board of Directors approved a $200 million expansion to our existing share repurchase program.

At the end of the third quarter, we had $256 million authorized for future share repurchases.

In the third quarter, we paid $12 million in dividends to our shareholders.

Also during the quarter, our Board of Directors approved a 15% increase in our regular quarterly dividend, from $0.27 to $0.31 per share.

This is the seventh consecutive year that our annual dividend has been increased by more than 10%, translating into a five-year annual dividend growth rate of 21%.

With our dividends and our share repurchases, in the aggregate, we have returned $219 million to shareholders over the past 12 months.

Now let's turn to the P&L.

FactSet's revenues this quarter were $202 million, an increase of 10% over the prior year.

Operating income for the third quarter rose to $69 million, up from $62 million in Q3 of 2011.

Net income advanced to $48 million compared to $43 million in the year-ago quarter.

Non-GAAP net income rose to $53 million, a 9% increase compared to the year-ago period.

Non-GAAP EPS rose 13% to $1.15 compared to $1.02 a year ago.

Looking at ASV by location, our US operations ticked up to $549 million in ASV, [while] $262 million ASV is from our international operations, representing 32% of the total.

During the third quarter US revenues rose to $138 million, an increase of 10% over the third quarter of fiscal 2011.

Non-US revenues rose 11% to $64 million compared to last year.

Revenues generated from our European and Asia Pacific regions during the third quarter were $50 million and $15 million, respectively, and the growth rates in each of those regions were 10% and 15%, respectively, year-over-year.

So where did our growth come from this quarter?

First off, there were two events that explain the unusual ratio between user and ASV growth this quarter.

One, we provided a feed of earnings estimates to TheMarkets.com.

Following TheMarkets.com acquisition by S&P Capital IQ, that feed was canceled, reducing Q3 ASV by $4.3 million.

Two, this quarter, our net user growth increased by 1100 users to 48,400, and was driven by replacing a competitor at a global sell-side banking firm.

Portfolio Analytics continues to be a strong product for us.

PA sells well at existing clients, and it remains an attractive selling point for new clients as well, to bring them into the FactSet fold.

In the last 12 months, PA 2.0 users and clients both increased double digits on a year-over-year basis.

In addition to the traditional PA components, including risk, benchmark and indices, Portfolio Publisher has been successful this quarter as well.

Client groups have also found great value from the suite of risk models and portfolio optimizers fully integrated and offered over FactSet.

Against that backdrop of economic volatility, we added 11 net new clients this quarter.

You have heard us talk about how uncertain economic times stifles new firm creation and extends the time frames clients take to make large spending decisions.

So we are pleased to be able to continue to add clients to our roster.

Consistent with past quarters and with last year, our annual client retention this year was greater than 95% of ASV, and our annual retention rate in terms of number of actual clients was 92%.

We believe these statistics point to the continued satisfaction of our clients with our products and services.

They continue to be engaged with our workstations and derive benefits from them.

We've been pleased by the increased usage of FactSet and Excel by both buy and sell-side users.

This increased client engagement level was brought about by the release of Sidebar about a year ago.

For those following FactSet for some time, Sidebar is basically new FactSet for Excel, making it simple and easy to customize and derive great value straight from the friendly confines of one of the most popular software platforms in our industry, Excel.

Now let's take a look at our expenses.

Operating expenses for the quarter were $134 million, up 10% from the year-ago quarter.

Operating margins were 33.9%, up from 33.7% in Q3 last year.

Cost of services expressed as a percentage of revenues increased 16 basis points over last year due to higher compensation costs and an uptick in data charges.

Higher compensation was due to new consulting, engineering and content hires and salary increases during the past 12 months.

Data costs were up due to our growing client base and expanding third-party data set offerings.

These increases were almost completely offset by lower depreciation and in lower intangible asset amortization.

SG&A expenses as a percentage of revenues decreased 35 basis points compared to the same period last year due to lower inter-office travel, more efficient use of existing leased office space and a prior-year internal sales conference that did not reoccur in 2012.

Our head count was down 61 employees during the quarter due to seasonality.

Consistent with previous years, we are planning headcount growth in the upcoming fourth quarter, as recent college graduates represent our primary source for consulting and software engineering.

Overall, our headcount is 5450 at quarter end, up 14% year-over-year.

For Q3, the effective tax rate was 30.4% compared to 30.1% a year ago.

