FactSet Research Systems Inc. (FDS) Q3 2012 Earnings Report, Transcript and Summary

Welcome, and thank you for standing by. This is the FactSet Third Quarter Physical (sic) [Fiscal] 2012 Earnings Call. [Operator Instructions] I will now turn the meeting over to Rachel Stern, Senior Vice President, Strategic Resources and General Counsel. You may begin.

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 factset.com. A replay of this call will also be available on our website. Our call will contain forward-looking statements reflecting management's current 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. 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 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.

Thank you, Rachel, and good morning, everyone. Here's 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. Bottom line, GAAP EPS grew 14% to $1.05. This marks the eighth consecutive quarter of double digit growth. Looking ahead, our guidance suggests 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 31, up $42 million from February 29. CapEx was $6 million and we spent $27 million on share repurchases. On May 8, our Board of Directors approved a $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 our 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 5-year annual dividend growth rate of 21%. With our dividend 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 $1.02 a year ago. Looking at ASV by location, our U.S. operations ticked up to $549 million in ASV, while $262 million in ASV is from our international operations, representing 32% of the total. During the third quarter, U.S. revenues rose to $138 million, an increase of 10% over the third quarter of fiscal 2011. Non-U.S. revenues rose 11% to $64 million compared to last year. Revenues generated from our European and Asia Pacific regions during the third quarter were $50 million and $15 million, respectively, and the growth rate 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 2 events that explained the unusual ratio between user and ASV growth this quarter. One, we provided a feed of earnings estimates to TheMarkets.com. Following TheMarkets.com acquisition by S&P Capital IQ that feed was canceled 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 end 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 that backdrop of economic volatility, we added 11 net new clients this quarter. You have heard us talk about how uncertain economic times stifles new firm creation and extends the timeframe clients take to make large spending decisions. So we're 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 and Excel 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 Excel, 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 data set 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're 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'd listen to our calls before, we've often discussed the impact of the U.S. federal R&D tax credit, which expired on December 31, 2011. We expect that it will be reenacted as it has been over the past 30 years. However, we cannot factor it into our effective tax rate unless it's part of the currently enacted 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 the fourth quarter of fiscal 2012. Revenues are expected to range between $204 million and $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 $1.06 and $1.08 per share. Non-GAAP diluted EPS should range between $1.15 and $1.17 per share. Both GAAP diluted EPS and non-GAAP diluted EPS include a $0.02 reduction to reflect the expiration of the U.S. 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 count, all increased this past quarter. But we know that to continue our record of making market share gains means we have to earn our standing in the industry everyday and with every client and prospect. Our company culture is such that we're 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 source, such as the new bank loan data from Markit 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're now ready for your questions.

[Operator Instructions] Our first question will be from Mr. Bill Warmington of 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 there something in the competitive or macro environment that's changed that would likely prevent FactSet from returning to double digit revenue growth over the next few quarters?

Bill, it's Phil Hadley. I think if you look at our ASV and you put it on a trailing 12-month basis, it certainly changes direction over time. I think we're definitely still in a market that's very choppy for both our buy-side and sell-side clients globally and that would be the macro environment. The microenvironment that FactSet works in is we continue to invest very heavily in our products. So it feels very good that the content investment we've made over the last 5 years is paying off handsomely. I feel very strongly that the interface that we're providing our clients is delivering a great deal of value in the marketplace. I'm very comfortable from a competitive position, and I feel that when I look at the players in our space, that we're making gains and that when our client's business models figure out, when Europe gets stabilized, when the elections happen, when the equity markets do what they always do and find an equilibrium, that FactSet will be in a very strong competitive position.

Got it. And I wanted to ask if you could comment on geography. And it looked 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?

I think you have to be a little bit careful because, as Peter pointed out, the TMC data feed that we had was a U.S.-based data feed, which is certainly going to affect the numbers in this particular quarter. I think overall, the buy-side and the sell-side act very similarly globally. Obviously, there are pockets of strength in the world. The emerging markets for us are 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's always volatility in these 2 quarters.

Yes. And then last question I was going to ask is how you would characterize the buy-side and the sell-side environments today versus 6 months ago in terms of their appetite for your products and cost sensitivity?

