Factset Research Systems Inc (FDS) 2017 Q4 法說會逐字稿

Good morning.

My name is Denise, and I'll be your conference operator today.

At this time, I'd like to welcome everyone to the FactSet Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions)

Rima Hyder, Vice President of Investor Relations, you may begin your conference.

Thank you, Denise, and hello to everyone.

Welcome to FactSet's Fourth Quarter 2017 Earnings Conference Call coming to you today from our European headquarters in London.

Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com.

These slides will be posted on our website at the conclusion of this call.

A replay of today's call will be available via phone and on our website.

The conference call is being transcribed in real time by FactSet's CallStreet service and is being broadcast live at factset.com.

After our prepared remarks, we will open the call to questions from investors.

(Operator Instructions)

Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures.

Additionally, please refer to our Forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements.

Our slide presentation and discussions on this call will include certain non-GAAP financial measures.

For such measures, the reconciliation to the most directly comparable GAAP measures are in the Appendix to the presentation and in our earnings release issued earlier today.

This non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.

In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.

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

I'd now like to turn the call over to Phil.

Thanks, Rima.

Good morning to everyone in the U.S., and good afternoon to those joining us here in the U.K.

As we close out fiscal 2017, I just want to take a moment to highlight this year's accomplishments and really thank the FactSet employees around the world who have worked hard to achieve our strong results in a challenging market.

Fiscal 2017 was a solid year of accomplishments for us as we continue to pivot from being a workstation towards being a workflow company.

In Q4, we delivered revenue and adjusted EPS at the high end of our guidance range and above consensus estimates.

And throughout 2017, we continued to diversify our suite of products through strategic acquisitions and product investment.

This year's acquisitions have allowed us to fill critical gaps within our portfolio life cycle strategy.

We've made significant progress in integrating these acquisitions, and this work remains a key focus for us in fiscal year 2018.

Additionally, as part of our Project NextGen, we've created a stronger FactSet technology infrastructure and delivery platform, and we've released many updates to our key products and increased the number of applications available in FDS web.

We added over 500 net new clients and almost 5,000 users during our fiscal year, with the majority of the client increase coming organically.

Our clients value our long-standing relationships and the breadth and depth of solutions we bring to them.

Cross-selling within our diverse product suite continued this quarter as evidenced by some of our key client wins in both our traditional business with National Bank Investments as well as a result of our acquisitions with Danske Bank and Banco Santander Totta.

These wins highlight our transition from a workstation to a workflow company.

Lastly, our best-in-class products won many industry awards this year.

FactSet, Vermilion and Portware received awards in 9 industry competitions to date in 2017, including Best Market Data Award for the first time.

We're thrilled that our commitment to fresh ideas and innovation, in response to client needs, is recognized widely in our industry.

Now turning to our fourth quarter results.

Organic revenues and organic ASV both grew at 6% year-over-year.

Adjusted diluted EPS increased 12% to $1.90, at the high end of our guidance range.

Adjusted operating margin was 31%, which is in the range we expected.

We're pleased that we added more ASV this quarter versus the same quarter last year.

The fourth quarter increase of $32 million in ASV was driven by growth across the majority of our key workflows, including analytics, investment banking and CTS.

Our broker-dealer and institutional asset management clients provided us with the highest gains this quarter versus the prior year.

Our strategy of going deeper with clients through cross-selling and up-selling is going well as evidenced by higher year-over-year sales to existing clients.

Offsetting these wins were client cancellations, but the number of cancellations decreased this quarter versus the prior year.

Our international business performed well in the fourth quarter driven by institutional asset managers in Asia Pac.

International ASV grew organically by 8%.

Fueled by growth in Asia Pacific, international ASV now represents over 37% of our total ASV.

Asia Pac grew almost 13%, and Europe ASV grew 6%.

As we look towards our fiscal 2018, we continue to focus on integrating our acquisitions.

We've made great progress integrating products and platforms across FactSet, Portware, Vermilion and BISAM.

Portware clients can now receive FactSet Data Feeds through APIs.

We consolidated data centers to achieve cost savings for the company, and the integration efforts under FDSG have also been accretive, both to operating margin and EPS.