Like last year, this quarter's tax rate had a slight benefit from finalizing prior-year tax returns.

As you know if you've listened to our calls before, we've often 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 over the past 30 years.

However, we cannot factor it into our effective tax rate unless it is part of the currently enacted tax law.

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

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

Revenues are expected to range between $204 million and $208 million.

Operating margin is 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 $1.06 and $1.08 per share.

Non-GAAP diluted EPS should range between $1.15 and $1.17 per share.

Both GAAP diluted EPS and non-GAAP diluted EPS include a $0.02 reduction to reflect the expiration of the US federal tax credit.

Looking back on this past quarter, it has been a hard-won success.

All of our key metrics continue to tick upwards; EPS, ASV, revenues, users, net client count, all increased this past quarter.

But we know that to continue our record of making market share gains means we have to earn our standing in the industry every day and with every client and prospect.

Our Company culture is such that we are dedicated to our clients and great client service, not just on a daily basis in dealing with their immediate needs, but also on a long-term basis.

We continue to release new applications and data in our system and whether our own or from another source, such as the new bank loan data from Markit our fixed income NPA product.

What brings it all together is our service.

The FactSet consulting team is a true asset that has been contributing strongly to our market share gains over time.

We aim to continually be responsive to our clients by making our products and service is better and more effective for them, not just quarter to quarter but over the long haul.

Thank you for your participation in today's call.

We are now ready for your questions.

(Operator Instructions) Bill Warmington, Raymond James.

One of the questions I've been getting from investors this morning is that given the move of ASV from double-digit growth to upper-single-digit growth and revenue growth guidance next quarter of 6% to 8%, is there something in the competitive or macro environment that has changed that would likely prevent FactSet from returning to double-digit revenue growth over the next few quarters?

Good morning, Bill.

It's Phil Hadley.

I think if you look at our ASV and you put it on a trailing 12-month basis, it certainly changes direction over time.

I think we are definitely still in a market that is very choppy for both our buy-side and sell-side clients globally, and that would be the macro environment.

The micro environment that FactSet works in is we continue to invest very heavily in our products.

So I feel very good that the content investment we've made over the last five years is paying off handsomely.

I feel very strongly that the interface that we are providing our clients is delivering a great deal of value in the marketplace.

I am very comfortable from a competitive position, and I feel that when I look at the players in our space that we are making gains and that when our clients' business models figure out, when Europe gets stabilized, when the elections happen, when the equity markets do what they always do and find an equilibrium, that FactSet will be in a very strong competitive position.

Got it.

And I wanted to ask if you could comment on geography.

And it looked like Europe was strong for you this quarter.

But looking out, your thoughts on how that is likely to play out over the next few quarters for your business.

I think you have to be a little bit careful, because, as Peter pointed out, the TMC data feed that we had was a US-based data feed, which is certainly going to affect the numbers in this particular quarter.

I think overall, the buy-side and the sell-side act very similarly globally.

Obviously, there are pockets of strength that are in the world -- the emerging markets for us is still very strong.

And there are pockets of disruption as well.

But all in all, I think it is a healthy business.

And I would also remind everyone that the first and third quarter for us are always a bit choppy, just because it is not the buying cycle for our clients and it is not our fiscal year-end, so there is always volatility in these two quarters.

And then last question, just going to ask how you would characterize the buy-side and the sell-side environments today versus six months ago in terms of their appetite for your products and cost sensitivity.

If I had to choose a word, I would say cautious.

But yet I feel like when we deliver value -- as Peter illustrated, the PA product line is doing very, very well.

Certainly very excited to -- the sell-side seat count growth was a client that made a decision based on price three years ago and came back to us and discovered -- reaffirming the belief that your pricing and that the value that you are delivering your clients is appreciated by your clients.

So I think it is one that is never easy, but feel pretty good about where we stand.

Excellent.

Thank you very much.

Shlomo Rosenbaum, Stifel.

Thank you very much for taking my questions.

I wanted to ask about the buy-side ASV.

Is the [TMT] $4.3 million of ASV that came out, would that come out of buy-side numbers or sell-side numbers?

Is it fair to assume buy-side?

It's Peter.

That is coming out of our buy-side numbers.

Okay.

So if I kind of normalize for that, it looks like the buy-side ASV would be growing kind of 10.2% year over year.

The last three quarters, the ASV growth is like 12.5% consistently.

