FactSet Research Systems, Inc. FDS
Q2 2013 Earnings Call Transcript
Transcript Call Date 03/19/2013

Operator: Welcome and thank you for standing by. All participants are in a listen-only mode until the question-and-answer session of today's conference call.

Now, I'll turn the meeting over to your host, Rachel Stern, Senior Vice President, Strategic Resources and General Counsel. Thank you, you may proceed.

Rachel R. Stern - SVP, General Counsel and Secretary: Thank you, operator. Good morning and thanks to all of you for participating today. Welcome to FactSet's Second Quarter 2013 Earnings Conference Call. Joining me today are Phil Hadley, Chairman and CEO; Peter Walsh, Chief Operating Officer; and Mike Frankenfield, Director of Global Sales.

This conference call is being transcribed in real-time by FactSet's CallStreet Service and is being broadcast live via the Internet at factset.com. A replay of this call will also be available on our website. Condensed highlights will be available shortly via StreetAccount.

Our call will contain forward-looking statements reflecting management's expectations based on currently available information. Actual results may differ materially. More information about factors that could affect FactSet's business and financial results can be found in FactSet's filings with the SEC.

Consistent with previous quarters, we have included a table at the end of the press release that reconciles non-GAAP measures to GAAP. Annual Subscription Value, or ASV, is a key metric for FactSet. Please recall that ASV is a snapshot view of client subscriptions and represents our forward-looking revenues for the next 12 months.

Lastly, FactSet undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise.

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

Peter G. Walsh - EVP and COO: Thank you, Rachel, and good morning, everyone. Here's how I plan to spend our time today. First, I'll cover two items that impacted EPS this quarter. Second, we'll review quarterly results. Third, I'll provide guidance for our next quarter. Fourth and finally, we'll end with your questions.

Let's begin by covering the two significant items that occurred in Q2. One, we recorded a non-cash pre-tax charge of $15.7 million. Performance-based stock options were granted in connection with the acquisition of Market Metrics back in June 2010. Since then the Market Metrics business accelerated to achieve stretch revenue targets causing the performance options to best.

Just as a reminder when acquired, the Market Metrics business was $16 million in ASV. While we are very pleased about Market Metrics, its size relative to the rest of FactSet means it's outperformance has had a limited impact on our overall growth rate at this juncture.

Two, in Q2 the federal R&D tax credit was signed back into law and renewed retroactively to January 1, 2012. Although Congress has renewed this credit every year since 1981, it laps in 2012, and under U.S. GAAP were not permitted to recognize the benefit until it actually becomes law.

FactSet realize an income tax benefit of $4.9 million during the second quarter of fiscal '13. The R&D tax credit impacted fiscal 2013 by reducing our projected annual effective tax rate. You will notice this reduction when I'll cover Q3 guidance later on in this call.

The EPS impact was a $0.25 decrease related to vesting of the performance based stock options, partially offset by $0.11 increase from the reinstatement of the federal R&D tax credit. The net effect of both adjustments decreased EPS by $0.14 and was added back to EPS to arrive at adjusted EPS of $1.14. Adjusted EPS is comparable in methodology to a large majority of street estimates. This map is also outlined clearly on Page 8 of today's press release.

Now let's take a look at our quarter. Q2 was another solid quarter for us in which we did a lot of heavy lifting. ASV grew by $17.3 million excluding currency and was $863 million at quarter end, representing a 6% organic increase year-over-year. ASV from U.S. operations grew to $593 million and ASV from international operations was $270 million or 31% of the total.

Looking at revenues, this quarter, buy-side revenues inched up to 82% and the remaining 18% was derived from sell-side clients who perform M&A advisory and equity research. Adjusted EPS increased to $1.14 this quarter, up 12% from a year ago. We are proud that this is our 11th consecutive quarter of double digit EPS growth. Even in the face of volatile markets, we've been able to sustain healthy growth due to our strong business model and our ability to grow market share.

Free cash flow which is defined as cash generated from operations, less capital spending was $43 million this quarter, up 11% from $39 million in the same quarter last year. Free cash flow grew this quarter because higher levels of non-cash expenses were offset by lower net income and higher income tax payments.

Over the past 12 months, free cash flow was 10% higher than net income which we believe continues to underscore the high quality of our earnings. Accounts receivable this quarter increased by $14 million over the prior year with ASV in the same period up $60 million.

