Factset Research Systems Inc (FDS) 2014 Q3 法說會逐字稿

Welcome, and thank you for standing by.

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

(Operator Instructions)

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

Ma'am, your line is open.

You may proceed.

Thank you, operator.

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

Welcome to FactSet's third-quarter 2014 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.

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.

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.

In addition to our quarterly update, we're pleased to announce that the Company has named Phil Snow as President, effective July 1. Phil Snow is an 18-year veteran of FactSet.

His most recent role is Senior Vice President, and Director of US Investment Management Sales.

As President, Phil Snow will report directly to our CEO, Philip Hadley.

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

At the end of his remarks, we will have time for questions.

Please limit your remarks to only one question and just one follow-up, so that we will have time to address all questions effectively.

Thank you, Rachel, and good morning everyone.

Here's how I plan to spend our time today: First, I'll review a few housekeeping items.

Second, we'll review Q3 results.

Third, I'll provide guidance for Q4.

Finally, we'll end with your questions.

So let's begin with four housekeeping matters to add clarity to our reported results.

To start, when we acquired StreetAccount in June 2012, we granted performance-based options.

StreetAccount has had great success, and we're pleased to report a non-cash pretax charge of $1.4 million was recorded in Q3, related to changing our expectation that performance targets will be achieved, which triggers vesting of these options.

Secondly, we recorded a $1.6 million pretax legal charge, primarily from settling a claim.

Third, we experienced income tax benefits of $554,000, primarily from the expiration of the statute of limitations on open tax years.

Lastly, regarding the R&D tax credit, as you will recall, the credit expired on December 31, 2013.

Accordingly, as we did in Q2, today our Q3 EPS and Q4 guidance includes a $0.03 reduction compared to the prior year, and adjusted EPS excludes this benefit in the prior-year quarter.

The R&D tax credit has only lapsed once in its 32-year history, and has been retroactively restated in previous years.

Our annual effective tax rate would have been 28.7%, rather than the actual rate of 30.5%, had the credit been reenacted before the end of Q3.

Now, on to our third-quarter results.

I'm pleased to say that FactSet has had a good third quarter, and much stronger than a year ago.

All key metrics grew: ASV, revenues, EPS, client count, and user count.

Our organic ASV growth rate also expanded by 130 basis points.

ASV grew to $932 million, up 7% organically over the prior year.

Organic ASV rose by $12.3 million this quarter.

The buy-side performed well this quarter, and accounted for 83.1% of total ASV.

Remember that our buy-side business includes off-platform data sales and the Market Metrics business.

For us, the sell-side includes only the M&A advisory, capital markets, and equity research businesses, which stabilized in terms of users, and accounted for 16.9% of ASV.

This quarter, adjusted EPS rose to $1.25, an increase of 11% compared to the same period last year.

We are proud to point out that this quarter marks our 16th consecutive quarter of double-digit EPS growth.

Free cash flow is defined as cash generated from operations, less capital spending.

We generated $91 million in free cash flow this quarter, compared to $92 million in the year-ago quarter, which was our record high.

Over the last 12-month period, free cash flow was $253 million, up 9%.

DSOs this quarter were 34 days, up from 29 days in the same period last year.

DSOs were 39 days at the end of Q2, representing a decline of 13% in the last 90 days.

Our cash and investment balance was $134 million at May 31, up $31 million in the past three months.

We repurchased 540,000 shares this quarter, for a total of $57 million.

As of the end of this quarter, $162 million remains authorized for future share repurchases.

Over the prior 12 months, we have returned $409 million to shareholders in the form of dividends and share repurchases.

During the third quarter, our Board of Directors authorized the increase of our quarterly dividend by 11%, from $0.35 to $0.39 per share, beginning with our dividend payment today.

Over the last three years, our dividend has grown at a compounded annual rate of 13%.

At the end of the quarter, we had 42 million shares outstanding.

Now, let's turn to our P&L.

FactSet's third-quarter revenues grew to $232 million, an 8% increase compared to last year.

Organic revenues grew 6% over last year, excluding $3.7 million in revenues from acquisitions completed since June 2013.

Operating income for Q3 increased to $73 million, compared to $72 million in the same period last year.

Adjusted operating income for the quarter increased 6% over the prior year.

Adjusted net income also grew 6% this quarter to $53 million, and adjusted diluted EPS grew 11% to $1.25.