Does it feel like the environment is just getting tougher to sell into?

Can you just give us a little color around that?

It's Mike Frankenfield.

To sort of reiterate what Phil said, clients are in a cautious mode.

When I look at my internal benchmark and the statistics of my sales process, there is no question that the decision-making process has slowed, and more of our opportunities are spending longer periods of time in the evaluation or awaiting decision phase.

Overall, though, we've got some great products that are continuing to sell well through.

And the other thing you should keep in mind is that the large increase in users on the sell side, those users come on typically at a lower average ASV per user number, which you want to be careful you don't overstate the amount of ASVs that we are deriving from that segment.

Got it.

And then in terms of the headcount going down by 61, I think if I go back to like 2006, I only saw the headcount go down one other quarter, and that was only like two people.

Is there anything that I should be reading into that?

Or you said it is seasonality, but despite seasonality, even through the downturn we really didn't seem much headcount shrinkage.

It's Peter.

I don't think there is much to read into it in terms of maybe contrasting your observation of 2006 versus today.

In some of those periods, we were investing more aggressively in content, and that was offsetting the seasonality of where we source most of our hires for all our other groups, which is directly from college.

Our headcount has been -- the growth rate of our headcount has been slowing.

And I think consistent with what we've been indicating on previous calls, where we think our headcount growth rate is going to modifying more closely towards our overall ASV growth rate.

And we expect in the upcoming fourth quarter, as I mentioned in our comments, to see headcount growth reflecting the aggressive hiring out of college for both consulting and engineering.

(multiple speakers)

I appreciate the color.

If you are thinking about the collection cycles of our collection teams, a lot of them are focused around fiscal year-end collections, both the earnings estimates and the fundamentals.

And the January to June cycle is their peak period of collection.

So their ability to ingest new employees in that part of the cycle is very difficult.

They pretty much need to be pre-trained before that cycle.

And that would also play into them not hiring in this particular window.

They're not even hiring to replace.

So in general, when I think of your headcount from an overall Company perspective, now that we are getting to a more kind of normalized growth, it seems like you guys have gotten the people where you want them in data collection.

How should we think of growth on kind of a quarterly basis?

Can you give us some ways to think about that?

(Multiple speakers) the bulk of growth come in one quarter and then we should start -- should we every May quarter kind of see a little bit of decline?

I think we have certainly -- I guess let me back up.

In terms of overall growth rate, our headcount growth rate has been moderating.

If you went two years ago, our year-over-year growth rate was in the high 30s.

So it has definitely been moderating towards our ASV growth rate, because we've reached critical mass in our content operations.

Seasonality, I think it is -- the fourth quarter is likely to be our strongest headcount quarter in terms of consulting and engineering.

And our content operations is a little more consistent from quarter to quarter, but the third quarter likely to be our lightest.

And then just on the sell side, it seems like you had the one big takeaway that kind of moved the numbers.

If you would remove that from the ASV, what would we see?

I (inaudible) for exact numbers, but would we see kind of a flattish number or would you start to see that continue to go down?

I'm not sure I'm going to give you exact color on that, because it is not -- it is probably not appropriate to do so.

But I would say that a large sell-side deal like that is not always a at a rate card.

And the reason we gave color on this particular situation is just in the particular quarter there was enough choppiness and it happened to be in the third quarter.

If it was in the fourth quarter and less material to the total, we probably wouldn't have called it out.

Okay.

That's fair.

Thank you very much.

Suzi Stein, Morgan Stanley.

Can you give us an update on the feedback that you are getting on your fixed income product?

And have you continued to be successful in terms of selling this into fixed income only shops?

It's Mike.

Fixed income continues to be a big bright spot for FactSet.

It's a very, very complicated asset class.

Requires a significant amount of upfront work with each client.

But we are slowly but surely perfecting that process and improving the speed with which we are able to onboard clients.

Not only are we having success with balanced fund managers, who have a fixed income mandate in addition to their traditional equity mandate, but we are beginning to identify pure fixed income only firms and beginning to get traction with some of those firms.

Okay.

Was there any notable currency impact on your bottom-line results this quarter?

It's Peter.

Currency did not have a noticeable impact on our bottom-line results.

Since you brought it up, I think I will take a moment just to recap where we are on currency in general.

2% of our revenues, or approximately $17 million of ASV, is not billed in US dollars.

