Factset Research Systems Inc (FDS) 2017 Q1 法說會逐字稿

Good morning.

My name is Tracy and I will be your conference operator today.

At this time I would like to welcome everyone to the FactSet Research Systems Inc first-quarter webcast conference call.

(Operator Instructions)

Rachel Stern, Senior Vice President Strategic Resources and General Counsel, you may begin your conference.

Thank you, operator.

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

Welcome to FactSet's first-quarter 2017 earnings conference call.

This conference call is being transcribed in real-time by FactSet Call Street Service and is being broadcast live by 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.

Joining me today are Phil Snow, Chief Executive Officer, and Maurizio Nicolelli, Chief Financial Officer.

Now I'd like to turn the discussion over to Phil.

Thanks, Rachel.

Good morning everyone and welcome to today's call.

Over time, FactSet has proven to have an extraordinarily resilient business model.

We believe we're able to remain successful because we evolve and innovate, and we excel at client service and partnering with our clients.

The first quarter was challenging this year, but we executed well on both the top and bottom line.

ASV during the quarter grew 7.9% organically to $1.17 billion.

Adjusted diluted EPS grew 18% to $1.75, well above our guidance of $1.68 to $1.72.

Growth was sustained across all regions.

We saw strength particularly in Asia Pac and EMEA, with ASV from international operations growing 9.3% organically to $405 million.

Our non-US ASV now represents 34.6% of our total, up from 32.6% a year ago.

We did continue to see some cost pressure within the client base, and when compared to Q1 of last year we saw an uptick in firm closures.

That being said, our growth this quarter was broadly distributed across a number of segments and user workflows.

Let me highlight a few areas.

First, just over a year into our acquisition, Portware continues to shine.

With advanced analytics and cutting edge technology, we've grown market share in the EMF space.

Portware had a strong quarter with accelerated client trading volumes and the addition of new clients.

Second, our multi-asset class analytics solutions keep gaining momentum.

We closed several significant deals this quarter and we continue to see strong growth in risk and portfolio services.

This product segment is a focused area of investment, and we expect to see further positive results of our efforts as we move through FY17.

As the investment community moves increasingly towards multi-asset class instruments, our offerings are advancing to meet their needs.

Third, we saw healthy deployment across wealth management in Q1.

Our success in wealth stems from our ability to address the advanced portfolio analytics and multi-asset class research and analysis needs of our wealth management clients, serving the high and ultra-high net worth investors.

We are picking up market share in wealth by offering superior functionality while simultaneously helping firms lower their costs.

While we had a strong performance in Q1, we're not satisfied.

Market pressures demand new solutions, and this is exactly why we invest, to capitalize on the new opportunities ahead.

We continue to evolve our Company to build out solutions across more client workflows, and this quarter we did so through both innovation and acquisition.

This quarter we released FDS Web, a web-based version of the FactSet workstation.

The significant investments we've made over the last few years in evolving our technology stack have made this release possible.

FDS Web offers many of the same reports and features of the installed workstation, but readily and easily accessible over the web.

There's more to come here.

We're really excited about what this means for our clients in terms of speed, mobility, and opening up new users.

In addition we've released several new enhancements to our FactSet Revere industry classification system, which allows users to better monitor their exposure and understand their risk and performance.

While innovation is critical to our evolution, FactSet has been successfully using strategic acquisitions to grow our business further and provide more comprehensive solutions for our clients' core workflows.

The acquisition of CYMBA technologies and Vermilion Software have extended our solutions across the enterprise workflow of our clients.

CYMBA is a provider of high performance multi-asset class investment management solutions for front office fund management and trading teams.

We welcomed the CYMBA team at the end of September.

Vermilion is a leading global provider of client reporting and communications software and services to the financial services industry.

Client reporting is a rapidly growing area of the market as regulatory requirements increase.

Vermilion's flagship product, the Vermilion Reporting Suite, is an enterprise solution that provides transparency through the entire client reporting process.

We completed this acquisition in early November.

While we anticipate that both CYMBA and Vermilion will expand our depth of involvement at our current clients, we're already seeing positive signs that these acquisitions will produce growth and extension into new clients.

In Q1 we saw the beginnings of revenue synergies, as cross-sell opportunities arose from our new acquisitions.

FactSet's mission is to solve our clients' greatest challenges with the power of collaboration.

In Q1 we saw and found new ways to do that.

As we look ahead to Q2, we're confident in our opportunity to continue to grow ASV and to generate high levels of profitability, and believe FactSet is well positioned to outperform the overall market.

Let me now turn it over to Maurizio who will give a more detailed look into our first-quarter performance, as well as our guidance for Q2.

Thank you Phil, and hello to everyone on the call.

In the first quarter we continued to grow ASV and EPS, while investing for future growth through our M&A activities.

Our ability to solve our clients' needs has been a core strength of FactSet over the years and continues to drive us forward.

Let's now go through the first-quarter results.

