Factset Research Systems Inc (FDS) — Q3 2017 Earnings Call Transcript

Thank you, Mike, and good morning everyone. Welcome to FactSet’s third quarter 2017 earnings conference call. Before we begin, I would like to point out that this slide we will reference during the course of this presentation can be accessed via the Investor Relations section of our website at factset.com. The 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 and is being broadcast live at FactSet.com. After our prepared remarks, we will open the call to questions from investors; to be fair to everyone, please limit yourself to one question plus a follow-up. 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 Form 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, reconciliations to the most directly comparable GAAP measure are in the appendix to the presentation 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 non-GAAP financial measures may not be the same as similarly titled measures reported by other companies. Joining me today are Phil Snow, Chief Executive Officer, and Maurizio Nicolelli, Chief Financial Officer. I'd now like to turn the call over to Phil Snow.

Thanks, Rima, and good morning, everyone. And thank you for joining us on our call today. We delivered third quarter results in line with our guidance and continued to grow ASV in a challenging environment. These market conditions are exactly why we've been on a steady trajectory to build out our enterprise solutions through innovation, acquisition, and partnership. Our clients need greater efficiencies and more of a unified ecosystem for their data and analytics, and we are fully engaged in a strategy to build end-to-end solutions across critical areas of the portfolio lifecycle. And as we move beyond the workstation to becoming more of a workflow company, the portfolio lifecycle strategy expands the scope of FactSet solutions to create integrated workflows. As you can see on the slide, we think of the portfolio lifecycle in three main areas: research, portfolio management and trading, and analytics. In each of these areas, FactSet has a robust suite of products for our clients. You can clearly see where our recent acquisitions fit into these areas. We believe the integration of these acquisitions and our continued product innovation will enable us to achieve higher growth. Let me now give you an overview of our third quarter results. Organic revenues and organic ASV grew 6% year-over-year, adjusted diluted EPS increased 13% to $1.85 at the high end of our guidance range, and adjusted operating margin was 32%. Like last quarter, our results were impacted by cost pressures within the industry as clients seek to lower their total cost of ownership. As I just stated, we see this as an opportunity to partner with our clients and help them leverage technology to optimize costs. The cross-sell momentum across the portfolio lifecycle is picking up with multiple wins this quarter and a number of strategic opportunities in the pipeline. This quarter, we did see an increase in new business with solid wins from plan sponsors, hedge funds, and wealth managers, and our analytics and CTS suites performed very well along with strong sales from Portware, offsetting the positive factors and in line with the theme from the second quarter of cancellations from firm consolidations and failures. Our international business grew organically by 8% fueled by growth in Asia Pacific. With our recent acquisitions of BISAM and IDMS, which we’ve now renamed FDSG, we have increased our international footprint particularly in Europe. International ASV now represents 37% of our total, and Asia Pacific grew almost 11% over the last quarter while Europe grew at 7%. FactSet continues to focus on innovation. Year after year, we win awards for our software. Last year when we won best research provider, Inside Market Data said we were by far the industry leader, and in naming us best analytics provider they said our portfolio analytics was always a best-in-class product. This year at the Inside Market Data and Inside Reference Data Awards, FactSet won the Best Market Data award for the first time, replacing one of our largest competitors which had won the category every year since the awards were launched in 2003. FactSet this year again was recognized as best analytics provider. As we saw this quarter, we once again had strong growth from both our analytic suite as well as our CTS business. Both of these product suites have consistently grown in double digits over the last few years. As we look to provide you with more metrics, the CTS business is one that is relatively easy for us to carve out and can give you more perspective on what's driving our growth. CTS now represents approximately 10% of our revenue, and the success of this off-platform business has taken us beyond the workstation model. A big piece of CTS today are our end-of-day and intraday feeds to power applications and solutions directly within a client's environment. However, our recent large investment in technology now provides us with the natural stage where clients can build their own solutions and leverage third-party applications and data within a hosted FactSet open environment. Wealth is another area that has consistently shown strong growth for us over the last number of years. The FDSG acquisition allows us to capitalize on the shift toward technology-enabled advice for all wealth segments. Investors are demanding digital tools that help to make investment decisions and provide flexible ways to interact with their advisors. Additionally, the regulatory requirements in this sector are a focus for clients. In combination with our analytics product and our unique content, we have the ability to provide our clients with powerful yet cost-effective information for their investment portfolios along with servicing key workflows from regulatory document creation to distribution. As I stated last quarter, we are focused on integrating our recent acquisitions and ensuring that we can offer our clients a broad suite of solutions within the FactSet ecosystem. The integration efforts are going well, and we've made significant improvements to date. These acquisitions along with our infrastructure upgrades provide FactSet with scale and drive cost efficiencies in the longer term, providing us with an opportunity to expand margins. We remain committed to organic growth, and reacceleration of ASV is still the highest priority for us. At the same time, we continue to return value to shareholders. Over the last 12 months, we've returned over $458 million to stockholders in the form of share repurchases and dividends. We've recently increased our dividend by 12%. This increase marks the 12th consecutive year with increased dividends, highlighting our continued commitment to our shareholders. We continue to invest in product development in high-growth areas such as analytics, wealth trading, and our data feed business as we grow our workflow solutions. We believe we have a solid sales strategy in place under our new sales leadership to capitalize on the current market trends and increase our growth rate. As we look to the last quarter of the fiscal year, we remain confident in the opportunities we see to meet our targets and our ability to capitalize on market trends. Let me now turn the call over to Maurizio to talk about our third quarter financial results and fourth quarter outlook.

