Factset Research Systems Inc (FDS) 2018 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the FactSet second quarter earnings call.

(Operator Instructions) Rima Hyder, Vice President of Investor Relations, you may begin your conference.

Thank you, Stephanie, and good morning, everyone.

Welcome to FactSet's Second Quarter 2018 Earnings Conference Call.

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 website 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.

This 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, reconciliation to the most directly comparable GAAP measures are in the appendix of the presentation and in our earnings call issued -- and in our earnings release issued this morning.

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 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.

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

Thank you, Rima.

Good morning, everyone, and thanks for joining us on the call today.

This past quarter, we executed well on our product and growth strategy.

And while we're pleased with the results, we continue to be aware of the difficult market and the cost pressures our clients face.

We remain focused on executing on our plans for fiscal year '18 and expect to end the year within our ASV guidance range.

Turning to second quarter results.

We saw new wins across our product portfolio in the U.S., Europe and Asia.

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

Adjusted diluted EPS increased 17% to $2.12, boosted by the U.S. tax reform.

While the tax reform increased our tax rate this quarter due to onetime items, overall, we expect additional cash savings for the rest of the fiscal year, and we continue to evaluate our plans to utilize the additional cash in fiscal year '18 and beyond.

In our press release this morning, we announced our plans to increase our share repurchase program by $300 million, taking advantage of the $100 million in cash that we plan to repatriate from [overseas].

We also plan to invest a portion of cash savings into both our products and sales efforts.

This will have an impact on our full year adjusted operating margin but -- and we believe will end the year closer to the middle of our guidance range for adjusted operating margin.

This quarter, our adjusted operating margin was 31.4%, slightly lower than our first quarter and last year, as it was impacted by higher FX cost, which Maurizio will go into, into more detail.

Now let's get into the drivers of ASV.

The increase in ASV this quarter was primarily driven by analytics, CTS and portfolio management and trading.

Analytics added more than 50% of the net increase in ASV this quarter.

Within analytics, we saw strong contribution from portfolio analytics, risk, fixed income and portfolio services.

The product enhancements of our multi-asset class risk offering in the first half of FY 2018 allowed us to increase our competitive positioning in the market and secure important global wins.

CTS had another strong quarter, continuing to grow in double digits year-over-year.

The FactSet Data Feeds business contributed globally, with major sales across asset managers and hedge funds.

And the demand for data feeds continues to be driven by a renewed rise in quantitative research across more of our client base.

We have plans to capitalize on this shift by extending our Data Feeds business, allowing more investment professionals from around the world to connect with smarter data.

And there's more to come on this new initiative in the coming weeks and at our upcoming Investor Day next month.

This quarter, we saw an uptick in ASV from new business and offsetting these wins, we saw cancellations but to a lesser degree than the prior year.

Most of the cancellations were due to either to firm closures or consolidation of services, leading to redundancies.

Within this, client cancels driven by firm closures were on par with last year.

We also saw less churn in the existing client base year-over-year.

And while cancellations decreased this quarter, we believe they will remain a recurring theme through the second half of the year.

Turning to our Americas and international businesses.

Our U.S. organic ASV growth rate was 5% fueled by sales of analytics and CTS, primarily to institutional asset managers.

International ASV grew organically by 7% as a result of growth in the Asia Pacific region.

International ASV now represents 38% of our total ASV.

Asia Pac grew over 13% and Europe grew 5%.

In Asia Pac, we saw an increase in new business to asset managers with our analytics products, in particular our risk products.

Our European segment, which includes both Europe and the Middle East, delivered solid results in the second quarter of 2018 versus the same period in 2017, following a weak first quarter of 2018.

Some of the major wins in Europe were from fixed income products, where we displaced our main competitors.

Additionally, we saw a recurring theme of successes from risk analytics products.

We continue to make good progress integrating the products and platforms across all of our acquisitions.

