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FactSet Research Systems Inc. (NYSE:FDS)

Q3 2012 Earnings Call

June 12, 2012 11:00 am ET

Executives

Rachel Stern - SVP, General Counsel & Secretary

Phil Hadley - Chairman & CEO

Peter Walsh - EVP & COO

Mike Frankenfield - EVP, Director of Global Sales

Analysts

Bill Warmington - Raymond James

Shlomo Rosenbaum - Stifel

Suzi Stein - Morgan Stanley

Peter Appert - Piper Jaffray

Peter Heckmann - Avondale Partners

Jennifer Huang - UBS

Fredric Russell - Frederic E. Russell Investment Management Company

Glenn Greene - Oppenheimer

Operator

Welcome and thank you for standing by. This is the FactSet third quarter fiscal 2012 earnings call. All participants will be in a listen-only mode. (Operator Instructions). I will now turn meeting over to Rachel Stern, Senior Vice President, Strategic Resources and General Counsel. You may begin.

Rachel Stern

Thank you operator. Good morning and thanks to all of you for participating today. Welcome to FactSet’s third quarter 2012 earnings conference call. Joining me today are, Phil Hadley, Chairman and CEO; Peter Walsh, Chief Operating Officer and Mike Frankenfield, Global Director of Sales.

This conference call is being transcribed in Real-Time by FactSet CallStreet service and is being broadcast live via the Internet at www.factset.com. A replay of this call will also be available on our website.

Our call will contain forward-looking statements reflecting managements’ current expectation 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.

In an effort to provide additional information, our comments include non-GAAP financial measures. The non-GAAP measures we will discuss today have been reconciled to the related GAAP measures in our earnings press release and our SEC filings.

Annual Subscription Value or ASV is a key metric for FactSet. Please recall that ASV is a snapshot view of client subscriptions and represents our forward-looking revenues for the next 12 months.

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

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

Peter Walsh

Thank you, Rachel and good morning everyone. Here is how I plan to spend our time today. First, we’ll review third quarter results. Second, I’ll provide guidance for the fourth quarter and lastly we’ll end with Q&A.

Turning to third quarter results. ASV was $811 million at May 31, 2012, up 9% over last year. This quarter’s ASV growth of $8 million was driven by increased sales of our PA suite of products and additional users.

Bottomline, GAAP EPS grew 14% to $1.5. This marks the eighth consecutive quarter of double-digit growth. Looking ahead, our guidance suggest double digit EPS growth will again be achieved in the upcoming fourth quarter.

Our EPS performance was backed up by record levels of free cash flow generation. This quarter’s free cash flow was $70 million, a record number for FactSet and 23% higher than last year’s third quarter free cash flow of $57 million. Higher levels of net income, stronger accounts receivable collections and increased accrued compensation drove free cash flow.

Over the past year, free cash flow grew to $222 million, up 25% compared to the same period of fiscal 2011. Over the past 12 months, free cash flow was 22% higher than net income, which we believe illustrates the high quality of our earnings.

Over the last 12 months, accounts receivable decreased by $1 million even as ASV increased by $70 million over the same period. At the end of the third quarter, our DSOs were 30 days compared to 32 days last quarter and 33 days a year-ago.

Our cash and investment balance was $242 million as of May 31st, up $42 million from February 29th. CapEx was $6 million and we spent $27 million on share repurchases. On May 8th, our Board of Directors approved $200 million expansion to our existing share repurchase program. At the end of the third quarter, we had $256 million authorized for future share repurchases.

In the third quarter, we paid $12 million in dividends to shareholders. Also during the quarter, our Board of Directors approved a 15% increase in our regular quarterly dividend from $0.27 to $0.31 per share. This is the seventh consecutive year that our annual dividend has been increased by more than 10% translating into a five-year annual dividend growth rate of 21%. With our dividends and our share repurchases, in the aggregate, we have returned $219 million to shareholders over the past 12 months.

Now let's turn to the P&L. FactSet’s revenue this quarter were $202 million, an increase of 10% over the prior year. Operating income for the third quarter rose to $69 million, up from $62 million in Q3 of 2011.

Net income advanced to $48 million compared to $43 million in the year ago quarter. Non-GAAP net income rose to $53 million, a 9% increase compared to the year ago period. Non-GAAP EPS rose 13% to $1.15 compared to a $1.02 a year ago.

