FactSet Research Systems Inc. (FDS) Q1 2014 Earnings Call Transcript

Rachel Rebecca Stern - Senior Vice President of Strategic Resources, General Counsel and Secretary Peter G. Walsh - Chief Operating Officer and Executive Vice President Philip A. Hadley - Chairman and Chief Executive Officer Michael D. Frankenfield - Executive Vice President and Director of Global Sales

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division Peter J. Heckmann - Avondale Partners, LLC, Research Division Timothy McHugh - William Blair & Company L.L.C., Research Division Peter P. Appert - Piper Jaffray Companies, Research Division Hamzah Mazari - Crédit Suisse AG, Research Division Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division Toni Kaplan - Morgan Stanley, Research Division Alex Kramm - UBS Investment Bank, Research Division Keith M. Housum - Northcoast Research Andrew Hummel - Oppenheimer & Co. Inc., Research Division

Welcome, and thank you, all, for standing by. [Operator Instructions] Now I'll turn the meeting over to the Senior Vice President, Strategic Resources and General Counsel, Ms. Rachel Stern. Ma'am, you may now begin.

Thank you, operator. Good morning, and thanks to all of you for participating today. Welcome to FactSet's First Quarter 2014 Earnings Conference Call. Joining me today are Phil Hadley, Chairman and CEO; Peter Walsh, Chief Operating Officer; and Mike Frankenfield, Director of Global Sales. This conference call is being transcribed in real time by FactSet's CallStreet service and is being broadcast live via the Internet at factset.com. A replay of this call will also be available on our website. Our call will contain forward-looking statements reflecting management's expectations based on currently available information. Actual results may differ materially. More information about factors that could affect FactSet's business and financial results can be found in FactSet's filings with the SEC. Annual subscription value or ASV is a key metric for FactSet. Please recall that ASV is a snapshot view of client subscription and represents our forward-looking revenues for the next 12 months. Lastly, FactSet undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. I'd like to turn the discussion over now to Peter Walsh, Chief Operating Officer. Peter G. Walsh: Thank you, Rachel, and good morning, everyone. Here's how I plan to spend our time today: first, I'll highlight 3 notable items; second, we'll review first quarter results; third, I'll provide guidance for the upcoming second quarter of fiscal 2014; fourth, we'll end with your questions. Regarding the notable items: one, as covered in our Q4 earnings call in September, the acquisition of Revere diluted earnings by $0.01 per share in Q1 and reduced our operating margin by 30 basis points; two, the U.S. federal R&D tax credit is set to expire on December 31, 2013. Accordingly, EPS includes a $0.03 reduction for both Q1 and future quarters. Only once in the 32-year history of the R&D tax credit has it lapsed permanently, which was between July '95 and June '96. Accounting rules mandate that tax credits can't be factored into our effective tax rate unless it's part of currently enacted law. Our tax rate would have been 29% rather than 30.5% had the credit been reenacted before the end of our Q1. Please refer to Page 10 of our earnings press release for a discussion on the history of the R&D tax credit. Three, I'm also pleased to announce that we recently made an investment in a U.K. company called Matrix Data. We purchased 60% of the company for GBP 12 million and have the right to buy the remainder, which we expect to do in February 2014 so 100% of Matrix could be owned by FactSet within our second fiscal quarter. Matrix provides intelligence to the U.K. financial services market for mutual fund distribution. Matrix will serve as a European complement to our Market Metrics business, which focuses primarily on the U.S. market. Matrix has 85 employees in England and has annual subscriptions of $7 million. In Q2, we expect that Matrix will increase revenues by $2 million, reduce operating margins by 50 basis points and dilute earnings by $0.01 per share. For the full year fiscal 2014, we do not expect Matrix to have an impact on our diluted EPS. Now let's dive into our first quarter results. Overall, we had a solid beginning to our fiscal 2014 year, but performance was mixed. All of our key metrics for our core buy-side clients were up nicely, but users declined within the sell-side space. Organic ASV grew 5% over the prior year to a total of $890 million. Our U.S. operations saw ASV rise to $609 million while international operations grew ASV to $281 million or 32% of total ASV. Of total ASV, our buy-side clients accounted for 82.2% of the total, with the remaining 17.8% generated by our sell-side clients, M&A advisory and equity research businesses. Just to remind you, we include off-platform data sales and Market Metrics in the buy-side category, and the sell-side sales consist only the banking functions I just mentioned. Our adjusted diluted EPS grew this quarter to $1.22, a 10% increase compared to last year's first quarter. This quarter marks our 14th consecutive quarter of double-digit EPS growth, and we're proud of that result. Our free cash flow for Q1 was $53 million, up 18% over the same period last year. Free cash flow over the last 12-month period was $259 million, up 26%. When compared to net income, free cash flow was 29% higher over the last year, which we believe continues to demonstrate the high quality of our earnings. Free cash flow increased this quarter due to growth in net income, improved accounts receivable collections and the timing of compensation payments. Our DSO at November 30 was 31 days compared to 34 days in the same period a year ago. FactSet's cash and investment balance was $188 million at November 30, down $22 million from August 31. During the quarter, we bought back 530,000 shares for $58 million and paid $15 million to acquire Revere. Yesterday, our Board of Directors authorized an additional $300 million for future share repurchases, bringing our total repurchase program authorization to $305 million. Over the last 12 months, we have returned $421 million to shareholders through dividends and share repurchases. Now let's move to the P&L. FactSet's Q1 revenues rose to $223 million, up 5.6% compared to the prior year. Excluding the Revere acquisition and foreign currency, organic revenue growth was 5.5%. Additional revenue from the Revere acquisition was almost completely offset by a revenue reduction from a weaker yen over the last 12 months. For the first quarter, operating income grew to $75 million, up 5% over the same period last year. Our adjusted net income rose 7% to $53 million during the quarter, and