Our DSOs were 36 days at quarter end compared to 34 days at the end of the last quarter. The increase in our DSOs is not a worry and is a result of timing. Please recall that during the second quarter we typically issue invoices for services to be provided over the next 12 months. This year those annual invoices aggregated to $9 million and accounts receivable rose as expected and in the same patter as over the last five years.

FactSet's cash and investment balance was $166 million at quarter end, down $59 million from Q1. This quarter, we spent $3 million in capital expenditures. More significantly, we repurchased 1.2 million shares of FactSet stock for a total of $109 million, leaving $55 million authorized for future share repurchases at February 28.

At quarter end, there were 43.6 million shares outstanding. We also paid a regular quarterly dividend of $14 million. With dividends paid and share repurchases combined we have returned $286 million to shareholders over the past 12 months.

Let's now turn to the P&L. This quarter, FactSet's revenues grew to $213 million, a year-over-year gain of 7%. The growth rate can be broken down into 6% organic and 1% from an acquisition. Adjusted operating income rose to $72 million, up 7% compared to the prior year. We adjusted GAAP operating income to exclude the non-cash pre-tax charge of $15.7 million discussed earlier related to the vesting of performance options.

Adjusted net income rose 8% to $50.6 million during the quarter. Net income has also been adjusted to reflect the impact of the performance options and the reinstatement of the federal R&D tax credit.

U.S. revenues rose to $146 million in the second quarter, up 7% from the same period last year. Our second quarter revenues include the StreetAccount acquisition which added 2% to the U.S. growth rate.

Total non-U.S. revenues rose 7% to $67 million this quarter and accounted for 32% of total revenues. Second quarter revenues from Europe and the Asia-Pac regions were $52 million and $15 million, respectively, with growth rates in each regions of 6% and 9%, year-over-year.

Let's look at some of the revenue drivers for this quarter. We added 35 net new clients this quarter representing our 13th consecutive quarter of net client growth, reaching a total of 2,436 clients. New client acquisition is important for us because it helps to lay the ground work for future sales consistent with our long standing strategy of increasing sales of workstations, applications and content at existing clients.

Our net user count declined this quarter by 150 to a total of 49,500 at quarter end. User additions in the buy-side were more than offset by reductions in the sell-side. We believe that although headcount at our sell-side clients is still under pressure, we continue to make gains on the buy-side which constitutes the bulk of our revenues.

Please also note that average ASV per buy-side user is significantly higher than a sell-side user creating a positive undertone to this shift. Our annual client retention this year was greater than 95% of ASV and our retention rate in terms of a number of clients increased to 93%. These statistics demonstrate high client engagement levels.

Our portfolio analytics suite of products continues to be well received within our client base. The PA suite includes 10 separate products and covers a range of workflows around portfolios. Within the suite, equity PA performed very well and our fixed income business grew at a very attractive rate. A slight positive is that we discontinued the derivative solutions product during the quarter. We have been phasing out the user-interface for several years and as we've integrated its backend technology into our fixed income in PA product.

During this period, there has been a small drag on ASV. There is no further exposure looking ahead. We've also made in roads at wealth management clients over the past quarter. There are solid rates of client and user acquisitions occurring both in Europe and in the U.S. Our success speaks to our ability to integrate portfolios, a broad range of high quality content and an easy-to-use set of company analysis reports.

Our company analysis suite was enhanced again during the quarter with release of Company Guide. Company Guide is the next-generation application for company analysis on FactSet. It's quick, easy and graphically rich. Reports are linked seamlessly between your FactSet desktop and iPad.

In addition to on-platforms sales, we've also seen strong growth in our Market Metrics business. Of course divesting of the performance options grants is a clear indication that the business has exceeded internal growth milestones. Market Metrics continues to be successful with its local market share study as well as on mutual fund variable annuity and life insurance analytical products and applications for wholesalers in the U.S. and also now in Europe.

We've also seen growth from our proprietary content. Our StreetAccount product is receiving high client praise. We continue to expand it in unique ways to make our user base more efficient. We've also been successful in licensing proprietary FactSet data, especially FactSet Fundamentals and FactSet Estimates. Types of data license and feed form include ownership, call transcripts, M&A, corporate hierarchy data as well. Data feeds are consumed by a range of clients, including existing large FactSet clients and some outside of our core client base that do not manage money or provide sell-side services.