Looking at ASV by location, our US operations picked up to $549 million in ASV or a $262 million ASV is from our international operations representing 32% of the total. During the third quarter, US revenues rose $138 million, an increase of 10% over the third quarter of fiscal 2011. Non-US revenues rose 11% to $64 million compared to last year.

Revenues generated from an European and Asia Pacific reasons during the third quarter were $50 million and $15 million respectively and the growth rates in each of those regions were 10% and 15% respectively year-over-year.

So where did our growth come from this quarter? First-off, there were two events that explain the unusual ratio between user and ASV growth this quarter. One, we provided a feed of earnings estimates to TheMarkets.com. Finally, TheMarkets.com acquisition by S&P Capital IQ, that feed was cancelled reducing Q3 ASV by $4.3 million. Two; this quarter our net user growth increased by 1,100 users to 48,400 and was driven by replacing a competitor at a global sell side banking firm.

Portfolio Analytics continues to be a strong product for us. PA sells well at existing clients and it remains an attractive selling point for new clients as well to bring them into the FactSet fold. In the last 12 months, PA 2.0 users and clients both increased double-digits on a year-over-year basis. In addition to the traditional PA components, including risk, benchmark and indices portfolio publisher has been successful this quarter as well. Client groups have also found great value from the suite of risk models and portfolio optimizers fully integrated and offered over FactSet.

Against the backdrop of economic volatility, we added a 11 net new clients this quarter. You have heard us talk about how uncertain economic times stifles new firm creation and extends the timeframes clients pay to make large spending decisions. So we are pleased to be able to continue to add clients to our roster.

Consistent with past quarters and with last year, our annual client retention this year was greater than 95% of ASV and our annual retention rate in terms of number of actual clients was 92%. We believe these statistics point to the continued satisfaction of our clients with our products and services. They continue to be engaged with our workstations and derive benefits from them.

We've been pleased by the increased usage of FactSet in itself by both buy and sell side users. This increased client engagement level was brought about by the release of Sidebar about a year ago. And for those following FactSet for some time, Sidebar is basically new FactSet for itself, making it simple and easy to customize and derive great value straight from the friendly confines of one of the most popular software platforms in our industry, Excel.

Now let's take a look at our expenses. Operating expenses for the quarter were $134 million, up 10% from the year ago quarter. Operating margins were 33.9%, up from 33.7% in Q3 last year. Cost of services expressed as a percentage of revenues increased 16 basis points over last year due to higher compensation costs and an uptick in data charges.

Higher compensation was due to new consulting, engineering and content hires and salary increases during the past 12 months. Data costs were up due to our growing client base and expanding third-party dataset offerings. These increases were almost completely offset by lower depreciation and in lower intangible asset amortization.

SG&A expenses as a percentage of revenues decreased 35 basis points compared to the same period last year due to lower interoffice travel, more efficient use of existing leased office space and a prior year internal sales conference that did not reoccur in 2012.

Our headcount was down 61 employees during the quarter due to seasonality. Consistent with previous years, we are planning headcount growth in the upcoming fourth quarter as recent college graduates represent our primary source for consulting and software engineering.

Overall, our headcount is 5,450 at quarter end, up 14% year-over-year. For Q3, the effective tax rate was 30.4% compared to 30.1% a year ago. Like last year, this quarter’s tax rate had a slight benefit from finalizing prior year tax returns.

As you know, if you've listened to our calls before we've often discussed the impact of the US Federal R&D tax credit which expired on December 31, 2011. We expect that it will be reenacted as it's been over the past 30 years. However, we cannot factor it into our effective tax rate unless its part of the currently inactive tax law.

The expiration of the R&D tax credit increased our annual effective tax rate by 1.3% and reduced third quarter GAAP and non-GAAP EPS by $0.02 per share. Now let's turn to our guidance for time fourth quarter of fiscal 2012. Revenues are expected to range between $204 million to $208 million. Operating margin is expected to range between 33.5% and 34%. The effective tax rate is expected to range between 31% and 32%. GAAP diluted EPS should range between a $1.6 and $1.8 per share. Non-GAAP diluted EPS should range between a $1.15 and $1.17 per share. Both GAAP diluted EPS and non-GAAP diluted EPS included $0.02 reduction to reflect the exploration of the US Federal tax credit.

Looking back on this past quarter, it’s been a hard won success. All of our key metrics continue to tick upwards, EPS, ASV, revenues, users; net client found all increased this past quarter. But we know that to continue our record of making share gains means we have to earn our standing in the industry everyday and with every client in prospect. Our company culture is such that we are dedicated to our clients and great client service not just on a daily basis in dealing with their immediate needs but also on a long-term basis.