These efforts have begun to open up tremendous upselling and cross-selling opportunities.

For example, the powerful combination of Cognity's risk engine, which is part of the BISAM acquisition, and our existing multi-asset class risk offering drove a key win at Alberta Investment Management, one of Canada's largest institutional investment managers this quarter.

In the second quarter, we made progress against another important milestone in our portfolio lifecycle strategy by linking official performance returns generated from the BISAM B-One engine into our portfolio Analytics Suite.

This strengthens an important link between front and middle office users within our buy-side clients.

And we continue to make good progress integrating CYMBA, our order management system, with Portware, our execution management system, building out broader OEMS functionality.

In conclusion, going into the second half of the year, we continue to push for higher growth and to deepen our relationships with clients.

We're excited with the breadth of our product suite and the ability to provide an increasing number of workflow and content solutions to the investment community.

While we are laser focused on our growth strategy, we remain committed to returning value to our shareholders, demonstrated by the increase in our buyback program.

Over the last 5 years, and including year-to-date in fiscal '18, we returned $2 billion to our shareholders with share repurchases and dividends.

Let me now turn the call over to Maurizio to talk about the second quarter financial results and the revised 2018 annual outlook.

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

As you saw in our press release this morning, we changed our EPS and tax guidance as a result of the U.S. tax reform.

We also increased our share repurchase program by $300 million as we plan to bring back $100 million in cash from overseas.

I will go through these in more detail in a few minutes.

Let's now go through the second quarter results.

GAAP revenues in the second quarter increased 14% to $335 million and 6% to $310 million on an organic basis versus the second quarter of 2017.

Looking at our segment revenue, U.S. revenues grew 5% organically and international revenues increased 7% on an organic basis, with strong performance in the -- from the Asia Pac region.

This growth comes primarily as a result of higher sales from our analytics and Data Feeds products.

ASV increased to $1.35 billion at the end of our second quarter.

Organic ASV increased 6% year-over-year and over $25 million since the end of our first quarter.

This increase was primarily driven by higher cross sales and new business, partially offset by cancellations.

Additionally, this quarter, we also implemented our annual Americas price increase, which added about $10 million to ASV.

This was slightly higher than our price increase last year.

Let's now take a look at our operating expenses.

Operating expenses for the second quarter totaled $240 million, an increase of 18% year-over-year, primarily driven by the acquisitions of BISAM and FDSG, which were purchased in the third quarter of 2017.

Our GAAP operating margin decreased 270 basis points year-over-year to 28.5% primarily due to the previously mentioned higher acquisition costs and a negative impact from foreign currency.

Adjusted operating margin of 31.4% was lower than last year's margin of 31 -- 33.1%.

Without the negative impact of FX this quarter, adjusted operating margin would have been 31.7%.

Second quarter cost of services, expressed as a percentage of revenues, increased by 400 basis points compared with the year-ago period.

The increase was driven by higher employee costs, data costs and amortization of intangible assets primarily driven by the BISAM and FDSG acquisitions.

Higher employee costs were due to merit increases in the last 12 months, increased hiring and the impact of foreign currency.

SG&A expenses, expressed as a percentage of revenues, were down 130 basis points compared with the second quarter of fiscal 2017.

The decrease was primarily the result of foreign exchange hedging gains and higher revenues while holding SG&A expenses constant.

Moving on to the tax rate.

The U.S. tax reform had various impacts on our effective tax rate this quarter.

The federal corporate tax rate was lowered to 21% from 35%, which favorably impacted our tax rate.

However, there were certain onetime charges that offset this benefit and elevated our overall quarterly tax rate.

Keep in mind that our fiscal year-end is August 31, so the change of -- to the federal corporate tax rate results in a blended federal statutory tax rate for fiscal year 2018.

Our second quarter effective tax rate was 42.4%, an increase from 25.5% a year ago primarily due to the onetime tax expense items related to the U.S. tax reform.