our adjusted EPS grew 10% this quarter to $1.22. Please note, adjusted net income and diluted EPS both add back income tax benefits as the federal R&D tax credit is set to expire on December 31 and was not extended as of the end of our Q1. First quarter revenues in the U.S. increased to $153 million, up 6% over the same period last year. Non-U.S. revenues grew 4% to $70 million compared to last year. Excluding foreign currency effects, our international segment grew at 6% this quarter. Revenues from Europe and the Asia Pacific regions for the first quarter were $54 million and $16 million, respectively. Excluding foreign currency effects, year-over-year growth rates were 4% Europe and 11% in Asia Pacific. This quarter, a number of different elements continued -- contributed to our continuing growth. Let's take a look. Client growth was solid this quarter as we added 25 net new clients compared to 9 in Q1 last year. Our total client count is now 2,525. Firms are included in our reported client count only when they spend more than $24,000 annually with us. Consistent with prior quarters, our annual client retention rate was greater than 95% of ASV and 92% in terms of the number of actual clients. Our user count rose by 89 users over the past quarter compared to 105 in Q1 last year. The increase brought our total to just over 51,000 users at November 30. We saw an expansion of new users from the buy side, especially from our wealth business, which was largely offset by a reduction of users at sell-side clients. We are pleased by the growth we see from our efforts in the wealth management sector and continue to push forward in that area. Wealth users have increased every quarter over the past 5 years. Sales in that sector require persistence and the ability to manage switching costs since the number of users and locations can be significant. Consistently expanding our footprint tells us our product is improving its competitive position. On the banking side, there's seasonality, with Q4 normally a strong quarter for new hires out of college and Q1 being weak as analyst programs come to an end. That played out again in Q1 this quarter. But this quarter also saw 2 large banks reduce the number of users when their long-term contracts were renewed. These firms experienced workforce reductions over the past 3 years and the new level of deployment matches their current level of headcount. On the positive side, calendar year 2013 is tracking to be the best year for IPOs since 2007, and Q4 will be the best quarter this year by a wide margin. Follow-on debt offerings were also very brisk. While we do not believe bulge bracket banks will break stride in their approach to cost containment, 2013 will be the first increase in deal flow for our IB clients in the last couple of years. ASV for Market Metrics decreased $2 million in Q1. The decline was primarily driven by clients exiting the light and variable annuity businesses due to low interest rates. We continue to be successful with our Portfolio Analytics suite of products. The PA suite includes separate add-on applications for equity and fixed income analytics, risk quant, returns-based analysis and Portfolio Publishing. Like previous quarters, we experienced increased subscriptions broadly across this product suite. Our global content sales team focuses on expanding distribution of FactSet clients -- content. Sales of content through subscriptions to single-purpose applications or through bulk data feeds continue to see demand among our users. The technology skill set of our largest clients is advancing, and servicing their needs with bulk data outside the FactSet Workstation has proven to be another valuable means to monetize our investment in content. Now let's take a look at the expense side. For the first quarter, operating expenses were $148 million, and our operating margin this quarter was 33.5%. Our operating margin was up 10 basis points compared to Q4 and 20 basis points lower than the same period last year. As I mentioned last quarter and as expected, the Revere acquisition lowered our operating margin by 30 basis points. This quarter, our cost of services as a percentage of revenues increased 240 basis points compared to the same quarter last year. Higher compensation from employee growth within our engineering, content and consulting groups was the cause of the increase and was partially offset by lower third-party data costs, a reduction in computer depreciation and a decrease in intangible asset amortization expense. SG&A expenses as a percentage of revenues decreased by 240 basis points in Q1 compared to the year-ago period. We did not enter into any material new leases this quarter, so our occupancy costs were lower and we experienced lower employee compensation from a reduction in variable compensation. At the end of the first quarter, we had 6,399 employees, an increase of 141 employees this quarter. Our effective tax rate this quarter was 30.5%, up from 30.4% in the same quarter last year. As I mentioned previously, the increase was because the R&D tax credit was not reenacted as of November 30. Had the credit been reenacted, our tax rate would have been 29%. Now let's turn to our guidance for the second quarter of fiscal 2014. Please note that our guidance figures include consolidation of Matrix at 100%. We expect that our revenues will range between $225 million and $228 million. Our operating margin is expected to range between 32.6% and 33.6%. This range includes a 30-basis-point reduction from the Revere acquisition and a 50-basis-point reduction due to the Matrix acquisition. We expect that GAAP diluted EPS will range between $1.20 and $1.23. This GAAP diluted EPS estimate presumes that the federal R&D tax credit will last during Q2, so we have lowered each end of the range by $0.03 per share. The annual effective tax rate should range between 30% and 31%. This range also assumes that the R&D tax credit will not be reenacted. To sum it up, Q1 adds to our continuing string of successful quarters. Our EPS grew by double digits while we continued to invest for the future. Over the years, regardless of the market cycle, FactSet's relative performance has been strong. At FactSet, we believe we're well situated to serve our broad range of our client needs, given our core competency with equity analysis and research and our expertise with fixed income that we've been developing now for nearly 10 years. At the same time, our capital allocation continues to be aggressive, and we're excited about our recent M&A investments. We have a great deal of work to accomplish this year, and we're focused on our goals. Even as the market changes and funds flow from fixed to equity assets, we'll be ready for the needs of our clients. Thank you. We're now ready for your questions.