On the analytics front, we're seeing many data and technology synergies between PA, BISAM and Vermilion.

Data continuity, a high priority for clients between FactSet and BISAM, strengthens our positions with those clients.

In summary, our integration efforts have opened up tremendous up-selling and cross-selling opportunities within the client base.

This strategy delivered results in our fourth quarter.

MiFID II is going to become effective in January of 2018 in Europe, and that's getting more and more attention.

And we're monitoring the regulations and working with clients to provide solutions.

FactSet launched a regulatory solutions team this year, and we have a suite of offerings, organic and partnered, that we believe cover clients' MiFID II needs throughout the portfolio life cycle.

No single vendor has all the solutions for MiFID II, and we believe clients will continue to multi-source for the near term, and they're telling us that they want to work with FactSet.

We don't know fully the impact these regulations may have on the health of the financial industry and whether this change will lead to further consolidation, but we're working closely with our clients to understand how this could affect them in the long run.

In conclusion, we remain committed to returning value to our shareholders as evidenced by our balanced capital allocation.

In fiscal 2017, we returned over $340 million to our shareholders through share repurchases and dividends.

We're pleased with our quarter and full year results.

As we capitalize on the businesses we acquired, we are starting to see the synergies and an increase in cross-selling momentum.

We believe we are well positioned to launch new products in 2017 -- in 2018 in all strategic business areas.

We remain optimistic about continuing to grow ASV and leveraging our scale to drive margin expansion.

Let me now turn the call over to Maurizio to talk about our fourth quarter 2017 financial results and first quarter 2018 outlook.

Thank you, Phil, and good morning, and good afternoon to everyone on the call.

In our fourth quarter, we delivered revenue and adjusted EPS at the high end of our guidance range.

We maintained our ASV growth at approximately 6%, and our adjusted operating margin at 31.2% was within our guidance range.

Adjusted EPS of $1.90 was at the high end of our guidance.

Before we get into the details of the quarterly results, I want to point out that our GAAP quarter-over-quarter comparisons were impacted by restructuring actions initiated by the company.

These actions are part of our efforts to realize more synergies from recent acquisitions and leverage the scale of our business.

You will see the impact of these throughout our results.

Additionally, our fiscal fourth quarter of 2016 had a onetime gain from the sale of the Market Metrics business.

We have provided a reconciliation of GAAP to our adjusted metrics in the back of our earnings release and slide presentation.

Let's now go through the fourth quarter results in more detail.

GAAP revenues in the fourth quarter increased 14% to $327 million and 6% to $301 million on an organic basis versus the fourth quarter of 2016.

Looking at our segment revenue.

U.S. revenues grew 6% organically primarily as a result of wins from our workstations, analytics and Data Feeds products.

International revenues increased 8% on an organic basis with strong performance from the Asia Pac region.

ASV increased to $1.32 billion at the end of our fourth quarter.

As a reminder, we exclude professional services fees from our as-reported ASV metric as they are not subscription-based.

These professional fees were previously included in the as-reported ASV metric until our fiscal second quarter.

Our recent acquisitions, in particular, BISAM and FDSG, have given rise to higher professional services fees.

Professional services fees billed during the past 12 months totaled $17 million.

Organic ASV increased 6% year-over-year and approximately $32 million since the end of our third quarter.

This increase was primarily driven by increased sales to existing clients, partially offset by cancellations.

Moving down the income statement, let's take a look at our operating expenses.

Operating expenses for the fourth quarter totaled $244 million, an increase of 22% year-over-year primarily driven by our recent acquisitions, the previously mentioned restructuring actions and also modifications to certain share-based compensation grants.

Fourth quarter cost of services expressed as a percentage of revenues increased 620 basis points compared with the year-ago period.

The increase was driven by higher compensation costs, depreciation and amortization expense and data costs.

Higher compensation costs were due to the recent acquisitions, base salary changes and incremental hires in our centers of excellence located in India and the Philippines.

SG&A expenses expressed as a percentage of revenues were down 80 basis points compared with the fourth quarter of fiscal 2016.

The decrease was primarily a result of the continued shift in our employee base from SG&A to cost of services and a nonrecurring charge related to legal matters in the prior year period.