Thank you, Phil, and good morning to everyone on the call. In the third quarter, we continued to grow ASV and EPS and maintained adjusted operating margins within our guidance range. Before we get into the details of the quarterly results, I want to point out that our quarter-over-quarter comparisons were impacted by one-time costs of $4.4 million, primarily related to our recent acquisitions. Additionally, starting with this quarter, we will have a deferred revenue fair value adjustment from purchase accounting related to the recent acquisitions. This adjustment, totaling $2.5 million, impacts our GAAP revenues and has been excluded from our adjusted results. Let's now go through the third quarter results in more detail. GAAP revenues in the third quarter increased 9% to $312 million and 6% to $294 million on an organic basis versus the third quarter of 2016. When adding back the deferred revenue fair value adjustment, revenues were approximately $315 million at the higher end of guidance. We have provided a reconciliation of GAAP to our adjusted metrics in the back of the earnings release and slide presentation. Looking at our segment revenue, US revenues grew 5% organically with most of this increase primarily coming from our analytics and data feeds products. International revenues increased 8% on an organic basis with strong performance from our Asia Pacific region. ASV increased to $1.28 billion at the end of our third quarter. Starting with this quarter, we are excluding professional services fees from our as-reported ASV metric as these service fees are not subscription-based. They were previously included in ASV. Our recent acquisitions, particularly BISAM and FDSG, have given rise to higher professional services fees. Professional service fees billed during the last 12 months totaled over $16 million. Had we included professional service fees, our as-reported ASV would have been $1.3 billion. Organic ASV increased 6% year-over-year and approximately $10 million since the last quarter. This increase was primarily driven by international client price increases of $5 million and new sales, partially offset by cancellations. Moving down the income statement, let's take a look at our operating expenses. Operating expenses for the third quarter totaled $225 million, an increase of 30% year-over-year, primarily driven by our recent acquisitions. Third quarter cost of services expressed as a percentage of revenues increased slightly by 360 basis points compared to the year-ago period. The increase was driven by higher compensation costs, depreciation and amortization expense, and data costs. Higher competition costs were due to base salary changes and incremental hires in our centers of excellence in India and the Philippines, as well as our recent acquisitions. SG&A expenses expressed as a percentage of revenues were down 60 basis points compared to the third quarter of fiscal 2016; the decrease was primarily a result of lower employee compensation due to the sale of the Market Metrics business in the fourth quarter of fiscal 2016, partially offset by acquisition-related costs. Our GAAP operating margin decreased 300 basis points year-over-year to 28%, primarily due to the acquisition-related cost and the deferred revenue adjustment. Our adjusted operating margin was 32%, which was at the higher end of guidance. Our current year annual effective tax rate was 25.5%, a decrease from 28.4% a year ago, primarily due to FactSet's global operational realignment effective September 1, 2016. Adjusted EPS grew 13% to $1.85 at the high end of our guidance. Free cash flow, which we define as cash generated from operations less capital spending for our third quarter, was $84 million, a decrease of approximately $4 million from the same period last year. The decrease was the result of a lower tax benefit from a reduction in stock option exercises and timing of vendor payments, partially offset by an improvement in cash collections. Excluding recent acquisitions, our DSOs decreased from 40 days at February 28 to 38 days at May 31. The BISAM and FDSG acquisitions also impacted our client count this quarter. The third quarter client count stands at 4,692, up 225 from our second quarter. This increase includes 117 clients from these acquisitions. As Phil stated, the integrations are going well, and we have made good progress in combining product and sales teams. Both BISAM and FDSG were accretive to adjusted EPS by $0.01 and $0.03 respectively for the third quarter. In fact, FDSG is ahead of our initial expectations as we guided you to $0.03 for the remainder of the fiscal year 2017. BISAM is in line with our initial guidance of $0.02 of accretion for the remainder of fiscal 2017. BISAM added $25 million to ASV this quarter and FDSG added $63 million, both amounts exclude non-subscription-related ASV. Moving on to our share repurchase program, we repurchased 300,000 shares for $48 million during the third quarter under our existing share repurchase program. We remain committed to returning capital to shareholders and maintaining a balanced capital allocation framework. Now let's turn to guidance for the fourth quarter of fiscal 2017. For the fiscal fourth quarter, we expect our GAAP revenues to be in the range of $321 million and $328 million. The midpoint of our organic revenue guidance is 5.5%. Our GAAP operating margin is expected in the range of 28% and 29%. Adjusted operating margin is expected to remain in the range of 31% and 32%. Similar to last quarter, the annual effective tax rate is expected to be in the range of 25% and 26%. GAAP diluted EPS is expected to be in the range of $1.67 and $1.73. Adjusted diluted EPS is expected to be in the range of $1.86 and $1.92. The midpoint of the adjusted diluted EPS range represents 12% growth over the prior year. In summary, we remain confident in our ability to return value to our shareholders. We are focused on top-line growth as well as our cost structure. We believe in the long run, that there is leverage in our business model as we integrate our recent acquisitions and realize cost synergies going forward. Thank you for your participation in today's call. We are now ready for your questions.