These onetime items, totaled $23 million, were primarily related to the toll tax that we have to pay on unremitted foreign earnings and a tax expense associated with our deferred tax asset revaluation.

Excluding these onetime expense items, but including the stock compensation accounting standard update, our current annual effective tax rate is 17.6%.

GAAP EPS decreased to $1.33 this quarter versus $1.68 in the second quarter of 2017.

The decrease was primarily attributable to the onetime tax charges I just mentioned.

Excluding these onetime tax charges and other items, adjusted EPS grew 17% to $2.12.

Free cash flow, which we define as cash generated from operations less capital spending, for our second quarter was $86 million, an increase of approximately $15 million or 20% from the same period last year.

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

Moving on to our share repurchase program.

We repurchased 420,000 shares for $82 million during the second quarter under our existing share repurchase program.

We also expanded our share repurchase program by another $300 million.

Including this expansion, approximately $431 million remains for future share repurchases.

We intend to spend between $325 million and $375 million over the next 12 months on our share repurchases.

This increase of approximately $100 million to the annual spend on share repurchases is due to the planned repatriation of foreign earnings.

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

Now let's turn to guidance for fiscal 2018.

We are confirming the guidance that we gave you in the first quarter for organic ASV, revenue and adjusted operating margin.

Our annual effective tax rate and EPS guidance is updated due to the tax reform, and we are also updating our GAAP operating margin for fiscal 2018.

Our GAAP operating margin is now expected to be in the range of 27.5% to 29%.

Our full year outlook for 2018 was impacted by higher-than-expected, year-to-date nonrecurring expenses.

As a result of the tax reform and the lowering of the U.S. federal corporate tax rate, FactSet's annual effective tax rate is now expected to be in the range of 18% and 19.5%.

This rate excludes the onetime tax items that I previously mentioned but includes the impact from the stock-based compensation accounting change.

GAAP diluted EPS is now expected to be in the range of $6.95 and $7.15.

Adjusted diluted EPS is expected to be in the range of $8.35 and $8.55.

The updated guidance includes the impact of the U.S. tax reform.

The midpoint of the adjusted EPS range represents 16% growth over the prior year.

As we enter the second half of the year, we are confident that we will continue to take market share and provide value to our shareholders and clients.

Thank you for your participation in today's call.

We're now ready for your questions.

(Operator Instructions) Your first question comes from Bill Warmington with Wells Fargo.

So in your opening remarks, you talked about a number of wins, and I wanted to know if you could talk a little bit about the acceleration that you saw on the buy-side ASV specifically, and how much of that is being driven by the lower buy-side churn versus Q1 and how much is actually being driven by new product sales or something else.

Yes.

So hey, Bill, it's Phil Snow.

It's a combination of both.

I think the most exciting thing for us really is the continued adoption of our value-added product suite.

So as I mentioned in my opening remarks, the Analytics Suite added well over half of this year's -- or this quarter's incremental ASV.

So -- and that product suite contributed to the specific win that I mentioned in Canada and a whole host of other wins.

A lot of that is fueled by the fact that in the first quarter, we released 3 new -- 3 risk models.

So we've put a lot of work into that and that is definitely helping, along with all the other great products that are within analytics.

And when we look at cancellations from last year within the existing client base, there were a lot less of them than there were last year, so that definitely helps with the sort of $10 million increase that you saw in this Q2 versus the same quarter a year ago.

And for follow-up, I wanted to ask about the competitive landscape.

It's just there have been a number of developments over the past few months and I wanted to see if you were having -- if you were seeing any impact from Blackstone's investment in Thomson Reuters, Capital IQ SNL's enterprise pricing strategy.

And then kind of throwing this one in there in terms of S&P's acquisition of Kensho in the sense that they're trying to accelerate the AI use across the business lines, including the Capital IQ and SNL.

Yes.

So I would say, the competitive landscape for us really hasn't changed that much from previous quarters.