The other 98% are all billed in US dollars.

We are long expenses, so on a net basis, we have about $140 million exposure to other currencies, other than the dollar.

80% of that exposure is pound, euro and rupee.

Of that 80%, approximately -- almost half is the pound and the other half is the euro and the rupee.

The euro represents two thirds and the rupee represents approximately one third.

Okay.

At the end of last quarter, I think only hedges you still had were the rupee hedges.

Have you made any changes during the past quarter with respect to hedging currency?

Yes, we did make some changes.

Philosophically, we will hedge currency if there is a material change on a year-over-year basis that we would like to lock in.

We don't think we are any smarter about predicting where currency rates will move on a forward-looking basis.

So we -- during the quarter, we did lock in the euro for 50% of our exposure for the next nine months.

And to recap with where we are on the rupee, we have roughly 67% of our rupee exposure hedged out for the next 18 months.

I would encourage everyone to continue to look at the Q, because we will outline at an exact currency level where our future-looking hedges are as of May 31.

Okay, great.

Thanks for the information.

Peter Appert, Piper Jaffray.

I think this is for Mike.

Mike, I'm wondering if the decision criteria you are hearing back from clients in terms of whether they choose FactSet versus an alternative, whether you see any evidence that is evolving or changing over time.

And whether pricing -- has that become more of an issue more recently or is it just the same as it has always been?

There's been no material change in pricing.

FactSet, like every other firm, has to continue to deliver great value to justify the prices that we charge.

And when we are building new products, we do a certain amount of enhancements to maintain the pricing we do and we do enhancements in the hopes that we can create future revenue opportunities.

(multiple speakers) I guess the question is really more -- I assume you are always under pressure from clients for price concession.

We are in the technology business, and we know we have to continuously invest to improve our product and just -- there is a certain amount of investment that needs to happen just to maintain the status quo.

I'm just wondering if the pricing pressure you are feeling, is it more intense today versus six or 12 months ago?

Not from a competitive perspective.

The biggest issues have to do with the lack of visibility our clients have in their own business models.

The choppiness in the market makes clients become cautious, and they constrain their budgets and are more likely to maintain the status quo.

So we just have to work harder to overcome that inertia.

I would add to that, definitely in a more difficult time in the marketplace price becomes a bigger factor in every one of our clients' investments decisions, making it more incumbent for us to deliver more value.

And then the market gets more efficient as our clients' health improves, and the value and features that you have can win the day and price becomes secondary.

So Phil, you mentioned the possibility that the larger deals might not always be on rate card.

I understand this is a potentially sensitive issue, obviously.

But what is the pressure then from existing clients?

No -- so the bulge clients that are in the 1000 plus seats, and depending on the level of employment and the length of the subscription and all of those things, there are so many different factors that go into the pricing.

And the reason I want to throw that out there is just because if you took rate card times 1000 seats, you would say, oh, well, that was all the ASP for the quarter, and I think that is where Shlomo was going with it.

And I just didn't want people to believe that was really the case in this particular case.

The good news in our particular case is that was a competitive win, a competitive win and a rate increase, and a competitive win at a better price than we had when we lost them the first time.

So all three of those things are good things and speak very much to our competitive position in the marketplace.

Got it.

Very helpful, thank you.

And then Phil, the data feed business you've highlighted in the past is a growth opportunity.

Can you give us any color on how big that business is proportionally to the overall operation and what the growth dynamics look like?

I think it is a nice business for us.

It is certainly frosting.

It is not one that we've felt compelled to break out at this point, so it kind of just falls in that bucket of other business for us.

Definitely one that we are -- more opportunity for us, given that we've invested so much in content, than it was five years ago.

And if it gets to the point where we think it is material and useful from an investment perspective, we will break out more detail.

What is material?

Is material more than 5% or 10%?

Material is when I think it can actually help an investor analyze and value our business.

I think that is probably how I define material.

Okay.

And last thing, Phil.

The cash balances obviously continue to grow.

You've outlined in terms of the buybacks and the dividend some uses of those cash balances.

How are you seeing the M&A opportunities at this point?

I guess I would answer by saying we probably see two or three a quarter.

Most of them make it into the trash can before they ever even get passed on in an e-mail to somebody who might actually have a deeper knowledge of that product area than I do.

But we are very -- we are fortunate, I think, as a business in that we are a place people would like to go.