[Operator Instructions] Our first question will be coming from Shlomo Rosen (sic) [Rosenbaum] of Stifel. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: The implication is that the mean hit on the ASV was sell side, not buy side. But if I kind of normalize for Revere, it looks like there was only a $2 million increase in ASV on the buy side. Is that the right way to look at that on a sequential basis? Philip A. Hadley: Shlomo, it's Phil. Your calculation will be correct. I think the only color I would put in that is the color that Peter added with Market Metrics, which would be certainly buy side but not a traditional buy side as you might think it as far as workstations and normal services. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: Can you give us kind of a little bit more color as to what the impact of Market Metrics was? I mean, is that a $5 million ASV impact to $10 million? Like, how should we be thinking about that? And is that something you expect to continue? Philip A. Hadley: The answer is don't expect it to continue. It was because of the exit of the -- the primary reason was because of exiting particular businesses for our clients, so those services were not renewed. Last year, we benefited from them still selling LMS strong, and this year, we got hurt because they were -- we had clients exiting the business. I guess I'll give you the numbers, it's onetime, it's not something we plan to renew, but just because it's material for this particular quarter. So Market Metrics was down $2 million this quarter and prior period was up $3 million. So it's a swing of $5 million relative to Q1 last year. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: And then -- so it seems like -- just to continue on the line of the ASV. There were reductions of workstations as some clients came to end of contract and kind of aligned the contract with their headcount. Were there any significant losses or just -- clients just moved off the platform that impacted that? Or is that really what the major impact was on the sell side? Philip A. Hadley: Those were longtime clients, longtime big clients, who had long-term contracts with us, where the service level they had subscribed to was no longer the size of their investment banking team. And it comes time for those contracts to get renewed, and we have to rightsize subscriptions to match their current headcount. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: So there wasn't -- it wasn't like there was a major loss to that or anything on that, okay. And just what was going on with variable compensation? Is that just less of an expectation that certain targets will be hit so you're not accruing the same amount? Peter G. Walsh: Yes. I think that's just -- Shlomo, it's Peter. In terms of variable compensation, I think we just adjust the amount that we accrue for bonuses related to our ASV growth rate. So comparing where we are this year relative to a year ago period, it just reduced SG&A as a percentage of revenue. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And I'm just going to leave off with this last thing, can you just describe the hiring environment in the different areas with -- in your client base? Michael D. Frankenfield: Shlomo, it's Mike. I think in the banking segment, we've characterized -- you sort of look at that as 2 pieces, the big bulge bracket firms and the middle market. I think middle market remains fairly steady. Bulge bracket certainly varies a lot by firm. They're choppy. I think we're going to continue to see a lot of choppiness in that segment. And the most steady part of the business for me is the investment management segment, where index levels are up. And you saw, based on the client count, that they're good -- not great but decent levels of firm creation and steady improvement.

