Factset Research Systems Inc (FDS) — Q2 2018 Earnings Call Transcript

Thank you, Stephanie, and good morning, everyone. Welcome to FactSet’s second quarter 2018 earnings conference call. Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the website in the Investor Relations section at factset.com. These slides will be posted on our website at the conclusion of this call. A replay of today’s call will be available via phone and on our website. This conference call is being transcribed in real-time 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 forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measures are in the appendix 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 GAAP financial measures may not be the same as similarly entitled measures reported by other companies. Joining me today are Phil Snow, Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. Now, I'd like to turn the discussion over to Phil.

Thank you, Rima. Good morning, everyone, and thanks for joining us on the call today. This past quarter, we executed well on our product and growth strategy. And while we’re pleased with the results, we continue to be aware of the difficult market and the cost pressures our clients face. We remain focused on executing our plans for fiscal year '18 and expect to end the year within our ASV guidance range. Turning to second quarter results, we saw new wins across our product portfolio in the U.S., Europe, and Asia. We grew organic revenues and organic ASV at 6% year-over-year. Adjusted diluted EPS increased 17% to $2.12 boosted by the U.S. tax reform. While the tax reform increased our tax rate this quarter due to one-time items, overall, we expect additional cash savings for the rest of the fiscal year and we continue to evaluate our plans to utilize the additional cash in fiscal year '18 and beyond. In our press release this morning, we announced our plans to increase our share repurchase program by $300 million, taking advantage of the $100 million in cash that we plan to repatriate from overseas. We also plan to invest a portion of cash savings into both our product and sales efforts. This will have an impact on our full-year adjusted operating margin, and we believe we will end the year closer to the middle of our guidance range for adjusted operating margin. This quarter, our adjusted operating margin was 31.4%, slightly lower than our first quarter and last year as it was impacted by higher FX costs which Maurizio will go into more detail about. Now let’s get into the drivers of ASV. The increase in ASV this quarter was primarily driven by analytics, CTS, and portfolio management and trading. Analytics added more than 50% of the net increase in ASV this quarter. Within analytics, we saw strong contributions from portfolio analytics, risk, fixed income, and portfolio services. The product enhancements of our multi-asset class risk offering in the first half of FY 2018 allowed us to increase our competitive positioning in the market and secure important global wins. CTS had another strong quarter, continuing to grow in double digits year-over-year. The FactSet data feeds business contributed globally with major sales across asset managers and hedge funds. The demand for data feeds continues to be driven by a renewed rise in quantitative research across more of our client base. We have plans to capitalize on this shift by extending our data feeds business allowing more investment professionals from around the world to connect with smarter data, and there’s more to come on this new initiative in the coming weeks and at our upcoming Investor Day next month. This quarter, we saw an uptick in ASV from new business and offsetting these wins we saw cancellations, but to a lesser degree than the prior year. Most of the cancellations were due either to firm closures or the consolidation of services leading to redundancies. Client cancellations driven by firm closures were on par with last year. We also saw less churn in the existing client base year-over-year. And while cancellations decreased this quarter, we believe they will remain a recurring theme through the second half of the year. Turning to our Americas and international businesses. Our U.S. organic ASV growth rate was 5% fueled by sales of analytics and CTS, primarily to institutional asset managers. International ASV grew organically by 7% as a result of growth in the Asia Pacific region. International ASV now represents 38% of our total ASV. Asia Pacific grew over 13% and Europe grew 5%. In Asia Pacific, we saw an increase in new business to asset managers with our analytics products, particularly our risk products. Our European segment, which includes both Europe and the Middle East, delivered solid results in the second quarter of 2018 versus the same period in 2017 following a weak first quarter of 2018. Some of the major wins in Europe were from fixed income products where we displaced our main competitors. Additionally, we saw a recurring theme of successes from risk analytics products. We continue to make good progress integrating the products and platforms across all of our acquisitions. These efforts have begun to open up tremendous up-selling and cross-selling opportunities. For example, the powerful combination of Cognity’s risk engine, which is part of the BISAM acquisition, and our existing multi-asset class risk offering drove a key win at Alberta Investment Management, one of Canada’s largest institutional investment managers this quarter. In the second quarter, we made progress against another important milestone in our portfolio lifecycle strategy by linking official performance returns generated from the BISAM B-One engine into our portfolio analytics suite. This strengthens an important link between front and middle office users within our buy-side clients. And we continue to make good progress integrating CYMBA, our order management system with Portware, our execution management system, building our broader OEMS functionality. In conclusion, going into the second half of the year, we continue to push for higher growth and to deepen our relationships with clients. We’re excited with the breadth of our product suite and the ability to provide an increasing number of workflow and content solutions to the investment community. While we are laser-focused on our growth strategy, we remain committed to returning value to our shareholders, demonstrated by the increase in our buyback program. Over the last five years, and including year-to-date and fiscal '18, we’ve returned $2 billion to our shareholders with share repurchases and dividends. Let me now turn the call over to Maurizio to talk about our second quarter financial results and the revised 2018 annual outlook.

