Factset Research Systems Inc (FDS) 2013 Q2 法說會逐字稿

Welcome and thank you for standing by.

All participants are in a listen-only mode until the question-and-answer session of today's conference call.

(Operator Instructions)

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

Thank you.

You may proceed.

Thank you, operator.

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

Welcome to FactSet's second-quarter 2013 earnings conference call.

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

Condensed highlights will be available shortly via StreetAccount.

Our call will contain forward-looking statements reflecting management's 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.

Consistent with previous quarters we have included a table at the end of the press release that reconciles non-GAAP measures to GAAP.

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 cover two items that impacted EPS this quarter.

Second, we will review quarterly results.

Third, I will provide guidance for our next quarter.

Fourth and finally, we will end with your questions.

Let's begin by covering the two significant items that occurred in Q2.

One, we recorded a non-cash pretax charge of $15.7 million.

Performance-based stock options were granted in connection with the acquisition of Market Metrics back in June 2010; since then the Market Metrics business accelerated to achieve stretch revenue targets, causing the performance options to vest.

Just as a reminder, when acquired, the Market Metrics business was $16 million in ASV.

While we are very pleased about Market Metrics, its size relative to the rest of FactSet means its outperformance has had a limited impact on our overall growth rate at this juncture.

Two, in Q2 the Federal R&D tax credit was signed back into law and renewed retroactively to January 1, 2012.

Although Congress has renewed this credit every year since 1981, it lapsed in 2012; and under US GAAP we are not permitted to recognize the benefit until it actually becomes law.

FactSet realized an income tax benefit of $4.9 million during the second quarter of fiscal '13.

The R&D tax credit impacted fiscal 2013 by reducing our projected annual effective tax rate.

You will notice this reduction when I cover Q3 guidance later on in this call.

The EPS impact was a $0.25 decrease related to vesting of the performance-based stock options, partially offset by $0.11 increase from the reinstatement of the Federal R&D tax credit.

The net effect of both adjustments decreased EPS by $0.14 and was added back to EPS to arrive at adjusted EPS of $1.14.

Adjusted EPS is comparable in methodology to the large majority of Street estimates.

This math is also outlined clearly on page 8 of today's press release.

Now let's take a look at our quarter.

Q2 was another solid quarter for us in which we did a lot of heavy lifting.

ASV grew by $17.3 million excluding currency, and was $863 million at quarter end, representing a 6% organic increase year-over-year.

ASV from US operations grew to $593 million, and ASV from international operations was $270 million or 31% of the total.

Looking at revenues, this quarter buy-side revenues inched up to 82%; and the remaining 18% was derived from sell-side clients who perform M&A advisory and equity research.

Adjusted EPS increased to $1.14 this quarter, up 12% from a year ago.

We are proud that this is our 11th consecutive quarter of double-digit EPS growth.

Even in the face of volatile markets, we have been able to sustain healthy growth due to our strong business model and our ability to grow market share.

Free cash flow, which is defined as cash generated from operations less capital spending, was $43 million this quarter, up 11% from $39 million in the same quarter last year.

Free cash flow grew this quarter because higher levels of non-cash expenses were offset by lower net income and higher income tax payments.

Over the past 12 months, free cash flow was 10% higher than net income, which we believe continues to underscore the high quality of our earnings.

Accounts receivable this quarter increased by $14 million over the prior year, with ASV in the same period up $60 million.

Our DSOs were 36 days at quarter end, compared to 34 days at the end of last quarter.

The increase in our DSOs is not a worry and is a result of timing.

Please recall that during the second quarter we typically issue invoices for services to be provided over the next 12 months.

This year, those annual invoices aggregated to $9 million; and our accounts receivable rose, as expected, and in the same pattern as over the last five years.

FactSet's cash and investment balance was $166 million at quarter end, down $59 million from Q1.

This quarter, we spent $3 million in capital expenditures.

More significantly, we repurchased 1.2 million shares of FactSet's stock for a total of $109 million, leaving $55 million authorized for future share repurchases at February 28.

At quarter end, there were 43.6 million shares outstanding.