Lastly, as we've been doing for the past several years, we issued our annual price increase during the second quarter. The price increased impacted the majority of our U.S. investment management business. The price change this year increased ASV by $9 million compared to $10 million a year ago.

Let's take a look at the expense side now. Operating expenses were $157 million, up 7% when excluding the non-cash charge from vesting our performance options. The adjusted operating margins were 33.7%, consistent with last quarter and a year ago. Cost of services as a percentage of revenues increased 230 basis points over the same period last year. This increase resulted from higher compensation expense from new hires in software engineering, consulting and content collection as well as new employees from StreetAccount, partially offset by a lower computer maintenance cost and a decrease in depreciation from computer hardware becoming fully depreciated.

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

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

Please note that like last year, we expect our headcount growth to decline in the upcoming third quarter. But third quarter is not a heavy hiring quarter for us and our offshore content collection centers because there will be peak filing season. During that period we concentrate on processing filings and do not hire, train and integrate many new employees. We also do not have a new consulting or software engineering class starting in Q3. Those classes begin in the summer after university graduations in the spring. Like previous years we expect Q4 to be a strong quarter for new hires.

The effective tax rate this quarter was 21.2% compared to 30.9% a year ago. The lower tax rate was a result of reinstatement of the federal R&D tax credit, excluding the $4.9 million of income tax benefits, our effective tax rate was 29.9%. The R&D tax credit lowered our tax rate by 2% and we are at $0.03 to EPS each quarter looking ahead.

Now, let's turn to our guidance for the second quarter, for the third quarter of fiscal 2013. Revenues are expected to range between $213 million and $216 million. The mid-point of this range would mean revenue growth of 5% in Q3. We are anticipating continued weakness in sell-side ASV and no immediate uptick in buy-side purchasing behavior.

Operating margins are expected to range between 33% and 34%. GAAP diluted EPS should range between a $1.14 and $1.16. The midpoint of the range represents 10% growth over last year's third quarter.

Our annual effective tax rate should range between 29.5% and 30.5%. We continue to expect that capital expenditures for the full 2013 fiscal year should range between $20 million and $28 million, net of landlord contributions. To provide a little extra color on our revenue guidance, I'd also like to take a moment to look at general views of the market over the past quarter.

Despite optimism expressed by the global equity markets, we are still facing the effects of significant job cuts at many of the largest global investment banks. Some estimates put the number of headcount reductions at 11,000 jobs at bulge bracket banks since November 2012. Those cuts have been driven by increasing regulation, lower trading volumes and the continuation of the economic crisis in some parts of world.

Although, we're impacted by user reductions, it's important to note that many of the areas hardest hit are not those typically serviced by FactSet. Our market on the sell-side which accounts for only 18% of our revenues is still on a very difficult and contracting environment. The good news is that our primary user groups are not enduring new structural changes. Though they are still tightening, equity research has been under tight expense management for many years and M&A deal flow has always had some cyclicality, but is essentially the same business model as before the global financial crisis.

The bad news is that when large sell-side firms struggle, even in departments we do not cover, it impacts near term ASV for all vendors in our industry. The news is somewhat brighter for the buy-side. Coming off double-digit equity returns in almost all global markets in 2012 equity returns in 2013 have been solid thus far. AUM for our clients and prospects have also been augmented by year-to-date inflows too. These inflows are from idle cash and not from fixed income strategies. So, there is potential for more AUM inflows if mangers decide to allocate away from fixed income and back to equity.

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

To wrap it up, our business model continues to show its resilience. Again this quarter, we have shown that even in a tough environment for 18% of our clients we continue to grow our market share. We have put up another double-digit quarter of EPS growth and our three-year average return on equity has increased to 33%. We've been recognized for the fifth time in six years in Fortune's 100 Best Companies to Work For at our highest ranking to-date. We're pleased to receive this acknowledgement and we've been awarded similar accolades in the U.K. and France in the recent past. Our employees are FactSet's most valuable asset and the recognitions in these surveys are based on their feedback. We're proud of that and it's strategically important to be known as a Great Place to Work.

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

Transcript Call Date 03/19/2013

Operator: Alex Kramm, UBS.

Alex Kramm - UBS: So, maybe we can just start on the pricing environment for a second. You think you made the comment here that it was a little bit of a lower increase in last year, not by much but maybe you can just kind of outline where you saw good pricing – where you saw maybe a little bit of pricing pressure or where the discussion or how the discussions went if there was lot of push back, maybe just talk to that for a second.