Hi. Good morning. It's Stephen Sheldon on for Tim. I appreciate you taking our questions. I guess with the strong contributions from off-platform and premium products, can you give us some more color on the traditional workstation growth? I guess particularly in the US.

Yes. Hi, Stephen. This is Phil Snow. Yes, so we know we definitely continue to invest in our workstation product. It's one of our flagship offerings, obviously, but we are experiencing pricing pressure in the market as things become more competitive, and we are out there competing for the same dollars with some of the larger providers that are out there. So as you saw in our numbers, we are growing our terminals which I think is a positive, but part of what you are seeing there is that the pricing pressure for those is higher than it was historically. We are offsetting that with selling more of our value-added products as well as the companies that we've acquired through M&A over the last couple of years.

Okay. And then just a quick follow-up. I guess organically if we stripped out recent acquisitions, how would margins have trended year-over-year?

So, margins would have been comparable year-over-year. If these acquisitions that we have done over the past six months have dropped our adjusted operating margin down to 31.9%, but if we hadn't done those or if you exclude those we would be right around the historical metric.

Good morning, everyone. So question for you on MiFID II just to ask about how that is impacting the business yet and some thoughts about how that potentially impacts the business?

Hey, Bill. It's Phil Snow. So we actually see MiFID II as an opportunity for us. We see regulatory as an area that we have a lot of assets that we could point in that direction. MiFID II for one example with specific solution that we’ve developed is we have a partnership with the firm called ONEaccess, which allowed us to integrate their suite of tools to track and value research products and services. These tools are getting integrated with our RMS suites, which includes Code Red and internal research notes, and that's going to enable users to look at corporate access events, create a research valuation framework, and carry out quantitative broker votes. So that's just one solution that we have for MiFID II which has a lot of components to it. Another one is with the Portware acquisition; we’ve developed a solution for best execution, which is something that's part of MiFID II as well.