We also paid a regular report really dividend of $14 million.

With dividends paid and share repurchases combined, we have returned $286 million to shareholders over the past 12 months.

Let's now turn to the P&L.

This quarter, FactSet's revenues grew to $213 million, a year-over-year gain of 7%.

The growth rate can be broken down into 6% organic and 1% from an acquisition.

Adjusted operating income rose to $72 million, up 7% compared to the prior year.

We adjusted GAAP operating income to excluding the non-cash pretax charge of $15.7 million discussed earlier, related to the vesting of performance options.

Adjusted net income rose 8% to $50.6 million during the quarter.

Net income has also been adjusted to reflect the impact of the performance options and the reinstatement of the Federal R&D tax credit.

US revenues rose to $146 million in the second quarter, up 7% from the same period last year.

Our second-quarter revenues include the StreetAccount acquisition, which added 2% to the US growth rate.

Total non-US revenues rose 7% to $67 million this quarter and accounted for 32% of total revenues.

Second-quarter revenues from Europe and the Asia-Pac regions were $52 million and $15 million, respectively, with growth rates in each region of 6% and 9% year-over-year.

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

We added 35 net new clients this quarter, representing our 13th consecutive quarter of net client growth, reaching a total of 2,436 clients.

New client acquisition is important for us because it helps to lay the groundwork for future sales, consistent with our long-standing strategy of increasing sales of workstations, applications, and content at existing clients.

Our net user count declined this quarter by 150 to a total of 49,500 at quarter end.

User additions in the buy-side were more than offset by reductions in the sell-side.

We believe that although headcount at our sell-side clients is still under pressure, we continue to make gains on the buy-side, which constitutes the bulk of our revenues.

Please also note that average ASV per buy-side user is significantly higher than a sell-side user, creating a positive undertone to the shift.

Our annual client retention this year was greater than 95% of ASV, and our retention rates in terms of the number of clients increased to 93%.

These statistics demonstrate high client engagement levels.

Our Portfolio Analytics suite of products continues to be well received within our client base.

The PA suite includes 10 separate products and covers a range of workflows around portfolios.

Within the suite, equity PA performed very well and our fixed income business grew at a very attractive rate.

A slight positive is that we discontinued the derivative solutions product during the quarter.

We have been phasing out the user interface for several years as we have integrated its back-end technology into our fixed income and PA product.

During this period it has been a small drag on ASV; there is no further exposure, looking ahead.

We have also made inroads at wealth management clients over the past quarter.

There are solid rates of client and user acquisitions occurring both in Europe and in the US.

Our success speaks to our ability to integrate portfolios, a broad range of high-quality content, and an easy-to-use set of company analysis reports.

Our company analysis suite was enhanced again during the quarter with release of Company Guide.

Company Guide is the next-generation application for company analysis on FactSet.

It is quick, easy, and graphically rich.

Reports are linked seamlessly between your FactSet desktop and iPad.

In addition to on-platform sales, we have also seen strong growth in our Market Metrics business.

Of course, the vesting of the performance option grants is a clear indication that the business has exceeded internal growth milestones.

Market Metrics continues to be successful with its local market share study, as well as on mutual fund, variable annuity, and life insurance analytical products and applications for wholesalers in the US and also now in Europe.

We have also seen growth from our proprietary content.

Our StreetAccount product is receiving high client praise.

We continue to expand it in unique ways to make our user base more efficient.

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

Types of data license and feed form includes ownership, call transcripts, M&A, corporate hierarchy data as well.

Data feeds are consumed by a range of clients, including existing large FactSet clients and some outside of our core client base that do not manage money or provide sell-side services.

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

The price increase impacted the majority of our US investment management business.

The price change this year increased ASV by $9 million compared to $10 million a year ago.

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

Operating expenses were $157 million, up 7% when excluding the non-cash charge from vesting of performance options.

The adjusted operating margins were 33.7%, consistent with last quarter and a year ago.

Cost of services as a percentage of revenues increased 230 basis points over the same period last year.

This increase resulted from higher compensation expense from new hires and software engineering, consultant and content collection, as well as new employees from StreetAccount, partially offset by lower computer maintenance costs and a decrease in depreciation from computer hardware becoming fully depreciated.