We continue to release new applications and data in our system and whether our own or from another stores such as the new bank loan data from market for our fixed income in PA product. What brings it all together is our service. The FactSet consulting team is a true asset that’s been contributing strongly to our market share gains over time. We aim to continually be responsive to our clients by making our products and services better and more effective for them not just quarter-to-quarter but over the long haul. Thank you for your participation in today’s call. We are now ready for your questions.

Question-and-Answer Session

Operator

Thank you. At this time we will begin question-and-answer session. (Operator Instructions) Our first question will be from Mr. Bill Warmington of Raymond James. Your line is open.

Bill Warmington - Raymond James

One of the questions I’ve been getting from investors this morning is that given the move of ASV from double digit growth to upper single digit growth, and revenue growth guidance next quarter of 6% to 8%, is it something in the competitive or macro environment that’s changed, that will likely prevent FactSet from returning to double-digit revenue growth over the next few quarters?

Phil Hadley

If you look at our ASV and you put it on a trailing 12-month basis, it’s certainly changes direction over time. I think we’re definitely still in a market which is very choppy for our growth on buy-side, it sounds like volumes globally and that would be the macro environment. In micro environment the fact that we're seeing is, we continue to invest very heavily in our products. So I feel very good at the content investment we made over the last five years is paying off handsomely.

I feel very strong at the interface that we're providing our clients in delivering a great deal of value in the marketplace. I am very comfortable from our competitive position and I feel that when I look at the players in our space that we’re making gains and that when our clients business model figure out when Europe gets stabilized, when the elections happen, when the equity markets do what they always do and finding the equilibrium that FactSet would be in a very strong competitive space.

Bill Warmington - Raymond James

If you could comment on geography and it looks like, Europe was strong for you this quarter but looking out, your thoughts on how that’s likely to play out over the next few quarters for your business?

Phil Hadley

I think you have to be a little bit careful because as Peter pointed out the TMT data fee that we had with the US based data fee, which has been certainly, the fact that the numbers in this particular quarter, I think overall, and the buy-side and sell-side act very similarly globally. Obviously, there are pockets of strength there in the world, the redeem markets for us is still very strong and there are pockets of disruption as well. But all in all, I think it's a healthy business and I would also remind everyone that the first and third quarter for us are always a bit choppy, just because it's not the buying cycle for our clients and it's not our fiscal year end. So there is always volatility in these two quarters.

Bill Warmington - Raymond James

Yes and then the last question is just I kind of ask you how you would characterize the buy-side and sell-side environment today versus six months ago in terms of their appetite for your products and cost sensitivity?

Phil Hadley

I think, if I had to choose a word I would say cautious, but yes I feel like when we deliver value as Peter illustrated, the PA product line is doing very, very well, certainly very excited to -- the sell-side fee count growth, was that a client that made a decision based on price three years ago and came back to us and discovered you know -- and it's reaffirming to believe that your pricing and the value that you delivering your clients is appreciated by your clients. So I think it's one that never easy but feel pretty good about where we stand.

Operator

Our next question is from Shlomo Rosenbaum of Stifel. Your line is open.

Shlomo Rosenbaum - Stifel

I want to ask about the buy-side, is the TMT $4.3 million of ASV that came out, would that come out of a buy-side numbers or sell-side numbers? Is it fair to assume buy-side?

Peter Walsh

That is coming out of our buy-side numbers.

Shlomo Rosenbaum - Stifel

Okay, so if I kind of normalize for that, it looks like the buy-side ASV would be the growing kind of 10.2% year-over-year. The last three quarters, the ASV growth is like 12.5% consistently. Does it feel like the environment is just getting tougher to sell into? Can you just give us a little color on that?

Mike Frankenfield

And sort of reiterate what Phil said, clients are in a cautious mode. When I look at my internal benchmark and statistics of my sales process, there is no question that decision making process is slow and more of our opportunities of spending longer periods of time in the evaluation or [weighting] decision phase. Overall though, we got a great products that are continuing to sell well through and the other thing you should keep in mind is that the large increase in users on the sell-side, those users come on, typically the lower average entity for user number which you want to be careful you don’t oversee the amount of ASVs that were driving from that segment.

Shlomo Rosenbaum - Stifel

Got it. And then, in terms of the headcount going down by 61, I think if I go back to like 2006, I only saw the headcount go down one other quarter and that was only like two people. Is there anything I should be reading into that or you know you said that seasonality but despite seasonality even through the downturn, we really wouldn’t see much headcount shrinkage?