Got it. And a couple of housekeeping items. You mentioned in the guidance and in the prepared remarks that the revenue for the past quarter was $312 million, with guidance set at $311 million to $317 million. If adjusted for the fair value, it would have been closer to $315 million. For Q4, the guidance is $321 million to $328 million. Should we consider the fair value adjustment in those figures, or is that amount excluding the $2.5 million fair value adjustment? How should we interpret that?

Hi, Bill. It's Maurizio. That revenue guidance is our GAAP revenue guidance. It includes deferred revenue fair value adjustment in it.

Thank you for taking my questions. I have a follow-up on Bill's question. Regarding the guidance for the current quarter just reported, was there a consideration for a deferred revenue adjustment? There was mention of coming out in the middle of the range. If you were to add that back, was the guidance based on the assumption that you wouldn't need to write anything off, making that the correct way to interpret it? I’m trying to understand the context better.

So we reviewed our purchase accounting valuation process after the acquisition closed. During that process, the deferred revenue fair value adjustment turned out to be larger than we anticipated. That's why the $312 million is at the lower end of the guidance range. We have been very transparent about the amount of that adjustment during the period.

Were you expecting $2.5 million or $1 million to $1.5 million? I’m trying to understand if the commentary indicates that it was exactly in the middle of your expectations or not.

We were expecting to be lower and to be right around the middle of the range.

Maurizio and I are mainly focused on effectively integrating the acquisitions and returning to the profit margins we had before the recent mergers and acquisitions. As I mentioned in my note, our primary focus continues to be on top-line growth, which is our most critical priority. Once we feel confident that we've made the necessary investments to boost our high-growth areas, we will have the opportunity to expand our margins in the future. This is something we will assess as we navigate the next 12 months.

Thanks. Phil, can you talk a little bit about your comfort with the current business mix? Any white spaces left in terms of things that you feel you need to fill in?

We feel very good about the progress we've made over the last two years to fill out the portfolio lifecycle. So that slide we showed where we can go from research to portfolio management and trading to analytics, we feel that we get all of that connected. We are making really good progress. That gives us much more opportunity particularly in the larger institutional asset management client, where we are seeing some of the cost pressures. Similarly, with wealth, the FDSG acquisition allows us now to go from end-to-end. Previously we were really targeting the ultra-high net worth and high net worth part of the market; this now connects us with the affluent. So we feel that entire $2 billion market that sort of how we evaluate is now something that we can pursue. Lastly, with CTS which I described, we are really thinking about investing more there; opening up the platform and as clients look to do more things across their enterprise, that just gives us a whole host of different options in terms of unlocking more value within our clients where they want to build things themselves. I think all three of those things combined with our really strong workstation product, as well as our established analytic suite, we feel like we have a lot of great options across the portfolio of products we have. Regulatory is another area which I mentioned is early days for us, but we do have a team of people that are focused on that. I think as we move forward, that's another area you'll be hearing us talk more about.

So regulatory could be a focus from an M&A standpoint but otherwise what I would interpret your comments to be that the pace of M&A activity will be less going forward?

We are certainly not as active as we have been in the last 24 months. So I think regulatory is an interesting area. We are always on the look for unique content; with what we have now, there are lots of ways for us to leverage unique content. But the current focus for us is really on integrating the assets that we have acquired over the last 24 months.

Okay. Can I just sneak in one more? On the margin leverage question and getting back to prior margins, Maurizio, do you envision that being something that can happen over the course of maybe the next four quarters?

I believe that will take about four to eight quarters to materialize. As we work on integrating these acquisitions, I think we are looking at a timeframe of one to two years.

Hi, good morning. Phil, you mentioned that the CTS business is only about 10% of revenue. Just given how quickly feeds are growing versus the traditional workstation business, I was a little bit surprised that that's not higher. So basically how should we reconcile that and how large do you expect the CTS business to ultimately get to?

It's a large market. I think it's pretty well published why a number of our competitors have been in this space. Our offering, Toni, has been pointed historically at very much sort of the quant market; that was a big market for us. So quant consuming and if they feed for us to do analytics, a lot of clients build applications, feeding data into performance systems, so we see it as a large opportunity for us. For a company of FactSet size, it does take time for those percentages to move. But we certainly are excited about that area and we are going to continue to invest more in it.