During the quarter, our SG&A expenses as a percentage of revenues rose by 550 basis points compared to the same period last year due to higher stock option expense.

Our headcount grew to 6,048 this quarter, up approximately 30 employees during the quarter and an increase of 10% over the last 12 months.

Please note that, like last year, we expect our headcount growth to decline in the upcoming third quarter.

The third quarter is not a heavy hiring quarter for us in our offshore content collection centers, because it will be peak filing season.

During that period we concentrate on processing filings and do not hire, train, and integrate many new employees.

We also do not have a new consulting or software engineering class starting in Q3.

Those classes begin in the summer after university graduations in the spring.

Like previous years we expect Q4 to be a strong quarter for new hires.

The effective tax rate this quarter was 21.2%, compared to 30.9% a year ago.

The lower tax rate was a result of the reinstatement of the Federal R&D tax credit.

Excluding the $4.9 million of income tax benefits, our effective tax rate was 29.9%.

The R&D tax credit lowered our tax rate by 2% and will add $0.03 to EPS each quarter looking ahead.

Now let's turn to our guidance for the second quarter -- for the third quarter of fiscal 2013.

Revenues are expected to range between $213 million and $216 million.

The midpoint of this range would mean revenue growth of 5% in Q3.

We are anticipating continued weakness in sell-side ASV and no immediate uptick in buy-side purchasing behavior.

Operating margins are expected to range between 33% and 34%.

GAAP diluted EPS should range between $1.14 and $1.16; the midpoint of the range represents 10% growth over last year's third quarter.

Our annual effective tax rate should range between 29.5% and 30.5%.

We continue to expect that capital expenditures for the full 2013 fiscal year should range between $20 million and $28 million, net of landlord contributions.

To provide a little extra color on our revenue guidance I'd also like to take a moment to look at general views of the market over the past quarter.

Despite optimism expressed by the global equity markets, we are still facing the effects of significant job cuts at many of the largest global investment banks.

Some estimates put the number of headcount reductions at 11,000 jobs at bulge-bracket banks since November 2012.

Those cuts have been driven by increasing regulation, lower trading volumes, and the continuation of the economic crisis in some parts of the world.

Although we are impacted by user reductions, it's important to note that many of the areas hardest hit are not those typically serviced by FactSet.

Our market on the sell-side, which accounts for only 18% of our revenues, is still in a very difficult and contracting environment.

The good news is that our primary user groups are not enduring new structural changes.

Though they're still tightening, equity research has been under tight expense management for many years.

M&A deal flow has always had some cyclicality, but is essentially the same business model as before the global financial crisis.

The bad news is that when large sell-side firms struggle, even in departments we do not cover, it impacts near-term ASV for all vendors in our industry.

The news is somewhat brighter for the buy-side.

Coming off double-digit equity returns in almost all global markets in 2012, equity returns in 2013 have been solid thus far.

AUMs for our clients and prospects have also been augmented by year-to-date inflows, too.

These inflows are from idle cash, and not from fixed income strategies; so there is potential for more AUM inflows if managers decide to allocate away from fixed income and back to equity.

Despite this change in the macro environment, we still do not see evidence yet that buy-side firms have begun to expand their employee base.

To wrap it up, our business model continues to show its resilience.

Again this quarter, we have shown that even in a tough environment for 18% of our clients we continue to grow our market share.

We have put up another double-digit quarter of EPS growth, and our three-year average return on equity has increased to 33%.

We have been recognized for the fifth time in six years in Fortune's 100 Best Companies to Work For at our highest ranking to date.

We are pleased to receive this acknowledgement, and we have been awarded similar accolades in the UK and France in the recent past.

Our employees are FactSet's most valuable asset, and the recognition in these surveys are based on their feedback.

We are proud of that, and it's strategically important to be known as a great place to work.

Thank you, and we are now ready for your questions.

(Operator Instructions) Alex Kramm, UBS.

Hey, good morning, everyone.

So, maybe we can just start on the pricing environment for a second.