So in most cases, acquisitions that occur in our space that would be interesting to us, people are knocking on our front door, and we get a chance to take a look at them.

But as I've said before, I really feel very comfortable with assets we currently have and our opportunity in the marketplace.

So the hurdle rate for us as a business to do an acquisition, it really has to be something that is going to be strategically accretive to us to do so.

And it is mainly data sets or incremental data sets that would be a focus from an M&A standpoint?

Well, from our perspective, it can take lots of different flavors.

But it really -- for us, it has to be something that a financial professional is going to need.

Somebody in your firm needs it, somebody in one of our buy-side firms needs that product.

Everything else immediately gets dismissed.

Got it.

Thanks, Phil.

Peter Heckmann, Avondale Partners.

As regards user growth, the last two years you've had very strong user growth in the fourth quarter.

I would expect to see that as well.

It doesn't sound as if the activity in the third quarter really brought any forward, and from your comments, it sounds like seasonally we would expect to see the fourth quarter being your largest quarter for user add.

Traditionally, I think our clients hire much the same way we do, and college hires being a big proportion of what they do on both the buy and the sell side.

So if you look at us historically, that is certainly when seat count changes the most.

Okay, and when we look at the piece that was lost with the merger, with Markets and S&P, was that fundamental data?

No, it was estimate data.

Estimate data, okay.

And when you look forward in terms of -- a little bit unique to see a large stock move, but do you feel that the pressure on the overall securities industry in terms of being cautious for cost and where your price point is relative to others, do you think there are other opportunities to bring over large blocks, either through merger situations or competitive rebid?

I guess the question is do we feel like our price-value relationship is going to save clients money or move workflow to us.

I think we feel very good that there are lots of opportunities, even in a sell-side business model that certainly is recalibrating itself.

So fortunately for us, Bloomberg is a $20,000 seat product that gives a pretty nice umbrella out there to find marginal workflow.

And then you've got TR and S&P in the marketplace as well, with varying prices for different products and content set.

So there definitely are opportunities for us in the marketplace.

Okay, and I guess the other part of that question was maybe implied, but not stated is that given the backdrop, have you seen an increase in customers thinking more about price and potentially considering their options and maybe moving a certain subsegment of their employees down to a lower-priced platform?

And could we see other large blocks moving over the next two, three quarters?

You are referring to the sell-side opportunity that we -- that came (multiple speakers)?

Both on the buy side and the sell side, but it seems like the sell side is perhaps under more pressure.

The sell-side opportunity that just came over wasn't price, it was functionality.

Correct, correct.

But in the last -- in the financial crisis, I think what we saw was you continued to gain share through the financial crisis, and it was because people were deciding to go to a lower-price-point solution, and they were migrating to FactSet.

So your share gain may have actually accelerated a bit.

I would characterize it differently.

Because I think if you really take a look at our product in the marketplace, and depending on which segment we are in, we're not the low-cost supplier in the industry.

I think what we were doing was building so much value on the content side that we could save the client money because we were monetizing the content as part of the revenue stream that was coming to FactSet.

They were historically having to purchase that a la carte, so we were seeing share gains because of product improvement.

Okay, that's fair.

Thank you.

Jennifer Huang, UBS.

Just to go back to the international portion a little bit, I know growth there has been very steady at around 12%.

Maybe can you provide some additional color -- are you taking market share from competitors there, and whether or not that market share is -- I know you guys mentioned due to additional functionality.

But what is the pricing environment like there, just considering I guess the macro issues over Europe?

FactSet is still small internationally compared to the addressable market, and there are certainly cases where there are competitive situations.

But largely we have a big greenfield opportunity, a large number of clients and prospects, prospects rather that have no FactSet, formal prospects outside the US than there are inside the US.

And some of the emerging economies continue to increase their sophistication and their desire to have premium tools to help understand and manage their investment prospects.

So overall, we've got a good outlook internationally.

Okay.

And then I guess switching over to just looking at ASV growth, maybe you can provide some color on -- so ASV growth was 9.4%.

It was even higher excluding the [markets.com].

And yet, I think the revenue guidance was a little bit lower than what people were expecting.

Was there anything that is one-time in there that maybe we should just watch out for in terms of next quarter's revenues?

Obviously, we were very careful about how we provide guidance, and it's really what we think and what we think investors should look at for the next quarter.

So the answer is no, I don't think that we've got anything planned for one-time in that.