Revenues in the first quarter were $288 million.

Excluding acquired revenue from the recent acquisitions, the effects of foreign currency and revenue related to the market metrics business in all periods presented, organic revenues grew 8.4% over the last year.

During the just completed first quarter, US revenues grew to $190.6 million.

Excluding acquired revenues and revenue related to the sold Market Metrics business, organic revenues in the US were up 7.1% compared to the year-ago first quarter.

Non-US revenues increased to $97.5 million.

Excluding foreign currency, acquired revenues and revenue related to the sold Market Metrics business, the international growth rate was 11%.

This growth rate breaks down to 9.9% from Europe and 14.3% from Asia Pacific respectively.

Included in our first quarter results was a nonrecurring expense totaling $954,000 resulting from the CYMBA and Vermilion acquisitions.

These expenses were for professional fees, local taxes paid, and all other acquisition-related costs.

Adjusted operating income grew to $95 million, excluding $3.8 million of intangible asset amortization and the $954,000 of nonrecurring acquisition costs.

Adjusted net income, which excludes the nonrecurring acquisition-related costs and intangible asset amortization, increased 12% to $70.1 million, while adjusted diluted EPS grew 18% to $1.75.

Now, let's take a look at operating expenses.

Operating expenses for the first quarter totaled $197.7 million.

Our adjusted operating margin, excluding $954,000 in acquisition costs and $3.8 million of intangible asset amortization, was 33% this quarter, down 40 basis points from the just completed fourth quarter.

The two acquisitions reduced our adjusted operating margin by 20 basis points during the first quarter.

First-quarter cost of services expressed as a percentage of revenues increased 180 basis points compared to the year-ago period.

The increase was driven by higher compensation and amortization of intangible assets.

Employee compensation expense grew due to headcount expansion in India and the Philippines, and the addition of Vermilion and CYMBA employees.

The increase in amortization of intangible assets primarily relates to the two acquisitions during the first quarter.

SG&A expenses expressed as a percentage of revenues was down 80 basis points compared to the year-ago first quarter.

The decline was the result of lower compensation expenses, partially offset by higher marketing expenses and increased local tax costs.

Employee compensation is lower due to the sale of the Market Metrics business in the fourth quarter of FY16.

Marketing costs increased due to higher branding and advertising campaigns, while local tax costs rose due to the two acquisitions during the quarter.

At the end of our first fiscal quarter we had 8,713 employees.

Excluding employees added from the CYMBA and Vermilion acquisitions and employees in the sold Market Metrics business, headcount increased 10.5% from a year ago.

Effective September 1, 2016 we realigned certain aspects of our global operations from FactSet Research Systems Inc, our US Parent Company, to FactSet UK Limited, our UK Operating Company, to better position us to serve our growing client base outside the United States.

This alignment -- realignment allows us to implement strategic corporate objectives, while achieving significant operational and financial efficiencies.

This realignment is structured to complement our increasing global growth and reach.

The realignment was not announced in September, as we were actively implementing the change internally and also with our international client base.

As a result of the realignment and the reenactment of the federal R&D income tax credit, our effective tax rate declined 550 basis points to 25.9% in the first quarter of FY17 compared to 31.4% in the prior-year period.

Free cash flow during the last three months was $39 million, a decrease of $18 million from the same period last year.

We define free cash flow as cash generated from operations less capital spending.

The $18 million decrease was the result of higher client receivables and the timing of US payroll processed during the period.

Our DSOs were 34 days at the end of the first quarter compared to 32 days in the prior-year period.

As part of the realignment, the majority of our international clients are now invoiced through our UK entity.

This change delayed payments from some clients and drove up client receivables less than 60 days outstanding.

The timing of when US salaries were paid in November 2016 compared to the prior-year period also lowered our free cash flow.

Our cash and investments balance was $194 million, down $58 million during the quarter.

Our diluted weighted average shares decreased by 572,000 shares, primarily as a result of our open market repurchase activity and the completion of our accelerated share repurchase program.

During the first quarter we repurchased 505,000 shares of FactSet common stock under our existing share repurchase program at an average price of $157 per share.

In addition, final settlement of our previously disclosed ASR program occurred during the first quarter.

Now, let's turn to our guidance for the second quarter of FY17.

For the fiscal second quarter we expect revenues will range between $293 million and $298 million.

Please note that we typically deploy our annual price increase every January.

ASV from our annual price increase is projected to be $10 million compared to $9.4 million a year ago.

GAAP operating margin should range between 31% and 32%, while adjusted operating margin should range between 32.5% and 33.5%.

We expect our annual effective tax rate to range between 25.5% and 26.5%.

GAAP EPS is expected to range between $1.70 and $1.74.

Adjusted EPS is expected to range between $1.78 and $1.82.

The midpoint of this range suggests a 13% year-over-year adjusted EPS growth increase.

In summary, we are pleased to see our business perform well in this difficult market environment.