Please note that current-year adjusted operating income, net income, and EPS exclude $554,000 in income tax benefits, a non-cash pretax charge of $1.4 million related to stock-based compensation, and a $1.6 million pretax legal charge.

Last year's adjusted net income and EPS exclude $3.3 million of income tax benefits related to the federal R&D tax credit, and finalizing prior-year tax returns.

Third-quarter revenues in the US grew to $156 million, up 6% over the same period last year.

Our non-US revenues grew to $76 million.

Excluding incremental revenue from the acquisition of Matrix, and the impact of foreign currency, the Q3 international revenue growth rate was 8%.

On the international side, third-quarter revenues from our Europe and Asia-Pacific regions were $58 million and $17 million, respectively.

Excluding foreign currency effects and the Matrix acquisition, year-over-year growth rates were 7% in Europe, and 14% in Asia-Pacific.

Our performance during the just-completed third quarter was positive on all fronts, especially since the third quarter is typically not a robust one for us.

Our client growth was strong this quarter as we added 30 net new clients, compared to 4 a year ago.

In fact, this Q3 was our best third quarter for new client acquisition since 2007.

Total client count was 2,662 as of quarter-end.

As you know, we only count as clients those that we bill at least $24,000 annually.

Our annual client retention rate was greater than 95% of ASV, and rose for the very first time since the credit crisis to 93%, in terms of the number of actual clients.

Not only are we adding new clients, but we're keeping the existing ones too.

This quarter, our net user count of FactSet terminals rose by 620, compared to only 61 in the year-ago quarter.

Total user count was 52,483 professionals at quarter-end.

While users declined only very slightly at sell-side clients, user growth on the buy-side was strong, resulting in 632 net new users.

This quarter, we entered into agreement with the QUICK Corporation, a Japanese financial information provider that is part of the Nikkei Group.

Together, we plan to develop a premium FactSet service for redistribution in Asia.

The new service will integrate the Nikkei Group's high-quality content with FactSet's industry-leading global content and workflow solutions.

We are enthusiastic about this opportunity to further FactSet's sales through this expanded partnership with QUICK.

Whether at new clients or from same-store sales, our portfolio analytics suite of applications is a strong product line for us.

We are gratified to see existing clients expand their use of our services and buy more products that integrate with the portfolio analytics suite.

Clients continue to find value in our ability to serve as a single solution for their analytics, risk and publishing needs over a variety of asset classes.

As in recent quarters, wealth management continues to deliver growth for us.

We have both a focused product suite and sales teams to address the work flows of these particular types of clients.

Aiming to deliver the most thoughtful service and comprehensive ease to generate reports for their clients, our wealth management clients are using more and more of our portfolio analytic suite of products in a manner similar to some institutional investors.

We have also been happy to see growth in our proprietary content through the efforts of our global content sales team.

StreetAccount, FactSet's condensed news product that sells strongly across all FactSet user types.

Our proprietary data, including FactSet's fundamentals, FactSet Estimates, Ownership, Transcripts, and Entity Mapping Data has been selling well.

Many clients consume our data feeds.

Some of them are traditional workstation clients that also want to see data for a particular use, and some are not traditional FactSet clients at all.

While not an area of growth for us during Q3, our investment banking clients fared better this quarter than in the recent past.

While their purchase decisions are lengthier and more difficult, they are not nearly as negative as they've been in recent years.

We're also encouraged by you the uptick in both the IPO and M&A marketplaces.

Now let's take a look at the expense side.

For the third quarter, operating expenses were $159 million, and our adjusted operating margin this quarter was 32.8%, lower than 33.4% we reported last year.

The Revere and Matrix acquisitions lowered operating margins in Q3 by 120 basis points.

Cost of services in Q3, expressed as a percentage of revenues, increased 190 basis points compared to a year ago, due to a non-cash pretax charge of $1.4 million, related to the vesting of performance-based options, incremental costs from the Matrix and Revere acquisitions, and higher compensation expense from additional head count in our engineering, consulting and product development groups, partially offset by lower computer equipment capital expenditures.

SG&A expenses, expressed as a percentage of revenues, decreased by 150 basis points in Q3, compared to the year-ago period, due to lower compensation expense from employees performing SG&A roles, partially offset by higher legal fees, and more T&E, related to an increase in travel by our sales teams.

By the end of the third quarter, we had 6,372 employees.

Our total global headcount grew 8% since last May.

As predicted in last quarter's call, our net headcount decreased by 114 employees.