Thank you, Phil, and good morning to everyone on the call. As you saw in our press release this morning, we changed our EPS and tax guidance as a result of the U.S. tax reform. We also increased our share repurchase program by $300 million as we plan to bring back $100 million in cash from overseas. I will go through these in more detail in a few minutes. Let’s now go through the second quarter results. GAAP revenues in the second quarter increased 14% to $335 million, and 6% to $310 million on an organic basis versus the second quarter of 2017. Looking at our segment revenue, U.S. revenues grew 5% organically and international revenues increased 7% on an organic basis with strong performance from the Asia Pacific region. This growth comes primarily as a result of higher sales from our analytics and data feeds products. ASV increased to $1.35 billion at the end of our second quarter. Organic ASV increased 6% year-over-year and over $25 million at the end of our first quarter. This increase was primarily driven by higher cross sales and new business, partially offset by cancellations. Additionally, this quarter we also implemented our annual Americas price increase which added about $10 million to ASV. This was slightly higher than our price increase last year. Let’s now take a look at our operating expenses. Operating expenses for the second quarter totaled $240 million, an increase of 18% year-over-year, primarily driven by the acquisitions of BISAM and FDSG which were purchased in the third quarter of fiscal 2017. Our GAAP operating margin decreased 270 basis points year-over-year to 28.5% primarily due to the previously mentioned higher acquisition costs and a negative impact from foreign currency. Adjusted operating margin of 31.4% was lower than last year’s margin of 33.1%. Without the negative impact of FX this quarter, adjusted operating margin would have been 31.7%. Second quarter cost of services expressed as a percentage of revenues increased by 400 basis points compared with the year-ago period. The increase was driven by higher employee costs, data costs, and amortization of intangible assets, primarily driven by the BISAM and FDSG acquisitions. Higher employee costs were due to merit increases in the last 12 months, increased hiring, and the impact of foreign currency. SG&A expenses expressed as a percentage of revenues were down 130 basis points compared with the second quarter of fiscal 2017. The decrease was primarily the result of foreign exchange hedging gains and higher revenues while holding SG&A expenses constant. Moving on to the tax rate. The U.S. tax reform had various impacts on our effective tax rate this quarter. The federal corporate tax rate was lowered to 21% from 35%, which favorably impacted our tax rate. However, there were certain one-time charges that offset this benefit and elevated our overall quarterly tax rate. Keep in mind that our fiscal year end is August 31st, so the change to the federal corporate tax rate results in a blended federal statutory tax rate for fiscal year 2018. Our second quarter effective tax rate was 42.4%, an increase from 25.5% a year ago primarily due to the one-time tax expense items related to the U.S. tax reform. These one-time items totaled $23 million and were primarily related to the toll tax that we have to pay on unremitted foreign earnings and a tax expense associated with our deferred tax asset revaluation. Excluding these one-time expense items, but including the stock compensation accounting standard update, our current annual effective tax rate is 17.6%. GAAP EPS decreased to $1.33 this quarter versus $1.68 in the second quarter of 2017. The decrease was primarily attributable to the one-time tax charges I just mentioned. Excluding these one-time tax charges and other items, adjusted EPS grew 17% to $2.12. Free cash flow, which we define as cash generated from operations, less capital spending, for our second quarter was $86 million, an increase of approximately $15 million or 20% from the same period last year. The increase was due to higher net income, a lower effective tax rate, reduced capital expenditures, and timing of certain payments. Moving on to our share repurchase program, we repurchased 420,000 shares for $82 million during the second quarter under our existing share repurchase program. We also expanded our share repurchase program by another $300 million. Including this expansion, approximately $431 million remains for future share repurchases. We intend to spend between $325 million and $375 million over the next 12 months on our share repurchases. This increase of approximately $100 million to the annual spend on share repurchases is due to the planned repatriation of foreign earnings. We remain committed to returning capital to shareholders and maintaining a balanced capital allocation framework. Now let's turn to guidance for fiscal 2018. We are confirming the guidance that we gave you in the first quarter for organic ASV, revenue, and adjusted operating margin. Our annual effective tax rate and EPS guidance is updated due to the tax reform and we are also updating our GAAP operating margin for fiscal 2018. Our GAAP operating margin is now expected to be in the range of 27.5% to 29%. Our full-year outlook for 2018 was impacted by higher than expected year-to-date nonrecurring expenses. As a result of the tax reform and the lowering of the U.S. federal corporate tax rate, FactSet’s annual effective tax rate is now expected to be in the range of 18% to 19.5%. This rate excludes the one-time tax items that I previously mentioned but includes the impact from the stock-based compensation accounting change. GAAP diluted EPS is now expected to be in the range of $6.95 to $7.15. Adjusted diluted EPS is expected to be in the range of $8.35 to $8.55. The updated guidance includes the impact of the U.S. tax reform. The midpoint of the adjusted EPS range represents 16% growth over the prior year. As we enter the second half of the year, we are confident that we will continue to take market share and provide value to our shareholders and clients. Thank you for your participation in today's call. We're now ready for your questions.