Our first-quarter performance metrics, including 8% organic ASV growth and 18% adjusted EPS growth, highlight the strength of our business model.

In looking forward to the second quarter, the midpoint of our guidance suggests 7% organic revenue growth and 13% adjusted EPS growth.

As we navigate through this market environment, we are confident in our opportunity to grow ASV and generate high levels of profitability.

Thank you for your participation in today's call.

We are now ready for your questions.

(Operator Instructions)

Your first question comes from the line of Joseph Foresi with Cantor Fitzgerald.

Your line is now open.

Hi.

I think you talked about some of the strengths in your opening remarks.

But could you just give us an update on some of the areas that are weak, and have you seen any changes there?

Sure, Joe.

Hi, it's Phil Snow.

So as I mentioned, we are seeing growth and strength in wealth.

We are also seeing great momentum in our analytics business.

I would say, if I was to highlight one area that was weaker versus the same quarter last year, it would be banking.

But I do want to remind everyone that Q1 is traditionally lighter for banking at FactSet, as our clients are rationalizing headcount going into the end of the year.

Within banking we did see some pricing pressure, focusing on headcount and costs.

And we are seeing CapIQ and S&L bundling their product in some cases.

Clients are not happy about that, and the good thing is they're coming to us and asking us how we can help.

That would be the one area I would you highlight in terms of weakness.

Okay.

And then on the margin profile, I know you gave some quarterly guidance for next quarter.

But what's the long-term outlook there?

Has that changed at all?

Obviously you've talked about some dilution with some recent acquisitions.

Hey, Joe.

It's Maurizio.

We continue to manage our adjusted operating margin to right around 32.5% to 33.5%.

And that's consistent with the last five quarters.

If I was to look out over the next 2, 3 quarters, I think we would be very consistent with that range.

And then going forward we would see something similar to that, potentially maybe some leverage, but 1, 2, 3 years out.

Got it.

Okay.

The last one from me.

On the free cash flow side and the tax rate.

For the free cash flow front, do you expect that to sort of normalize over the next couple of quarters?

And you how should we think about the new tax rate, how long will that last?

Thanks.

So free cash flow was down $18 million this quarter.

It was really driven by the change in the realignment to our FactSet UK entity.

Now clients are being billed and invoiced and contracted through the UK, and that created some delays in client payments.

We really see that as very temporary and normalizing in the next three months going forward.

On the tax rate, the tax rate now has -- the new normal for our tax rate now is our range of 25.5% to 26.5%.

And we don't see that materially changing during the rest of the fiscal year.

Okay.

Thank you.

Your next question comes from the line of Shlomo Rosenbaum from Stifel.

Your line is now open.

Hi, good morning.

Thank you very much for taking my questions.

I'm going to ask you a couple housekeeping items and get a little more into the acquisitions.

Around the revenue guidance, what's the organic growth implied in the revenue guidance, either midpoint or the two ends?

Could you help me with that, Maurizio?

The midpoint on our revenue guidance is right around 7% going forward.

Okay.

And then are you able to parse out how much in the ASV on the table, the very last table in the press release, how much of that was Portware versus the two acquisitions that were completed this quarter?

The two acquisitions added $15 million in ASV during the quarter, and that is acquired revenue.

Portware is now embedded within our overall ASV number and we don't break that out.

Okay, got it.

And then just a little more detail on the acquisitions.

It seems like the Vermilion business fits into your publishing business, something that you highlighted a number of years ago at an Analyst Day, just strength in push in publishing.

Is there -- are there holes that were in your existing business?

Can you talk about how they pushed (technical difficulties)?

And again on CYMBA, you highlighted a little bit of the order management system.

Could you just give a description of what exactly the business does?

When I go to the website it just seems there's a whole host of things that they do for what seems to be -- the business doesn't have that many employees.

Sure.

Hey, Shlomo.

It's Phil Snow.

Let me look at Vermilion first for you.

Vermilion is really a very elegant best-in-class enterprise client reporting solution.

The portfolio of publishing solutions that FactSet has today really takes the portfolio analytics reports and we create custom reports for our clients that way.

This is a broader solution that allows our clients to input other types of data, and is much more flexible in terms of the types of reports that it can create.

So it's a very nice complement to what we have today.

I would think of it a little bit like the code red versus the FactSet IRN solution.

We're putting those two together.

It just means we can solve more solutions for our clients, particularly in the client service workflow part of the entire investment lifecycle, which we're seeing increased traction on.

In terms of CYMBA, we're really excited about that.

It really provides a missing piece that we had with the combination of FactSet and Portware together.

So it has order management capabilities.

The other thing that it has is very good pre- and post-trade compliance rules, or an engine essentially.

So we think that the combination of Portware, CYMBA and the FactSet workstation really fill out the entire investment lifecycle for us.

You're right in that it's a small group of employees, but out it fills a critical missing piece for us that we could have built but it was just a way to fast forward that.