And Blackstone's acquisition of TR is recent.

I'm not even sure the transaction's completed yet, and I don't think that's going to really affect sort of how we operate in the market and our success in taking market share from all of our competitors.

All right.

And then the final one on the Kensho purchase in terms of the increased use of AI and whether that is something...

So I'm not sure what their plans are there.

Obviously, that's an important theme in the marketplace.

We have our own strategy there internally.

We spend a lot of time focused on machine learning and AI.

Gene Fernandez, who just joined us as CTO from JPMorgan 4 months ago, this is an area that he's very well versed in, and we have some of our own plans essentially to use those sort of techniques as well as data science to really look at the workflows of our clients and continue to improve our product suite.

Your next question comes from Peter Heckmann with Davidson.

I just wanted to confirm on the offset from the lower tax rate, it appears that the net increase in your guidance is less than what we would've calculated purely from the 300 basis point reduction in the tax rate.

And so it sounds as if the offset is increased investments that are pressuring margins down toward the middle end of the range of your non-GAAP operating margin guidance for the year, so more like 31.5% to 32%.

Is that the primary offset?

Yes.

Peter, it's Maurizio.

Let me walk you through exactly that calculation.

So the benefit to FactSet on an annualized basis from the lower tax rate is approximately $0.40 to adjusted EPS.

Because we're really getting a 3-quarter benefit for the year, that drops to $0.30.

And what you see in the guidance is an uptick on both sides of the range by $0.10.

So that $0.20 difference is really broken down proportionally, fairly equally to 3 categories.

One is the incremental investment that we've made in the product and sales that Phil alluded to earlier.

Two is the stronger pound and euro versus the dollar that we're experiencing right now in our P&L.

And then three is a higher weighted average share count because the stock price has risen significantly, making prior option grants that much more dilutive overall to our weighted average shares calculation.

That's helpful.

And then as a follow-up, within your guidance, are you including the stated $325 million to $375 million of share repurchases over the next 2 quarters?

So that is our spend on share repurchase for the next 12 months.

So a piece of that is in our guidance going forward but not the full amount.

Your next question comes from George Tong with Goldman Sachs.

ASV growth organically accelerated to 5.8% in the quarter.

Can you elaborate on how cross-selling activity, new business and cancellations performed relative to expectations, and whether you expect organic growth in ASV to accelerate over the next 2 quarters?

So we're very pleased with what we did in Q2.

And I think we've already sort of laid out in our opening remarks what drove that.

And we're expecting to come in the range of what we said for our annual guidance for ASV, which was $65 million to $85 million for the entire year.

Got it.

And as you look at the trajectory throughout the quarter, do you see a path of acceleration over the next several quarters similar to the pace of acceleration you saw going from fiscal 1Q to fiscal 2Q?

So we gave you the range there.

It is hard to predict.

As I mentioned in my opening remarks, it's still a tough market out there.

So we've -- us accelerating is going to require executing well, getting some key wins like we did in Q2.

But what I can tell you is our pipeline, on a gross basis, it's the biggest it's ever been, but we are dealing with a challenging market.

Your next question comes from Joseph Foresi with Cantor Fitzgerald.

I was wondering how should we think about the trajectory of margins for the rest of the year and long term.

And what's the biggest swing factor there?

So Joe, it's Phil Snow.

So we're expecting to come in, in the middle of the range between what we guided for the year, which was 31% to 32.5%.

We have decided to invest a little bit more back in the product just given what happened with tax reform.

And so our longer-term guidance that we gave, I would expect that to get pushed out a little bit, but we're going to talk more about that at Investor Day next month.

Got it.

Okay.

And then on the demand for analytics, is that more cross-selling?

Or is that a mix of new clients and cross-sell?

Maybe you could just dig into that a little bit more because I wanted to just try to weigh that versus sort of your earlier comments around the demand backdrop.

Yes.

So a lot of it is cross-selling.