Okay, great. And then can you talk a little bit about the competitive landscape? Are you running up against new competitors as you expand your product capabilities, especially in changing geographies as well? And anything to note on your positioning and how aggressive the market is right now?

I think the competitive landscape hasn't changed that much. As we move into areas and our competitors move into areas we kind of bump up against competitors in new ways. But it's primarily sort of the larger competitors that we've always been competing against. There are a lot of niche analytics providers that we compete with in our analytic suites. I wouldn't say it's so much competition now; we are kind of competing with our clients for the money that they spend to build things. That's a sort of a new area for us. The CTS is one piece of that. When we look at the competitive landscape, FactSet traditionally wins just in terms of the strength of our analytics, the quality of our content, the flexibility of our platform, and the service levels that we provide. Where we are losing now is where we are trading blows with people when clients are consolidating; there are cases where we are going to lose some or all of our business. However, as we stitch together some of the things we talked about today, that's going to provide a great opportunity for us moving forward.

Okay. Great. And just one last quick one. It looks like sell side improved over last quarter in terms of the growth rate. I think ASV growth rate, anything to call out in terms of strength there that would be helpful? Thanks.

Nothing in particular that's definitely a more volatile piece of our business than the buy side. We often see large deals kind of swing things one way or the other. We do really well with our desktop products with junior bankers, and we are beginning to see more penetration with our CTS product within the sell side. Traditionally, that's something that we've really just had more success with on the buy side and with redistribution partners.

Yes, thank you. Good morning. My first question is around the wealth management business. Clearly, it sounds like a nice opportunity for you guys. I was hoping you could just elaborate on whether this opportunity is more than just sort of your workstation penetration opportunity?

So FDSG, the acquisition we made, has several terminals, but its main focus is on creating sophisticated portals for large banks and retail banks. They have a digital product, which is definitely a growing trend in the wealth market. What excites us about the acquisition is the potential to integrate it with our co-workstation and analytics product, which is well-suited for the high end of the market. However, as trends evolve, we aim to reach a broader audience, making a digital solution very advantageous. Unfortunately, we can't provide the size of the wealth market right now, but we hope we're demonstrating some progress for you. I believe Maurizio and I will be able to offer more detailed insights over the next few quarters.

Okay, that's helpful to know. You mentioned analytics multiple times, and fixed income has always been a priority for you. Can you provide any insights on the fixed income assets that have recently changed hands? Are these the types of assets you’re considering, or are they outside your target range?

Yes. So our strategy really has been to integrate the benchmark providers. On the analytic side, I think we've exceptionally strong fixed income analytics for our own product. There is interest, in some cases, from partners that are out there for us to help power some of that for them. So we are having some of those conversations. But we are really focused on our analytic suite and essentially being able to create an integrated solution for clients that want to use multiple components. In just terms of creating a benchmark, our focus has been more on ETF creation. There have been multiple examples of that in press releases we've put out there that demonstrate that we have the capabilities to do that if we wanted to.

Hi, good morning. Looking forward to the fourth quarter revenue guidance, or you gave us what the organic ASV growth would be at the midpoint. Wondering if you can give us what the ASV contribution expectation is from the acquisitions you have closed recently.

We don't provide guidance on the projected ASV that would come from the acquisitions, so that's not included in our guidance.

Okay. Fair enough. Looking ahead, I’m interested in free cash flow and the acquisitions you've completed, along with their impact on margins. Should we still expect free cash flow conversion to exceed 100% of net income, or do we anticipate different expectations for free cash flow in the fourth quarter?

I think free cash flow should range right around what we've done in the last 12 to 24 months. I don't see free cash flow significantly changing. We still generate a significant amount of free cash flow and at times over the last 12 months basis above net income. So I don't see that changing. We are still a very cash-generating business.

Okay, great. Regarding the competitive environment, I noticed some paperwork filed about another desktop provider in the Nordics that might be going public or is attracting external interest. Do you think that, if one of your larger competitors were to acquire them, it could affect your international growth, especially since you’ve achieved strong results this quarter? What are your thoughts on whether this product is something you truly compete against or if it’s too small to matter significantly?