Our GAAP operating margin decreased 530 basis points year-over-year to 25%, primarily due to the previously mentioned restructuring charges and modifications to certain share-based compensation grants.

Our current year annual effective tax rate was 25.3%, a decrease from 28.3% a year ago, primarily due to FactSet's global operational realignment effective September 1, 2016.

Adjusted EPS grew 12% to $1.90, at the high end of our guidance.

Free cash flow, which we define as cash generated from operations less capital spending, for our fourth quarter was $89 million, an increase of approximately $32 million from the same period last year.

The increase was due to higher net income, a lower effective tax rate and lower capital expenditures and timing of certain payments.

Excluding recent acquisitions, our DSOs decreased from 38 days at May 31 to 37 days at August 31.

We ended the year with increased client and user counts.

During the fourth quarter, our client count increased by 115, resulting in over 4,700 clients.

User count also increased by almost 3,000 users to over 88,000 users.

For the full year, client count has increased 13%, while users increased 6%.

Most of the client count increase was organic.

As Phil stated, the integrations are going well, and we have made good progress in combining products and sales teams.

Both BISAM and FDSG were accretive to adjusted EPS by $0.01 and also $0.05, respectively, for the fourth quarter.

In fact, FDSG is ahead of our expectations as we had guided you to $0.03 for fiscal 2017 at the time of the acquisition.

BISAM is in line with our initial guidance of $0.02 accretion for fiscal 2017.

Moving on to our share repurchase program, we repurchased 270,000 shares for $44 million during the fourth quarter under our existing share repurchase program.

As of August 31, 2017, approximately $244 million remained for future share repurchases under the share repurchase program.

We remain committed to returning capital to shareholders and maintaining a balanced capital allocation framework.

Now let's turn to our guidance for the first quarter of fiscal 2018.

For the fiscal first quarter, we expect GAAP revenues to be in the range of $327 million and $333 million.

The midpoint of our organic revenue guidance is 6%.

Our GAAP operating margin is expected to be in the range of 28% and 29%.

Adjusted operating margin is expected to remain in the range of 31% to 32%.

Similar to last year, the annual effective tax rate is expected to be in the range of 25% and 26%.

GAAP diluted EPS is expected to be in the range of $1.75 and $1.81, and adjusted diluted EPS is expected to be in the range of $1.93 and $1.99.

The midpoint of the adjusted diluted EPS range represents 12% growth over the prior year.

The annual effective tax rate and GAAP diluted and adjusted EPS guidance do not include the expected impact from adopting the accounting standard update to FASB's ASC 718, which changes the way companies are required to account for stock-based compensation.

This accounting standard update will be effective for FactSet beginning in the first quarter of fiscal 2018.

If this update was adopted in fiscal 2017, we would have recognized a $0.26 benefit, favorable EPS benefit, from the windfall tax benefits associated with stock option exercises.

Due to the volatility in tax expense the new accounting standard update creates, it is difficult for us to predict the quarterly impact, but we believe the full year 2018 impact will be comparable to 2017.

In summary, we are pleased to end our fiscal 2017 in a strong position in this challenging market.

We look forward to executing on our strategy to grow top line and return value to shareholders.

We believe in the long term that there is leverage in our business model and an opportunity to optimize our cost structure.

Thank you for your participation in today's call.

We're now ready for your questions.

(Operator Instructions) Your first question comes from Anj Singh with Crédit Suisse.

First off, on organic growth, the improvement that we saw this quarter, could you speak to the factors that drove the growth above what you folks were expecting at the midpoint when you provided guidance initially and then perhaps the factors that drive your outlook for organic growth to moderate slightly at the midpoint for 1Q?

Sure.

It's Phil Snow.

So yes, we're very happy with the Q4 results.

I think it's a very positive sign that we added more ASV in this Q4 than we did the same quarter a year ago.

We got definitely a good uplift from banking this quarter, so I think the seasonal hires that we saw in banking were a little bit higher than we expected, and that definitely drove a lot of the workstation users that you saw come in.

The performance in the Americas team was good, and we definitely saw some resiliency there versus what we'd seen in previous quarters.

Asia Pac did exceptionally well.

