Factset Research Systems Inc (FDS) — Q1 2016 Earnings Call Transcript

Thank you, operator. Good morning and thanks to all of you for participating today. Welcome to FactSet’s first quarter 2016 earnings conference call. This conference call is being transcribed in real time and is being broadcast live via the Internet. A replay of this call will also be available on our website. Our call will contain forward-looking statements reflecting management’s expectations based on currently available information. Actual results may differ materially. More information about factors that could affect FactSet’s business and financial results can be found in FactSet’s filings with the SEC. Annual Subscription Value, or ASV, is a key metric for FactSet. Please recall that ASV is a snapshot view of client subscriptions and represents our forward-looking revenues for the next 12 months. Lastly, FactSet undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise. Joining me today are Phil Snow, Chief Executive Officer; Scott Miller, Director of Global Sales; and Maurizio Nicolelli, FactSet’s Chief Financial Officer. And now I’d like to turn the discussion over to Phil.

Thank you, Rachel. Good morning, everyone and welcome to the call. For the ninth quarter in a row, we continued strong and escalating ASV growth. This consistent performance was further enhanced this quarter by the strategic acquisition of Portware, which enables us to expand our presence and provides impetus for new growth. Seeking to continue to return strong value to our shareholders, we added to our share repurchase program. Our results sync with the long term objectives of FactSet. Creating growth, driving solid financial performance and providing significant capital returns to shareholders. Here are the three areas that I will cover; first our continued acceleration of ASV growth. Second, the closing of the Portware acquisition and third, the expansion of our share repurchase program. Let's begin with the first quarter ASV results. This quarter the organic ASV growth accelerated to 9.4%. Excluding FX and acquired ASV from Portware, ASV rose $12.1 million compared to $9.2 million in the prior year quarter. Total ASV excluding FX totaled $1.1 billion at November 30. We're pleased that the ASV growth rate has been on an upward trend every quarter over the last eight quarters rising 90 bps since November 2014 and 440 bps since November 2013. Drivers of this improvement have been broad based as the organic growth rates from our buy side and sell side businesses have improved to 9.3% and 10% respectively. Our buy side business includes traditional asset management clients, hedge funds and wealth managers off-platform data feed sales and the Portware and market metrics businesses. The sell side includes M&A advisory, capital markets and equity research professionals. Let's now go through the key contributors to our growth this quarter. The organic ASV growth rate acceleration to 9.4% was driven by growth on both the buy and the sell side. Buy side clients grew 30 basis points to 9.3%. Sell side growth was 10%, up 20 basis points from the just completed fourth quarter. Our annual client retention rate in terms of the number of actual clients increased to 95%, up from 93% a year ago. In addition, our client retention rate when expressed as a percentage of ASV continues to be greater than 95% of ASV. We saw solid growth in our core buy side client base, particularly in the Americas and Europe. Our buy side client base remains healthy as we continue to see clients consolidate on to our platform. Growth was consistently strong amongst traditional asset managers, hedge funds and wealth. Further contributing to buy side growth was the strong performance of our analytic suite. Our fixed income, equity and multi asset class risk attribution and performance offering, boosted sales in all regions. Our RMS or Research Management Solutions which include our IRN and Code Red products performed well in the quarter. Code Red, which we acquired in February of this year, has performed very well as a local solution to supplement our hosted IRN solution. Our CTS or Contact and Technology Solutions business further accelerated during the quarter. The CTS suite provides workflow solutions for our clients outside of our terminal business. This quarter CTS showed increased contribution from our core investment management business. Finally, net user count of FactSet terminals increased this quarter by 964 users and total 63,169 at quarter end. Overall users are up 14% year-over-year, reflecting the overall continued expansion of our footprint in both the buy and sell side markets. During the quarter we added Portware to our portfolio of products, which was funded by our existing revolving credit facility. Strategically this acquisition will expand our presence in large global asset managers by becoming part of their trading ecosystem. As a reminder, Portware clients are top tier buy side institutions and asset managers. We expect to combine our leading expertise and portfolio analytics with Portware's innovative suite of trade automation solutions and cross-sell the solution to FactSet's blue-chip global buy-side client base. Integration in the first 45 days is off to a strong start and we're excited to execute on the Portware pipeline and open up new opportunities for the future. Lastly at the regular quarterly meeting yesterday, our Board of Directors authorized the addition of $250 million to our share repurchase program. Today, $342 million is available for future share repurchases and we're focused on returning capital to shareholders in the form of share repurchases and dividend payments in light of the low returns available on cash balances. In the current interest rate environment, we believe we have the right mix of debt and share repurchases. In addition to our share repurchase program, we paid regular quarterly dividends of $18 million. When aggregating regular quarterly dividends paid and shares repurchases, we've returned $318 million to shareholders over the past 12 months. In summary, I’m very pleased with the quarter's performance. We continue to accelerate our growth rate. We closed the Portware acquisition, which we expect will add significant new growth opportunities for the future and we continue our commitment to meaningfully return capital to our shareholders. Now let me turn it over to Maurizio, who will give a more detailed look into our first quarter performance.