I think you made the comment here that it was a little bit of a lower increase than last year, not by much; but maybe you can just outline where you saw good pricing, where you saw maybe a little bit of pricing pressure, where or how the discussions went, if there was a lot of pushback.

Maybe just talk to that (technical difficulty) second.

Thank you.

Hey, Alex.

It's Mike Frankenfield.

The price this quarter was -- to the US investment management segment of our client base it was $9 million.

We thought that was a good accomplishment, really continues to demonstrate the value that we are delivering to clients and how they think about our product.

It was a little bit less than last year.

There are a couple reasons for that.

One reason is that with our largest clients we continue to create fixed-term agreements with them, where price increases built into those agreements happen at different times of the year.

So as we increase the number of these agreements, there are fewer clients that are directly affected by the price increase that we just did.

Secondly, there were some clients that continue to struggle with their business model.

So there is no question we made some accommodation, probably a few more accommodations than we did last year; however, it was not a significant meaningful number.

The price increase this year affected multiple product lines including our core workstation, data feeds, really all of the areas where we felt we were delivering the most value and where we had the greatest price (technical difficulty).

So overall, just pleased with how it went.

Good.

Then I guess maybe to continue on that, when you say areas of weakness, when you talk about the buy-side a little bit, when we talk to in particular some of the smaller long-only shops, it seems like for those guys -- I don't want to say every dollar counts, but they certainly seems to be looking more and more at their technology spend.

So anything maybe additional you can provide here?

Like when you think about the different kinds of organizations where you see more pressure in terms of even just clients, to get clients to sign up or even client losses.

Hi, Alex, it's Phil.

Actually because of the investment we have made in content in the last decade, it's really allowed us to provide a complete solution that doesn't require third-party data spend like it once did.

As you can see, even in a choppy environment we are able to add net clients to the client base, and many of those are coming from the smaller firms where they can find a complete solution on (technical difficulty) portfolio manager, analyst and trading workflows in a very cost-effective solution.

All right, okay, great.

Then maybe just lastly, it seems like in Europe after I think a couple quarters or a quarter of actually ASV declining, this quarter I think rebounded.

So maybe just your outlook on what you are seeing over there.

Do you think the worst is behind us, or too early to get more optimistic?

To generalize Europe into one market is probably not the right way to look at it.

I think our experience is that the UK tends to track what's going on in the US and it's very much in sync.

The rest of Europe tends to move on different cycles depending on what part of Europe you are in.

I think in general it feels very similar to the US market, if you are grouping the whole thing together.

Southern Europe, that was obviously under a lot of pressure, isn't as material a piece of business for the financial markets as Northern Europe, Germany, France, and the UK.

Great.

I will jump back in the queue for something else.

Thank you.

Toni Kaplan, Morgan Stanley,

Hi, thanks for taking my question.

Can you give some more color on the user count decline?

Was that related to a specific sell-side loss or sell-side cutback?

Hi, Toni.

The declines on the sell-side were broad-based, not affected by any single client.

We are beginning to move into the point of the year where the analyst class begin to leave the investment banks to go back to business school.

So we are going to continue to see some softness in the headcount numbers on the sell-side until the new summer classes get hired; and those will start in the May-June time frame.

Okay, thanks.

Now that you have owned StreetAccount for a few months, can you comment on how the cross-selling has been going so far?

StreetAccount is having a rapid uptake throughout the client base.

It is available in the core workstation; it is also available on a stand-alone basis.

We have organized resources to focus on selling the product into users that have the core workstation as well as some on a standalone basis.

So we continue to make progress with that product, and we are pleased with what we see.

Thanks a lot.

I will jump back in.

Peter Appert, Piper Jaffray.

Thanks.

Phil, you guys have enjoyed great success in terms of growing your market share over the last long period of time.

Is it possible to quantify what the revenue growth from share gain is, versus organic increases in client spend in the most recent period?

It's a great question, Peter.

There is no definitive way; it is just opinion and [hindsight].

But I would say certainly in the last two years there's probably zero increase in net in the industry in spend, and maybe even contracting to some degree.