Peter Walsh

I don’t think there is much to read into it in terms of maybe contrasting your observation of 2006 versus today. In some of those periods, we were investing more aggressively in content and that was offsetting the seasonality of where we source most of our hires for all our other groups which is directly from college. Our headcount has been, the growth rate of our headcount has been slowing and I think consistent with what we've been indicating on previous calls where we think our headcount growth rate is going to modify more closely towards our overall ASV growth rate. And we expect in the upcoming fourth quarter as I mentioned in our comments to see headcount growth reflecting the aggressive hiring out of college for both consulting and engineering.

Mike Frankenfield

If you are thinking about the collection cycles of our collection teams a lot of them are focused around fiscal year end collection both the earnings estimates and the fundamentals, and January to June cycle is their peak period of collection. So their ability to ingest new employees and that's part of the cycle is very difficult, it pretty much needs to be pre-trained before that cycle. And that would also play into them not hiring in this particular window. And not even hiring to replace.

Shlomo Rosenbaum - Stifel

So in general when I think of your headcount from an overall company perspective, what should now that we are getting to more kind of normalized growth that seems like you guys have gotten the people where you want them in data collection, how should we think of growth on kind of a quarterly basis, can you give us some ways to think about that. I think the bulk of growth come in one quarter and then we should, should we every May quarter kind of see a little bit of decline?

Peter Walsh

I think we have certainly I guess let me back up, in terms of overall growth rate, our headcount growth rate has been moderating. If you went two years ago, our year-over-year growth rate was in the high 30s. So it's definitely been moderating towards our ASV growth rate because we've reached critical mass in our content operations.

Seasonality, I think it's -- the fourth quarter is likely to be our strongest headcount quarter in terms of consulting and engineering. And our content operations is a little more consistent from quarter-to-quarter, but the third quarter likely to be our lightest.

Shlomo Rosenbaum - Stifel

And then just on the sell side, it seems like you had the one big takeaway that kind of moved in numbers. If you would remove that from the ASV, what would we see? I don't know for exact numbers, but would we see kind of a flattish number or would you start to see that continue to go down?

Phil Hadley

I'm not sure I'm going to give you an exact color on that because it's not -- it's probably not appropriate to do so. But I would say that a large sell side deal like that is not always at rate card. And the reason we gave color on this particular situation is just in that particular quarter there was enough choppiness and it happened to be in the third quarter. If that was in the fourth quarter and less material for the total, we probably wouldn't have called it out.

Operator

Ms. Suzi Stein of Morgan Stanley, your line is open.

Suzi Stein - Morgan Stanley

Hi. Can you give us an update on the feedback that you're getting on your fixed income product? And have you continued to be successful in terms of selling this into fixed income only shops?

Mike Frankenfield

Hi, this is Mike. Fixed income continues to be a big bright spot for FactSet. Very, very complicated asset class, it requires significant amount of upfront work with each clients. But we're slowly but surely perfecting that product. That's improving the speed with which we're able to onboard clients.

Not only are we having success with talented fund managers who have a fixed income mandate in addition to their traditional equity mandate. But we are beginning to identify pure fixed income only firms and beginning to get traction with some of those firms.

Suzi Stein - Morgan Stanley

Okay, and was there any notable currency impact on your bottom line results this quarter?

Peter Walsh

Hi, Suzi, it's Peter. Currency did not have a noticeable impact on our bottom line results. Since you brought it up, I think I will take a moment just to recap where we are on currency in general. 2% of our revenues or approximately $17 million at ASV is not billed in U.S. dollars. The other 98% are all billed in U.S. dollars.

We're long expenses, so on a net basis we have about $140 million exposure to other currencies other than the dollar. 80% of that exposure is pound, euro, and rupee. Of that 80%, approximately almost half is the pound and the other half is the euro and the rupee. The euro represents two-thirds and the rupee represents approximately a third.

Suzi Stein - Morgan Stanley

Okay. And at the end of last quarter, I think the only hedges that you still had were the rupee hedges. Have you made any changes during the past quarter with respect to hedging currency?

Mike Frankenfield

Yeah, we did make some changes. Philosophically, we'll hedge currency if there is a material change on a year-over-year basis that we'd like to lock in. We don't think we're any smarter about predicting where currency rates will move on a forward-looking basis. So we -- during the quarter, we did lock in the euro for 50% of our exposure for the next nine months.