The next question will be coming from Mr. Peter Heckmann of Avondale Partners. Peter J. Heckmann - Avondale Partners, LLC, Research Division: Can you talk about your intentions for price increases? Have you communicated that to buy-side customers for fiscal '14? Michael D. Frankenfield: Peter, it's Mike. So what's happening with the price increases, as you know, we've historically done a price increase in the second quarter targeted at our U.S. Investment Management clients. What's happened over the last several years and it's possibly accelerated in the past year is we have shifted our price increases out of that quarter to more directly align them with individual client contract renewal days. So the amount of ASV that we'll see in the second quarter directly from price will be smaller in that quarter, and the amount will be spread out more over the course of the year. Our general philosophy is to raise price in line with CPI. Select products may see slightly higher increases; other products, lower increases. And we'll provide additional guidance next quarter. Peter J. Heckmann - Avondale Partners, LLC, Research Division: Okay, okay. And then can you talk about -- within the wealth management sector, can you talk about have you figured out or do you feel like you've figured out the right price point for that solution, for that customer base? And can you talk about how it compares to the institutional business? Michael D. Frankenfield: Sure. Both are exciting segments for us, as Peter highlighted in his opening comments. There are 3 reasons why wealth is working really well for us. First of all, we've done a great job on the product development. The actual UI that the clients use really helps them get answers faster and helps them work within the context of their clients' portfolios to be more effective in front of their clients. We've done a great job with the pricing packaging on that, offering a tiered offering that enables clients to select the level of functionality at the price point that works best for them. Where we really start to differentiate ourselves is in our service model. We've built a service model that virtually eliminates conversion risk, so there's always a big concern for clients when they're moving from one supplier to another. In the conversions that we've done, we've been able to execute those flawlessly. We then are able to offer very compelling add-on support once the client is a client to continue to service those user's need. And finally, what I get really excited about on the wealth side is the growing sophistication and complexity of that segment. Two of our largest Portfolio Analytics suite wins this past quarter were 2 wealth clients. And that tells me that those clients are going to have more complex needs in the future, and FactSet is perfectly positioned to continue to grow in that segment due to the well-established offering we have at the institutional level. Peter J. Heckmann - Avondale Partners, LLC, Research Division: Great, that's helpful. And then just 1 follow-up on the acquisition of Matrix. Where will we see the minority interest come through? And based on your comments of modest dilution, I would assume that the minority interest will be a slight benefit on that basis. Philip A. Hadley: I mean the minority interest will just come through on the minority interest line, at the bottom. We don't expect it to be there for long. As we've alluded, we expect to complete the acquisition to 100%, where it will probably be a 1 quarter event. As a business, we're excited that it complements the Market Metrics business and really gives us -- our LMS opportunity in Europe a big boost and gives a global perspective on being able to attack that marketplace.