So if you were to look at our revenue growth, that is really for the most part, coming at an expense of a competitor.

I would put that on a net-net; so you are netting new firm creation against firms that are going out of business, kind of neutralize each other.

And the rest of it is the competitors in the space fighting for the spend that currently exists.

Sure, okay.

You've addressed this I know in prior quarters, but is it possible to give us any incremental color on what you see going on from a competitive standpoint currently?

You know, our business is not one that changes much quarter-to-quarter, certainly not even really year-to-year.

The players in the space -- Bloomberg, Thomson Reuters, and S&P -- have been in the business for decades at this point.

I think the more important thing really is just to understand what is going on in the client base, of which fortunately for everyone on this call they live it just like we do, maybe even with better information as to what's going on in your firm.

Obviously, I don't think it is any news to anybody that the sell-side large firms are still figuring out how to structure their firms.

We are fortunate that we are in equity research, which the business model has certainly changed over the last decade, but is still steady in whatever form it currently takes.

And investment banking has always been a bit cyclical.

But as a function in the capital markets, it is always there and has good times and weaker times.

On the buy-side, I think the thing that strike me at this point -- and I am confident it will come back -- is it doesn't feel like the big firms are quite hiring yet.

Once they start hiring, I think that is both good for us in seat count but it also is a signal that they are investing in their business and feel confident about the future.

That is a big generalization.

Obviously, some firms are in better shape than others.

But it is what it feels like at the moment.

That would be contingent on just assets under management growing more quickly?

Yes.

There is a strong correlation with that, and it tends to have a lag effect.

So, Phil, over the next couple of years, what should we think about in terms of what the big growth drivers for FactSet could be in terms of how you maybe quantify the opportunities in terms of product sets or data sets or new offerings?

Any help on that?

I think that one great piece of FactSet is it is not a one-trick pony.

It is a business that expands in all kinds of different dimensions.

So there is buy-side, sell-side, US, non-US, and even for us a newer area is the off-platform or the data feed business.

So all of those in FactSet's world have huge opportunity.

We are still small in the space relative to the big players.

So whether it is users or clients, there is still huge opportunity for us.

And then product lines within those clients, there is still lots of opportunity.

It requires really strong execution in a tight market, but I feel confident that we are gaining share relative to the players in the space.

So on a competitor-adjusted basis I think we are in a strong position.

So just last housekeeping thing.

One, data licensing, how big is that currently?

How big do you think you could be?

Then second, on the tax rate, the 29.5% to 30.5%, just so I understand exactly how the guidance works.

Is the assumption then that for the third and fourth quarter the tax rate will be at that, call it, roughly 30% level?

I will defer the tax question, but the -- what was the -- ?

The license data, how big is that market?

How big do you think it could be?

It is not something we quantify at this point, but it is definitely a very positive side effect of being in the content business, in that you have control of the content and the methods at which it was delivered.

Before, we really only had the ability to deliver FactSet and the content in the platform, because that is really what people had licensed.

And it really is valuable to us because it allows us to serve other workflows.

The quantitative workflow, for example, is one that is a constantly evolving workflow.

And given the changing computing power, a great deal of that quant workflow happens locally as opposed to on FactSet; and to be able to offer both solutions depending on what flavor a client is interested in is very valuable.

Hi, Peter.

Regarding your tax rate question, I think the way to interpret the guidance is to look at the midpoint of the range; and that is our best estimate of the effective tax rate for Q3.

Great, thank you.

Glenn Greene, Oppenheimer.

Thanks and good morning.

I just want to go back to the pricing for a couple clarifications.

Do you ever raise pricing on the international part of your base?

If you don't, is there a reason for that?

Then I've got a follow-up related to the timing of a price increase.

We do increase price in the International segment; that typically happens in Q3.

Historically it has been relatively small and we haven't called it out.

Okay.

Then just the timing of the price increase, does it happen such that it happens towards the end of the quarter where it really doesn't have an impact on the revenue, but does impact the ASV?

Meaning you will get the benefit in the third quarter from a revenue perspective.

It is effective January 1.

Okay.

So you got a partial quarter benefit to the revenue?

Yes.