And to recap with where we are on the rupee, we have roughly 67% of our rupee exposure hedged out for the next 18 months. I would encourage everyone to continue to look at the Q because we'll outline at an exact currency level where our future-looking hedges are as of May 31st.

Operator

Our next question is from Mr. Peter Appert of Piper Jaffray. Sir, your question is open.

Peter Appert - Piper Jaffray

So I think this is for Mike. Mike, I'm wondering if the decision criteria you're showing back from clients in terms of whether they choose FactSet versus an alternative, whether do you see any evidence that that's evolving or changing overtime, and whether pricing, has that become more of an issue more recently or is it just the same as it's always been?

Mike Frankenfield

Hi, Peter. So, no material change in pricing. In fact, like every other firm, we have to continue to deliver great value to justify the prices that we charge. And when we're building new products, we do a certain amount of enhancement to maintain the pricing we do, and we do enhancements in hopes that we can create future revenue opportunities.

Peter Appert - Piper Jaffray

And I guess the question is really more -- I assume you're always under pressure from clients for price concessions?

Mike Frankenfield

We're in the technology business and we know that we have to continue to invest, by improving our products at just -- there's a certain amount of investment that needs to happen just to maintain the status quo. And --

Peter Appert - Piper Jaffray

I'm just wondering if the pricing pressure you're feeling; is it more intense today versus six or 12 months ago?

Mike Frankenfield

Not from a competitive perspective. The real -- the biggest issues have to do with the lack of visibility our clients have with their own business models. The choppiness in the market makes clients become cautious, and they constrain their budgets and are more likely to maintain the status quo. So we just have to work harder to overcome that inertia.

Phil Hadley

I would add to that Peter. Definitely in a more difficult time in the marketplace, price becomes a bigger factor in every one of our client's investment decisions, making it more incumbent for us to deliver more value. And then the market gets more efficient as our client's health improves, and the value and features as you have and when the day and prices becomes secondary.

Peter Appert - Piper Jaffray

So Phil, you mentioned the possibility that larger deals might not always be on rate card, and I understand this is a potentially sensitive issue obviously. But what's the pressure then from existing clients?

Phil Hadley

No. So the bold clients that are in the thousand plus deals, and depending on the level of employment and the length of the subscription and all of those things, there are so many different factors that go into the pricing. And the reason I said that there is just because if you took rate card times a thousand deals, you'd say, oh well, that was all the ASV for the quarter, and I think that's where Shlomo was going with it.

And I just didn't want people to believe that was the case in this particular case. The good news in our particular case is that was a competitive win. Competitive win in a rate increase and a competitive win that is better priced than we had when we lost in the first half. So, all three those things are good things and speak very much to our competitive position in the marketplace.

Peter Appert - Piper Jaffray

Got it, very helpful. Thank you. And then, Phil, the data feed, you've highlighted in the past is a growth opportunity. Can you give us any color on how big that business is proportionally to the overall operation and what the growth dynamics looks like?

Phil Hadley

I think it's a nice business for us. It's certainly frosty. It's not one that we saw compelled to break out at this point. So it kind of just falls in that bucket of other business for us. Definitely one that we have more opportunity for us, given that we've invested so much in content than it was five years ago. And it gets to the point where we think it's material and useful from an investor perspective. We'll break out more detail.

Peter Appert - Piper Jaffray

What's material? Is material more than 5% or 10%?

Phil Hadley

Material is when I think it can actually help an investor analyze and value our business. I think that's probably how I define material.

Peter Appert - Piper Jaffray

And last thing, Phil, the cash balances obviously continue to grow. You've outlined in terms of the buybacks and the dividend, some uses of those cash balances. How are you seeing the M&A opportunities at this point?

Phil Hadley

I guess I'd answer by saying we probably see two or three a quarter. Most of them make it into the trash can before they ever even get past on as an email to somebody who might actually have a deeper knowledge of that product area than I do. But we're very -- we're fortunate I think as a business and that we're a place people would like to go.

So in most cases, acquisitions that occur in our space that would be interesting to us, people are knocking our front door and we get chance to take a look at them. But as I've said before, I really feel very comfortable with assets we currently have and our opportunity in the marketplace. So the hurdle rate for us as a business to do an acquisition, it really has to be something that's going to strategically accretive to us to do so.

Peter Appert - Piper Jaffray

And it's mainly datasets or incremental datasets that would be the focus from an M&A standpoint?