The CTS product that we called out on our last quarter did better than it did Q4 a year ago, and the analytics suite just continued to deliver solid results for us.

I think those are kind of the main factors.

Okay.

Got it.

That's helpful.

And then a follow-up question for Maurizio with regards to leverage levels.

I realize it's still well below most of your peers, and it ticked down slightly versus last quarter.

And your buyback activity is also well off pace versus last year.

So despite the recent weakness in shares, we didn't see buybacks tick up.

So just trying to get a sense of whether there's a desire to get leverage levels down to levels that they've been at historically or just any other thoughts around that.

So on our share buyback program, we repurchased over 250 million shares over the last 12 months.

It's right around what we had planned on for the year, and it translated into repurchasing 1.55 million shares during the last 12 months.

We are committed to our share repurchase program, and we don't see a change in our capital allocation process or plan going forward for the next 12 months.

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

So if I look back at fiscal '17, the organic ASV growth slowed a bit, but the subscriber base actually grew.

So just trying to determine the delta.

Is this more attributable to like a lower revenue per user or maybe some slowing of the nonterminal products?

David, I think it's more the former, honestly, so we're continuing to grow our user base, which we're extremely happy about.

Whenever we do that, it gives us an opportunity to continue to cross-sell and up-sell those users.

But what you saw is good uptick in investment banking workstations, a high number of wealth workstations, and typically, those are priced lower than our sort of core institutional asset management workstation.

Got it.

Okay, great.

And then and just thinking about the margin profile, I know -- or fiscal '17 was impacted by the acquisition, but can you just discuss kind of spending patterns overall?

And just wanted to see if it's consistent.

In terms of spend to drive innovation, has it been pretty consistent?

Or would you say you're increasing spend in fiscal '17 relative to '16?

Yes.

We continue to invest in the product.

We've always done that.

We are definitely at the lower point in terms of our margins.

But as you pointed out, that's absolutely a result of the acquisitions, and the margin that we're at now is at the low end of the guidance that we've issued for the next quarter.

So we're definitely planning to get some margin expansion in FY '18.

I don't think we're going to get back to historical levels within the full year, but we'll definitely going to make some progress.

Your next question comes from Keith Housum with Northcoast Research.

As we look at the potential implications of MiFID, can you just remind us the mix of buy versus sell side in Europe?

And I guess, any more color you can provide on what you guys have learned over the past quarter?

And any implications that MiFID may have on just the overall environment throughout Europe?

So the mix in buy-side ASV versus sell-side ASV in Europe?

Yes.

Yes.

So I think that's probably pretty consistent with what it is globally.

So the sell-side ASV for us is less than 20% right now.

So we're not -- as I stated on previous calls, I think we view MiFID as more of an opportunity to us than a threat.

It potentially could put some pressure on sell-side research users.

But on the other side, we've got a very heavy buy-side research base, which could benefit from it.

And the regulatory team that we've set up now is really getting focused on what it is we have to sell.

We've got some good offerings in terms of the research on bundling solutions.

We've got our research management suite, our RMS suite, and we're pondering with ONEaccess and Liquidnet in that area, and then we're working within the Portware area to make sure that we have solutions, the best execution.

So those are the 2 that we're working on now, but we're certainly evaluating everything that MiFID is going to include and where we can help our clients.

Great.

If I can just follow up on that.

It sounds like the environment this quarter wasn't quite as challenging as, I guess, the prior quarter.

Is that a correct assumption?

I think it's still challenging.

Some of the trends that we've noticed in terms of -- Brexit is one thing, the continued shift from active to passive, clients focusing on the total cost of ownership.

I think what you're seeing is some of the benefits of the acquisitions we've done and our sales force getting more up to speed on what we have cross-selling and sort of -- and operating in a new environment.

Your next question comes from Ato Garrett with Deutsche Bank.

So just looking through some of the figures.

It looks like your ASV per client actually grew pretty nicely there.

I'm just wondering, is that primarily the result of just the cross-sell effort that you called out on your prepared remarks?

Or are you seeing some new trends with your new client base taking on larger amounts of ASV initially?

That's not a metric that we track, ASV per client.

So if it did go up, that's positive.

Maurizio, do you want to add anything to that?