Then you talked about the wealth management initiative more so last quarter, I think, than I had heard before.

Then you had some prepared comments on it again this quarter.

Was wondering if you give us a little bit more granularity, give us some frame of reference.

Maybe how fast it is growing, order of magnitude what it is in terms of the user base.

Is it less than 5% of users?

Just some directional commentary on how meaningful this part of the business could be.

Within the wealth segment we are really focused on the users that are directing their activity towards ultra-high net worth, high net worth, to managers that are managing $0.5 billion and up, typically.

We are not orienting our product at this point towards going after the very, very large, historical retail broker networks that are 15,000 in number etc.

We are really looking for, within those networks, to identify the key power users, the users that are really acting like institutional investors.

So we don't expect it to have a significant impact on overall user count; but each one of these that signs up is almost like signing up a brand-new client with all of the positive traits that come with getting a new client.

They have lots of future demand for products.

So we are allocating resources to that segment.

Okay, and then just one thing, just a data point.

The 82% buy-side mix, is that pretty consistent domestic versus international?

Or any differences in terms of the mix?

The mix has been very, very consistent over time.

Meaning it's similar internationally as it is domestic?

Yes.

Okay, great.

Thanks.

Tim McHugh, William Blair.

Thank you.

First, just wanted to ask about the stepped-up pace of buybacks this quarter.

Does that signal any change in terms of your capital deployment strategy?

Or is it just timing in terms of when you got to it throughout the year?

Morning, Tim.

It's Peter; how are you?

If you study our buyback over time, you can see that it has a broad range of how much we deploy quarter-to-quarter.

We definitely don't view it as a program.

It's ranged from $14 million to $109 million over the last two or three years.

So we certainly viewed the opportunity to buy back shares as being, one, very accretive and, two, opportunistic at the price that we acquired it in Q2.

Okay.

Then I guess secondly, the comments about the sell-side, did the environment feel like it actually got worse this past quarter?

Is it more just it hasn't gotten any better and continues to be a negative factor?

I don't think anything, at least from my opinion, has really changed.

You see we have agreements with clients; sometimes we've had several positive things on the sell-side where we were gaining share.

And then you certainly have big firms that have agreements where they have got more product than they need, and you know that eventually when time comes around that they are going to buy less product.

So it is really just a combination of positives and negatives that flush through.

But overall, it is a negative.

Okay.

Then my last one (multiple speakers).

Okay.

The last question just is you talked about a drag from integrating the derivatives product into the fixed income product.

Can you give us a sense for how much that has been in the last year?

Well, when we acquired derivative solutions back in 2005, you recall -- I think the ASV that we acquired was $11 million.

We haven't been selling that product for a long -- for many years, and so the drag is rather small.

But it has been occurring over the last several years.

And more importantly, we integrated all the back-end calculations into our FIPA product, and it has been very, very important part of why we have been growing our fixed income business at very attractive rates.

Okay, great.

Thank you.

Shlomo Rosenbaum, Stifel.

Hi, thank you very much for taking my questions.

I'm just trying to get the story behind the guidance.

If you take ASV divided by 4 you would end up on the upper end of the guidance range.

So I am just wondering why the lower end is kind of flat.

Is that an assumption that we have continuing pressure on the sell-side?

Can you just walk us through some of the assumptions behind the guidance?

Sure.

Thanks, Shlomo, it's Peter.

ASV is a terrific metric for about a little more than 99% of our revenues.

So your calculation and methodology is really sound.

There is roughly $6 million of our revenues that do not occur evenly over the quarters, and Q3 happens to be the one quarter where it is at its lowest point.

Q4 is at its highest point because of workstations sold to summer interns at banks.

And that is what accounts for the difference.

In your opinion, how long do you think the equity markets need to be elevated before your larger clients are going to start hiring?

Is there some kind of historical precedent that after a 25% gain or something like that you start to see a move six months later?

What have you guys seen?

Shlomo, if you got the answer to that question, I would really like to find out how.

I guess we have been through several cycles, and I think the part that is very clear to me is every one is different; and this one just feels different than the others.