And like I said, I don't want everybody to believe that we will call out things like we did in this particular quarter.

It just happened to be, given the scale of the quarter, that we were just trying to be as illustrative as we possibly could as to what happened in the quarter.

Okay, fair enough.

Thank you.

Fredric Russell, Fredric E. Russell Investment Management Company.

You do a great job of producing all this cash and buying back stock, increasing the dividend, and yet you're still -- I mean it is a nice problem to have -- you've got a lot of cash.

Would it be something that we could see -- or not be a surprise if you decide to spend more money to open up new markets or spend money to -- more money to penetrate new markets?

I ask this question especially in view of your cautious and something I respect view of making acquisitions.

What are some of your thoughts?

I guess I would interpret that more as almost a margin question.

Because we certainly generate enough cash each quarter.

The cash on the balance sheet really is already in the hands of the shareholders.

And we clearly could invest more and take margins down.

I think if I look at where we are and where we would have been if we hadn't invested so much in the business, I tend to get the question should we -- could you raise margins, instead of, in your particular case, maybe we should invest more and take margins down.

I'm firmly in the belief that reinvesting in our product for the benefit of the long-term health of the business and the benefit of our clients is the right thing to do.

You bring up an interesting question -- should we take margins down and accelerate that as an opportunity.

It is certainly one we discuss.

It is certainly one that if we found a great opportunity, we would gladly take margins down if we thought that the shareholders in the Company would be stronger and would get a good return on that investment.

But right now, we are in a very luxurious position in that we've always grown, for the most part.

So the real choice for us is where do we allocate the new employees that we are going to bring in, because we are always growing our headcount.

And certainly, as you point out, we have great opportunities in emerging markets.

So on the content side, we are investing very heavily in the content that serves the emerging markets.

And then on the sales and marketing side, we are certainly investing as well in building out offices in those locations and sales forces in those locations.

So we are in Sao Paulo, Brazil.

We are in Dubai.

We cover South Africa.

There is all kinds of places out there in the world where those are newer markets for us where we've got feet on the ground in those particular areas.

So hopefully, we are doing the best we can for shareholders.

But thank you for the first time somebody asking me that maybe we should take margins down and invest more in our business.

No, my purpose is not to take margins down.

Let's not -- I think you are doing a great job in producing cash.

My question is do you invest more aggressively in opportunities.

Just to take margins down, I'm sure you understand that was not my point.

You don't want to bring margins down just for the sake of bringing margins down.

That is not going to accomplish anything.

But I see what your answer is, and that's a good answer.

I like it.

When you say that you have increased market share, could you give us some statistics on that?

Is it United States, Europe?

And also, could you say -- when people choose FactSet -- when companies choose FactSet over the competitor, are there some common remarks that they make?

Is there something that is very special about a product or does it depend on the buyer?

I'll answer the question and hopefully Mike will chime in.

We are not an industry like the auto industry where everybody knows exactly how many cars were sold last month.

So the data we get is more anecdotal in nature.

And we even compete with divisions of big companies and private companies, so the only way we can really tell is by the client activity that we see and information we hear in the marketplace.

If you look at the facts, we grew clients last quarter, we grew seats last quarter.

Those are two very clear metrics.

I am very comfortable that if you check the channels that we did well relative to -- on those two metrics relative to the other players in our space.

Then at the more micro level, we can kind of see our wins and losses, and know who we won against and who we lost against and be able to measure that and where we come out.

And that is how we make those statements.

But it is not as scientific as knowing how many cars are out there.

As to why somebody chooses FactSet, one of the great things about our product line is it is very diverse.

What an investment banker thinks of FactSet and why they use the product versus a portfolio manager are very, very different in what they find in value in our system.

Lots of commonality in the functionality.

Peter mentioned that the Sidebar, its spreadsheet functionality, is a wonderful workflow for both the investment banker and the buy-side workflow, in analyzing companies in Excel.

But it is very much an individual decision as to what they find.

I would say in general, our news and quotes interface is fantastic and improving every day.

Our portfolio product is the strongest in the industry.

Our Excel product is the strongest in the industry.

And our content in many categories is the best (inaudible).

So those would be a few reasons I'd throw out there.

I would only add that every client situation is unique, and the fact that sales force, the fact that the consulting forcing spends tremendous amount of time trying to understand client workflows, clients' investment process.