Thank you, Phil and good morning to everyone on the call. As you heard from Phil, there has been great progress in growth and building for the future. Here is a breakdown of our strong results both from a revenue perspective as well as an operational view. Revenues grew in the first quarter to $270.5 million. Organic revenue, which excludes $6 million in revenues from acquisitions completed within the last 12 months and the effects of foreign currency, grew 9% over last year. Our organic revenue growth rate in the first quarter was lower than our 9.4% organic ASV growth rate due to a significant amount of ASV closings late in the quarter and a purchase accounting adjustment to acquired revenues as a result of the Portware acquisition. Adjusted operating income, which excludes $690,000 of professional fee related to the Portware acquisition, grew to $88 million, an increase of 9.6% from the first quarter last year. Adjusted net income grew 8.2% to $60.4 million and adjusted diluted EPS grew 9.1% to $1.44. This quarter U.S. revenues rose to $182.2 million, excluding revenue acquired from the acquisitions of Code Red and Portware. Organic revenues in the U.S. were up 8.2% compared to the first quarter a year ago. Non-U.S revenues increased to $88.3 million. Revenues from our Europe and Asia Pacific regions for the first quarter were $67 million and $21.3 million respectively. Excluding foreign currency and acquired revenues from acquisition completed in the past 12 months, the international growth rate was 10.6%. This growth rate breaks down into 9.3% from Europe and 14.9% from Asia Pacific respectively. Now let’s take a look at the expense side. Total operating expenses for the first quarter were $183.2 million. Our adjusted operating margin this quarter was 32.5%, which excludes professional fees related to the Portware acquisition. First quarter cost of services, expressed as a percentage of revenues, increased by 220 basis points compared to the year-ago period. The increase was driven by higher compensation and amortization of intangible assets. Employee compensation and expense grew as we expanded headcount 15% year-over-year from new hires and from acquired employees in connection with the Code Red and Portware acquisitions. The increase in amortization of intangible assets relates to the recent acquisition of Portware. SG&A expenses expressed as a percentage of revenues decreased by 140 basis points in the first quarter compared to the year-ago period due to lower compensation expense from employees performing SG&A roles and a reduction in occupancy costs, partially offset by higher professional fees related to the closing of the Portware acquisition. At the end of our first fiscal quarter, we had over 7,900 employees, an increase of 8% in global headcount during the past three months. We hired 407 net new employees this quarter primarily from our sales and consulting recruiting classes in the U.S. and Europe and our content collection classes in Hyderabad and Manila. In addition, we added 166 employees from the Portware acquisition. The first quarter effective tax rate was 31.4% up 60 basis points over last year. The U.S. Federal R&D tax credit expired on December 31, 2014, and was not extended as of November 30, 2015, the end of FactSet’s first quarter. Although the U.S. Congress recently advanced bills to retroactively enact the tax credit, these bills had not been signed into law. Accordingly, FactSet did not recognize any income tax benefit from the R&D tax credit during the just completed first quarter. The current impact of the U.S. federal R&D tax credit to FactSet is estimated to be $0.19 in EPS per year. Had FactSet been able to recognize the full value of income tax benefits from the R&D tax credit in the first quarter of both fiscal 2016 and 2015, diluted EPS would have increased by $0.05 per share each quarter. If the U.S. federal R&D tax credit is reenacted by the end of our second quarter and can be retroactively applied to the period beginning January 1, 2015 and ending on December 31, 2016, FactSet would recognize an income tax benefit of $0.18 per share. Free cash flow during the last three months was $57 million, a decrease of $10 million from the same period last year. Our cash and investments balance was $203 million, up $21 million during the quarter. We define free cash flow as cash generated from operations less capital spending. Free cash flow was down year-over-year due to increased capital expenditures of $10 million, primarily related to the build-out of our new New York City office space. Our DSOs were 32 days at the end of the first quarter compared to 33 days in the prior year period. Now let's turn to our guidance for Q2 of fiscal 2016. We expect revenues will range between $280 million and $286 million. Operating margin should range between 31% and 32%, which includes a 160 basis point reduction from the recent acquisition of Portware. We expect our annual effective tax rate to range between 28.5% and 29.5% and assumes the U.S. Federal R&D tax credit will be reenacted by the end of the second quarter and could be retroactively applied to the period between January 1, 2015 and ending on December 31, 2016. Diluted EPS is expected to range between $1.49 and $1.53. If the U.S. Federal R&D tax credit is not reenacted by February 29, 2016, each end of the EPS range would decrease by $0.05 per share. At FactSet we continue to focus on creating growth, driving solid financial performance and providing significant capital returns to shareholders. Our overall performance in the first quarter shows we are committed to positioning the company for long-term growth, expanding our market share against competing products while increasing capital returns to shareholders. Thank you for joining our call this morning. We're now ready for your questions.