A lot of our growth really does come from upselling the existing client base.

And the acquisitions that we've done, a lot of which were in the analytics space, of help there.

So the deal that we did up with AIMCo in Canada was a direct result of getting the acquisition of Cognity combined with our own multi-asset class product.

But that particular sale was a new client.

So that was a significant win versus the cross-selling that we see within the existing client base, so it's a nice combination of both.

Your next question comes from Shlomo Rosenbaum with Stifel.

Phil, can you -- I know it's not a big quarter in terms of adding users, but there's an interesting dynamic where you had your client count increase more than your user account.

And I was wondering if you could just comment a little bit about the market dynamics there, and then I have another question after that.

Sure.

So the client count, the majority of the clients are going to be smaller clients.

Our user count now includes both FactSet workstation as well as StreetAccount users.

And I think just decomposing that a little bit, there a couple of hundred or more FactSet workstation adds this quarter versus some losses in StreetAccount.

So that's sort of what -- how that broke out.

But I guess what I'll go back to is what we've been talking about now for at least a year, which is the shift from workstation to workflow.

So when we're out there in the market and we're providing solutions to clients, workstation is one KPI, but I think it's one that should not be focused on as much historically from an analysis standpoint, and I think that's clear from this quarter's results.

We added at least $25 million in ASV, but you're seeing just a small number of workstations there.

So it's the solutions and the workflows that we're selling to our clients that are accelerating our growth.

Got it.

That's fair.

I mean, are you going to talk more on the Analyst Day about how much of the business is no longer workstation-related, kind of give us a sense of that?

So you'll have to show up to find out.

I know you'll be there, but we are definitely going to be providing more transparency on the different pieces of our business and give you a little bit more guidance there in terms of how to think about the different groups.

If you don't mind my just squeezing in, what are you investing in particularly?

You talked about product in the margin is going to not be necessarily as high, but it looks like you see an opportunity right now in a timely basis to be investing in the products.

Can you give us a little bit more detail on that?

And after that I'll get back in the queue.

Yes.

Sure.

So we're just pouring more gas on the things that are growing faster.

So analytics is one example.

And CTS, which is our Data Feeds business, we're making a big investment in building out the next generation of that.

Your next question comes from Glenn Greene with Oppenheimer.

Just a couple of questions.

I was wondering, Phil, if you could just give us an update on what you've seen as it relates to MiFID.

Obviously, it won't affect [you in] year 1. It doesn't seem to have had a huge impact on your business but maybe just a little bit of color on what you're seeing in the market.

Yes.

So my comments really haven't changed from last quarter.

The European business did better this Q2 than it did in Q2 of FY '17.

So we're showing positive momentum there.

We're continuing to build out more solutions with our regulatory group to address MiFID and other regulatory solutions.

Okay.

And then just on the -- for Maurizio, the margins decelerated a bit in the quarter.

I think last quarter, you had talked about them sequentially increasing throughout the year.

Maybe you took the opportunity late in the quarter to invest, but maybe just some commentary on why the margins sort of went back the wrong way.

So our adjusted margin was 31.7% in Q1.

It dipped to 31.4%.

That 30 basis point reduction was really FX generated.

And if you look at Q3, that effect is less than what we see -- what we saw in Q2.

So that's what really drove the margin to 31.4%.

And as Phil alluded to, it's our projection that the margin will come in somewhere within the middle of the range that we gave out for guidance.

Okay.

So nothing unusual other than the FX, and you didn't take the opportunity to incrementally invest late in the quarter at this point.

No, the majority of what Phil is talking about is really -- is coming out in Q3 and Q4.

Your next question comes from Toni Kaplan with Morgan Stanley.

...be on the block soon.

Would that type of asset be complementary to your portfolio and...

Toni, we didn't hear the beginning of your question.

You were cut off.

Sure.

Recently, news reports mentioned that TradeWeb might be on the block soon.