And it is really based on gaining that understanding that we are able to align products, data bases, et cetera, with the clients' needs to identify opportunities to help clients be more efficient, to help them gain an information advantage, what have you.

But really, that one client at a time approach has served us well.

We are users and we are very pleased with the product.

That is why we are shareholders.

My other question is this.

In negotiating with buyers, are you finding that the buyers are becoming bigger and the entities that you are compelled to negotiate with are just bigger in terms of size and revenue than they were a year or two ago?

Is there any trend that you see that would make -- put the buyer in a more competitive position?

I don't see anything that has changed.

Certainly if you look at just your business, the assets under management in the industry, and how much in just total assets under management is controlled by the top 50 players in the world, I think all the market data people, FactSet included, absolutely those are our biggest clients as well and have been for a long time and will be for the foreseeable future.

So I don't think much has changed in that (inaudible).

One other technical question.

On your share repurchase, are you allowed to participate in a market today or do you have to wait a certain amount of time after this call?

We wait for the earnings to be distilled in the marketplace -- or any other material news -- for 24 hours before we engage in share repurchase activity.

24 hours.

Okay, thank you so much.

Glenn Greene, Oppenheimer.

Maybe a question for Peter.

Obviously you sort of called out the big block on the sell side, sort of the competitive win, which drove a good chunk of your user growth.

But trying to just get a sense for sort of more normalized user growth on a couple of different ways of sort of thinking about it.

Is there a way to think about what kind of buy-side user growth you would have had in the quarter, and also, what sort of a more normalized user growth would have been X that big sort of client win?

I think what we were trying to really signal in the quarter is that we were really obviously pleased with the net user change this quarter, but it was really primarily driven by sell side.

Every quarter we've been trying to give you a little flavor, whether it has been buy or sell side that has been driving the user change.

And it has certainly ebbed and flowed from most quarters.

And this quarter was a little unique because of that important sell side win.

So we just called it out just so you would be able to get a better sense of what user class for FactSet was driving it.

Did you have buy-side user growth this quarter?

We did have buy-side user growth, but it wasn't -- I wouldn't put it in a category that was material relative to other previous quarters.

Okay.

And then sort of on the PA side, if I heard you right, you sort of called out I think it was double-digit user growth and client growth.

And the context of this question is I've been getting a lot of investor questions related to concerns regarding the competitiveness of PA or potential for competitive share losses.

The data that you provided kind of suggests that you're not seeing that, but maybe just some color -- kind of color of what you're seeing in terms of the PA base.

And did you kind of go out of your way to sort of call out that metric because of those concerns?

Just some color on what you are seeing on PA.

I had said it on a couple other calls, and it's important to remember that PA is a suite of products.

There is certainly the traditional PA workstation, but over time, we've added a great deal of functionality to that, including risk, launch, the ability to publish results.

And we find that that is what clients want.

Clients want a complete solution that is able to solve many problems within their firm.

There are definitely competitive products out there that compete with individual components of the suite.

However, no one in the marketplace offers as comprehensive and complete a solution as we do.

We are still very excited about the growth opportunities.

A large number of our investment management clients still either don't subscribe to that product or only subscribe to a few components of the suite.

So we think we've got significant upsell opportunities within our existing client base.

Additionally, the functionality that we deliver is sufficiently compelling for new clients that PA is often times the key driver in a client's decision to purchase FactSet.

So yes, there is competition out there, but we feel like our product continues to improve and we are encouraged by the metrics that we are seeing.

In other words, it sounds like really no dramatic change in the last 12, 18 months competitively.

There is competition, but you are feeling pretty good about where you sort of stand.

Definitely.

I would also add, and just remind everyone, that we really have a pricing model that has kind of a base fee for the product, seat growth and also application growth.

And the reason that Peter called that out is because the PA suite was the driver on the application side of it, which would have been the buy side of the business, and that revenue would be independent of seat growth, meaning that it is not double counted.

If somebody who already had FactSet purchased PA, that doesn't change the seat count number.

So I know as an analyst you look at the seats -- or the client count and the seat count and think, well, that is the only two dimensions that exist.

But ASV in the buy side was healthy because it was driven by the PA suite.

Okay, great.

Helpful.

Thank you.

(Operator Instructions) No questions.

Thank you very much.

Thank you, operator.

This concludes today's call.

Thank you for participating.

You may disconnect at this time.