This trend will likely reverse in Q4, because our new consulting and engineering classes have started, and we restart hiring content collection personnel, now that another successful peak filing season has passed.

Our effective tax rate for the third quarter was 29.8%, up from 25.9% a year ago.

As we discussed, our effective tax rate was impacted by the expiration of the federal R&D tax credit.

Had the credit been reenacted, our Q3 effective tax rate would have been 28.7%.

Now, let's turn to our guidance for the last quarter of fiscal 2014.

We expect that our revenues will range between $235 million and $240 million.

Our operating margin is expected to range between 32.5% and 33.5%.

This range includes a 1% reduction from acquisitions made since September 2013.

We expect that diluted EPS will range between $1.30 and $1.32.

This diluted EPS estimate accounts for the expired federal R&D tax credit, which had the effect of lowering each end of our range by $0.03.

The annual effective tax rate should range between 30% and 31%.

This range also takes into account the lapsed federal R&D tax credit.

On the whole, we've been pleased with our third-quarter performance.

We are encouraged that every key metric was up, each notching new record highs.

Our buy-side user base is expanding, and there are early signs of stabilization within the sell-side.

Our organic [A&V] growth rate increased by 1%, and our sense is that we're beginning to see some of the results of the efforts that we've been working on for some time now.

Adjusted EPS again grew by double digits, and has done so in every quarter for the last four years.

While we're pleased with recent results, our aspirations are to go way beyond stringing together a couple of successful quarters.

We like our position and our future market opportunity, but we still have a lot of work ahead.

We're excited about the challenge, and delighted to have Phil Snow as our President as we forge ahead.

Thank you, and we're now ready for your questions.

(Operator Instructions)

The first question comes from Mr. Peter Appert.

Sir, your line is open.

You may proceed.

Peter, I was hoping you might be able to give us some incremental color on what's driving the acceleration in password and ASV growth.

And, specifically, I'm wondering if you could give us any granularity on drivers like pricing or growth from new versus existing customers, or just anything to help us understand the dynamic behind the accelerating growth.

Thanks.

Hi, Peter.

It's Mike Frankenfield.

It was a good quarter for us.

Peter threw out several metrics in terms of new client acquisition, which is obviously one source of user growth and password growth.

It's a boring FactSet answer, but our growth was very, very broad-based.

There were no single big, defining wins.

There was no significant price increase in the quarter.

Rather, when we look at new client acquisition, it was broad-based.

It came from new hedge funds, traditional asset managers, boutique M&A shops.

When we look at the users, the majority of the user growth happened on the buy side.

If you were to break down what's happening with the sell-side headcount, we've got solid growth in the middle market, in the boutique firms.

And that's offset a little bit by still some softness in the bigger firms.

But even amongst the big bulge bracket firms, we're beginning to see signs of stabilization and potentially growth.

New interns, for example, are up significantly this year.

We'll see if that translates to permanent hires in those firms.

How about the proportion of growth coming from new versus existing clients?

When new clients come onto the system, they come on at a rate that's much lower than the average ASV per client.

And our strategy is to get clients to start out with a small amount of service that they can digest.

As we get to understand their needs and they understand more about FactSet, we grow together.

Therefore, the vast majority of our growth comes from what I would call same store sales or sales to existing clients.

Thank you.

And just as a follow-up, Phil, could you talk a little bit about your thought process in terms of the decision to create a president role?

We have a December succession planning process that we go through every year.

And after conversations with Mike and Peter, we came to the conclusion that their timeline is less than five years.

And to make sure we're doing the right thing for the business, it became apparent that we need to groom the next generation of talent at FactSet.

And through a process with Mike, Peter and I and the Board, we're very excited to have Phil as an outstanding candidate to lead the next generation of the FactSet leadership team.

And the role of president is a great role for him because it gives him the experiences necessary to be a valuable contributor to the strategy of where FactSet's headed in the future.

Specifically, Mike and Peter, you're saying, are not necessarily staying beyond five years?

You know, all these are soft.

But if you're looking at saying my natural succession plan, if you look at historically, you'd think that would be the case.

As we got together and put our heads together, we feel really excited about the outcome.

And in fact it was Mike's idea as we went through the process.

So we're excited about the next generation of FactSet.

And you get to know more people at FactSet, as opposed to the three of us.

Thank you.

Thank you.

The next question comes from Mr. Manav Patnaik from Barclays.

Sir, your line is open.

You may proceed.