Michael D. Frankenfield - EVP and Director of Global Sales: Alex, it's Mike Frankenfield. The price this quarter was to the U.S. investment management segment of our client base, it was $9 million which I thought it was a good accomplishment really continues to demonstrate the value that we are delivering to clients and how they think about our product. It was a little bit less than last year, there are couple of reasons for that. One reason is that with our largest clients, we continue to create fixed term agreements with them where price increases built into those agreements happens at different times of the year. So, as we increase the number of these agreements so our fewer clients that are directly affected by the price increase that we just did. Secondly, there were some clients that continue to struggle with their business model, so there is no question we made some accommodation, some like few more accommodation than we did last year; however, it was not a significantly meaningful number. The price increase this year affected multiple product lines including our core workstation, data feeds, really all of the areas where we felt we were delivering the most value and where we have the greatest (credit). So, overall, (indiscernible) how it went.

Alex Kramm - UBS: And then I guess maybe to be just continue on that when you say areas of weakness, when you talk about the buy-side a little bit, when we talk to in particular some of the smaller (long-only) shops, it seems like for those guys, I don't want to say every dollar counts, but they are certainly seemed to be looking more and more at their technology spend, so anything – maybe additional you can you can provide here like what you think about the different kinds of organizations where you see more pressure in terms of even just clients – to get clients to sign up or even client losses?

Philip A. Hadley - Chairman and CEO: This is Phil. Actually, because of the investment we've made in content in the last decade it's really allowed us to provide a complete solution. It doesn't require third-party data spend like it once did. And as you can see, even in a choppy environment, we're able to add net clients to the client base and many of those are coming from the smaller firms where they can find a complete solution on (indiscernible) their portfolio manager (and in trading) work flows in a very cost effective solution.

Alex Kramm - UBS: Maybe just lastly, it seems like in Europe, after I think a couple of quarters or quarter of actually ASV declining this quarter, I think rebound, so maybe just the outlook on what you're seeing or was there do you think the worst behind us or too early to get more optimistic?

Philip A. Hadley - Chairman and CEO: To generalize Europe into one market is probably not the right way to look it. I think our experience is that the U.K. tends to track, (indiscernible) in the U.S. and is very much in sync. The rest of Europe tend to move on different cycles depending on what part of Europe you are in. I think in general, it feels very similar to the U.S. market, if you are grouping the whole thing together. Southern Europe that obviously into a lot of pressure isn't that material piece of business for the financial markets as Northern Europe, Germany, France and the U.K.

Operator: (Toni Kaplan), Morgan Stanley.

Toni Kaplan - Morgan Stanley: Can you give some more color on the user account decline? Was that related to a specific sell-side loss or a sell-side cutback?

Michael D. Frankenfield - EVP and Director of Global Sales: The declines on the sell-side were broad-based not affected by any single client. We're beginning to move into the point of the year where the analyst class begins to leave the investment banks to go back to business school. So, we're going to continue to see some softness in the headcount numbers on the sell-side until the new summer classes gets hired and those will start in the May-June timeframe.

Toni Kaplan - Morgan Stanley: Now that you've owned StreetAccount for a few months, can you comment on how the cross-selling has been going so far?

Michael D. Frankenfield - EVP and Director of Global Sales: StreetAccount is having a rapid uptake throughout the client base. It's available in the core workstation. It's also available on a standalone basis. We've organized resources to focus on selling the product into users that have a core workstation as well selling on a standalone basis. So, we continue to make progress with that product and we're pleased with what we see.

Operator: Peter Appert, Piper Jaffray.

Peter Appert - Piper Jaffray: So, Phil, you guys have enjoyed great success in terms of growing your market share over the last – long period of time. Is it possible to quantify what the revenue growth from share gain is versus organic increases in client spend in the most recent period?

Philip A. Hadley - Chairman and CEO: It's a great question, Peter. There is no definitive way, it's just an opinion (and mind speak). But I'd say certainly in the last two years there is probably zero increase in net in the industry and spend and maybe even contracting to some degree. So, if you were to look at our revenue growth that is really for the most part coming at an expense of a competitor. I'd put that on a net-net, so you are netting new firm creation against firms that are going out of business kind of neutralize each other. And the rest of it is the competitors in the space fighting for the spend that currently exists.

Peter Appert - Piper Jaffray: And you've addressed this I know in prior quarters, but is it possible to give us any incremental color on what you see going on from a competitive standpoint currently?