Could you just give us some idea…

We didn't get the question, sorry.

Good morning. Thank you. Can you hear me?

Yes, we can.

Thank you for taking my questions. I just wanted to ask a little bit about the revenue and adjusted EPS came in the lower end of the updated guidance range, which was given in kind of the middle of quarter after you guys cleared the Portware acquisition. I was wondering if you could comment a little bit about the delta from the midpoint of the guidance range where that came from, was it due to change in the accounting in the Portware business? I know you mentioned something about the purchase accounting. Was there something different in kind of the core business if you can jump into that a little bit?

Sure, I would be happy to, Shlomo. It's Phil Snow. Thank you for the question. For us really the most positive thing is the ASV acceleration, but I did want to go into a little bit more detail about a couple of things Maurizio mentioned in the script. So there are really two things that contributed to the lower revenue and EPS. One was that we closed Portware quicker than we thought we were going to and because of the purchasing accounting adjustment that contributed. And then secondly, as Maurizio pointed out, a huge percentage of our ASV or revenue this quarter got booked in November, the very last month. So both of those items together accounted for about $1.1 million in revenue, which flowed down to EPS as well and that was really the main thing.

Okay. Can you talk a little bit about what the implied organic revenue growth is at both ends of the guidance for next quarter so kind of stripping out Portware and then also the Forex?

Yes Shlomo, this is Maurizio, if you look at our guidance, which is $280 million and $286 million, if you take the middle of that range, our organic growth rate is 9.5% which is right in line with ASV growth.

Okay. Great and I’m going to let other people get in. I just wanted to sneak in one other one. Is there any seasonality to Portware's business we need to be aware of?

Thanks Shlomo, it's Phil. No, I don’t think so. There is really no seasonality to their business.

Hello. Hi, can you hear me?

Yeah.

Am I cutting in and out?

We have you now.

Okay. Great. Just on the 30 new clients, can we get a sense of what the makeup is there? And has that deferred compared to other quarters?

Hi, it's Scott. It was pretty broad based. There wasn’t anything dramatically different quarter on quarter. We did see a good uptick in some corporations, hedge funds and the wealth space, which is consistent with new client acquisition and also some of our core buy side clients in the U.S. as well. So it’s fairly consistent.

Okay. And then on Portware, I think you said it's going to be accretive in 2017. Can you give us some sense of how the integration is going and where you’re going to be able to kind of get the margin profile up to what you’re looking for?

Sure. It's Phil Snow. Let me talk a little bit about the integration. So its early days for us. We're incredibly excited. We’ve had overwhelmingly positive feedback from our clients on both sides. And there is just really great overlapping in terms of the culture and both the focus that we both have on multi-asset class and analytics. So we’ve begun the integration. We’ve integrated the company, the people that’s gone well and there are a couple of projects that we have that we’re excited about. I think the biggest opportunity for us is linking it to our portfolio analytics suite and the synergies that we see coming from that.