Yes. I think the product that you are talking about, we see in the Scandinavian region. My understanding is it's a good product. But if that was acquired by someone else in the market, I don't think that would have any material impact on our European business at all.

Hi, this is Kayvan Rahbar filling in for Hamzah. Can you give us a sense as you guys are transitioning from desktop business to a workflow business, do capital requirements for the business change, or does the workflow-oriented business need to be the vast majority of the portfolio?

No. So it's Maurizio. Listen, our capital requirement doesn't change. It's still within our overall structure. So that will not significantly change one way or the other our capital investments or capital needs.

Thanks. Good morning. I have a question for Phil. I'm curious about sales activity and what you're observing. You mentioned that cross-sell momentum is increasing and referenced improved activity in product solution analytics. Can you provide more insight into the specific areas of the business where you're noticing this momentum? It seems like there’s a transition happening in your business. Is there a faster-growing segment that is compensating for the slower growth in the workstation business, and how significant is its contribution to the overall business?

Yes, I think we’ve discussed this extensively. Geographically, as highlighted today, Asia Pacific has performed exceptionally well. Among our larger clients, when we sell analytics and CTS, it often serves the risk and performance teams and, in many instances, the front office where we develop solutions. We offer a wide range of products and cater to various clients. This quarter, we have continued to perform well with wealth managers, insurance companies, hedge funds, and corporates, while plan sponsors are gaining traction. However, the most significant pressure has come from our core institutional asset management clients, who are facing intense cost pressures. They are concentrating on managing expenses, hiring has decreased, and we are observing a shift from active to passive investments. Our portfolio lifecycle strategy is primarily designed to assist these clients, so we believe we are in a solid position.

Yes. So it's a good segue to my follow-up question. So the client pressures that you alluded to that you've been talking about for a few quarters. Is there any way to frame it? Has it gotten better, worse, or is it relatively stable? How would you characterize it?

I think it's relatively stable. The trends that we've seen in terms of asset flows and the move from domestic to international might be one that's helping us in the wealth business. Generally speaking, the desire to see increased transparency through regulation. Those are trends that may have been ongoing for a while, and it's hard to imagine them abating in the next couple of quarters. So that's our thesis, and we have a strategy essentially to capitalize on it.

Hi, thanks. So if cancellations are stable, is it fair to assume that gross adds have weakened a bit like the recent quarters?

Gross adds have shown consistent performance compared to the same quarter last year for both Q3 and Q2, with Q2 being slightly higher. In both this quarter and the previous one, we experienced a significant increase in cancellations due to consolidation or complete client failures. These are the challenges we are encountering. Our product suite is strong, and our sales team is selling as much or even more than last year. However, there are a few factors beyond our control, so we need to compensate by increasing sales.

Okay. So it actually does sound like cancellations are upticking versus being stable. Is that fair?

I would say it was similar to last quarter but compared to a year ago definitely more, yes.

So we haven't gone to that level. Obviously, BISAM does not have user counts because their type of service, and on the FDSG side, we have not incorporated that into our user count as a lot of their users are at the lower tier of the market, and it would have distorted just the overall user count for us going forward.

Okay, good morning. I guess just coming back to some of the things that you were saying clearly you are transitioning to a workflow kind of firm, and that's growing much faster than their core terminal business. I guess where are we in that balance at this point? When can the workflow strong growth actually start offsetting the pressures on the terminal side? I guess it's around about way of asking: do you think ASV growth organically has kind of bottomed, or do you feel like it's going to get worse before it gets better?

There is no way to predict whether ASV growth will continue to slow down. I believe our guidance is slightly lower than this quarter in terms of the growth rate. Integrating these assets is a process that will take several quarters or even years. It's not something that will be accomplished quickly. We have a strong range of products to offer in various areas discussed today, and that alone should positively impact our growth rate. Increasing connectivity over the next year or two will elevate our performance further.

Okay. And that's fair. And then just maybe just as a follow-up to that. Two things that maybe are minor things here but like one on the repurchasing Maurizio, like that was a fairly slow quarter, and then also on the organic hiring, I think those growth rates, I think it was 5% year-over-year. Those have come down over the last couple of quarters. So I guess just thinking about those two things separately, you are not buying back as much, you are not hiring as much; like what does that mean for the near-term outlook as you see it considering how weak the stock has been and as you want to capitalize on kind of opportunities from a hiring perspective?