So I think your clients and how they respond, you will find out as quickly as we do when you feel like things are different.

So just no rule of thumb over there, and that is just kind of just (multiple speakers).

Well, I think it's -- their revenue models are based on assets under management; and assets under management in particular asset classes benefit FactSet.

So certainly assets under management in equity mutual funds would be a positive for FactSet.

Obviously, equity markets have done well; some participants have done way better than others.

But I think that that is probably the metric I would look at and most likely would be the one that would start to create headcount and investment in that space.

Okay.

Can you give us some more color on the fixed income PA?

How much of your growth on the buy-side is attributable to the fact that you guys are making inroads in some of those clients?

Well, we certainly don't break out exact amounts.

I think our practice really is to call out things that are drivers in our growth, and it certainly qualifies for that.

So it is material in what is happening at FactSet.

Okay.

Has it been accelerating, decelerating?

Any other color you can give us on (inaudible) fixed income?

I think the only thing I would say is that we have had fixed income on FactSet for probably 10 years.

It's reached the point of material.

For a long time it was -- maybe on a growth rate basis it was doing well; but because it has a much larger base at this point it definitely is a factor in our success.

Just from a market positioning, are you seeing any difference in the marketplace with Thomson trying to retool the Eikon product and reposition that?

Has there been any change in their going after the market in any different way than they have historically?

I think, at least from through reading through all the sales notes that happen on a quarter-to-quarter basis, that I haven't seen anything that is significantly different involving Eikon.

In fact, we haven't seen it very much in the marketplace.

The one sales note I saw this quarter was it was a positive for FactSet against it.

So I think of Thomson as an incredibly broad product line of lots of different products; so when one talks about competing against Thomson, you really have to get down to which product are you talking about.

Eikon is a huge product line with lots of pieces underneath it as well.

Okay.

Just if I'm thinking about the R&D tax credit, the impact is about 2% right now.

Like if you didn't have it, it would be about a 32% tax rate.

Is that fair?

I think that is fair, Shlomo, yes.

Okay, great.

Thank you very much.

Keith Housum, Northcoast Research.

Thanks, guys, for taking my call.

If we could just drill down a little bit deeper into the wealth managers segment, are you guys going in there displacing a current provider?

Or are these really a matter of convincing them that they need a tool such as FactSet in order to do their job comprehensively?

It's a little bit of both, Keith.

There is certainly -- all of these users have an existing system or multiple systems to help them manage their clients and manage their assets.

FactSet's strategy is to try and show them incremental value that we can deliver above and beyond what their current solution is.

Sometimes that results in a displacement; sometimes that results in an incremental purchase.

Got it.

Got it.

In terms of the growth from the wealth management group that you are trying to expand versus fixed income, would you say one is growing faster than the other?

Both have really positive growth metrics.

We are excited about both of them.

Okay, and then finally, just a little bit of detail.

On the share repurchase you guys made, what was the average share repurchase price?

Do you guys have that handy?

Yes, it was $89.95.

$89.95.

Great.

That's all I have.

Thank you.

John Neff, Akre Capital.

Thanks very much.

Do you guys have a view or a target, at least directionally, about ASV per employee over the long term?

No.

I think we certainly -- there's two ways to look at them.

You can certainly look at employee count; but really what we are looking at on our side is compensation spend.

Clearly our employees are the most valuable asset in this business, so any time we can invest in more employees or invest in our own employees that is where we try and spend our money.

In general, obviously, employee expense, based on the fact that it is two-thirds of our expense, really has to come close to tracking revenue.

So really that is the way we look at it.

Okay.

Then the next-gen project, I was just curious if you could comment on any impact on CapEx going forward in terms of either the amount or the pattern.

It used to be that CapEx would spike every three years or so.

Would you expect it will be smoother going forward?

That's a great question.

So for those of you who aren't familiar, FactSet's historical platform, the core operating system, the bulk of what we call FactSet workstation, ran on VMS, Hewlett-Packard's Integrity systems.

We have been on a multiyear project to essentially transition away from that as our core computing center.

It is an expensive process because it is not something that directly creates features for our clients.