And so would that type of asset be complementary to your portfolio?

And putting that one aside, what type of acquisitions are most attractive to you right now?

So we're not going to talk about specific acquisitions on this call, but our strategy for M&A hasn't changed.

We continue to evaluate interesting workflow and content tuck-in acquisitions.

And as both Maurizio and I have said, we have the capacity on balance sheet to do something bigger if the right asset presents itself.

Okay.

Great.

And then your employee count was up about 9% in the quarter.

And if I just sort of take a step back, your organic ASV is sort of in the mid-single digits.

It is growing, but is that also pressuring margins?

Basically, like when we think further out, should we -- is it that you're hiring in low-cost locations?

Is it the additions from the acquisitions in employee count?

Or how should we think about sort of a sustainable employee count growth rate versus top line?

Yes.

Toni, it's Maurizio.

So the employee count grew 9% on a year-over-year basis, but that includes employees from the acquisitions of both BISAM and FDSG.

If you strip that out, our employee count grew just north of 4%, and a large part of that are employees that are in India and in the Philippines, which are at a lower cost inherently.

So that's not a significant pressure on us today from a higher headcount number.

Your next question comes from Manav Patnaik with Barclays.

Maybe just another question on the -- your comments around workstation versus workflow KPIs.

Can you maybe -- can you just help explain why client retention keeps dropping but you sound like the market is pretty good for you guys?

So what is the disconnect there?

So the client retention, I think the majority of our ASV really is bundled into the existing clients and the larger clients that we've had for a long time and that we're cross-selling.

So I think it's really just a function of us losing on a net basis some much smaller clients on the tail.

But again, when you look at each of our quarters essentially, and you think about sort of what's shifting the ASV, the vast majority is really always a function of the existing clients.

It's not heavily influenced by -- typically by lost clients.

Okay.

And then just on your enterprise selling efforts.

I was just wondering like, so when you go to your client, I guess, is this an enterprise-wide agreement?

Or do you still -- and just maybe a little bit more color basically on how that contract is structured now with the added services that you've collected over the years?

So I mean we've had long-term agreements with our clients for a very long time.

If you're a smaller client or you're a smaller hedge fund or a family office, you might come on with a 1-year contract that renews every year.

But for a lot of our larger clients now, we're negotiating a longer-term agreement with them, which could be 3 to 5 years in length that could include a whole range of different services.

(Operator Instructions) Your next question comes from Hamzah Mazari with Macquarie.

This is Kayvon Rahbar filling in for Hamzah.

Can you give us a sense on your sales force productivity?

How is it trending?

Is there any room for improvement?

So we're -- that's not something we track in terms of the metric that we could sort of talk about on this call.

We've got a large, very talented sales force that has a wide set of capabilities.

And historically, the cost of the sales force as a percentage of our revenues remains fairly constant.

Your next question comes from Peter Appert with Piper Jaffray.

So Phil or Maurizio, is there any structural difference between the workstation and the feed business in terms of the profitability dynamic?

I'm thinking that maybe there's some efficiencies in selling feeds in terms of bigger sales that could make that a more profitable business, that might move the needle in terms of margin.

Is that accurate?

Yes.

So the feeds business is a great business.

A lot of our success has been it's because it's a by-product of the content that we collect ourselves and we're becoming more and more efficient at selling feeds.

The CTS team has done a tremendous job standardizing a lot of the feeds that we have.

So that, I think, is partly why you're seeing such a great adoption of our feeds business is that it's become standardized.

We're marketing it more effectively and our sales force is becoming more expert in selling it just in general.

But you raise a good point there.

It's a high-margin business and it's one that we continue to think is going to be a revenue driver for us.

Are the feed users -- what's the overlap between the feed clients and workstation clients?

It's low but it depends on the shop.

So there may be -- we may be servicing a large shop with both a feed and a workstation.

We sell a lot of feeds to quants.