Phil Hadley

Well, from our perspective, it takes lots of different flavors but really for us it has to be something that a financial professional is going to need. Somebody in your firm needs it; somebody in one of our buy side firms needs that product. Everything else immediately gets thrown.

Operator

Our next question is from Mr. Peter Heckmann of Avondale Partners. Your line is open.

Peter Heckmann - Avondale Partners

As regard to user growth, last two years you've had very strong user growth in the fourth quarter. I would expect to see that as well. It doesn't sound as if the activity in the third quarter really brought any forward. And from your comments, it sounds like seasonally we would expect to see the fourth quarter being your largest quarter for user adds?

Phil Hadley

Traditionally, I think our clients hire much the same way we do. Of course, hire is being a big portion of what they do on both the buy and the sell side. So that's -- if you look at us historically, that's certainly when feed count changes the most.

Peter Heckmann - Avondale Partners

And when we look at the piece that was lost with the merger with markets in S&P, was that fundamental data?

Phil Hadley

No, it was estimate data.

Peter Heckmann - Avondale Partners

Estimate data, okay. And when you look forward in terms of a little bit unique to see a large block move, but do you feel that the pressure on the overall securities industry in terms of being cautious for cost and where your price point is relative to others, do you think there are other opportunities to bring over large blocks, either through merger situations or competitive rebids?

Phil Hadley

I guess the question is do we feel like our price value relationship is going to save clients' money or move workload up. I think we feel very good that there are lots of opportunities. Even in the sell side business model, that certainly is recalibrating itself. So fortunately for us, Bloomberg is a $20,000 seat product; it gives a pretty nice umbrella out there; it’s a fine margin of work flow. And then you’ve got TR and S&P in the marketplace as well with varying prices for different products and content type. So there are definitely opportunities for us in the marketplace.

Peter Heckmann - Avondale Partners

Okay. And I guess the other part of that question was, maybe implied but not stated is that, given the backdrop have you seen an increase in customers thinking more about price and potentially considering their option and maybe moving a certain sub-segment of their employees down to a lower priced platform and could we see other large blocks moving over the next two, three quarters?

Phil Hadley

I think you are referring to the sell side opportunity we -- that came….

Peter Heckmann - Avondale Partners

Both on the buy side and the sell side, but it seems like the sell side is perhaps under more pressure?

Phil Hadley

The sell side opportunity just came over, it wasn’t price; it was functionality.

Peter Heckmann - Avondale Partners

Correct, but I assume in the last financial crisis, I think what we saw was you continued to gain share through the financial crisis and it was because people were deciding to go to a lower price point solution and they were migrating to FactSet and so your share gain may have actually accelerated a bit?

Phil Hadley

I would characterize it differently, because I think if you really take a look at our products in the marketplace and depending on which segment we are in, we are not the low cost supplier in the industry. I think what we were doing was building so much value on the content side that we could save the client’s money because we will monetize in the content as part of the revenue stream that was coming to FactSet. They were historically having to purchase that a la carte, so we were seeing share gains because of product improvement.

Operator

Our next question is from Jennifer Huang, UBS. Your line is open.

Jennifer Huang - UBS

Just to go back to the international question a little bit, growth there has been very steady at around 12%, maybe can you provide some additional color on are you gaining market from competitors there and whether or not the market there is, I know you guys mentioned due to additional functionality. So what is the pricing environment like there just considering I guess the macro issues over Europe?

Mike Frankenfield

Hey Jennifer, it’s Mike. That’s still small internationally compared to the addressable market and there are so many cases where there are competitive situation, but largely we have a big Greenfield opportunity, large number of clients and prospects, prospects rather that have no FactSet or more prospects outside the US than there are inside the US and some of the emerging economies continue to increase their specification and their desire to have premium tools to help understand and manage their investment process. So overall, we’ve got a good outlook international.

Jennifer Huang - UBS

And then, I guess switching over to just looking at ASV growth, I mean, maybe you can provide some color on – the ASV growth was 9.4% and it was even higher excluding TheMarkets.com and yet I think the revenue guidance was a little bit lower than what people were expecting. Was there anything that one-time in there that you would -- that maybe we should just watch out for in terms of next quarter’s revenues?

Mike Frankenfield

Obviously, we are very careful about how we provide guidance and it's really what we think and what we think of that with regards for the next quarter and so the answer is no. I don’t think that we’ve got anything planned for one-time in that. And like I said, I don't want everybody to believe that we will call out things like we did in this particular quarter. It just happened that given the scale of the quarter that we were just trying to be as illustrative as we possibly could as to what happened in the quarter.