Good morning, everyone.

Good morning.

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

Yes. Hi, Bill. It’s Phil Snow. It’s a combination of both. I think the most exciting thing for us really is the continued adoption of our value-added product suite. So as I mentioned in my opening remarks, the analytics suite added well over half of this quarter’s incremental ASV, and that product suite contributed to the specific win that I mentioned in Canada and a whole host of other wins. A lot of that is fueled by the fact that in the first quarter, we released three risk models. So we put a lot of work into that, and that is definitely helping, along with all the other great products that are within analytics. And when we look at cancellations from last year within the existing client base, there were a lot fewer than there were last year. So that definitely helped with the sort of $10 million increase that you saw in this Q2 versus the same quarter a year ago.

And for a follow-up, I wanted to ask about the competitive landscape. There have been a number of developments over the past few months, and I want to see if you were having – if you were seeing any impact from Blackstone's investment in Thomson Reuters, Capital IQ, SNL's enterprise pricing strategy? And then kind of throwing this one in there in terms of S&P’s acquisition of Kensho in the sense that they’re trying to accelerate the A.I. use across the business lines including Capital IQ and SNL?

Yes. So I would say the competitive landscape for us really hasn’t changed that much from previous quarters, and Blackstone's acquisition of TR is recent. I’m not even sure the transaction has completed yet. And I don’t think that’s going to really affect how we operate in the market or our success in taking market share from all of our competitors.

All right. And then the final one on the Kensho purchase in terms of the increased use of A.I. and whether that is something.

So I’m not sure what their plans are there. Obviously, that’s an important theme in the marketplace. We have our own strategy there internally. We spent a lot of time focused on machine learning and A.I. Gene Fernandez, who just joined us as CTO from JPMorgan four months ago, is very well versed in this area, and we have some of our own plans essentially to use those sorts of techniques as well as data science to really look at the workflows of our clients and continue to improve our product suite.