And we're really excited about the long-term opportunity, and they have an excellent solution that I think they suffered a little bit from what any small company does in some spaces, that if you go in you and you try to sell what could be a better product to a client but you're a small company, you're a very large investment manager, they're going to wonder, are you going to be around in the long term?

So now that CYMBA is part of FactSet, a well established player and we can cross-sell it, we're really bullish about what it means for us in terms of the upside there.

On their own, were these companies growing at growth rates that were in excess of FactSet's growth rates?

Definitely.

Okay, definitely.

And then I'm going to leave off with this, at least for now.

The sales environment in general, the markets have moved up a lot after the presidential elections.

Are you seeing any of that translate into improved behavior from your clients in terms of purchasing patterns, or is it really -- that's not really translating into that?

It's hard to predict, honestly.

If I will, I think we'll see the effects of that later.

It's not something that, given our sales cycle, I think we would see immediately.

We did see some decisions getting pushed out a little bit further over the last few months.

And we're hoping that our close rate will improve.

But we can't make any solid predictions on that.

Certainly doesn't hurt.

All right.

Thank you very much.

All right.

Thank you.

Your next question comes from the line of Manav Patnaik with Barclays.

Your line is now open.

Hi.

This is actually Greg calling on for Manav.

Just wanted to ask about your user count growth in the first quarter, which looked pretty good relative to the last couple of 1Qs.

First off, can you confirm that's all organic?

And then maybe some color around the breakdown between base business growth, competitive wins and then some of the closures you've been seeing?

There was a lot in there, Greg.

I'll start with, yes, it was all organic users that grew.

I'll go back to the comments on wealth.

We saw some really nice closes in Europe and Asia with some private banking deployments.

So those were pretty large closes.

Can you remind me of the other three questions that you asked?

Yes.

I was just asking on the breakdown between base business growth, so additions with the existing customers, and then how much impact you've seen from closures from some of the smaller accounts that you've talked about?

Sure.

So yes, when we look at this Q1 versus last Q1, there was an uptick in firm closures, which affected the relative number.

We did see -- we look at users no longer with firm, which typically means they're moving somewhere else or potentially they're getting laid off, there was a small uptick there.

But I'd like to steer you back to what we've said many times, which is we firmly believe that our largest opportunity really is within the biggest clients that we already have today.

So we love to get new names, but it's by [no far] the biggest piece of our business every quarter, nor is it the biggest long-term opportunity we have.

So we're really focused on having an enterprise solution for our clients and capturing that entire investment lifecycle of the trade.

When you go into FactSet now with the acquisitions and the innovation that we've developed, you can go from research to portfolio management to trading to analytics to client reporting.

That, if I was you, was what I would be focused on.

Okay, thanks.

I guess I wanted to ask about the pending fiduciary standards rules and what you're hearing from your customers there, and if there are any solutions or offerings that you provide to help there?

I don't know if Vermilion fits in there, but any color you can provide.

We're investigating into that.

We are focused on regulatory as something that is important for us.

We recognize it as a big opportunity.

Maybe that's one we can follow up with you on later.

Okay.

That's it from me.

Thank you.

Your next question comes from the line of Toni Kaplan with Morgan Stanley.

Your line is now open.

Hi.

Good morning.

I was hoping you could provide some additional color on just the dynamics going on on the buy-side.

I know you just mentioned some firm closures and some headcount reductions, but basically just in terms of you mentioned the largest opportunity being with your existing buy-side, or biggest clients.

How's the progress going on cross-selling there?

And just what's going on with buy-side would be helpful.

Sure.

Okay.

Hey, Toni, it's Phil.

I'll touch on a couple of themes.

One is, just going back to the enterprise conversation with our clients, we are spending more time with our largest clients, mapping out their information technology landscape, looking at all of the solutions that they have to offer, or that they need help with.

And we're finding that clients are very interested in talking to us with these new acquisitions that we've done to begin thinking about more holistic solutions for them.

I would say it's early days on the cross-selling story, but it's something that we're intently focused on.

Great.

And also in the past you've spoken about potentially providing some additional disclosure around workstation versus non-workstation, or even just what percent fees make up.

Do you have any further thoughts on what you might provide and when you might consider providing it?

We're still evaluating that, Toni.

And with the recent acquisitions that we've done, we're just taking the time that we need to make sure that we're -- if we're going to change how we report, that we do it in the best possible way and it's something that we can stick to for the future.

Understood.

And on just gross margins, they've come down a little bit over the last couple of quarters.

Just, is that attributable to the acquisitions or are there other factors that could be driving that expense number?

Hi Tony, It's Maurizio.

It's part acquisition.

Also a majority of our new hiring goes into cost of services, so driving that percentage slightly higher.

But at the end of the day we really just manage the Company at the operating margin level.

Okay, excellent.

And then one just last quick one.

Just after the geographic realignment, should we expect that your British pound exposure will increase or no, because you'll still be billing in US dollars and it would just be more on the expense side?

Appreciate all the time.

Thank you.