Philip A. Hadley - Chairman and CEO: Our business is not one that changes much quarter-to-quarter, certainly not even really year-to-year. The players in the space, Bloomberg, Thomson, Reuters and S&P have been in the business for a decade at this point. I think the more important thing really is just to understand what's going on in the client base of which fortunately for everyone in this call they live it just like we do, maybe even with better information that's worth pointing of own in your firm. Obviously, I don't think it's any news to anybody that the sell-side large firms are still figuring out how to structure their firms. We are fortunate in that we are in equity research which the business model has certainly changed over the last decade, but it's still steady in whatever form that it currently takes. And investment banking has always been a bit cyclical, but as a function in the capital markets is always there and weaker times. On the buy-side I think the thing strikes me at this point and I'm confident it will come back is it doesn't feel like the big firms are quite hiring yet. Once they start hiring, I think that focus for us and see count, but it also is a signal that they are investing in their business and feel confident about the future. That's a big generalization. Obviously some firms are in better shape than others, but it's what it feels like at the moment.

Peter Appert - Piper Jaffray: That would be contingent on just assets under management growing more quickly?

Philip A. Hadley - Chairman and CEO: Yeah. And there is a strong correlation with that and it tends to have a lag effect.

Peter Appert - Piper Jaffray: So Phil, the – over the next couple of years, what should we think about in terms of what the big growth drivers for FactSet could be in terms of how you maybe quantify the opportunities in terms of product sets or data sets or new offerings and any help on that?

Philip A. Hadley - Chairman and CEO: I think the one great piece of FactSet is it's not a one trip pony. It's a business that expands in all kinds of different dimension. So, there is buy-side, sell-side U.S., non-U.S. and even for us a newer area is the (off-side platform) or the data feed business. So, all of those in fact just will have huge opportunities and we're still small in the space relative to the big players. So, whether it's users or clients, there is still huge opportunity for us and then product line within those clients there is still less of opportunities. But far as really strong execution in a tight market, but I feel confident that we're gaining share relative to players in the space. So, on a competitor adjusted basis, I think we're in strong position.

Peter Appert - Piper Jaffray: So just last housekeeping thing. One, the data licensing, how big is that currently? How big do you think it could be and then secondly on the tax rate, the 29.5% to 30.5%, just I understand exactly how the guidance works, is the assumption then for the third and fourth quarter of the tax rate will be at that, call it, roughly 30% level?

Philip A. Hadley - Chairman and CEO: I'll (indiscernible) for the tax question, but – what was the…

Peter Appert - Piper Jaffray: The license data, how big is that market (indiscernible) it could be?

Philip A. Hadley - Chairman and CEO: It's not something we quantify at this point, but it's definitely a very positive side effect of being in a content business in that you have control of the content and the methods in which it will be delivered. Before we really only had the ability to deliver FactSet in the content – in the platform because that's really what people had to license and it really is valuable to us because it allows us to serve other workflows. The quantitative workflow, for example, is one that is a constantly evolving workflow and given the changing computing power a great deal of that quant workflow happens locally as opposed to on FactSet. And to be able to offer both solutions depending on what flavor of client is interested in these is very valuable.

Peter G. Walsh - EVP and COO: Peter, regarding your tax rate question, the way to interpret the guidance is to look at the midpoint of the range and that is our best estimate of the effective tax rate for Q3.

Operator: Glenn Greene, Oppenheimer.

Glenn Greene - Oppenheimer: I just want to go back to the pricing for a couple of clarifications. Do you ever raise pricing on the international part of your base and if you don't, is there a reason for that and then I've got a follow-up related to the timing of the price increase.

Michael D. Frankenfield - EVP and Director of Global Sales: We do increase price in the international segment. That typically happens in Q3. Historically, it's been relatively small and we haven't called it out.

Glenn Greene - Oppenheimer: Then just the timing of the price increase, does it happen such that it happens towards the end of the quarter where it really doesn't have an impact on the revenue but does impact the ASV, meaning, you'll get the benefit in the third quarter from a revenue perspective?

Michael D. Frankenfield - EVP and Director of Global Sales: It's effective January 1.

Glenn Greene - Oppenheimer: So, you've got a partial quarter benefit to the revenue.

Michael D. Frankenfield - EVP and Director of Global Sales: Yes.