Just on the client retention, I just want to try and understand maybe with that as perspective, are there any changes to the competitive environment that's driving some of that?

Or is that just less companies on the buy side going out of business maybe?

Just want to characterize where that improvement is coming from and is that sustainable.

You certainly identified one factor, and that is client health overall is, I think, improving in the industry.

There were fewer firms that went out of business this particular quarter.

However, when you look at FactSet's product offering and what our development teams are putting together to build a really broad, complete product that can service the needs of all these different user types and firm types that I described earlier, we are emerging in a very, very strong, competitive position.

And when I look at the wins we had, the quality of the wins was very strong this quarter because they came not just from new firm creation, but competing against well-entrenched competitors and being able to win that business.

And I guess does your expansion on the wealth management side, does that have a role in this?

Or is that maybe too small?

Maybe you can characterize that by what inning you feel you're in, in that penetration?

On the wealth side, I think you're seeing a combination of some new client growth.

But the majority of the growth on the wealth side is in the user community.

Wealth represents a large group of users.

I think in the past, Phil Hadley has mentioned there are as many as 500,000 potential wealth managers out there.

We're not going after all 500,000, but rather the high-end users, which is a smaller community but still a universe of users that's very, very large.

Just one last one.

I think last quarter you talked about the fixed income PA product doing very well.

Any updates there?

We continue to be in the early stages of fixed income.

We've had several key wins this quarter that continued to give us confidence and to verify that we're building something that not only our traditional clients, who manage equities and a little bit of fixed income are interested in, but also firms that manage purely fixed income -- insurance companies, et cetera -- are all now beginning to take notice.

And it's exciting to dive into that opportunity, which we feel we're still in the early stages of.

All right.

Thanks a lot.

Thank you.

The next question comes from Mr. Alex Kramm from UBS.

Sir, your line is open.

You may proceed.

Just wanted to come back to some of the growth that you're talking about.

I think it was asked before, in terms of the users and clients growth.

Like what areas are driving that?

I was hoping that maybe you could be a little bit more specific, that when you look at your organic growth rate actually for the quarter, in terms of ASV or revenue, if you can actually isolate some of these growth drivers in actual numbers?

For example, obviously StreetAccount is doing very well.

That's now in your organic growth rate.

How much is that contributing to the growth?

Also wealth management, is that -- how many percentage of your growth is coming from that, if you can, or maybe anything else you can highlight there?

It's Phil.

It would be very difficult for us to break down growth at that level.

One of the challenges really in a product like ours is really allocating revenue, in that we sell a terminal-based product that has lots of value in it that comes from various pieces.

Knowing exactly what the client valued in the purchase is difficult for us to do.

We certainly attempt to, for management purposes.

But to be able to break it down into ways that would be able to give us concrete information for yourself, I guess I would focus on the theme of as a business -- it may sound simple -- but we're after terminals and clients and product to those clients.

And we've really felt comfortable that we had a great quarter and that we had all three of those metrics move in the right direction.

We're gaining seats in this environment.

We're certainly gaining share from competitors, as well as new users in a growth environment -- new clients, same.

And the product mix on top of those users in the analytics space, both fixed income and the equity analytics products, continue to do very well.

Something like StreetAccount comes off of a really small base.

So for it to really be a core driver in incremental ASV based on its core product, we're certainly excited about how it does.

But it wouldn't be material enough to move the big number.

Maybe secondly on operating leverage, it seems like excluding some of these acquisitions, your margins are still improving.

You're still getting some nice operating leverage.

When we think about maybe even 2015 early, is there anything that should not -- should that trend continue?

Is there anything that you're seeing out there in terms of any sort of pricing or cost pressure that should maybe inhibit that?

And are there any sort of step functions as maybe you integrate some of these acquisitions better?

Or is the base you're seeing right now a good base to grow off of?

I've always looked at the business really from the bottom up.

And as Peter pointed out, I think we're in our 16th quarter of double-digit EPS growth.

And I'm really trying to deliver shareholder value at the EPS line.

And what happens at margins, sometimes acquisitions are dilutive to margins; sometimes they're accretive to margins.

As a business, we always try and manage margins flat.

Obviously, you have things that come in and out of that, that make it so that's not a true statement.

But as a business philosophy, expanding margins is not our focus.

It's really investing in future product to drive organic growth.

Okay.

Fair enough.

Thank you.

Thank you.

The next question comes from Mr. Shlomo Rosenbaum from Stifel.