Good morning, everyone. Thanks for taking the question. I just wanted to confirm on the offset from the lower tax rate, it appears that the net increase in your guidance is less than what we would have calculated purely from the 300 basis point reduction to the tax rate. And so it sounds as if the offset is increased investments that are pressuring margins down to more the middle end of the range of your non-GAAP operating margin guidance for the year, so more like 31.5 to 32. Is that the primary offset?

Peter, it’s Maurizio. Let me walk you through exactly that calculation. So the benefit to FactSet on an annualized basis from the lower tax rate is approximately $0.40 to adjusted EPS. Because we’re really getting a three-quarter benefit for the year, that drops to $0.30. And what you see in the guidance is an uptick on both sides of the range by $0.10. So that $0.20 difference is really broken down proportionally, fairly equally into three categories. One is the incremental investment that we’ve made in the product and sales that Phil alluded to earlier. Two, it’s the stronger pound and euro versus the dollar that we’re experiencing right now in our P&L. And three is a higher weighted average share count because the stock price has risen significantly, making prior option grants that much more dilutive overall to our weighted average shares calculation.

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

So that is our spend on share repurchase for the next 12 months. So a piece of that is in our guidance going forward, but not the full amount.

Hi. Thanks. Good morning. ASV growth organically accelerated to 5.8% in the quarter. Can you elaborate on how cross-selling activity, new business, and cancellations performed relative to expectations and whether you expect organic growth in ASV to accelerate over the next two quarters?

So we’re very pleased with what we did in Q2. I think we have already sort of laid out in our opening remarks what drove that. And we’re expecting to come in the range of what we said for annual guidance for ASV, which was $65 million to $85 million for the entire year.

Got it. And as you looked at the trajectory throughout the quarter, do you see a path of acceleration over the next several quarters similar to the pace of acceleration you saw going from fiscal Q1 to fiscal Q2?

So we gave you the range there. It is hard to predict. As I mentioned in my opening remarks, it’s still a tough market out there. Accelerating will require executing well and getting some key wins like we did in Q2. But what I can tell you is our pipeline on a growth basis is the biggest it’s ever been, but we are dealing with a challenging market.

Hi. I was wondering how should we think about the trajectory of margins for the rest of the year and long-term? And what’s the biggest swing factor there?

Joe, it’s Phil Snow. So we’re expecting to come in the middle of the range between what we guided for the year, which was 31% to 32.5%. We have decided to invest a little bit more back in the product just given what happened with tax reform. And so our longest-term guidance that we gave I would expect that to get pushed out a little bit, but we’re going to talk more about that at Investor Day next month.

Got it, okay. And then on the demand for analytics, is that more cross-selling, or is that a mix of new clients and cross-sell? Maybe you could just dig into that a little bit more because I wanted to just try to weigh that versus your earlier comments around the demand backdrop. Thanks.

So a lot of it is cross-selling. A lot of our growth really does come from up-selling the existing client base, and the acquisitions that we’ve done, a lot of which were in the analytics space, have helped there. So the deal that we did with AIMCo in Canada was a direct result of getting the acquisition of Cognity combined with our own multi-asset class product. But that particular sale was a new client. So that was a significant win versus the cross-selling that we see within the existing client base. So it’s a nice combination of both.

Good morning. Thank you for taking my questions. Phil, can you – I know it’s not a big quarter in terms of adding users but it was an interesting dynamic where you had your client count increase more than your user count, and I was wondering if you could just comment a little bit about the market dynamics there? And then I have another question after that.