Okay. And then just finally as a follow-up to that, anything you want to point out from a margin perspective in the next couple of quarters including or excluding Portware?

Hi Joe, it’s Maurizio. If you look at our press release, we were $0.03 dilutive in the first 45 days that we owned Portware to our EPS. If you look at our guidance for Q2, we'll be $0.03 dilutive for the next 90 days. And continuing, we project to get better all the way to Q1, where we believe in Q1 fiscal '17 it will be accretive to GAAP EPS and the way we really get there is growing the revenue base and also some of the purchase accounting expenses start to decline over the next two to three quarters.

Thank you.

Good morning, everyone. Can you provide insights on Portware regarding the number of users it's attracting and the extent of overlap with the current asset base?

Hi Peter, it’s Phil Snow. We’re not I think going to call out specifically the number of Portware users that we have and there is a high overlap with the existing FactSet client base.

High overlap, okay. And then as regard to growth and talking about that mapped to accretion in the first quarter of '17, how do you handle the growth at Portware in terms of looking at organic ASV? In terms of our calculation, should we use $41 million as much big year for acquired ASP and any growth from Portware will go into your organic calculation? Or should we assume in our forward estimates that Portware is growing at 10% or 15%?

I think you have it correct. $41 million is the opening ASV for Portware and then the organic growth for Portware will be included in the overall organic growth for the company.

Okay. Thanks. I'll get back in the queue.

Yeah, just on base business and I think earlier this year you were very confident to get to this 10% organic growth rate. Seems like you're getting ever closer at the same time I've asked this before, the same time it's getting a little bit tougher out there, the volatility environment is clearly we've seen two stocks in the last couple months. So just wondering how you're feeling about the outlook getting above this 10%. We're seeing maybe a little bit more pressure or if you have this visibility with some new clients coming on to really give you that confidence. Any color would be great.

Thanks Alex. This is Phil Snow. So I think Maurizio just guided that we're predicting that we continue to accelerate our ASV and that confidence just comes really from the broad suite of products that we have. It's not just individual new users that we're adding, but it's the whole suite of analytics and feed products that we can layer on top of that that presents such a good opportunity for FactSet.

All right. It's fair enough and in response to Maurizio's comment about Portware and its growth, that certainly will contribute positively. Additionally, I think someone inquired about margin earlier, and I don't believe there was a clear answer. When I review your guidance, it appears that you have lowered the margin guidance by 200 basis points compared to the past few quarters, and you mentioned Portware at 160 basis points. Can you provide any insights into this? There's a delta of about 40 basis points, so is there additional spending required to boost the base business, or why is the core margin decreasing?

Hi Alex, it's Maurizio. You're right to note our margin guidance is set at 31% to 32%, with Portware contributing a dilution of 160 basis points. If you take the midpoint of that range, FactSet's margin without Portware would be approximately 30.1%, which is indeed lower than in Q1. However, 33.1% is still within the range we typically manage. Historically, our range has been between 32.5% and 34%, and we remain confident that we will stay within those parameters. There may be slight fluctuations on a quarterly basis, but we are maintaining the range we have managed in the past. There are no significant changes impacting this from what we've experienced previously.

Okay. Great. And then it seems like people have been asking three. So one quick one. Can you just call out the corporate side? I think you mentioned something on corporate briefly. How important that is to your business and I am asking because it seems like NASDAQ is launching their new corporate product at the beginning of the year that seems to be getting a lot of traction. So just wondering if that's an important business to you if you see them as a competitor or if it's nothing to really care about I guess. Thank you.

All right. It's Scott. We appreciate its taste and our diversified client segment and product range. We engage in direct sales and have some partnerships, making it a very healthy business for us. We are pleased with it.

All right. Thanks again.

Thanks Alex. Thank you.

Hi. Thank you. So you noted that there is a 160 basis point negative impact for Portware in the second quarter. So how of this is for amortization of intangibles versus Portware just being a lower margin business?

A big chunk of that is amortization of intangibles. We don't break that up. But I can tell you that it is a significant portion of that.

Okay. So is that something you can help us through kind of over time like how much in amortization of intangibles do you expect for the acquisition, maybe not just for the second quarter, but just over the years?