Glenn Greene - Oppenheimer: Then on you talked about the Wealth Management initiatives were so last quarter I think, then I had heard before than you sort of had some prepared comments on it again this quarter. I was wondering is could give us a little bit more granularity, give us some frame of reference maybe how fast it's growing, order of magnitude what it is in terms of the user base, sort of less than 5% of users, just some directional commentary on how meaningful this part of the business could be?

Michael D. Frankenfield - EVP and Director of Global Sales: So, within the Wealth segment, we are really focused on the users that are directing their activity towards ultra-high network, high network to managers that are managing 0.5 billion of that typically. We are not worrying on in our product at this point towards going after the very, very large historical retail growth in networks, 15,000 number etcetera. We are really looking for within those networks to identify the key power users the users that are really acting like institutional investors. So, we don't expect it to have significant impact on overall user count, but each one of these that signs up is almost like signing up for brand new client with all of the positive traits that come with getting the new client. They have lots of future demand for products, so we are allocating resource to that segment.

Glenn Greene - Oppenheimer: And then just one thing, just the data point. The 82% buy-side mix, is that pretty consistent domestic versus international or any differences in terms of the mix.

Michael D. Frankenfield - EVP and Director of Global Sales: Mix has been very, very consistent over time.

Glenn Greene - Oppenheimer: Meaning, if it's similar internationally as it is domestic?

Michael D. Frankenfield - EVP and Director of Global Sales: Yes.

Operator: Tim McCue, William Blair.

Tim McCue - William Blair: First just wanted to ask about the stepped up pace of buyback this quarter, did that signal any change in terms of your capital deployment strategy or is it just timing in terms of when you got to it throughout the year?

Peter G. Walsh - EVP and COO: It's Peter. If you study our buyback overtime, you can see that it has a broad range of how much we deploy quarter-to-quarter. We definitely view it as a program. It's ranged from $14 million to $109 million over the last two or three year. So, we certainly viewed the opportunity to buy back shares as being, one very accretive and two opportunistic at the price that we acquired in Q2.

Tim McCue - William Blair: I guess secondly, the comment about the sell-side does the environment feel like it actually got worst this past quarter, is it more just a – it hasn't gotten any better and continues to be a negative factor?

Philip A. Hadley - Chairman and CEO: I don't think anything at least from my opinion has really changed. You see we have agreements with clients sometimes when we've had several positive things on the sell-side where we're gaining shares and then you certainly have big firm that have agreements where they've just got more products than you know that potentially when time comes around it, they're going to buy less products. So, it's really just a combination of positive and negatives that flush through, but overall it's a negative.

Tim McCue - William Blair: Last question just is, you talked about a drag from integrating the derivatives products into the fixed income product. Can you give us a sense for how much that has been in the last year?

Philip A. Hadley - Chairman and CEO: When we acquired derivatives solutions back in 2005, if I recall I think the ASV that we acquired was $11 million. We haven't been selling the product for a long period – for many years and so the drag is rather small, but it's been occurring over the last several years. And more importantly, we integrated all the backend calculations into our (fixed) product and it's been very, very important part of why we have been growing fixed income business at very attractive rates.

Operator: Shlomo Rosenbaum, Stifel.

Shlomo Rosenbaum - Stifel Nicolaus: I was just trying to get the story behind the guidance. If you take ASV divided by 4, you'd end up on the upper end of the guidance range. So, I'm just wondering why the lower end is kind of flat. Is that an assumption that we have continuing pressure on the sell-side? Can you just walk us through some of the assumptions behind the guidance?

Peter G. Walsh - EVP and COO: ASV is a terrific metric for about a little more than 99% of our revenues. So, your calculation and methodology is really sound. There is roughly $6 million of our revenues that do not incur evenly over the quarter and Q3 happens to be the one quarter where it's at its lowest point. Q4 is at its highest point because of workstation sold to some of our interns at banks and that's what accounts for the difference.

Shlomo Rosenbaum - Stifel Nicolaus: In your opinion, how long do you think the equity market need to be elevated before your larger clients are going to start hiring? Is there some kind of historical precedent that after a 25% gain or something like that you start to see you move six months later. I mean, what have you guys seen?

Philip A. Hadley - Chairman and CEO: Shlomo, if you've got the answer to that question, I would really like to find out how – I guess we've been through several cycles and I think the part is very clear to me as everyone is different. And this one just feels different than the others. So, I think your clients and how they respond you will find out as quickly as we do when you feel like things are different.