So when we look at the ASV growth during the period, it's really driven by our premium products, our fee business.

That's really driving the growth at the end of the day.

Looking at ASV divided by the total number of clients, it's very difficult to look -- to evaluate the company that way.

Got it.

Okay.

And also, so just looking at the -- you guys made a number of acquisitions recently, particularly looking at FDSG and BISAM.

Just thinking about your product portfolio as it stands now, do you think there are some areas that you're really focused on making investments in?

Or are you pretty satisfied with where you are currently?

You mean in terms of more M&A activity?

Yes, that or if there like a particular area of focus that you're doing a non-M&A-based investment, whether that's going to be in the CTS business or something else?

Okay, great question, yes.

So we're investing in lots of areas of our business.

I would say, within the analytics area, and this is true for every area that we've done acquisitions, we're going to continue to invest heavily in making sure we get the integration done as quickly as possible.

So within our analytics area, that means connecting analytics, BISAM and Vermilion together.

In our portfolio management and trading workflows, there's been a tremendous progress on integrating Portware with CYMBA with the traditional FactSet workstation.

And what you're going to begin to see now after 2 years of that is real product beginning to come to market in FY '18, and we're very excited about that.

Your next question comes from Bill Warmington with Wells Fargo Securities.

So I wanted to ask a question about how we should think about the FactSet financial model going forward.

It used to be double-digit revenue growth, no margin expansion, 200 basis points of leverage from share repurchases to get to double-digit EPS growth.

Now the industry is more mature.

The company's revenue base is larger and more diversified.

Should we think about the new model as mid-single-digit organic revenue growth?

And then maybe margin expansion and buybacks to get us to double-digit EPS growth?

How should we look at that?

I'll answer that very simply with we are primarily focused on top line growth.

We're a growth company, and we are maniacally focused on getting the right product mix in there, so that we can drive the top line.

So we would love to get back to double-digit growth.

We can never sort of tell you when we're going to get there, but our plan is not to be happy with mid-single digits.

That being said, we've consistently delivered double-digit EPS growth to the market, that's because we manage our company very well.

We're going to continue to do that as well.

Got it.

And then back at the last Investor Day in June last year, we talked about providing some revenue detail possibly in the 5 categories: analytics, content and technology solutions, Portware, Research Management Solutions, workstations.

What do you think about the timing will be on that?

Is that still a goal?

So it may seem like it's taken forever for you.

Believe it or not, we've made tremendous progress internally, working on this, measuring it.

We just need a little bit of time to burn it in to make sure that we've got things measured exceptionally well, and that -- and we're getting close to having the right kind of workflows and products organized internally.

So we're hoping to provide you more details shortly, but we don't want to do it before we're ready, for it to come in.

Your next question comes from Toni Kaplan with Morgan Stanley.

Have you seen any positive impacts from the increased demand from quant investing?

Has that driven any growth in the business?

And then also, just on the growth side in terms of cross-selling, you've mentioned it a couple times on the call, like how should we think about like how much opportunity is left across the client base from cross-selling?

Okay, good question.

Yes, so we've always sold to quants, and we do -- we've done that primarily through our analytics suite.

So we've got some great products like alpha testing and obviously, all of the risk models that we have on the system.

But we also do that through feeds.

So lot of quants like to just get the data themselves into their own environment and model off that.

So a lot of what you're seeing in terms of our CTS business, that's a big -- a big piece of that is with the quants, and we're making tremendous -- a tremendous investment there to figure out a way to get more alternative data to the quants in a more sophisticated way.

So that's a big focus for us in FY '18.

We will be able to talk more about that later.

But that has been a big piece of our growth historically, and we plan to continue to service the needs of the quants moving forward.

And can you remind me the second question that you have?

Just how we should think about the cross-selling opportunity, like how much is left, how much you've already sort of done?

And I know it's -- yes, go ahead.

It's massive.

So when we look at how our ASV is distributed, like many companies, within our top clients, there's -- we have a matrix, which wouldn't surprise you where we sort of modeled out for all of our top clients who has each of the 5 or 6 pieces that we have and what's the opportunity.

So I would characterize us as being at the very beginning of that journey, frankly.