David, that number will be included in our 10-Q going forward, so you'll have a good amount of clarity on that. Portware needs to grow its revenues to achieve accretion even with the amortization by Q1 of 2017, and that's what we're really striving for.

Okay. Got it. And then it looks like CapEx accelerated a bit of a percentage of revenue in the quarter. How should we think about CapEx for the year?

Our CapEx number will be higher this year because we have a number of build-outs at a few of our significant offices, particularly in New York, which we had over $8 million in CapEx this quarter. CapEx this year will range somewhere within the $40 million range because we’ll have a significant amount of leaseholds in furniture in CapEx this year.

In the $40 million range. Lastly, I understand you didn't want to discuss how much Portware added to the subscriber count, but is Portware included in the user count or not?

It’s not included in the user count. The user count are traditional FactSet users on the workstation. What’s not in there is web users, users of that Code Red product. So actually FactSet does have larger footprints in the industry, but what we’ve typically reported is users of the FactSet workstation.

Okay. Perfect. Thank you very much.

Thanks.

Yes thanks. I guess could you just elaborate on I guess as you dug into it, why you think bookings were later in the quarter then I guess you expect it was normal. Was it the choppiness in the market or anything else you can point to?

It’s a good question. It’s one we’re going to take a look at. Q1, that was a big revenue quarter for us to begin with and it’s very hard to predict typically. So it is one of our choppier quarters, but we’re going to go back and look at why it was so heavily weighted to November versus prior period.

Okay. And then on margins, I guess as you think about this, right now I know you said you managed kind of in this range and excluding Portware you are in that range. But you're also getting a list from I guess currency from margin perspective, which gives you I guess a little extra budget to plough into some areas of the business. Is that something that's easily flexed if you don’t have that currency benefit to margins? Just trying to understand I guess how you’re using that and if you don’t have that lift, how easily back in that extra spending I guess can just go away as well?

Hi it’s Maurizio. You’re correct. On the $175 million of exposure we have the FX on a net basis. There is some benefit there. That benefit is part of that, keeps our margin ex-Portware in the 33% range, but it also helps us reinvest in the business. If you noticed in the last three months we added 407 net new employees globally to further drive the business forward to 10% and beyond from there.

Okay. All right. I’ll leave it there. Thanks.

Guys, can you hear me?

Yes, we can.

Yeah. Okay. Hey good morning, gentlemen. So first question just to clarify on the organic growth for ASV, if I heard you right, you said that it would just be the $41 million starting ASV that you would back out for the next three quarters I guess. And then any other growth coming from Portware you just included in your organic rate, is that correct?

Correct.

And why is that I guess is just different from the way most of the other companies account for that? Just curious on your rationale for that.

We view anything after the acquisition date as organic revenue and that’s been our historical practice for every acquisition, to be quite honest.

Okay. All right and then just on the Portware synergies, it sounds like most of it is going to be from a revenue perspective. So in the context of you saying that there already is a high overlap with your clients, can you help elaborate where those revenue synergies come from?

Hi, it's Phil Snow, Manav. It’s going to come from two places. One is, Portware now has an army of sales people to go out and we have all of these additional relationships that they didn’t currently have. So we get great leverage from that and then it’s really the integration of our two products. So we're laser focused on for at least the first couple of years on Portware executing on it's already excellent business plan, but we’re going to take opportunities to integrate content and pieces of analytics from FactSet to create other products, which will help accelerate our growth rate.

Got it. That’s helpful. For my last question, regarding the new buyback program and the net debt related to the Portware deal, could you clarify your thoughts on leverage and how much you are willing to leverage your balance sheet for flexibility?

Right now we have $300 million on our balance sheet, which is slightly below our annual EBITDA as a company. So to answer your question, we could take on additional debt if necessary. It's a favorable situation for us as it provides the flexibility to borrow money for future opportunities if we feel it's needed.

Okay. All right, thanks a lot gentlemen.

Thank you.

Even excluding the 166 employees from Portware, your employee count grew about 13%. And in the past, I know you’ve hired in line with sort of your expectations for growth. So I just wanted to know is your current strategy similar to that, in line with that and basically what your expectations are for future hiring?