I think that if I had to choose a word, I would say cautious. But yet, 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 seat count growth was a client that made a decision based on price 3 years ago and came back to us, and it's reaffirming the believe that your pricing and that the value that you're delivering your clients is appreciated by your clients. So I think it's one that's never easy, but we feel pretty good about where we stand.

Our next question is from Shlomo Rosenbaum of Stifel.

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

Hey, Shlomo, it's Peter. The -- that is coming out of our buy-side numbers.

Okay. So if I kind of normalize for that, it looks like the buy-side ASV would be growing kind of 10.2% year-over-year. The last 3 quarters, the ASV growth is like 12.5% consistently. Is -- does it feel like the environment is just getting tougher to sell into? Can you just give us a little color around that?

Hey, Shlomo, it's Mike Frankenfield. To sort of reiterate what Phil said, clients are in a cautious mode. When I look at my internal benchmark and the statistics of my sales process, there's no question that decision-making process has slowed and we -- more of our opportunities are spending longer periods of time in the evaluation or awaiting decision phase. Overall though, we've got some 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 at a lower average ASV per user number, which you want to be careful you don't overstate the amount of ASV that we're deriving from that segment.

Got it. And then in terms of the headcount going down by 61, I think if I go back to like 2006, I always saw the headcount go down one other quarter and that was only like 2 people. Is there anything I should be reading into that? Or you said it's seasonality, but despite seasonality, even through the downturn we really didn't see much headcount shrinkage.

Hey, Shlomo, it's Peter. I don't think there's 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 this -- 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.

So could you...

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

So in general, when I think of your headcount from an overall company perspective, what should -- now that we're getting to a more kind of normalized growth, it 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? Would you think that the bulk of growth come in 1 quarter and then we should start -- should we, every May quarter, kind of see a little bit of decline?

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 2 years ago, our year-over-year growth rate was in the high 30s. So it's definitely been moderating towards our ASV over -- 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.

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

I think -- 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 a rate card. And the reason we gave color on this particular situation is just in the particular quarter there was enough choppiness and it happened to be in the third quarter. If it was in the fourth quarter and less material to the total, we probably wouldn't have called it out.

Ms. Suzi Stein of Morgan Stanley.

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?

It's Mike. Fixed income continues to be a big bright spot for FactSet. A very, very complicated asset class, it requires significant amount of upfront work with each client. But we're slowly but surely perfecting that process and improving the speed with which we're able to onboard clients. Not only are we having success with talent fund managers who have a fixed income mandate in addition to their traditional equity mandate, although we are beginning to identify pure fixed income-only firms and beginning to get traction with some of those firms.

Okay. And was there any notable currency impact on your bottom line results this quarter?

Suzi, it's Peter. Currency did not have a noticeable impact on our bottom line results. Since you brought it up, I think I do -- will take a moment just to recap where we are on currency, in general. 2% of our revenues or approximately $17 million of ASV is not billed in U.S. dollars, the other 98% are all billed in U.S. dollars. We are 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%, 40 -- approximately, almost half is the pound and the other half is the euro and the rupee. The euro represents 2/3 and the rupee represents approximately 1/3.

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?

Yes. 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. We -- during the quarter, we did lock in the euro for 50% of our exposure for the next 9 months. And to recap with where we are on the rupee, we have a 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 31.

Our next question is from Mr. Peter Appert of Piper Jaffray.

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

Peter, no material change in pricing. FactSet, like every other firm, has 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 enhancements to maintain the pricing we do and we do enhancements in hopes that we can create future revenue opportunities.

I guess the question is really more -- I mean, I assume you're always under pressure from clients for price concession.

Yes. We're in the technology business and we know that we have to continuously invest to improve our products. There's a certain amount of investment that needs to happen just to maintain the status quo and...

I'm just wondering if the pricing pressure you're feeling, is it more intense today versus 6 or 12 months ago?

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.

I would add to that, Peter, definitely in a more difficult time in the marketplace, price becomes a bigger factor and everyone of our clients' investment decisions, making it more incumbent for us to deliver more value. And then the market gets more efficient as our clients' health improves and the value and features that you have can win the day and price becomes secondary.

So Phil, you mentioned that the -- 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?