Sure. So the client counts – the majority of the clients are going to be smaller clients. Our user count now includes both FactSet Workstation as well as StreetAccount users. And I think just decomposing that a little bit, there were a couple of hundred or more FactSet Workstation adds this quarter versus some losses in the StreetAccount. So that’s sort of how that broke out. But I guess what I’ll go back to is what we’ve been talking about now for at least a year, which is the shift from Workstation to workflow. So when we’re out there in the market and we’re providing solutions to clients, Workstation is one KPI, but I think it’s one that should not be focused on as much historically from an analysis standpoint, and I think that’s clear from this quarter’s results. We added at least $25 million in ASV, but you’re seeing just a small number of workstations there. So it’s the solutions and the workflows that we’re selling to our clients that are accelerating our growth.

Got it. That’s fair. Are you going to talk more on the Analyst Day about how much of the business is no longer Workstation-related, to give us a sense of that?

So you’ll have to show up to find out. I know you’ll be there. But we are definitely going to be providing more transparency on the different pieces of our business and give you a bit more guidance there in terms of how to think about the different groups.

Thank you. If you don’t mind me squeezing in, what are you investing in particularly? You talked about product, and the margin is going to not be necessarily as high, but it looks like you see an opportunity right now in a timely basis to be investing in the products. Can you give us just a little bit more detail on that? And after that, I’ll get back in the queue.

Yes, sure. So we’re just pouring more gas on the things that are growing faster, so analytics is one example and CTS, which is our data feeds business, we’re making a big investment and building out the next generation of that.

Thanks. Good morning. Just a couple of questions. I was wondering, Phil, if you could just give us an update on what you’ve seen as it relates to MiFID? Obviously, it won’t affect anyone. It doesn’t seem to have a huge impact on your business but maybe just a little bit of color on what you’re seeing in the market.

So my comments really haven’t changed from last quarter. The European business did better this Q2 than it did in Q2 of FY '17, so we’re showing positive momentum there and we’re continuing to build out more solutions with our regulatory group to address MiFID and other regulatory solutions.

Okay. And then just for Maurizio, the margins decreased slightly in the quarter. I believe last quarter you mentioned that they would increase sequentially throughout the year. Perhaps you took the opportunity late in the quarter to invest, but could you provide some commentary on why the margins went in the opposite direction?

So our adjusted margin was 31.7% in Q1. It dipped to 31.4%. That 30 basis point reduction was really FX generated. And if you look at Q3, that effect is less than what we saw in Q2. But that’s what really drove the margin to 31.4. And as Phil alluded to, it’s our projection that the margin will come in somewhere within the middle of the range that we gave out for guidance.

Recently news reports mention that Tradeweb might be on the block soon. Would that type of asset be complementary to your portfolio, and putting that one aside, what type of acquisitions are most attractive to you right now?

So we’re not going to talk about specific acquisitions on this call, but our strategy for M&A hasn’t changed. We continue to evaluate interesting workflow and content tuck-in acquisitions. As both Maurizio and I have said, we have the capacity on our balance sheet to do something bigger if the right asset presents itself.

Your employee count increased by about 9% over the quarter. If I take a step back, your organic ASV is growing in the mid-single digits, but is this impacting margins? When we consider the future, should we assume you are hiring in lower-cost areas or that the increase in employee count comes from acquisitions? How should we assess a sustainable growth rate for employee count in relation to revenue? Thank you.

Hi, Toni. It’s Maurizio. So the employee count grew 9% on a year-over-year basis, but that includes employees from the acquisitions of both BISAM and FDSG. If you strip that out, our employee count grew just north of 4%, and a large part of that are employees that are in India and in the Philippines, which are at a lower cost inherently. So that’s not a significant pressure on us today from a higher headcount number.

Thank you. Maybe just another question on your comment around workstations versus workflow KPIs. Maybe can you just help explain why client retention keeps dropping but you sound like the market is pretty good to you guys. So what’s the disconnect there?

So the client retention – I think the majority of our ASV really is bundled into the existing clients and the larger clients that we’ve had for a long time and that we’re cross-selling. So I think it’s really just a function of us losing on a net basis much smaller clients on the tail.

Okay.