Hi Toni, it’s Phil Snow. Yes, I think over time you’ll see that we’re consistent in terms of hiring in line with our growth. We did end up hiring more sales and consulting staff this quarter compared to previous Q1s, and we’re really excited about the opportunities in the marketplace with the product suite that we have today.

Got it. And I think in the earlier comments you mentioned that a lot of the hiring was from the new sales class. Just wondering is there a little bit longer ramp for those sales people as opposed to more experienced sales people or would you expect the ramp to be roughly around in line with average? Thanks.

Hi Toni, it’s Scott, I see it in line with average. We've got a good, mature group of consultants that we move into the sales world. We will mix that with some outside hiring, but there is not a major shift in terms of that ramp time. We were a little bit opportunistic in bringing in some new consulting classes and we’re happy with how that all looks.

Got it, thanks.

Good morning. So Phil you called out I think you had Research Management Solutions, Portfolio Analytics as specific growth drivers in the quarter. I am hoping you can share with us the relative importance of those businesses as a component of revenues and what the growth dynamics of those specific product offerings in fact look like?

Sure. Hi Peter. So the analytics product is, since we released the portfolio of analytic suite in the late 90s there has been a huge piece of FactSet success. So when we sell PA into our client that brings all kinds of other business with it. We’ve made an evolution from being just an equity based solution to a true multi asset class solution for that space. And all of the investment that we made in fixed income now combined with equity, we're really starting to see the benefits of that and we have some other products that we're layering on top. So that we continue to invest heavily in that suite. We're really pleased with the performance of it and you’ve been covering us for a long time. So you know that a little over five years ago, we invested more in our CTS product as moving from being just a custom solution for clients to more of a standardized suite of off-platform offerings. And we're beginning to see the benefits of that in our core investment management space. It’s very broad based revenue that we get from that fee business. And we service a lot of workflows, two of the workflows that we do well with, CTS or the quad space, and feeding into performance systems as well.

Can you give us any quantification of how important those product offering have become as a percent of the total company?

We don’t call that out, but they are a big piece of the FactSet story.

Okay. And Phil you or Maurizio might have said something that got me thinking that perhaps in the context of the accelerated buybacks there, there might be a little bit less appetite for M&A. Am I reading that correctly or is that not correct?

No, not at all. That’s not correct. We view our capital allocation as including dividends, share repurchases, and mergers and acquisitions, which are important to us. If we identify an opportunity that we need to pursue, we will allocate capital accordingly.

Got it. And last thing, anything Phil you would call out in terms of competitive dynamics that were interesting or noteworthy and I think I’m asking this in the context that your performance is so far ahead of the rest of the industry in terms of unit growth and revenue growth just obviously begs the question of sustainability and what's happening out there that's helping drive this?

I believe we are performing well compared to our competitors. I categorize them into major players that we compete with for desktop business, and we also compete effectively in the analytics area with high-quality products. One of our strengths is our wide range of products coupled with a strong sales team that drives our selling efforts. Our advantage lies in the diversity of our offerings. Scott, would you like to add anything?

Yes, I think from the competitive environment there hasn’t been a dramatic change that we’ve seen certainly in the last quarter. There has been some M&A activity obviously that always plays a little bit of disruption. So it doesn’t hurt, but I think it's been fairly consistent story for us. We are winning a lot more than we're losing against.

Got it. Thank you.

Good morning, everyone. So a couple of questions for you. First, I was going to ask based on your discussions with your buy side and sell side clients, if you could just give us a sense for what their spending mindset is heading into 2016?

Hi Bill, it's Scott. It hasn’t seemed to have dramatically shifted in the last two quarters from what we've seen. We survey our sales force and our consulting group to get this type of feedback and it hasn’t seem to have dramatically shifted. There is no question about it that both buy side and sell side are still conscious of their costs. They’re looking at ways that they can do things more efficiently and we think we played very well into that picture. And so we haven’t seen a dramatic shift. We still feel good about where we're positioned to go and help them as they go forward.

And so Scott, you're coming up to your one-year anniversary pretty soon and I was hoping you could comment on what kind of changes you’ve made over the past year at FactSet in terms of sales force structure, CRM tools and performance measurement?