So a lot of FactSet's feed business goes to quantitative investors who will take our content and put it into their own internal quant systems.

But the same quant users might also be using FactSet's really excellent suite of quant products to do another piece of that process.

And in some cases, they'll just be using one or the other.

Got it.

Is there an expectation that as the feed business grows as a percent of revenues, that can be a driver of higher margin?

Or is that not a realistic expectation?

I think it's not a bad thesis once -- if it became a bigger piece of FactSet.

Today, it's 10% and growing nicely.

But as it gets larger, I think that's -- it definitely could help our margin.

Your next question comes from Kevin McVeigh with Deutsche Bank.

And I wonder if you could give us a sense -- it sounds like the incremental boost in the buyback is the result of the repatriation.

Is there any way to think about the structural benefit from the tax reform and what incremental cash flow is associated with that?

Will that be deployed to buy back or acquisitions?

Or how should we think about that longer term?

So our capital allocation process really has not changed.

We're still very opportunistic on the M&A front.

If we're not doing M&A, then we're reinvesting back to shareholders in the dividend and stock repurchase.

The dividend has been growing very nicely on a year-over-year basis, but we don't see any significant change to that in terms of growth to the dividend.

So it's really the large majority of our free cash flow, we're not doing M&A.

Right now it's most accretive for us to go buy back stock.

And so that's why you're seeing that incremental $100 million from being able to buy -- bring back cash from overseas that we're earning interest on at a very low basis-point return.

Great.

And then just as a follow-up, is there a way to think about -- it sounds like 1/3 of that reinvestment is designed to boost the organic growth.

Any thoughts on what it could mean incrementally to the organic growth in terms of the margin reinvestment that you outlined?

So when we think about that additional investment, we're really trying to push forward ASV growth and maintain or grow within our guidance.

It's really pushing our ASV growth within our guidance and we're really -- our growth right now for this year is really within that guidance number.

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

So similar to last quarter, can you just provide an update on ASV that has been booked to date in the current quarter?

Can you repeat the question?

Just wanted to see if we can get an update on ASV that has been booked to date in the current quarter.

No, we don't disclose that.

Okay.

It's just that you provided that level of color last quarter.

So I just wanted to see if we could get that.

So on margins, so Maurizio, when do you think we can get back to legacy levels at this point, so maybe the 33% to 34% range?

Yes.

I guess I would go back to what Phil said earlier.

I think the time frame has pushed out a little bit, and we're still focused on it but it has been pushed out a little bit longer than what we had initially thought.

And we're going to give a little bit more guidance at Investor Day in a few weeks.

Okay.

Got it.

And then just lastly, wanted to confirm, you're unhedged to all currencies but the rupee at this point.

We are unhedged to all currencies, ex rupee and Philippines peso.

Your next question comes from Tim McHugh with William Blair.

Just kind of on the FX impact on margins.

Did you say that the impact is less, I guess, going into the third quarter now?

And just trying to understand given the currency trends, what type of impact do you expect at this point for the full year and relative to prior expectations and then 3Q versus 2Q?

Yes.

So if you look at Q3 versus Q2, in Q2, we had -- it affected our margin by about 30 basis points.

When we look at current rates and our exposure in Q3, that negative has come down somewhat.

So it's less of an effect in Q3 versus Q2.

If you look at it on a full year basis, it will have -- it will be a negative effect just overall for the full fiscal year.

Okay.

And then -- and so the reinvestment too, I guess, given the numbers you gave, it seems like that's like 20 basis points to the full year number, if it's kind of 1/3 of the $0.20.

Is that in the right ballpark for that number?

Approximately, between 20 and 30 basis points, correct.

Okay.

And then last question, just another numbers one.

The analytics business driving roughly half of the incremental ASV.

Can you -- since we don't know the size of that business, I guess, how does that compare?

Has that been true or close to true the last couple of quarters?

Is that significantly different than you've been seeing?