The next question will be coming from Mr. Tim McHugh of William Blair. Timothy McHugh - William Blair & Company L.L.C., Research Division: I just wanted to ask a little more on the gross margin. I know you described some of the investments in content and the staff for that. I guess can you just talk more qualitatively about how that, I guess, pressures gross margin? Is it just that it takes time before you can leverage those investments and we're more of an investment stage still in that? Or is it -- is this a lower gross margin business long term and that's just a mix shift that we're going to see continue to kind of play out over the next couple of years? Peter G. Walsh: Tim, it's Peter. Thanks for your question. I think our philosophy is really to invest aggressively in the future, and it's really best captured by our measured approach to manage operating margins to be flat, not the fluctuation between gross margins or SG&A. That investment is in headcount, and it's been up 6% on a year-over-year basis, which is consistent with our ASV growth. Simply stated, the more we grow ASV, the more we invest for the future. And since ASV is a great predictor of revenue, trailing 12-month revenue, 6 months into the future, it really allows us ample time to tune up or down our hiring plans to align it with our revenue growth rate. So we continue to manage at the operating income line and feel aggressive about -- or feel good about our headcount investments there. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And is the content primarily equities related? Or is there significant investment in building out fixed income type of content as you try and push more in that sector at this point? Peter G. Walsh: We invest both in -- content that's both directed towards investors of equity and fixed income. Specific to fixed income, we have a very robust content set related to debt capital structure and our own terms and condition collection. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And I guess a little more -- stepping back a little more on the buy side. I know you explained the Market Metrics impact that it had on the growth of that business, and it's trended up a little bit. But I guess in the context of kind of looking at fund flows and I guess the overall stock market, I guess, how do you look at the growth rate of that? Are -- would you have expected it to have been up more? Or is this consistent with -- is the environment, I guess, consistent with what you would have expected maybe as you look at some of those broader trends out there right now? And if not, why not, I guess? Philip A. Hadley: It's Phil. I think if you go back and look at the questions from last quarter, one of the things I've highlighted, and I've highlighted this for several years now, is our first and third quarters are kind of choppy quarters. And there are several reasons for their choppiness. Getting clients to make decisions between September and November isn't the ideal time of the year for people to be making purchase decisions of products, though it does happen. Second, since we're an August year-end, we've got a sales team, obviously, who pushes hard for the year-end and therefore, things go into fourth quarter that essentially aren't in the first quarter. Hard to measure that, but I think it certainly is a factor out there. And then the third reason is it's not the hiring time for our clients either, which certainly is our fourth quarter. So as I look back in history, it's always been a less predictable quarter and will continue to be. So to answer your question more specifically and part of the reason we gave the data on Market Metrics is if you look at the part of the business that is accelerating, not in a rah-rah, good-old-days type perspective is the core IM, both U.S. and non-U.S. And that's really the traditional business of speed to product against what we think of is Bloomberg, TR and S&P in the marketplace. It's -- first quarter being not a material quarter from an ASV perspective, it's hard to make that a trend, but it's definitely one where it's not decelerating. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And I guess just relative to those comments, you mentioned that core IM business is getting better, but it's not rah-rah like kind of the good old days. What -- can you pinpoint what feels different as you hear back from the clients in that core business relative to the past and why you can't be at those growth rates? Philip A. Hadley: I think -- I guess I have several theories, whether they're valid or not only time will tell. I think that the clients have ventured several cycles now where cost becomes very important, and they have to downsize their business and really tighten their belt. And they've continued to keep that cost discipline longer through this cycle than they had historically. And I guess, the second part of it would be, I think, if you look at their hiring plans, coupled with that, it doesn't -- they haven't hired into this cycle the way they have in historical cycles. Whether that's a lag effect and they'll hire later in the cycle is one that's hard for me to project. But definitely, it feels like that's the case.