And as we solve the problem for the bigger clients, we're going to be able to, I think, create simpler versions of that, that we can push down market more efficiently to our entire client base.

Okay, got it.

And just lastly, could you just give some additional color on the restructuring charges?

I didn't really catch what that was related to.

So Toni, this is Maurizio.

So we're constantly reviewing our cost structure internally to really identify the efficiencies, especially after doing 4 acquisitions over the last 12 months.

And so in doing so, it ended up -- we ended up having a restructuring process during the fourth quarter, and it's really related to employees, at the end of the day.

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

First, I guess, just a follow-up on one of the earlier comments about -- I think you made a qualitative comment that you hope to see margin improvement in 2018.

Is that relative to, I guess, the fourth quarter number?

Or I guess, can you be any more specific in kind of quantifying what you're comparing it to and I guess, what -- how much progress you would hope to make across...

Sure.

It's -- this is Maurizio.

So our guidance for margin was 31% to 32% for our adjusted margin, and we came in right around 31.2%, which we believe is it's fairly the bottom in terms of our margin.

We came in at the bottom of the range that we guided to.

It's our belief, as we leverage these companies that we have purchased and as we grow the business, that there is a potential for improvement to margin during fiscal '18.

And Phil also previously alluded that we do believe that there's improvement there.

And our guidance range for the quarter -- for first quarter is 31% to 32%, but we believe that our margin during the period doesn't have to be at the bottom of that range.

We do see gradual increase in our margin during the fiscal year.

Not back to the original FactSet margin a few years ago, I think that will take us a little bit more time to get there, but we do see expansion in our margin during the fiscal year.

Generally talking about within that range, you're making the comment, I guess, that 31% to 32%...

So I'm just -- yes, and so I'm just making the comment of that range during the first quarter.

Okay.

And just a numbers question to follow up on that as well.

The deferred revenue write off, how much of that's still in the first quarter?

And does that continue much beyond the first quarter related to these acquisitions?

So that's fairly significant.

That's really related -- there's a large amount of deferred revenue adjustment related to FDSG and BISAM.

First quarter is very comparable to the fourth quarter, and that will be with us for the next 3 years.

Gradually declining over that period, but it will be with us.

Your next question comes from Manav Patnaik with Barclays.

Just on the margins comment again.

Can you just help [buy side] to think about the FX impact?

In the last year or so, it's been a nice benefit, of course.

So can you just give us some color on how much of a headwind or tailwind or whatever it is today?

Sure, Manav.

This is Maurizio.

So FX has been a benefit to us in previous periods.

It's because we bill so much in U.S. dollar, it's been very good to us.

We have always managed our margin around FX.

We have never affected the margin from FX, and we don't plan to see that going forward.

If -- should FX become a bigger detriment to us, we have the ability to adjust our cost base to -- and still manage to where we want to be in terms of margins going forward.

Okay, got it.

So still in that 31%, 32%, got it.

And then you guys talked about earlier on the number of, I guess, cancels slowing down this quarter.

I was just hoping you could maybe give a little bit more color on your end on what you're seeing that's driving that.

Is there maybe just a little bit of some sort of seasonality involved because, just from where we're sitting, it feels like longer term, the pressures on headcount should continue?

I was just curious what you guys are seeing.

Yes.

What I can tell you is that the -- we had less clients completely cancel, which typically, for us, means somebody is going out of business.

I think it's very rare that -- or it's rarer that somebody is -- when they completely cancel has just switched over to someone else for all of the workflows.

And then just the client cancellations from the existing client base, that's pretty comparable to what it was year-over-year.

So I think the biggest uptick we saw there or the biggest benefit we got was less firms canceling completely.

Got it.

And then just last one for me.

One of your competitors asked or they talked about a pretty significant investment in their internal systems and so forth to stay compliant with MiFID.

And I was just curious if there's any of that, that you guys need to do.

No, we don't need to do that.

No, it's not in our plan right now.

Your next question comes from Joseph Foresi with Cantor Fitzgerald.

As you continue to make the shift in your business, I was wondering, could you frame for us what the catalysts or new drivers of the shift would be as opposed to just sort of seats and sustainability of your client?