Well, the first quarter is always a very small quarter, so that's -- I think the right thing to do is to show up at Investor Day and we'll be providing some more color at that time.

Your next question comes from Keith Housum with Northcoast Research.

As we think about the analytics business, it sounds like you obviously had a good quarter.

Is there a feeling with regards momentum at your back here in that segment?

It sounds like this is an area that's done better for you over the past year or so.

Can you talk about the current environment and the pipeline in the segment, how you're thinking about that?

So the analytics business has been a growth driver of FactSet's business for the last 2 decades honestly, beginning with the portfolio analysis, equity products.

So this is really -- it's evolved now to sort of have 7 or 8 business lines within it as well as all of the acquisitions that we've done, not all of them, but BISAM, Vermilion, and so on, so it's a great business.

It's one of our stickiest products.

And very often, it drives a lot of our sales and brings other products with it.

So this is not a new trend.

We're just beginning to talk about it in a little bit more of a granular way than we have historically.

Got it.

And then, Maurizio, can you remind us about your thought process regarding your debt levels in the rising interest rate environment?

Yes.

So currently, we have $575 million in debt and the debt -- our cost of capital is just right around 300 basis points.

At that level, it's still very accretive for us to continue to invest our free cash flow to buy back stock.

As the Fed increases interest rates, we continue to reevaluate it.

But as of right now, it's still very accretive for us to still do -- buy back stock and lower our share count.

Great.

And do you guys have any derivatives to protect the interest rates where it's at now or no?

Currently, we don't have hedges on the interest rates, no.

Your last question comes from Alex Kramm with UBS.

Just a couple of clean-ups here.

First of all, on Portware, I think historically, you've talked about the fact that there's some parts of the business that is trading volume-related.

And clearly, year-to-date, we've seen spike in volatility, spike in volumes.

So just curious how much that added in the quarter.

And then also Maurizio, how does that impact ASV?

Because February, in particular, was very strong and that's when your quarter ends.

How do you use that variable component there in your ASV number?

So this is Phil.

I'll answer the first part of your question, which is we don't -- we've historically not broken out the transaction revenue part of Portware.

Alex, it's Maurizio.

So in our ASV calculation, we look at transaction revenues over the last 12 months and that's what we include in ASV.

So we look at the last 12-months activity and that's our ASV number for the client for transactional revenue or ASV.

All right.

So 1 month doesn't really drive anything up in a big way.

Okay.

Good.

Correct.

And then just secondly, just coming back to the tax rate in a minute, I think I got it now, but like you gave a lot of different numbers here.

If I think about the next fiscal year, I know that's still -- it's a couple of quarters away, but it sounds like you were kind of -- tax rate going forward, if we assume the same kind of stock-based comp levels, it should be around like 17%, 17.5%?

Did I hear that correctly like on a go-forward basis?

Yes.

So this year is a blended year because we really only get 8 months out of the 12 months of benefit.

But if you look at fiscal '19, you would see an incremental approximately 200 basis points decline in the existing tax rate going forward for the full year benefit in 2019.

Yes.

Excellent.

And maybe the last one, just very quickly, since somebody brought up MiFID II as well.

When we talk to clients over there, we're hearing that increasingly companies are taking this as an opportunity to review their budgets and look at their spend more holistically.

I mean, are you seeing any of that already out of Europe or still something that we should be looking for as people kind of think about the total spend?

Yes.

So we've not seen any impact yet.

Obviously, we check in with our business leaders over there and I think it's -- so far, the trends for us in Europe remain the same as they have been.

So we're hopefully anticipating that in the second half, we'll have as strong a Q3 and Q4 in Europe as we did in Q2.

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

As we noted in our press release, we are hosting an Investor Day on April 17 in New York City.

Details on how to register for this event are in our earnings release and on our website.

We hope to see many of you at the event.

And if you have additional questions, please call Rima Hyder.

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.