The next question will be coming from Mr. Peter Appert of Piper Jaffray. Peter P. Appert - Piper Jaffray Companies, Research Division: So Phil, just continuing on the last question in effect. So I guess the expectation would have been with AUM growth positive, positive inflows, you would have seen sequential acceleration as the year progressed. I understand your thesis with regard to the current year. But just thinking about the tone of business going into 2014, should -- or are you anticipating that we will see some further acceleration on the growth into next year? Philip A. Hadley: I think we'll always take the stance of giving you 1 quarter's guidance because it's really as far forward as we can project and feel. I think you have to look at our guidance and what we're currently doing and put your own spin on where you think the marketplace is going, combined with the comments that you get out of us. Peter P. Appert - Piper Jaffray Companies, Research Division: Well, I mean, the guidance, obviously, suggests static growth on a quarter-to-quarter basis. Philip A. Hadley: The guidance is it's a choppy market. It's hard for us to figure out what's going on. And obviously, we've got huge choppiness that happens on the sell side. If you took last quarter's sell side plus this quarter, it's positive. But this quarter was certainly significantly negative. So it's really hard for us to tell exactly what's going on with these terms. Peter P. Appert - Piper Jaffray Companies, Research Division: What should we read into that then in terms of competitive dynamic? Or maybe more specifically, what can you report back to us in terms of how you're seeing the competitive environment evolve? Michael D. Frankenfield: Peter, it's Mike. Like I said in previous quarters, we have a number of internal metrics we track that compares our results to what we perceive our competitive results are, our own tabulations of win-loss records, and I'm very pleased with the progress we're making. There's no question there's consolidation in the industry. The days of a single analyst or portfolio manager having multiple data platforms on their desk are behind us, and the number of platforms has been reduced. Typically, users have much less on their desktop. There have been a number of publicized competitor product announcements. None of those announcements, none of those products are materially changing the competitive dynamic. There are things we monitor closely. We expect our clients and prospects are evaluating those things, yet we had robust client additions this quarter. And like I said, the metrics are still very positive. So it's going to continue to evolve. We assume they're going to get better. Our objective is to improve faster than our competitors do, and I think our product team is executing well on those objectives. Peter P. Appert - Piper Jaffray Companies, Research Division: Okay. And then, last thing, can you give us any color, Phil or Peter, in terms of how we should think about the pace of buyback activity? Philip A. Hadley: Thanks, Peter. We constantly revisit our capital allocation decisions between acquisitions, dividends and buybacks. I think we noted on the call that we have returned $421 million to shareholders over the last year. Specifically, the buybacks, our quarterly amounts have ranged from $15 million to $144 million and averaged $61 million over the last 12 quarters. So with interest rates near 0, we're very comfortable that the earnings accretion of buybacks is attractive. So unless we become more acquisitive, I think we'll continue to allocate capital in the form of dividends and repurchases in order to avoid a drag on return on capital. We certainly have enough dry powder in terms of cash on the balance sheet at roughly $190 million, and our free cash flow generation is close to $260 million last 12 months. Peter P. Appert - Piper Jaffray Companies, Research Division: Great. And in the context of that, Peter, would you ever consider possibly taking on leverage to fund buybacks? Peter G. Walsh: We have gone through that process. We have considered it. But I think we like the opportunity to stage our buybacks and have them fluctuate from period-to-period based on our view of valuation to maximize EPS accretion.

The next question will be coming from Hamzah Mazari of Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: A question on just sales force strategy. Has there been any change in the way your sales force is approaching defending the installed base, particularly on the sell side, where you have some larger competitors trying to aggressively grow their installed base? Michael D. Frankenfield: Hamzah, it's Mike. I don't think we've made any real significant changes. Our sales force is a combination -- when I describe our sales force, I describe it in terms of the peer relationship managers, the consultants who provide all of the technical and telephone and on-site support work, as well as the team of sales specialists who are really subject matter experts. And our entire organization is very, very focused on servicing and retaining existing clients. One stat that maybe very pleased to see this quarter is there's been a fairly material uptick in the number of client visits and client touches that are happening as we measure them internally. And I think continuing to stay close to our clients to understand their needs and to overservice them has always been part of our strategy, and it's part of what we're going to continue to do. Hamzah Mazari - Crédit Suisse AG, Research Division: Great. And then just a follow-up, on the wealth management business, could you give us a sense of the geographical footprint of that business? Is it pretty similar to your company footprint? Or how do we think about that business geographically? Michael D. Frankenfield: It is pretty similar. The majority of the business is in the U.S., U.K. and Europe. Not a lot of development at this point in Asia Pac, but we anticipate that will be coming. Hamzah Mazari - Crédit Suisse AG, Research Division: Great. And just lastly, on the operating margin guidance, is the delta -- is the 100-basis-point delta just a factor of what you're going to reinvest in the business through the P&L? Peter G. Walsh: It's Peter. Most of the operating margin delta is really related to acquisitions. So the operating margin has an 80-basis-point reduction due to the 2 acquisitions we covered on the call today. Hamzah Mazari - Crédit Suisse AG, Research Division: Right. I'm just referring to the guidance actually, the 32.6% versus the 33.6%, just the delta between the low end and the high end of guidance on margin. Peter G. Walsh: That's consistent with ranges that we've put out in the past. So that's -- it's always been roughly 100-basis-point range, which is consistent this quarter to what we've done in previous quarters.