Our invoicing to clients has not changed.

We still have well north of 95% of our clients being billed in US dollars going forward.

The realignment did not affect clients that way.

Excellent.

Thanks again, guys.

Thank you.

Your next question comes from the line of David Chu with Bank of America.

Your line is now open.

Thanks.

Phil, you mentioned strength in analytics, but maybe you can describe non-terminal revenue growth across the four major products.

I think last quarter you mentioned double-digit growth across those four products.

Just wanted to see if that was consistent this quarter.

We haven't broken it out with that level of granularity this quarter.

When you look at Q1, I did mention that analytics had a very good quarter.

And again, it's traditionally not our biggest quarter.

So I wouldn't -- we don't really look at Q1 from a data standpoint as something that gives us that much clarity on those growth rates.

Okay.

And then in terms of the sell-side slowdown, is this coming from a concentrated number of banks or are you seeing it across the board?

That's a good question.

I think we're seeing generally pressure across the sell-side in both the bigger firms and the middle market firms.

Got it.

Okay, thanks.

And just lastly, so if the new fiduciary rules around wealth management are implemented, just your thoughts on maybe the potential impact.

That's one that we'll get back to you on again.

We had that question earlier on the call.

Okay.

Sorry about that.

No problem.

Thanks.

Your next question comes from the line of Peter Appert with Piper Jaffray.

Your line is now open.

Phil, earlier you highlighted favorable share gains and you talked about CapIQ, maybe some customer dissatisfaction.

Could you expand a little bit more on what you're seeing in terms of the competitive marketplace?

It seems like both Bloomberg and Thomson maybe have stalled a little bit here.

Do you see some momentum from a share perspective?

So I do -- hey, Peter.

Thank you for the question.

So we're confident that we're outperforming on a relative basis in most segments of the market.

So I think you're right in sort of highlighting that the other firms are struggling.

We're looking at different segments and we're very focused on who is our competitor in a particular segment.

We view such a massive opportunity for us in the marketplace.

We're just over $1 billion, and we know that the addressable market share for us is at least 10 times that today.

So we're just focused on what we can do the best to specific workflows against all of these discrete competitors.

But I think you're correct in saying that if you look at all of their performance and sort of what we're hearing that it is a challenging environment and we feel that we're best positioned to execute on it now and for the future.

Great.

Thank you.

So with 6% terminal growth, a little bit of pricing, it might imply that the desktop business is growing pretty much in line with the Company's overall revenue performance, which would then suggest that the -- that analytics enterprise business is probably growing similarly.

Is that a fair assessment?

We have so many different types of user workflows, we might have 20 different types of clients that use FactSet.

And we don't price our product the same way that some of our competitors do.

So it's very difficult I think for you to look in and sort of draw any meaningful conclusions on that.

In some case if we have a very large wealth deployment, the average price per desk for that wealth deployment might be significantly lower than if you added a portfolio manager, for example, at even a medium size institutional asset manager.

Okay.

And then lastly for Maurizio.

Headcount has grown consistently a little bit faster than ASE growth for FactSet in recent years.

Is that a phenomenon we should expect to continue?

Are there margin implications around that?

Right.

So if you look at headcount growth excluding the acquisitions and the Market Metrics being sold, our growth is around 10.5%.

But our growth in headcount has been higher in India and the Philippines where our cost of an employee is much less.

So even though you see our employee growth being higher than revenue growth, from a dollar perspective it's right in line, slightly behind revenue growth.

Got it.

Thank you, guys.

Thank you.

Your next question comes from the line of Warren Gardiner from Evercore.

Your line is now open.

Great.

Thank you.

So on portfolio analytics, I think you guys touched on it a little bit, but sounds like strong growth again.

Can you just give us any color on the wins there?

Just sounds like there may be more switches from other providers and kind of new users who didn't have the capability previously.

Can you just kind of confirm or talk about that a little bit?

Sure.

Hi, it's Phil Snow.

So when we talk about our multi-asset class risk product, we're talking about an enterprise solution there for our clients in the risk area.

So we're in competition sometimes with MSCI in that space, with BlackRock, with a whole bunch of different niche competitors.

As we built out the fixed income and more asset classes in there, it's opened our ability to do more than just equity risk for our clients.

And it's something that a lot of our clients are focused on in this environment.

So we continue to invest there.

We've got a lot more that we're going to be doing that's coming out throughout the year, as I mentioned in my comments earlier.

It's an area of our business that we know is exceptionally important for our clients.

And one of the trends that we're noticing in the marketplace, when I talk to heads of performance at a lot of the big buy-side shops, they want to see consistency in the data that they're using for risk and performance and for portfolio analytics, not just in the middle office but all the way through to the front office.

And that's something that we believe at FactSet we're incredibly well poised to execute on.

And the opportunity for us that's in the front office, we believe is huge and by he focusing on this area which is our core competency we can then build that out over time.

Okay.

Thanks.