Operator

Our next question is from Fredric Russell of Frederic E. Russell Investment Management Company. Your line is open.

Fredric Russell - Frederic E. Russell Investment Management Company

You did a great job of producing all those cash and buying back stock, increasing the dividend and yet you still, I mean it's not a nice problem to have, you have got a lot of cash. Would it be something that we could see, well, it not be a surprise if you decided to spend more money to open up new markets or spend money to or money to penetrate new markets; I ask those questions especially in view of your cautious and something I respect view of making acquisitions. What are some of your thoughts?

Phil Hadley

I guess that you know I would interpret that more as almost a margin question, because we certainly generate enough cash each quarter, the cash on the balance sheet really is already in the hands of the shareholders and we clearly could invest more and take margins down. I think if I look at where we are and where we would have been if we hadn’t invested so much in the business, I tend to get the question should be -- could you raise margins instead of in your particular case maybe we should invest more and take margins down.

Confirmly and I believe that reinvesting in our product and for our debenture of the long-term analysis of business and benefit of our clients is the right thing to do. You bring up an interesting question, should we take margins down and accelerate that as an opportunity? It's certainly the one we discussed. It's certainly the one that we found a great opportunity, we are glad to take margins down, and we thought that the shareholders and the company would be stronger and we would get a good return on that investment.

But right now, we are in a very luxurious position and that we have always grown for the most part and the real choice for us is where do we allocate the new employees that we are going to bring in because we are always growing our headcount. And certainly as you point out there we have great opportunities in emerging markets.

So on the content side we are investing very heavily and the content that serves the emerging market and then on the sales and marketing side we are certainly investing as well in building our offices in those locations and sales force in those locations. So, we are in some groups Brazil, we are in Dubai, we cover South Africa there's all kinds of places out there in the world where those are newer markets for us where we get feet on the ground in those particular areas.

So hopefully we are doing the best we can for shareholders and thank you for the first time somebody asking me that maybe we take margin down and invest more in our business.

Fredric Russell - Frederic E. Russell Investment Management Company

No, my progress is not that to take margins down, it is not and I think you are doing a great job in position of cash. My question is do you invest more aggressively on opportunities; just to take margins down I am sure you understand that I was not in my point. We don’t want to bring margins down just for the sake of bringing margins down that’s not going to accomplish anything but I see what's your answer is and that's a good answer. I like it. When you say that you've increased market share could you give us some statistics on that. Is it United States, Europe, and also could you say when people choose FactSet, when companies choose FactSet over the competitor, are their some common remarks that they make, what is, is there something that's really special about a product or does it depend on the buyer?

Phil Hadley

Well, I'll answer question and hopefully Michael will chime in. So we are not an industry like the auto industry, where everybody knows exactly how many cars were sold last month. So the data we get is it's more anecdotal in nature and we even compete with divisions of big companies and private companies. So the only way we can really tell is by the planning activity that we see and the information that we hear in the marketplace.

If you look at the fact, we grew clients last quarter, we grew seats last quarter, those are two very clear metrics. I am very comfortable if you check the channels that we did well relative on those two metrics relative to the other players in our space. Then at the more micro level, we can kind of see our wins and losses and know who we won against and who we lost against and be able to measure that and where we come out and that's how we make those statements.

But its not as scientific as knowing how many parts are out there as to why somebody chooses FactSet, one of the great things about our product line is its very diverse. What an investment banker thinks of FactSet and why they use the product versus portfolio manager are very, very different and what they find is value in our system, lots of commonality in the functionality. Peter mentioned that the Sidebar specialty functionality is a wonderful workflow for both the investment banker and the buy-side we are flowing in analyzing companies in itself. But it’s a very much individual decisions to what they find. I would say in general, our news in both interface is fantastic and improving every day. Our portfolio of products is the strongest in the industry, our Excel product is the strongest in the industry and our content in many categories is the best. So those will be a few reasons that’s out there.

Mike Frankenfield

I would only add that every client situation is unique and in fact the sales force, in fact the consulting floor spend there is tremendous amount of time trying to understand client workflows, client investment process and it’s really based on gaining that understanding that we are able to align products, databases etcetera with the client’s needs to identify opportunities to help clients to be more efficient, to help them in gaining information advantage, what have you, it’s really that one client at a time approach would serve us well.