The next question will be coming from Mr. Joe Foresi of Janney Montgomery Scott. Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division: This is Jeff Rossetti for Joe. Peter, I believe you mentioned in your remarks that there were 2 large banks that did not renew their contracts. Just wanted to see if there was any large renewals upcoming in the next quarter or 2. Peter G. Walsh: I'll -- let me, first, just rephrase the facts and then I'll have Mike -- we -- the clients did renew their contracts. They just renewed at lower user amounts because their businesses scaled back over the past 3 years. And I'll have Mike give you color looking ahead. Michael D. Frankenfield: We have clients renewing contracts every quarter, as you would imagine. Some of the contracts are shorter duration, a year, some are longer, 2, 3 years. So there's -- they are happening every quarter, and we don't anticipate any significant changes in the future quarters compared to what you've seen in the past. Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division: Okay. And then just on the relationship of headcount growth versus ASV growth, I believe you mentioned they were kind of expected to be similar. Is that correct? I just noticed that hiring has -- growth has kind of exceeded ASV growth, so -- maybe in last fiscal year. I just wanted to see what the relationship -- what you expect the relationship to be going forward. Peter G. Walsh: Yes. I think you are correct. In the last few years, our hiring growth has exceeded our ASV growth. And the primary reason for that was we are building out our content operations. That's certainly reached critical mass and scale. And looking ahead, as far as we can see, our headcount growth and ASV growth rate -- and ASV growth will track pretty consistently.

The next question will be coming from Toni Kaplan of Morgan Stanley. Toni Kaplan - Morgan Stanley, Research Division: This quarter, Thompson shut down Bridge on, I believe, September 30. And for that product specifically, I guess their conversion rates to Eikon were lower. I was wondering if that had any impact. Did that benefit you during this quarter? Michael D. Frankenfield: This is Mike. We've certainly been focused on identifying clients and prospects that use competitor products, Bridge certainly being one of them, and spending sales efforts to introduce them to our offering. And there's no question, over prior quarters, that we've -- we saw a benefit from that. We continue to see some benefit from that this quarter. A lot of times what happens, though, by making that -- the decision that they made that actually takes capacity out of the market, you have users that I described to my answer to Peter. The days where users had multiple platforms on their desks are behind us, and it's common for firms to reduce the number of platforms that each user has. And I think that happened a fair amount with the Bridge shutdown, that users had that platform, it went away, that workflow went to other products that were on their desk, and in essence, no new product replaced the terminal loss there. Toni Kaplan - Morgan Stanley, Research Division: Okay. And just also on the competitive environment, when you look at fixed income, are you getting competitive wins there? And if so, who are you getting them from? Michael D. Frankenfield: Most of our fixed income wins are greenfield opportunities. We really have a unique opportunity in the marketplace. We're delivering fixed income within the context of our Portfolio Analytics suite, and that is a really new offering in the marketplace. It stems from all of our clients that are accustomed to viewing their equity portfolios through the tools we have and now want to perform the same analysis for the fixed income portion of their portfolio, as well as brand-new fixed income managers. So we're less focused on head-to-head competitors in the fixed income space and more focused on leveraging our existing client base, as well as new fixed income prospects. Toni Kaplan - Morgan Stanley, Research Division: Okay. And just one last clarification. On the Matrix acquisition for next quarter, I saw that the annual subscriptions of $7 million. So whether you have acquired the whole thing or you're just -- have the 60%, ASV will basically be increased by $7 million next quarter regardless. Is that correct? Philip A. Hadley: Yes, correct. Michael D. Frankenfield: That's correct.

The next question will be coming from Mr. Alex Kramm of UBS. Alex Kramm - UBS Investment Bank, Research Division: Just wanted to come back to the sell-side comments you made. Sorry, I know there's been a bunch of questions. But I know you've talked about these, basically, renewals at smaller sizes because, I guess, of what's going on in the sell side. But from our conversations, I think I'm aware of at least 4 sell-side firms that in research, in particular, which, obviously, very close to people on this call, have made the decision to either -- or have switched, made the decision to switch or in the process of switching, so -- and basically, to a competitor, basically, based just on price. So maybe you can just flush it out a little bit with your previous comments. I mean, how are these discussions going? Are you basically walking away and saying, "Hey, I'm not going to compete on this because it's not profitable for us anymore?" Or -- and actually, more importantly, is -- most of these things that I'm talking about, are they already reflected in ASV? Or are there a couple of more that will be showing up here over the next 3 or 6 months? Philip A. Hadley: Alex, it's Phil. So what we referred to on the call -- let's see. I'm not giving names. One announced, 2 years ago, that they were getting -- they were shutting down their investment banking division. They basically have done that and are down to 100 users or what they call investment bankers at this point. The other one was somebody who really -- I guess just the easiest to say would be overbought in '09 and had a contract they've carried out, and there comes a time for us to renegotiate that contract and we did. And it's still very much an investment banking business, just not as big as they were, but certainly a bulge firm. More specifically to competitive environments in research, on the sell side, certainly, it's a competitive environment. The competitor you're referring to is Thompson. They used their barter research bundling that they do, which is very anticompetitive, but that's their choice or at least, that's what they currently do. I don't think it's very fair in the marketplace, but it certainly makes a -- puts competitive pressure on them in that particular space. And it's one where we fight tooth and nail, and at some point, it's not a good business for us so we don't do it. But that's life in the marketplace. Alex Kramm - UBS Investment Bank, Research Division: So from that perspective, I mean, it sounds like there are probably going to be a couple more that are going to show up in the numbers. Is that correct? Or are we -- do you see everything already reflected right now? Philip A. Hadley: So based on our projections and based on what we do, that's when we say that sell side is choppy. There's -- we win some and we lose some. And to pretend you win 100% is never going to happen.