What about just sort of the wins you are getting?

Do you -- are you finding that they're switching from other providers, or like I sort of asked, are they people that (multiple speakers)?

Yes, in many cases they'll be switching from other providers.

There are some out there that haven't been invested in and are not getting better.

And that's just something that we're pouring a ton of gas into.

And we've got some great partners in that space as well that get more leverage by including their functionality on our system.

So we're not just building everything.

We're sort of creating this ecosystem that makes it easy for other analytics providers to integrate into FactSet.

It's what we did originally.

We were really the Switzerland of market data and fundamental estimate data.

Now we're sort of getting into this environment where we can be that for our clients when it comes to risk and analytics.

Great.

Thank you.

And then I guess, just I apologize if I missed it, could you just talk a little bit about you how the fees business did during the quarter?

The fees business did okay.

Part of our fees business is leveraged to our strategic partnerships and alliances group.

So that's when we monetize data outside of FactSet, outside of investment management and banking.

And there was a lumpy loss there this quarter.

That is a lumpy business.

We have big wins and we have big gains -- big losses sometimes.

The fact that Q1's traditionally a smaller quarter for us, there was one of those in there this quarter which dampened the fee growth.

I would say the fee growth within the core institutional asset management and banking business was very healthy.

Great.

Thanks a lot.

Sure.

Your next question comes from the line of Peter Heckmann, Avondale.

Your line is now open.

Good morning, everyone.

I think most of my questions have been answered.

But just had a few follow-ups.

Noting that web-based version of the workstation, where are you targeting that?

Is that for smaller firms, more of the retail market?

And would that have a lower price point and reduce functionality than the full workstation?

That's a great question.

So not necessarily.

If we're solving the exact same workflow for the same type of clients, it's the same value, we would price it the same way.

But there have been some users over the years that have essentially said, just for ease of use purposes and even for cost that they require a web-based version.

A good example of that is senior bankers.

So in banking we've always been very well penetrated in investment banking and research.

And we've been told if we developed a web-based product, that would be the best way essentially to get onto the desk of senior bankers.

There are a lot of hedge funds of out there that much prefer a web-based product, private equity firms.

There's a lot of opportunity.

And if you really want a more elegant mobile environment, web is the way to go.

And even for our core user base, the speed of the product is faster, navigating it is easier.

We believe there's going to be a lot of good effects as we continue to build out more functionality in the web-based version.

All of this is possible because we made a massive investment in our technology stack over the last five years, going from mainframes to this more distributed Linux architecture.

It's one of the really positive things that's come about as part of that effort.

That's helpful.

Thanks.

And then you noted a little bit higher trading volume, equity trading volume, in the period post election.

Was that enough to add $1 million or $2 million of revenue, or not so much?

Yes, it definitely helped.

When you look at Portware and how we charge for that product, it's a combination of license fees, professional fees and trading volumes with some minimums.

The fact that the trading volumes were up over the last couple of months definitely helped.

Okay.

And then just one housekeeping question.

Maurizio, what was the exact acquired revenue in the quarter?

I apologize if the question's already been answered.

The total was $15 million.

That was the ASV.

What was the actual acquired revenue in the quarter itself?

The revenue included in the $288 million was less than $1 million.

So it had a minimal effect.

Thank you very much.

No problem.

Your next question comes from the line of Tim McHugh with William Blair & Company.

Your line is now open.

Thanks.

Just maybe a couple financial type of questions.

One, I guess given a ASV growth of 8% in the quarter, why 7% organic revenue growth.

Usually there's a little tighter connection.

7% being your guidance for Q2, sorry.

So our ASV and revenue projection is -- that midpoint is right around 7%, and that's what we're projecting today.

There's a range there, which is higher and lower.

But essentially what we're projecting today is right around that 7% organic growth number.

Right.

Okay.

I guess, and then tax-wise, I get it's obviously come down given some of the changes you made.

To the extent you've had the time, I guess, or capability to look at destination-based tax systems and some of the proposals that are being discussed in Washington, how would those impact you, to the extent you've thought through those things and how you've kind of structured the business going forward here?

So we've broken out the business between US and international.

Our UK entity is responsible for our international business now going forward, both operationally and financially.

We still tax almost 70% of our income here in the US.

So if a tax legislation comes out and it lowers the tax rate here in the US, that will be just an incremental benefit to FactSet.

But overall we made this change in order to better serve our client base internationally, and we don't see going backwards on that strategy in the future.

Okay.

All right.

Thank you.

Your next question comes from the line of Hamzah Mazari from Macquarie Capital.

Your line is now open.

Good morning.

Thank you.

Phil, you had mentioned earlier in the call CapIQ and S&L bundling their product and clients asking you for help.

Just any color around what your response is.

Is it a price driven response?

Is it a value driven response?

Any color as to how you're tackling that dynamic.

Sure.

It's a great question.

S&L has a very sticky product.

I think you're probably all aware of that.

We get asked repeatedly if we will build something like that.