Shlomo Rosenbaum - Stifel Nicolaus: So, just no rule of thumb over there, and that's just…

Philip A. Hadley - Chairman and CEO: Well, I mean think it's – their revenue volumes are based on assets under management and assets under management in particular asset classes benefit FactSet. So, certainly assets under management in equity mutual funds would be a positive for FactSet. Obviously, equity markets they have done well, some participants have done way better than other, but I think that's probably the metric I'd look at and mostly likely will be the one that would start to create headcount and investment in that space.

Shlomo Rosenbaum - Stifel Nicolaus: And can you give us more color on the Fixed Income in PA how much of your growth on the buy-side is attributable to the fact that you guys are making in-roads in some of those clients.

Philip A. Hadley - Chairman and CEO: We certainly don't breakout the exact amounts. I think our practice really is to call out things that are drivers in our growth and it certainly get qualifies for that. So, it's material and what's happening in FactSet.

Shlomo Rosenbaum - Stifel Nicolaus: And has it been accelerating, decelerating any other color you can give us on fixed income?

Philip A. Hadley - Chairman and CEO: I think the only thing I'd say is that we had fixed income on FactSet for probably 10 years. It's reached the point of material. For a long time it was maybe on a growth rate basis, it was doing well, but because it has a much larger base at this point, it definitely is a factor in our success.

Shlomo Rosenbaum - Stifel Nicolaus: And just from a market positioning, are you seeing any difference in the marketplace with Thomson trying to kind of retool the Eikon product and reposition that, has there been any change in they are going after the market in any different way than they have historically?

Michael D. Frankenfield - EVP and Director of Global Sales: I think at least from reading to all the sales news that happen on a quarter-to-quarter basis, I haven't seen anything that's significantly different involving Eikon. In fact, we haven't seen it very much in the marketplace. The ones I would note I saw this quarter was it was a positive for FactSet against it. So, I think Thomson has incredibly broad product line of lots of different products. So, when one talks about competing with Thomson, you really have to get down to which product are you talking about and Eikon is a huge product line with lots of pieces underneath that as well.

Shlomo Rosenbaum - Stifel Nicolaus: Just thinking about the R&D tax credit, the impact is about 2% right now like if you didn't have it – it would be about a 32% tax rate, is that fair?

Philip A. Hadley - Chairman and CEO: I think that is fair.

Operator: Keith Housum, Northcoast Research.

Keith Housum - Northcoast Research: If we can just drill down a little bit deeper into the Wealth Manager segment, are you guys going in there displacing a current provider or are there really now convincing them that they need to a tool such as FactSet in order to do their job comprehensively?

Michael D. Frankenfield - EVP and Director of Global Sales: It's a lilted bit of both Keith. There is certainly all of these users have an existing system or multiple systems to help them manage their clients to manage their assets. FactSet's strategy is to try and show them incremental value that we can deliver above and beyond what their current solution is. Sometime that results in a displacement, sometime that results in incremental purchase.

Keith Housum - Northcoast Research: In terms of the growth from the Wealth Management group that you're trying to expand versus fixed income. Will you say one is growing faster than the other?

Michael D. Frankenfield - EVP and Director of Global Sales: Both have really positive growth metrics. We're excited about both of them.

Keith Housum - Northcoast Research: Then finally, just a bit of detail, on the share repurchases you guys made what was the average share repurchase price? Do you guys have that handy?

Peter G. Walsh - EVP and COO: Yeah, it was $89.95.

Operator: John Neff, Akre Capital.

John Neff - Akre Capital: Do you guys have a view or a target at least directionally about ASV per employee or the long-term?

Philip A. Hadley - Chairman and CEO: No. I think we certainly – so there's two ways to look at them. You can certainly look at employee count, but really what we're looking at on our side is compensation spend. Clearly, our employees are the most valuable assets in this business. So, any time we can invest in more employees or invest in our own employees, that's where try and spend our money. In general, obviously, employee expense is based on the fact that it's two-thirds of our expense. Really you have to come close to tracking revenue. So, really that's the way we look at it.

John Neff - Akre Capital: Then the NextGen project, I was just curious if you could comment on any impact on CapEx going forward in terms of either the amount or the patter that used to be that CapEx would spike every three years or so? Would you expect it will be smoother going forward?