But it probably, to answer your question, will smooth out CapEx because the way a distributed system works is you are buying many smaller boxes as opposed to the big lumpy ones that you recall.

So I think the answer to your question is CapEx will be smooth and not have a big three-year chunk to it.

Unless technology changes, which is always a possibility.

Then just a question related to your comment about the price increase and some of the changes there with some of the larger client contracts.

Do those larger client contracts, do those involve term commitments?

Or are those clients still free to add, subtract, cancel, etc.

with good flexibility?

We try to preserve flexibility.

That is a feature that our clients have indicated that they like about FactSet.

It is one way we differentiate ourselves in the marketplace.

So sometimes there may be minimums, sometimes there may be price commitments.

It is really trying to get a meeting of the minds between FactSet and the client to enable the client to do long-term planning.

Okay.

Then last quick question.

Is the content licensing that you referenced, is that in ASV?

Thank you.

Yes.

(Operator Instructions) Alex Kramm, UBS.

Hello again.

Just a couple quick follow-ups.

First on the buyback, and the timing there, was that at all related to the Market Metrics as well?

Given that you had that I guess option dilution here in the quarter, and you figured -- good time to offset it.

Or was it just basically market-driven, given what the stock price has done?

Thanks, Alex.

It's Peter.

Our buyback program isn't connected to other items that go through our P&L.

It is really -- we are really studying how -- what can we do to have the most accretion in terms of FactSet and relative to dividends, buybacks, and also acquisitions.

So we were more opportunistic this quarter, because we have been lighter on dividends and acquisitions, and we liked the opportunity to add a significant accretion at the price level that we saw during Q2.

Okay.

That's fair.

Then maybe just saying on Market Metrics just for one more second.

I don't want to harp on it, but can you maybe help us a little bit with some of the metrics?

I know you said $60 million when you acquired it.

Maybe -- where is it now?

And then also, is this truly over now?

Will there be other maybe follow-throughs that could come and hit the P&L?

I guess what I'm trying to say is I think some people are struggling to see this as a truly one-time item.

So maybe you can just help us frame the discussion a little bit more.

Certainly in our 10-K and 10-Q, we call out all of our option programs in exactly -- in great detail as to what exists and what is out there.

This is not the first time we have had performance options vest.

So you are correct in that it is not necessarily one-time in nature.

The entire employee base has a performance option every year that we grant.

Sometimes they vest 100%, sometimes they vest not at all.

We definitely try and make our option program in the interest of what is best for FactSet.

In particular, Market Metrics' case, they did a spectacular job and reached the stretch goals that we had set upon acquisition; and we were very, very pleased.

It's a great thing for the Company and the shareholders.

The way accounting works it is not something that we could accrue along the way, based on the way this particular grant was set up.

So it is what it is when it comes to vesting in one particular period.

As far as the materiality of Market Metrics, the fact -- and I think Peter made a comment as to we are very excited about it.

But coming off a $16 million base, it is not huge to FactSet.

I think the only comment I will make is that since acquisition it would have contributed less than 100 basis points to growth.

So it is a piece of FactSet and certainly accretive to growth, but not a material piece of FactSet.

Okay, great.

That's helpful.

Then just maybe lastly, and I apologize if I missed this, but the margin guidance for next quarter is a little bit wider than what at least you gave in the last quarter.

So just wondering if you can sum up like what actually drives that, why you delivered a wider range here, where the uncertainty is coming from.

We try and be as accurate as we can as to what we think is going to happen going forward.

I want to reiterate what Peter was reiterating; we are really looking out for the best interest of shareholders, and I really look at the P&L all the way down to EPS.

So if there are opportunities for us to invest in the business and take margins down slightly, but pick it up in tax and EPS, then that is what happens, because I believe it is best for the shareholder.

I am very pleased with the fact that we are still a double-digit EPS growth, and it is just a function of an incredible business model that FactSet gets to operate under.

All right.

Much appreciated.

Thank you.

Thank you.

There are no further questions at this time, sir.

Thank you very much.

Thank you very much.

Thank you.

That concludes today's conference.

Thank you for participating.

You may now disconnect.