It would probably be a heavy lift for us, and If we were to figure out where it is we wanted to focus our resources, that might not be the highest priority or the biggest opportunity.

But if we can figure out a way to do that, we certainly would consider it.

And yes, if they'd consider FactSet to be a better long-term partner and have a better product, they're not going to be happy about being sort of being forced into something.

We will get asked on occasion for a pricing reduction.

We're just seeing generally in banking, not just with that, but there is a very heavy focus on costs.

We just go back to trying to be a good partner for our clients, making good decisions for the long term and responding to them the best way that we can.

Great.

Just a follow-up.

On your ETF product, could you just give us a sense of how investors should think about the net impact of higher in-flows into passive investing?

Obviously you have an ETF product.

I'm not sure what the critical mass of that product is, and so that's why I'm just asking around the net impact to your business of higher movement into passive investing.

Thank you.

Sure.

That's a great question.

So the ETF product itself has very detailed analytics around particular EPS, their holdings, it's best-in-class.

It's a nice complement to what FactSet has today.

The shift from active to passive certainly doesn't help underperforming asset managers, as the fees are much lower on the passive side.

But what FactSet has is we're a workflow solution.

So whether you're active or passive, we have analytics and portfolio analytics and reporting capabilities to help you.

So we have the same solutions that we can sell to active managers, we can sell to passive managers.

And in a lot of cases some of our biggest clients will have strategies around both.

They'll have a hybrid, kind of a smart beta-type approach.

We're not just focused specifically on ETF.

We're focused on the entire workflow and where we can help there.

Great.

Thank you so much.

Sure.

Your next question comes from the line of Bill Warmington from Wells Fargo.

Your line is now open.

Good morning, everyone.

Hi, Bill.

A question I've been getting this morning is one around the organic ASV growth.

And basically the question is, where does it bottom, and then what does it take to get it to reaccelerate?

You've mentioned a couple of things already in terms of cost pressure and firm closures.

When do we cycle through that and start to see the reacceleration?

If we knew, we'd love to tell you, but we don't.

We are focused on the opportunity right in front of us.

So we have a great suite of products.

Like I said, we have great partnerships with our biggest clients, and we feel that versus our competitors we have a huge advantage.

We have an excellent product.

We have a great service team.

We have a partnership with them, they trust us.

And we're just focused on executing the best we can every quarter, and we're really optimistic about our long-term opportunity.

On the question on the cost pressures that you've mentioned a couple of times, they seem like they've been part of the picture now since the financial crisis.

And our question is, what's changed?

What's been driving the increased client focus?

You've highlighted the sell-side a couple of times.

I want to know if you're also seeing that on the buy-side?

Sure.

Related to the last question on the buy-side, the active managers are feeling pressure from the lower fees that asset managers are charging.

So if you're an underperforming asset manager, you've got to think about ways to sort of reduce costs.

So we do see, over time we'll see some consolidation, I believe, on the buy-side and our focus on enterprise solutions and not being so highly leveraged to the workstation over time is the best strategy that we think we have as a Company.

Part of us, is we're a real technology Company.

We have technology solutions.

We have solutions that help our clients be more efficient.

And we're focused on giving them the full breadth of offerings that we have.

Even if the number of workstations goes down in the entire industry, I just want to remind everyone FactSet has a small percentage of what's out there.

So our biggest competitors we estimate have at least $300,000 -- 300,000 terminals each.

Forget about all the other niche players.

We're focused on a multi-pronged strategy.

Getting more users, particularly in the front office, and then building out enterprise solutions to service the entire client.

Last question.

On the wealth management side you guys have a nice product that's been taking share, the high and the ultra-high net worth side of the market.

And my question is, can you take that product down market at some point?

Because obviously there are a lot more players in the lower end of the market.

It would be nice to be able to offer both for clients that service both.

I'll point to the technology investment that we've made with FactSet Web.

Previously it would have been difficult for us to do that, but with our next gen technology environment we've been able to scale more easily, do things faster.

It's going to allow us to go after that segment if we wanted to and have it be a profitable thing for FactSet to do.

Well, thank you very much.

Thank you.

Your next question comes from the line of Keith Housum from Northcoast Research.

Your line is now open.

Great, thanks.

I appreciate the opportunity to ask questions.

Looking at the web version that you guys mentioned (inaudible) the desktop just a few moments ago.

Will it be an offering for your customers to have one or the other or will they be able to have both at no cost or both with an additional cost?

They could definitely have one or the other.

We're still evaluating the best go-to-market strategy.

It's just been released.

What's in there today is real-time news and quotes, research, some great Company analytics, some industry reports.

We're still putting in there some of our other applications like universal screening, the new version of PA we have, which is PA-3.

That's getting rolled out as we speak.

So as we fill out the suite, we'll have a better answer for you on that in the coming quarters.

Got you.

And then just a historical question for you.

Six of the past eight quarters your new user growth has been actually pretty good.