Philip A. Hadley - Chairman and CEO: That's a great question. So, for those who aren't familiar, FactSet's historical platform, the core operating system, the bulk of what we call FactSet workstation plan on VMS, Hewlett-Packard's integrity system. We've been on a multi-year project essentially transition away from that as our core computing center. It's an expensive process, because it's not something that directly creates features for our clients. But probably to answer your question we will smooth out CapEx because the way distributed system work as you are buying many smaller boxes as appose to the big lumpy ones that you recall. So, I think the answer to your question is CapEx will be smooth and not have a big three year chunk to it unless technology changes which is always a possibility.

John Neff - Akre Capital: And then just a question related to your comment about the price increase and some of the changes there with some of the larger client contracts. Did those larger client contracts, did those involve term commitments or are those clients still free to add, subtract, cancel etcetera with good flexibility.

Michael D. Frankenfield - EVP and Director of Global Sales: We try to reserve flexibility, that's a feature that our clients have indicated that they like about FactSet is one way we differentiate ourselves in the marketplace. So, sometimes there maybe minimums, sometimes there maybe price commitments, that's really trying to get a meetings of the minds between FactSet and the client to enable the client to do long-term planning.

John Neff - Akre Capital: And then last quick question, is the content licensing that you referenced, is that in ASV?

Michael D. Frankenfield - EVP and Director of Global Sales: Yes.

Operator: Alex Kramm, UBS.

Alex Kramm - UBS: Just couple of quick follow-ups, first on the buyback and the timing there, was that all related to Market Metrics as well given, you had that I guess option dilution year in the quarter and if you get good times to offset it or was it just basically market driven given what the stock prices done?

Peter G. Walsh - EVP and COO: Alex it's Peter. Our buyback program isn't connected to other items that go through our P&L. It's really – we're really studying how – what can we do to have the most accretion in terms of FactSet in relative to dividends, buybacks and also acquisitions. We are more opportunistic this quarter because we've been lighter on dividends and acquisitions and we liked the opportunity to add a significant accretion at the price level that we saw during Q2.

Alex Kramm - UBS: Then maybe just staying on Market Metrics just one more second and I don't want to harp on it but, can you maybe help us little bit with some of the metrics. I mean I know you said $16 million when you acquired it, maybe where is it now, and then also, is this truly over now or will there be other maybe follow through, as that could come and hit the P&L. I guess what I'm trying to say that some people are struggling to see this as a truly one-time item. So if you could just help us kind of frame the discussion a little bit more?

Peter G. Walsh - EVP and COO: Certainly in our 10-K and 10-Q we filed all of our options programs exactly into great detail as to what exists and what's out there. This is not the first time we've had performance options vest. So, you are correct and that it's not necessarily one time in nature. The entire employee base has a performance option every year that we grant, sometimes they vest 100%, sometimes they vest not at all. We definitely try and make our option program in the interest of what's best for FactSet. In particular of the Market Metrics case, they did a spectacular job and reached the stretched goals that we had set upon acquisition and we were very, very pleased. It's a great thing for the Company and the shareholders. The accounting works, it's not something that we could accrue along the way based on the way this particular grant was set up. So, it is what it is when it comes to that thing in particular period. As far as the materiality of Market Metrics effects, I think, Peter made a comment as to we're very excited about it, but coming off a $16 million base, it's not huge to FactSet. I think the only comment I'll make is that since acquisition, it would have contributed less than 100 basis points to growth. So, it's a piece of FactSet and certainly accretive to growth, but not a material piece of FactSet.

Alex Kramm - UBS: Then just maybe lastly and I apologize if I missed this, but the margin guidance for next quarter is a little bit wider than what at least you gave in the last quarter. So, just wondering if you can sum up like what actually drives that? Why you (still live at a) wider range here, where the uncertainty is coming from?

Philip A. Hadley - Chairman and CEO: We try and be as accurate as we can as to what we think is going to happen going forward. I want to reiterate that what Peter was reiterating we're really looking out for the best interest of shareholders and I really look at the P&L all the way down to EPS. So, if there are opportunities for us to invest in the business and take margin down slightly, but pick it up in tax and EPS then that's what happens because I believe it's best for the shareholder. So, I'm very pleased with the fact that we are still a double-digit EPS growth and it's just a function of an incredible business model that FactSet gets to operate under.

Operator: Thank you. There are no further questions at this time sir.

Philip A. Hadley - Chairman and CEO: Thank you very much.

Michael D. Frankenfield - EVP and Director of Global Sales: Thank you very much.

Operator: Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.