Let me address both questions separately. First, regarding the buyback in the third quarter, we utilized existing cash flows to acquire FDSG, which led to a slight reduction in our share buybacks during this period. However, we remain committed to our buyback program, and we still have ample funds available to repurchase shares in the fourth quarter and fiscal 2018. As for your second question, could you please repeat it?

Yes, no, sorry, yes, I probably should have asked those separately, but I wanted to stick to two questions. So, no, the other side was just the hiring has slowed, right? So the question is, is that because you don't see the opportunities out there? Because I think historically the hiring has supported the growth? So where does that fit in that the growth rate comes down on the hiring?

Keep in mind our third quarter; we have very little new hiring classes in the third quarter. What you'll see is our hiring classes will increase headcount in the fourth quarter in both the US and Europe, as well as in India and the Philippines. Consequently, you will notice the growth rate returning in the fourth quarter. The changes in the growth rate regarding our headcount are primarily a matter of timing.

Good morning, everyone. Thank you for my question. This is about the recent changes in sales leadership. Is there anything we can highlight regarding the changes being made that might help drive additional growth in the future?

Thank you for the question. It's still early in the transition, which has been very smooth. John Wiseman is a long-time employee at FactSet, having worked here for 13 years. I've collaborated with him for that entire duration. One of John's strengths is his strong relationships throughout the organization and internationally. He previously led our global SPA team, which focuses on Strategic Partnerships and Alliances, and managed some significant deals with major clients. He has extensive experience with both our on-platform and CTS businesses. I believe John will enhance our focus, especially on larger accounts, and help structure our team accordingly, which should positively influence our portfolio lifecycle strategy.

Great. And then so you've talked often in the past about trying to get revenue growth to 10%. You've also talked about how it's going to be difficult to do in the current environment. Is there a need to change your long-term 10% gross margin growth in the revenue side based on what maybe long-term challenges you have in the institutional management side?

Yes. I think we are just focused on getting back to accelerating our growth rate; double digits would be great to get to. Whether or not we are going to get there in the next couple of quarters is hard to imagine that happening. But I think in the long term we definitely see the opportunity for us to grow at a higher rate.

Hi. This is Mike Reid on for Joe. Thanks for taking our questions. I just wanted to clarify that the 237 new users were from the 108 organic client additions; is that right?

Yes, it's not solely based on the 108 new clients. It also takes into account the entire client base.

Okay. So does that kind of two-to-one number signify the loss of user across clients, or are there other dynamics there?

There are other dynamics there, right? So if you are a new data feed client, you are not going to be included in the user count. So you can have clients that come on board, that spend more than the $10,000 threshold limit, but are not purchasing their traditional workstation.

So it's still very early days there. I think I mentioned that last quarter. We got a new version of our universal screening engine, which is getting integrated, the PA3 product we have with the portfolio analytics 3, which is gaining great momentum now across our co-workstations; that's going to be integrated into the web. We have some nice wins, but it's not a material driver of our growth right now.

Good morning. Thanks for taking my call. My questions were primarily housekeeping, Maurizio. So when we forecast beyond your current quarter guidance, the three most recent acquisitions add about $103 million in ASV, which you're saying, there is an additional roughly $11 million to $12 million in professional services work that was included in the revenue from those but it's not included in the ASV, is that correct?

Correct. You got it.

Okay, great. And then one quick question. What would be the percentage of revenue that's now denominated in foreign currencies with these acquisitions? And could you give us the top three?

In terms of foreign currency, it is more than 90% of our revenues are billed in US dollars even with these recent acquisitions. So that really has not changed. And in terms of denomination, the biggest one will be Yen, and then followed by the Pound and Euro; they are very close to being quite honest in terms of the mix. But those are the top three.

Okay. So maybe they approach roughly 3% of revenue each, they get you about 9% of revenue income denominated in foreign currency, and that would be consistent with your comments that 90% is denominated in US.

Great. Thank you, everyone, and see you all next quarter.