The next question will be coming from Keith Housum of Northcoast Research. Keith M. Housum - Northcoast Research: Coming back to your -- the use of cash and the share repurchases, can you guys provide a little bit color on where your cash is? And is that perhaps going to be impediment to perhaps using your share repurchases as quickly as you'd like to? Peter G. Walsh: The bulk of our cash is in the U.S., and we haven't -- we don't anticipate that whatever cash is invested outside the U.S. to be an impediment to executing on the share repurchase. Keith M. Housum - Northcoast Research: Got it, okay. Appreciate that. The Matrix acquisition, assuming you guys make the entire 40-some percent purchase before the end of next quarter, how much of the -- revenue is $7 million in ASV. Is there also a non-subscription value component to that revenue as well that you can speak of? Peter G. Walsh: No. Keith M. Housum - Northcoast Research: Got it. And then you guys talked about the wealth management being up for the past 5 years and quarters. How about your fixed income initiative? How would you guys describe that growth over the past, say, 2 or 3 quarters? Michael D. Frankenfield: We continue to make sequential progress in fixed income. That's an exciting story for us internally. It's solving some of the most complicated problems that clients have, and we love complicated problems because we're good at solving them and it creates significant barriers to entry. Keith M. Housum - Northcoast Research: Okay. And a final question for you, outside of the 2 sell-side customers you guys referred to, who's responsible for the large portion that dropped. Was the business down outside of those 2 guys as well? Or are those 2 guys primarily responsible for the entire drop? Michael D. Frankenfield: I think there's choppiness to the entire segment. And I mean I think it's important also to remember that while there are a number of, maybe you'd call them headline-grabbing negotiations or client conversions, FactSet has over 2,500 clients. We've got a very, very broad diverse client base across different business segments, different geographies. We've got a very diverse product line. And I think while these clients are, as I've said, headline-grabbing, I think you really need to look at the big picture and put them in the right context.

The last question will be coming from Mr. Andrew Hummel of Oppenheimer. Andrew Hummel - Oppenheimer & Co. Inc., Research Division: Andy Hummel on for Glenn Greene. So looking at the international market, are you guys seeing anything from a demand perspective or hiring perspective that's anything different than kind of what you're seeing in the domestic market and as far as buy side maybe being slightly more positive and sell side being a little bit more choppy? Philip A. Hadley: Probably, we see a lot of what you expect if you are just thinking about the global economy. Asia Pacific is certainly a healthy region for us. Southern Europe is not as strong as the rest of Europe. That's probably the way I'd characterize it. Andrew Hummel - Oppenheimer & Co. Inc., Research Division: Okay. And then as far as Matrix goes as being an acquisition in the international scape, does that kind of imply you guys are taking a little bit more concerted effort towards expanding international through this type of venture? Is it just kind of a one-off opportunity you guys saw? Philip A. Hadley: I think if you look at our acquisitions, over time, we've made several acquisitions that were non-U.S. or European-centric acquisitions. And we have a very global business and global clients, so we're constantly looking to provide global solutions for them. Our global managers that use the Market Metrics product in the U.S. have been pushing this very much so to get into the same business in Europe. And we had an organic strategy, but this certainly accelerates that dramatically. Thank you, everyone. Have a great quarter.

That concludes today's conference call. Thank you, all, for participating. You may now disconnect.