And obviously one of your strategies is to get deeper into your customers and eventually be able to charge more for those.

How long does it generally take from the time when you acquire a user to perhaps when you're able to get the next iteration, or take them to the next level of use to create more revenue to the bottom line for you guys?

I think that really depends on the client.

What we have found over time is when we close a client that we're able to build the relationship and layer on analytics and fees and so on.

It's pretty rare that someone comes in and gets everything all at once.

There are so many variables there in terms of the types of clients and so on that it's hard to give you a real easy answer.

Okay.

Thank you.

Your next question comes from the line of Andre Benjamin with Goldman Sachs.

Your line is now open.

Thank you.

Good morning.

Can you hear me?

I'm on a cellphone here.

Yes, we can hear you fine, Andre.

Great, thanks.

My first question, any expectations on the web product?

Is there any expectation for the impact to growth or margins from the release of this?

I'm thinking on either the cost or the investment side.

Is there any benefit to pushing existing clients onto the web-based product, or is this simply you making sure that you have solutions for the full spectrum of customers?

I wouldn't expect a massive impact right away.

And it may well be that there is some clients that are excited about going onto the web-based product.

It's early days.

It's just been released.

We have closed an exciting client with it.

It's something that I use every day.

I really like using it.

So I'm really optimistic about what it means for us in the long term.

Got it.

And last quarter you mentioned an unusual number of cancellations just due to consolidation and some other industry issues.

Just wondering, was there any notable trend or has that continued this quarter, or has it gone more back to normal?

So we did say -- as I mentioned earlier, we did see a little bit of an uptick on the firm closures versus the same quarter last year.

I want to take us back again to where the biggest opportunity and most of our revenue is, and most of our growth opportunity is not with sort of the smaller names that we're closing, small wealth managers, small hedge funds.

It's really the bigger clients where we're focused.

Okay.

Thank you.

Thanks, Andre.

Your next question comes from the line of Glenn Greene with Oppenheimer.

Your line is now open.

Thank you.

Two questions.

The first one, getting back to the user growth, which looked pretty strong in the quarter.

You alluded to wealth management, so I was just wondering what proportion directionally wealth management was of the user growth?

And I think you also sort of alluded to the lower pricing point on the wealth management, so maybe that helps us reconcile somewhat the ASV deceleration.

Can you help sort of help me think through that?

What proportion of the growth was from wealth management and the relative pricing?

Sure.

We don't break it out, but it certainly was the biggest contributor to the total.

And we have a number of different packages for the wealth market.

And typically, given the size of the deployments and the use case, a lower price point than what we would charge an institutional asset manager or hedge fund.

You're right, it's a lower price workstation than the traditional FactSet workstation.

Any more -- any range of sort of the differential in the pricing, any way to think about that?

The offering can range from sort of the low thousands all the way up to $10,000 in some cases for wealth.

And our fully loaded investment management workstation with portfolio analytics could be multiples of that in some cases.

Okay.

And then different question, but the topic of corporate tax reform with the new administration and obviously a big topic for the market right now.

With your realignment that you just announced and the benefit of the lower tax rate you're getting, but really my question I guess at this point is, what proportion of your profitability now is in the US and would potentially benefit from lower corporate tax rates under the new Trump Administration.

It's Maurizio.

Right now ASV internationally is 34.6% of the overall total.

Our income that's being taxed overseas is right around 30% to 31% now based on this realignment.

Prior to that we were below 20%.

All's we've done here is really realign our structure operationally, and also our financial structure to better match our international operations.

Which means that almost 70% of our income is still taxed at the US tax rate currently.

If the tax rate changes or goes down, there is a benefit to FactSet going forward.

Got it.

That's what I needed.

Thank you very much.

Your next question comes from the line of Shlomo Rosenbaum from Stifel.

Your line is now open.

Hi.

Thanks for indulging me in a follow-up.

Phil, I wanted to just ask you about CYMBA and the order management system.

My kind of checks with clients are that one of the issues FactSet has had on the trading floor was getting -- the lack of an order management system.

How credible is the system that you bought?

How much of a difference do you think it makes in terms of being able to sell onto the trading floor?

It's a great product, very focused on the UK market.

You highlighted that it's a small company, but we were really impressed with the management team, the technology they built.

It's a longer-term play.

But again, it was a question of, are we going to build it or should we buy something that we believe was a really good product?

So I think the longer-term opportunity for us, when you think about the synergies, is with portfolio management and trading, the front office.

FactSet has been in the front office for some time with portfolio managers that use PA.

But if we can also complement that with a portfolio management system, order management system and execution management system in the front office, we believe that represents a really large opportunity for us just in terms of market share and helps tie the enterprise story together really nicely.

Okay.

Thanks.

We're happy to offer you a demonstration of the product whenever you like.

I'll take you up on that.

All right, great.

Okay.

Thank you all very much, and we'll see you again next quarter.

This concludes today's conference call.

You may now disconnect.