But again, when you look at each of our quarters essentially and you think about sort of what’s shifting the ASV, the vast majority of it is really always a function of the existing clients. It’s not heavily influenced by – typically by lost clients. We’ve had long-term agreements with our clients for a very long time. If you’re a smaller client – you’re a small hedge fund or a family office, you might come on with a one-year contract that renews every year. But for a lot of our larger clients now, we’re negotiating longer-term agreements with them, which could be three to five years in length that could include a whole range of different services.

Hi. This is Kayvon Rahbar filling in for Hamzah. Can you give us a sense of your sales force productivity? How is it trending? Is there any room for improvement?

So that’s not something we track in terms of the metric that we could sort of talk about on this call. We’ve got a large, very talented sales force that has a wide set of capabilities. And historically, the cost of the sales force as a percentage of our revenues has remained fairly constant.

Thank you. So Phil or Maurizio, is there any structural difference between the workstation and the feeds business in terms of the profitability dynamic? I’m thinking that maybe there are some efficiencies in selling feeds in terms of bigger sales that could make that a more profitable business if I move the needle in terms of margin. Is that accurate?

Yes, so the feeds business is a great business. A lot of our success has been it because it’s a byproduct of the content that we collect ourselves, and we’re becoming more and more efficient at selling feeds. The CTS team has done a tremendous job standardizing a lot of the feeds that we have. So that I think is partly why you’re seeing such a great adoption of our feeds business, is that it’s become standardized. We’re marketing it more effectively, and our sales force is becoming more expert in selling it just in general. But you raise a good point there. It’s a high-margin business and it’s one that we continue to think is going to be a revenue driver for us.

Are the feeds users – what’s the overlap between feeds clients and workstation clients?

It’s low, but it depends on the shop. So they may be – we may be servicing a large shop with both feeds and a workstation. We sell a lot of feeds to quants. So a lot of FactSet’s feeds business goes to quantitative investors who will take our content and put it into their own internal quant systems. But those same quant users might also be using FactSet’s really excellent suite of quant products to do another piece of their process. And in some cases, they’ll just be using one or the other.

Great. Thank you. I wonder if you could give us a sense, it sounds like the incremental boost in the buyback is a result of the repatriation. Is there any way to think about the structural benefit from the tax reform and what incremental cash flow associated with that will be deployed to buyback or acquisitions? How should we think about that longer term?

So our capital allocation process really has not changed. We’re still very opportunistic on the M&A front. If we’re not doing M&A, then we’re reinvesting back to shareholders in the dividend and stock repurchase. The dividend has been growing very nicely on a year-over-year basis, but we don’t see any significant change to that in terms of growth of the dividend. So it’s really, at the large majority of our free cash flow, we’re not doing M&A. Right now it’s most accretive for us to go buy back stock. And so that’s why you’re seeing that incremental $100 million from being able to bring back cash from overseas that we’re earning interest on at a very low basis point.

Great. And then just as a follow-up, is there any way to think about – it sounds like a third of that reinvestment is designed to boost the organic growth? Any thoughts on what it could mean incrementally for the organic growth in terms of the margin reinvestment that you outlined?

So when we think about that additional investment, we’re really trying to push forward ASV growth and maintain or grow within our guidance. It’s really pushing our ASV growth within our guidance, and we’re really – our growth right now for this year is really within that guidance number.

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

Can you repeat the question?

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

No. We don’t disclose that.

Yes, so our ASV strategy remains the same. We’re continuing to work closely with our clients as we push some of our product initiatives and we continue to differentiate our offerings. So that’s critical for us to maintain our competitive advantage.

Okay. Got it. And then just lastly wanted to confirm, you’re unhedged to all currencies but the rupee at this point?

We are unhedged to all currencies except rupee and Philippines peso.

Thanks. Just on the FX impact on margins, did you say that the impact is less, I guess, going into the third quarter now? And just trying to understand, given currency trends, what type of impact you expect at this point for the full year and relative to prior expectations, and then 3Q versus 2Q?

Yes. So if you look at Q3 versus Q2; in Q2, we had a – it affected our margin by about 30 basis points. When we look at current rates and our exposure in Q3, that negative has come down somewhat. So it’s less of an effect in Q3 versus Q2. If you look at it on a full-year basis, it will be a negative effect just overall for the full fiscal year.