You mean in terms of the product mix, Joe?

Yes.

I'm looking for sort of maybe -- giving you an opportunity to reframe what the catalyst will look like going forward.

Sure.

So I mean, it's multifaceted.

When we think about our business in terms of selling workflows, on the analytics side, which has been a huge driver of our growth over the last 10 or 20 years, the integration of BISAM and Vermilion for that suite is really going to open up more opportunities for us at larger clients to solve more problems for them in the performance and risk space.

And I would say in portfolio management and trading, the integration of Portware and CYMBA with the FactSet workstation and us having the ability to enter orders and execute orders for more clients with FactSet, that really, I think, opens up a lot of new opportunity for us in the front office.

But what it also does is it links together the research workflow and the analytics workflow that we've had historically.

So that I think are -- those are some of the things.

And I would say, the other thing that we're really focused on is making sure that clients consume value from FactSet the way that they want to.

So previously, that was really just through the workstation.

Historically, we created feeds on a custom basis for clients that wanted a little bit of stuff that we had.

But now we're pretty agnostic, whether you want a feed or you want an API from us, you want it through the workstation, the web, mobile.

Us being able to offer that flexibly to our clients and work with them, I think, is a good differentiator for our company.

Got it.

And then my follow-up on the margins.

Can we get more color on the specific drivers of margin improvement in FY '18?

And what should we be watching for there?

What are your levers that you can pull to get the margins going in the right direction?

So our biggest margin opportunity as we grow the business is really to leverage the overall workforce and also the acquisitions that we have done over the last 12 months.

As we integrate these acquisitions, there is opportunity for us to better leverage ourselves in terms of the overall infrastructure and increase margin going forward throughout the fiscal year.

Your next question comes from Alex Kramm with UBS.

Just I appreciate the, I guess, the deferral of waiting for more data to talk about the terminal and nonterminal business, so I guess, we'll stay tuned.

But I think historically or recently, you still talked about how the terminal business is growing relative to the other parts of the business or on the flip side rather, how the other parts of the businesses are growing.

I think you said well into double digits.

Any quantitative or qualitative comments you can make on that part of the business?

Is it slowing?

Is it accelerating?

Is it still double digits?

Anything that would be helpful.

Yes.

I think in aggregate, it's in the double-digit range.

You saw the earlier question around our workstation count growing, so I think that's probably year-over-year in the 6% to 7% range.

But I would say that the sort of the ASV attributed to the workstations over the year was sort of less than that just because they were lower-priced workstations and kind of the transfer of value to the higher add-on products.

So still very healthy.

Okay.

And then just for Maurizio, just a quick one here.

Thanks for the tax impacts from share-based comp you outlined.

Can you give a little bit more detail around that from a seasonal perspective?

I think for a lot of companies, given some of the timing of grants, et cetera, that can be very lumpy.

So when you look at 2017, was the tax rate a lot different throughout the quarter or the year?

Or any quarters you would point out, in particular, so we can model it better?

So it's lumpy throughout the year.

I can't -- so I can't tell you when.

It's really dependent upon employee exercises.

When there's more or less exercises is really what drives that benefit.

The one thing I could tell you is we gave you last year's number, so that you can better model 2018.

And we do believe 2018 will be representative -- comparable to 2017.

But to do it on a quarterly basis, when it's really dependent upon employee exercises, it's very difficult to tell you that.

All right.

So you don't think there's a typical seasonal patterns to exercises you would call out?

I would not.

It really depends on employee exercises, and the increase of the stock price at the end of the day really drives employee exercises.

Your next question comes from Hamzah Mazari with Macquarie.

The first question is just around execution risk.

You're integrating all of these workflow assets.

Maybe just give us a sense of how investors should think about execution risk?

Is it low, medium, high?

Just any sense of that.

Yes.

We're -- these are smaller companies, and we have a dedicated team within FactSet that's focused on the integration, and we have a very senior kind of team on the operations and technologies side that have been at FactSet a long time to work with acquisitions.

And I would say that we're all -- the acquisitions that we've done, just in terms of culture and working together, has been outstanding, so I think we're really optimistic about the -- our ability to execute on that.

We've done a ton of work already in terms of getting all the corporate systems integrated, integrating the teams with each other.