Sir, your line is open.

You may proceed.

Mike, can you comment a little bit about hiring at the clients and how much that was a factor of growth, just new terminals to existing clients?

You talked a little bit on the sell side encouraging, but how about the different areas of buy side?

I think there's modest hiring going on, Shlomo.

Nothing dramatic.

But we certainly see pockets of growth and incremental hires going on.

Nothing dramatic.

Are you seeing that improving, though?

It's a positive trend, absolutely.

The days when we were talking on this call several quarters ago, where there was a lot of cloudiness and uncertainty about the direction, are not the case now.

Clearly, the direction is positive hiring.

But again, I wouldn't get too excited about it because I don't see signs that it's overly dramatic.

And then if you can talk a little bit about the agreement with QUICK.

I'm trying to understand what it is you are doing over there premium to FactSet.

What's going to be additive.

And is it going to be sold by FactSet?

Is it going to be sold by QUICK?

And then the typical question I guess you could expect is, are you going to be paying royalties to QUICK, so you're going to be selling a lower margin product?

If you could just get into that a little bit.

Happy to add some clarity to that.

QUICK is a subsidiary of the Nikkei Group in Japan.

We've had a long-term working relationship with both QUICK and Nikkei.

And the relationship that we've worked on that culminated this quarter was the decision to float partnership to build a joint product that will combine their best-of-breed content that focuses primarily on the Japanese market with our global content and superior work flow solutions.

This joint product is going to be worked on by both our teams, and it's not ready for release today.

It will be ready in the upcoming quarters.

We will work jointly to market and sell that product, and our goal is to build a premium product.

Our goal is not to build a product that is less expensive or has lower amounts of functionality, but rather to build something that is going to be perceived and used as a premium product in that marketplace.

So does that mean that if it's going to be a higher-priced product I shouldn't expect a change in the margin profile?

Is that the way I should think of it?

From a profitability perspective, I think it will have similar characteristics to the business that we have in Japan and the rest of the world right now.

What's exciting about it is all of our clients in Japan have strong demand for the Nikkei content, which is not available currently on FactSet.

They are particularly focused on local language.

So we'll do some work to localize that product and make it more accessible to a larger universe.

And then certainly, the QUICK Group has a very, very broad reach and has client relationships that extend well beyond what FactSet has been able to develop over the years.

So we believe that leveraging their reach in the marketplace will help both firms achieve a good outcome.

So that would offset any potential cannibalization of other FactSet workstations in Japan?

I expect it to be positive to both firms.

Great, thank you.

Thank you.

The next question comes from Mr. Hamzah Mazari from Credit Suisse.

Sir, your line is open.

You may proceed.

Hi, this is Flavio.

I'm standing in for Hamzah today.

Most of my questions have been answered.

Just very quickly, on the competitive landscape, I think there was a question about pricing earlier.

How do you see your competitive landscape right now?

We've heard a couple of your competitors were aggressive on pricing.

Cap IQ is rolling out some new products right now.

Can you give us an update on how you see that?

The competitive landscape changes very slowly quarter to quarter.

And there are always lots of announcements each quarter about new products.

But the reality is, it takes a long time for clients to evaluate those products, to consider and make a purchase decision, and decide if it's a product that they want to go forward with.

So there isn't significant change happening.

We continue to price our product in a way that captures the full value that we're delivering.

And we continue to be very excited about our prospects, relative to what we can do for clients and relative to competitors.

Great.

That's helpful.

Just a different topic, just very quickly.

Any updates on your acquisition pipeline?

Are you focused on Revere right now and integrating?

Or are you focusing on acquisitions already?

Thanks.

Our core focus certainly as a strategy is always on our organic growth and creating value for our clients.

As a business, we stay plowing ahead and creating value with our strategic plan that we march forward with every year.

That said, obviously we're in an attractive place for many businesses to be.

And we always have our eyes out for companies and opportunities that would fit into the FactSet long-term strategy.

So it's something that is pretty episodic in how it takes place.

But it's definitely out there and one we pay attention to.

Perfect.

Thank you very much.

Thank you.

The next question comes from Toni Kaplan from Morgan Stanley.

Sir, your line is open.

You may proceed.

So you seem to be more positive on the client environment this quarter, both on the buy side and the sell side.

So just in light of that, are you expecting to increase your sales force to take advantage of the improving trends?