Fredric Russell - Frederic E. Russell Investment Management Company

We are users and we are very pleased with the product and that’s why we are shareholders. Mike other question is this in negotiating with buyers are you finding that the buyers are becoming bigger and the [NOCs] that you are compelled to negotiate with have just bigger in terms of size and revenue than they were a year or two ago, so any trend that you see that would make put the buyer in a more competitive position?

Mike Frankenfield

I don’t see anything has changed, certainly if you look at just your business, the assets under management and the industry and how much if you just pull up asset under management it’s controlled by the top 50 players in the world. I think all the market data people FactSet included absolutely those are our biggest clients as well, and have them for a long time and will be for the foreseeable future. So I don't think much has changed in that perspective.

Fredric Russell - Frederic E. Russell Investment Management Company

One other technical question on your share repurchase, are you allowed to participate in a market today or do you have to wait a certain amount of time after this call?

Peter Walsh

We wait for the earnings to be distributed in the marketplace or any other material news for 24 hours before we engage in share repurchase activity.

Operator

Our next question is from Mr. Glenn Greene, Oppenheimer. Your line is open.

Glenn Greene - Oppenheimer

Yeah, thanks. Maybe a question for Peter. Obviously, you sort of called out the big block on the sell side sort of the competitive win, which is a good chunk of your user growth. But trying to just get a sense of sort of more normalized user growth on a couple of different ways of sort of thinking about it.

Is there as way to think about what kind of buy side user growth you would have had in the quarter, and also what sort of a more normalized user growth would have been had that big sort of client win?

Peter Walsh

Glenn, I think what we're trying to really signal in the quarter is that we were really obviously pleased with the net user change this quarter but it was really primarily driven by sell side. Every quarter we've been trying to give a little flavor whether it's been buy or sell side that's been driving the user change.

And certainly, ebbed and flow from most quarters, and this quarter was really unique because of that important sell side win. So we just called it out just so you would be able to get a better sense of what user class per fact that was driving it?

Glenn Greene - Oppenheimer

Did you have buy side user growth this quarter?

Peter Walsh

We did have buy side user growth but it wasn't -- I wouldn't put it in a category that was material relative to other previous quarters.

Glenn Greene - Oppenheimer

Okay. And then sort of on the PA side, if I heard you right, you sort of called out I think it was double-digit user growth and client growth. And in the context of this question, you've been getting a lot of investor questions related to concerns regarding the competitiveness of PA or potential for competitive share losses since the data that you provided kind of suggests that you're not seeing that.

But maybe just some kind of color of what you're saying in terms of the PA base, and could you kind of go out of your way to sort of callout that metrics because of those concerns, just some color on what you're seeing on PA?

Mike Frankenfield

Hey, Glenn, it's Mike. I've said it on a couple of other calls and it's important to remember that PA is a suite of products, and certainly the traditional PA workstation. But overtime, we've added a great deal of functionality to that, including risk, bonds, the ability to publish results. And we find that that's what clients want. Clients want a complete solution that is able to solve many problems within their firm.

There are definitely competitive products out there that compete with individual components of the suite. However no one in the marketplace offers this comprehensive and completed solution as we do. We're still very excited about the growth opportunities. A large number of our investment management clients still either don't subscribe to that product or only subscribe to a few components of the suite.

So we think we've got significant up-sell opportunities within our existing client base. Additionally, the functionality that we deliver is sufficiently compelling for new clients as PA is often times the key driver in a client's decision to purchase that. So yes, there is competition out there, but we feel like our product continues to improve and we're improved by the metrics that we're seeing.

Glenn Greene - Oppenheimer

So then it sounds like there's really no dramatic change in the last 12, 18 months competitively. There is competition but you're feeling pretty good about where you sort of stand.

Phil Hadley

Definitely. I would also add and just remind everyone that we really have a pricing model that has kind of a base fee for the product, seed growth and also application growth. And the reason that Peter called that out is because the PA suite was the driver on the application side of it, which would have been side of the business and that revenue would be independent of see-through.

Meaning if it's double counted, if somebody who already have the access to purchase PA, that doesn't change the feed count number. So I know as an analyst, you look at the feeds or the client count and the feed count. Well, that's the only two dimensions that exist but the ASV in the buy side was healthy because it was driven by the PA suite.

Operator

(Operator Instructions) No questions.

Phil Hadley

Thank you very much.

Mike Frankenfield

Thank you, Operator.

Operator

This concludes today's call. Thank you for participating. You may disconnect at this time.

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