All of the above in a good way. I was fortunate to walk into a terrific sales force and client solutions group already. So I had some wonderful stuff to work with; great Management Team. We made some changes structurally early on to make sure that we were approaching the world the right way from a region perspective and a client segment perspective. So we think we’re covering our clients in a very efficient way now. And we’ve got some really neat initiatives going on across performance and productivity in conjunction with CRM tools and also some neat stuff going on in terms of new business acquisition, Up-sell initiatives and one of our key goals, which is to make sure that we maintain our client retention rate. So we've got initiatives going on across all of that. But I’m very, very happy with the way things look and looking forward to the quarters ahead.

Okay. I have a housekeeping question for you. Regarding the ASV, for the year-over-year organic growth calculation of 9.4%, how much of that growth is coming from Portware?

Hi, Bill its Maurizio. So we've only owned it for 45 days.

Right.

But it’s contributing very little right now.

Thank you.

Hi thanks for squeezing me back in here again. I just wanted to ask a little bit about the margin potential from Portware vis-à-vis FactSet again, just the core business. Is this something that you see being in line with corporate average, above corporate average, not necessarily getting to corporate average? And then maybe comment a little bit on the near term investments that are required, the integration, for example, FactSet has industry-leading customer service. Is there necessity to invest in that with Portware to bring it up to FactSet levels?

Hi, it’s Phil Snow. I'll start by addressing the second question. I believe Portware has a highly effective implementation team. These are large and complex implementations, and they have a fantastic team to successfully execute on that. There is no need to elevate them to FactSet service levels; we simply need to keep investing in that group as it expands.

Hey Shlomo, it’s Maurizio. Regarding the margin question, the current objective is to have Portware contribute positively to GAAP EPS by the first quarter of fiscal '17, indicating they will start to improve their margin. Over time, we expect them to move toward the FactSet margin as the overall company expands and achieves greater efficiency in the long run.

Okay. Was there any deferred revenue that had to be written down in the business at all?

No.

Okay. How should we approach the increase in share count? It seems the share count does not decrease as significantly as the stock buybacks. Is there a rule of thumb we should follow, perhaps regarding how much stock was repurchased?

Looking at the historical average of our stock buybacks compared to the actual decrease in weighted average shares will provide a clear understanding of the benefits we've gained. It's important to note that the first quarter has consistently been the period with the least share repurchases in our fiscal years over the past four years. This year followed that pattern, and we have $342 million available to support our share repurchase program, which we plan to utilize in the next 12 months.

Okay. Great. Thank you.

Hey, hey again. Thanks also for squeezing me in. A few follow-ups myself here. One maybe this was asked again, but on the guidance in particular as it relates to tax rate, little surprised you’re now assuming that the R&D tax credit will be reenacted. I think historically you’ve kind of guided differently and also street’s numbers I think excluded it. So just what's your thinking here, like why the change?

So we’ve included it in our guidance, but we’ve also said if it does come through, it will lower both ends of the range by $0.05. So it's to a certain extent consistent with what we’ve said in the past. There has been a lot of talk within Congress on both chambers of the house about reenacting it and I think there is a probably a better than 50% probability if that will happen in our mind and so we've included it this time around.

All right. That's exactly the answer I was looking for. Thank you. And then couple more, one on Portware I think somebody asked about seasonality earlier. For some reason I thought there might be a small component of volume based revenues. Is that true and if so, is it something we think about and we have to think about as material? Can you outline it all? Or am I completely wrong there?

I don't think you're completely wrong. I think part of the revenues are tied to volumes, yes.

Okay. But can you point out how much and is it mostly equities or anything we need to pay attention to I guess is my question?

It's tied to equities, but it's fairly consistent over a long period of time and trading bonds would have to decrease significantly for it to affect their revenue stream.

Okay. Great. And then just my last question, somebody asked about competition. You mentioned M&A proactively in the space. Maybe IDC you can comment on a little bit. Is that a real competitor to you? Where do you run into them and what you'll be thinking about them with the new ownership or how that might change your relationship with them at all? Thank you.

Hi. It's Phil Snow. So IDC is absolutely not a competitor of FactSet. IDC is a great partner of FactSet. So we don't view that acquisition as really being meaningful to FactSet's business.

Excellent. Thank you very much.

Great. Thank you. All right. Thanks everyone. We'll see you all again next quarter.