Our headcount strategy is really to grow our entire client-facing staff -- which includes sales people, client support people, and product specialists -- in line with what we think our revenue growth rate is.

Okay.

And you've been growing the wealth management business over the last couple of quarters.

Just when I think about that, inherently does that business have lower margins?

I know you've said in the past that the price points are similar.

But is it more costly to get to those clients?

I'm just trying to get a sense of whether there's mixed pressure on the margins based on that business growing.

Thanks.

We have an interesting business in that if we think of the product that we're selling to the wealth space, it's already been created for the institutional space.

It certainly has some limitations in the future sets that we allow in that.

At a cost of goods perspective, if you were saying what incremental product do I produce, it's really zero.

And then even at the service level, since there are different levels of the wealth basic advance terminals that have features that aren't included in the institutional products, it's actually easier for us to support.

So I think on a margin basis, on the margin of margins, [marginal margin], you'd find it accretive to what we're doing in the business.

Okay.

Thanks.

Thank you.

The next question comes from Joe Foresi from Janney Montgomery Scott.

Your line is open.

You may proceed.

I was wondering, could you give us some idea of what your investment schedule is for specific products?

In other words, is there anything specifically that you're targeting throughout the business in wealth management or fixed income?

Wow.

Well, if you think about our business and back up, we have roughly 3,500 employees in content creation.

And there's constant investment happening in that space.

In round numbers, we probably have another 2,000 employees in product and software that are client-facing.

And we have huge internal projects going on all the time for things in the marketplace.

There's a next generation of PAs.

There's a next generation of the back end platform.

There's a new interface.

There are all kinds of huge projects that go on internally.

We're very fortunate able to fund those all out of our current product.

But when I was talking about investing in the business and not having it weaken the margin, it's because we're always building this business for the future.

Not interested in maximizing next quarter; interested in making sure that we're looking at the next decade, and making sure this Company's positioned to, as I've always said, be in a position to double.

So the product pipeline would be a very long and exciting and boring -- depending on which chair you're sitting in -- process.

I was just wondering, what is factored, if anything, and what impact are you seeing from some of the lack of trading volumes across the street?

In other words, do you expect a dip in the fixed income business because of that?

Or the sell side in the back half of the year?

Or you're not seeing an impact on your products in that?

Our product is very tied to headcount in our clients.

So it really needs to be determined by there and the way they maybe invest in business.

As Mike alluded to, there are clearly signs of hiring and investment in the investment management side of the business.

There are clearly signs of health in the boutique and mid-market businesses for us, which are the bulk of our business if you take those pieces and put them together.

So the actual trading volume itself is certainly, if you're a buy-side or a sell-side client, affects your revenue and the level of investment.

And depending on where your share is in that process can affect the ultimate staffing.

But at this point, we certainly see signs of health in our core user classes.

Okay.

And then just finally, the comfort that the buy side seems to have in hiring, is that driven by do you think the preservation of AUMs?

In other words, the fact that the assets have remained and the markets remained at a high level?

Or what do you think is driving that comfort level?

Clearly their revenues are driven by AUM.

And when the market's healthy, it goes directly to their revenues.

But I think that the last cycle was one where we definitely saw a much slower return to investing in their businesses than we had in prior cycles.

I think it's one of those where the cycles have happened so quickly that people were just way more cautious than they have been in the past.

But we definitely feel like the clients are in a healthier place than they were a year ago, and definitely way more than two years ago.

Thank you.

Thank you.

The next question comes from Mr. Peter Heckmann from Avondale Partners.

Sir, your line is open.

You may proceed.

A couple follow-up questions.

Could you quantify, if any, are you seeing any benefit on the expense line from currency?

I know you've hedged a good portion of your exposure there.

But is that something that you can quantify for us over this quarter and maybe last quarter?

Hi, Peter.

It's Peter Walsh.

Directionally, as you know, almost all of our revenues are billed in US dollars.

So our currency exposure relates to 100% for us on our expense side, which really relates to people costs.

Just to give you directionally an understanding of what the currency impact for us, it's really negative or adversely impact us in Q3 in terms of expense, just primarily related to the euro, which we're not hedged -- and pound as well.

And then I know you've talked more about levying price increases more at annual renewal rather than once a year.

But could you quantify any price increase that you levied on international customers in the quarter?

Minimal price increase in the quarter, as I think you accurately got it there, Peter.

We have moved to this mode of having the price happen in line with the clients' contracting.

Okay.

Okay.

Fair enough.

That's all I have right now.