We've done a lot of work on the data centers already to get FDSG and Portware sort of into a FactSet environment.

We're pumping data into the acquisitions from FactSet, so we're well on our way.

Great.

And just a follow-up question.

Longer term, as you transition to more of a workflow company, are there any structural changes that happen in your employee base or sales force?

I know you mentioned a shift toward cost of service, and that just maybe content generation where you are today.

But longer term, is the employee base or incentives change as you become more of a workflow business?

We'll definitely make some adjustments.

As we have through our history, we'll evolve, but there's going to be no material change.

Your next question comes from Peter Appert with Piper Jaffray.

You may have touched on this already, but just wanted to get your view on this from a product pricing perspective, specifically some of your competitors are moving from the pay per password or workstation model to an enterprise licensing model.

Do you foresee this as a possible model for FactSet?

Yes, absolutely, it's a possible model.

We have a lot of contracts today with our clients.

Many of them have a tremendous number of workstations and already have a lot of add-on products.

So as we move to being a workflow company, we're really thinking about, okay, just pricing the value of what we are delivering to the clients and again, being agnostic to how they get it.

So it'll be a transition, but I think you will see us moving further in that direction.

Your next question comes from Shlomo Rosenbaum with Stifel.

Want to circle back on a couple of questions that were asked before.

Hey, Phil, just on the lower cancellations year-over-year, are you feeling more of a stabilization in the industry, in the base that you're selling into?

Or does it feel like an anomaly?

I'm just trying to get a sense from you guys.

Is it just -- just what are you seeing in the industry at large?

It's a great question.

I think, as I alluded to earlier, we're still seeing some of the trends that we've highlighted on previous calls.

The number of cancellations that we see from sort of small clients going out of business and new clients coming on, that's typically on the long tail.

So we're really just focused on up-selling our existing client base.

I think that's the primary way that we're going to drive ASV.

And as I alluded to earlier, I think it's just -- this is a reflection of the quality of our sales team and the quality of the product mix we have, and that we have more to offer our clients now.

So you feel it's more of your team adjusting to the end markets versus any change really in the end markets.

Is that the way to think of it?

I think it's -- I think that's probably the best way to characterize it.

We did see more losses from hedge funds this Q4 than we did previous Q4.

So we're seeing a healthy uptick or -- we're seeing better performance out of kind of the institutional asset management space and very steady growth in the wealth space.

Got it.

And then just going back to a comment that you -- that I think, I don't know if it was you or Maurizio made, in terms of long-term optimizing the cost structure.

I'm just -- is that anything beyond getting the acquisitions back to not impacting the margin of the business?

Or is there really, over time, you expect that there should be a gradual float-up of the margin just as you go ahead and get scale on the business?

I'm trying to understand is, have you -- normally, it's been like -- there was a period of time, there was like 33% to 34% EBIT margins, anything above that, you invested to drive growth.

Is there potential to float up to 34% to 35%, 35% to 36%?

Or is that not what you're talking about?

Yes, Shlomo, it's Maurizio.

So our current goal is to get our margin back to how you classify 33% to 34%, and that will take us 12 to 24 months at minimum to get there.

It is our desire to get each of the acquisitions at the FactSet historical margin going forward.

And if you look back at the Portware acquisition of 2 years ago, Portware now is very close to the FactSet overall margin, whereby, when we first purchased them, they had a very, very low margin.

And so we are taking the same process today to the most recent acquisitions to get us back to the 33%, 34% that you alluded to for now.

So is that -- was that what the comment was made about over the kind of 12 to 24 months?

Is that the way that we should be thinking about that but not beyond that?

I would.

So currently, that is our plan.

And over time, as we grow the overall business, we do believe there is more leverage beyond that, but that's not our -- right now, we're really focused on the acquisitions and getting those acquisitions back to the historical FactSet margin.

There are no further questions queued up at this time.

I'll turn the call back over to Phil Snow.

Well, thanks, everyone, for joining us on the call today.

If you have additional questions, please call Rima in our Investor Relations department.

And we look forward to talking to you next quarter.

Operator, that ends today's call.

This concludes today's conference call.

You may now disconnect.