Okay. And so the reinvestment to – I guess given the numbers you gave, it seems like that’s like 20 basis points to the full year number if it’s kind of one-third of the $0.20. Is that in the right ballpark for that number?

Approximately. Between 20 and 30 basis points. Correct.

Okay. And then last question. Just another numbers one. The analytics business driving roughly half of the incremental ASV. Can you – since we don’t know the size of that business, I guess how does that compare? Has that been true or close to true the last couple of quarters? Is that significantly different than you’ve been seeing?

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

Thanks. Good morning. Just a couple of questions. I was wondering, Phil, if you could just give us an update on what you’ve seen as it relates to MiFID? Obviously, it won’t affect anyone. It doesn’t seem to have a huge impact on your business but maybe just a little bit of color on what you’re seeing in the market?

So my comments really haven’t changed from last quarter. The European business did better this Q2 than it did in Q2 of FY '17, so we’re showing positive momentum there and we’re continuing to build out more solutions with our regulatory group to address MiFID and other regulatory solutions.

Good morning, guys. As we think about the analytics business, it sounds like you obviously had a good quarter. Is there a feeling regards momentum at your back here in that segment? It sounds like this is an area that’s done better for you over the past year or so. And just to talk about just the current environment and the pipeline in the segment, how you’re thinking about that?

So the analytics business has been a growth driver of FactSet’s business for the last two decades, honestly. It’s beginning with portfolio analysis equity product. So this is really – it’s evolved now to sort of have seven or eight business lines within it as well as all of the acquisitions that we’ve done. Not all of them, but BISAM, Vermilion, and so on. So it’s a great business. It’s one of our stickiest products. And very often, it drives a lot of our sales and brings other products with it. So this is not a new trend. We’re just beginning to talk about it in a little bit more of a granular way than we have historically.

Yes, so currently, we have $575 million in debt. Our cost of capital is just right around 300 basis points. At that level, it’s still very accretive for us to continue to invest our free cash flow to buy back stock. As the Fed increases interest rates, we continue to reevaluate it. But as of right now, it’s still very accretive for us to still go buy back stock and lower our share count.

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

Currently, we don’t have hedges on the interest rate. No.

Yes. Hi. Good morning. Just a couple of cleanups here. First of all, on Portware, I think historically you’ve talked about the fact that there are some parts of the business that is trading volume related. And clearly, year-to-date, we’ve seen a spike in volume. So just curious how much that added in the quarter? And then also, Maurizio, how does it impact ASV? Because February, in particular, was very strong, and that’s when your quarter ends? So how do you use that variable component there in your ASV number?

So this is Phil. I’ll answer the first part of the question, which is we have not historically broken out the transaction revenue part of Portware.

And so in our ASV calculation, we look at transaction revenues over the last 12 months, and that’s what we include in ASV. So we’ll look at the last 12 months activity, and that’s our ASV number for the client for transactional revenue for ASV.

All right. So one month doesn’t really drive anything up in a big way. Okay, good. And then just secondly, just coming back to the tax rate in a minute. I think I got it now. But you gave a lot of different numbers here. If I think about the next fiscal year, I know that’s still a couple of quarters away, but it sounds like your tax rate going forward, if we assume the same kind of stock-based compensation levels, should be around like 17%, 17.5%. Did I hear that correctly, like on a go-forward basis?

Yes. So this year is a blended year because we really only get eight months out of the 12 months of benefit. But if you look at fiscal '19, you would see an incremental – approximately 200 basis points decline in the existing tax rate going forward for the full-year benefit in 2019.

Thanks everyone for joining us on the call today. As we noted in our press release, we are hosting an Investor Day on April 17th in New York City. Details on how to register for this event are in our earnings release and on our website. We hope to see many of you at the event. And if you have additional questions, please call Rima Hyder. We look forward to talking to you next quarter.