Thanks much.

Thank you.

The next question comes from Mr. Patrick O'Shaughnessy from Raymond James.

Sir, your line is open.

You may proceed.

So just to follow up on that last question and something that was discussed on the call last quarter, so historically, you have pushed through a pricing increase earlier in the years both in the US and abroad.

And now you've switched to pushing through those price increases as contracts come up for renewals.

I'm curious.

Does that reflect any reduction in pricing power that you feel in the current environment?

Or is it just simply a function of it just makes more sense to address pricing when the contracts come up?

Really the latter.

It just makes more sense.

You're in a logical point working with the client, when they're thinking about how much FactSet service they're having, what the configuration is.

And it's a very logical conversation to have with the client at that point.

Got you.

And then my follow-up.

So as the pace of European revenue growth seems to be outpacing the US a little bit, would you expect any sort of impact on your weighted average tax rate going forward?

I think it would be immaterial in when you look at the weighted average tax rate in the short term.

Over a longer period of time, we really see the opportunity outside the US as being at least the same size in the US.

So perhaps over a longer period of time.

But we have the opportunity for the weighted average tax rate to decline if that trend really accelerated in a material way.

Thank you.

Thank you.

The next question comes from Mr. Tim McHugh from William Blair & Co.

Sir, your line is open.

You may proceed.

First thing I wanted to just ask, following up on the questions about QUICK earlier, can you help us understand how much of the Asia right now is your business in Japan?

I'm trying to understand how much of an expansion this could be for you as we size that opportunity.

I'm not sure that I know the number off the top of my head.

I think Asia's less than 10%.

Japan would be a third of Asia.

I'm winging it a little bit.

But I think that's the magnitude you'd be talking about.

Okay.

Can you talk -- the international growth rate's picking up.

Are you doing anything different in Europe and Asia right now versus do you think you're benefiting from improving economic environments and stock market activity in Europe and Australia, I guess, to some extent?

Yes, I think our effort and product has seen steady improvement over time.

And I think we're now in a mode where we're getting perhaps a little bit of a tailwind or at least the headwinds are abating.

We saw good growth out of Continental Europe this quarter, which has been a change from previous quarters.

Australia happens to be one of our stronger markets and has performed well historically for lots of quarters, and was maybe a little bit softer this quarter.

So it's a mixed bag of things.

But the overall theme is reduced headwinds and possibly a tailwind emerging.

Okay.

And then lastly, can you just elaborate, you made a comment towards the end of your prepared remarks about feeling a little bit more optimistic about the sell side environment, I guess.

Someone asked you earlier about trading volumes being tough.

Can you give any more specifics on what you're seeing or you're hearing from the sales force that gives you more optimism on that side of the business?

I think the two big work flows we had on the sell side clients would be equity research and investment banking.

On a numbers basis and a revenues basis, investment banking is much bigger for us than equity research -- almost 3 to 1. So I think certainly what feels like the macro environment when it comes to investment banking and deal volume, both mid-market and large firms, is certainly on a positive trend.

You're probably very familiar with the equity research model.

The only thing that surprises me is our coverage has gone from a couple analysts to a dozen.

There must be something that's exciting about the equity research model.

I think if you take both of those together and weight it very heavily to the investment banking on a user count basis, I think that's why we feel optimism.

Okay.

Great.

Thank you.

Thank you.

The last question is from Mr. Shlomo Rosenbaum from Stifel.

Sir, your line is open.

You may proceed.

Just wanted to sneak in one more question, just on the pricing side.

If you guys have switched the pricing discussion to being concurrent with renewing the contracts, has that changed your ability to get any pricing from the clients?

Usually that's the time when a vendor has the least amount of leverage, when they're trying to renew the contract.

I was wondering if you could give us a little bit of color on that.

Shlomo, to date it hasn't had a negative impact.

I will, for clarification purposes, there are still a segment of the client base that receives a price increase in January.

Not every client has moved over to the new model.

But we work with our clients in a partnership.

And when we walk into a client, on a regular basis, we're providing them with training and project work and demonstrating new software updates.

And what we can do at the end of every year is highlight for the client all the great value that we've added and demonstrate all the improvements we've made to the product.

And it's a very, very cordial, straightforward conversation.

Great.

That's what I wanted.

Thank you.

At this time there are no questions in the queue.

Thank you.

Enjoy your summers.

That concludes today's conference.

Thank you for participating.

You may now disconnect.