No. So the bulge clients that are in the 1,000-plus seats, and depending on the level of employment and the length of subscription and all of those things, there's so many different factors that go into the pricing. And the reason I want to throw that there is just because if you took rate card times 1,000 seats, 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 really the case in this particular case. The good news in our particular case is that was a competitive win, a competitive win and a rate increase and a competitive win at a better price than we had when we lost in the first time. So all 3 of those things are good things and speak very much to our competitive position in the marketplace.

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

I think it's a nice business for us. It's certainly frosting. It's not one that we felt compelled to breakout at this point. So it kind of just falls in that bucket of other business for us. Definitely, one that we are more -- add more opportunity for us given that we've invested so much in content than it was 5 years ago. And if it gets to the point where we think it's material and useful from an investment perspective, we'll breakout more detail.

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

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.

Okay. 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?

I guess I'd answer by saying we probably see 2 or 3 a quarter. Most of them make it into the trashcan before they ever even get passed on as an e-mail to somebody who might actually have a deeper knowledge in that product area than I do. But we're very -- we're fortunate, I think, as a business, in 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 at our front door and we get a chance to take a look at them. But as I said before, really feel very comfortable with the 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 be strategically accretive to us to do so.

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

No. Well, from our perspective, it can take a lot of different flavors. But it 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 dismissed.

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

As regard to user growth last 2 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?

Traditionally, I think our clients hire much the same way we do, and college hires 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 seat count changes the most.

Okay. And when we look at the piece that was lost with the merger with Markets and S&P, was that fundamental data?

No. It's estimate data.

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 costs 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 rebid?

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

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 subsegment of their employees down to a lower priced platform? And could we see other large blocks moving over the next 2, 3 quarters?

I think you're referring to the sell-side opportunity that we've -- that came over?

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

The sell-side opportunity that just came over wasn't price, it was functionality.

Correct, correct. But I'm -- in the last or in the financial crisis, I think what we saw was you continue to gain share through the financial crisis, and it was because people were deciding to go to a lower price point solution and they're migrating to FactSet. And so your share gain may have actually accelerated a bit.

I would characterize it differently because I think if you really take a look at our products in the marketplace, depending on which segment were in, we're 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 money because we were monetizing 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.

Our next question is from Jennifer Huang, UBS.

Just to go back to the international portion a little bit. Growth there has been very steady at around 12%. Maybe can you just provide some additional color, are you gaining market share from competitors there and whether or not that market share is -- I know you guys mentioned due to additional functionality, so what is the pricing environment like there just concerning I guess the macro issues over Europe?

Jennifer, it's Mike. FactSet is still small internationally compared to the addressable market, and there are so many cases where there are competitive situations. But largely, we have a big greenfield opportunity, a large number of clients and prospects -- prospects rather that have no FactSet, formal prospects outside the U.S. than there are inside the U.S. And some of the emerging economies continue to increase their sophistication and their desire to have premium tools to help understand and manage their investment prospects. So overall, we've got a good outlook internationally.

Okay. And then I guess switching over to just looking at ASV growth, I mean, maybe you can provide some color on -- so ASV growth was 9.4%. 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's onetime in there that you -- that maybe we should just watch out for in terms of next quarter's revenues?

I mean, obviously, we're very careful about how we provide guidance and it's really what we think and what we think investors should look out for the next quarter. And so the answer is no. I don't think that we've got anything planned for onetime in that. And like I said, I don't want everybody to believe that we'll call out things like we did in this particular quarter. It just happened to be, 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.

Our next question is from Fredric Russell of Fredric E. Russell Investment Management Co.

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

I guess, again, I would interpret that more as almost a margin question because we certainly generate enough cash this quarter. The cash in 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 we -- could you raise margins instead of -- in your particular case, maybe we should invest more and take margins down. So I'm firmly in the belief that reinvesting in our products is for the benefit of the long-term health of the business and the benefit of our client 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 one we discussed. It's certainly one that if we found a great opportunity, we would gladly take margins down, if we thought that the shareholders in the company would be stronger and would get a good return on that investment. But right now, we're in a very luxurious position and that we've always grown for the most part and we've -- the real choice for us is where do we hire -- where do we allocate the new employees that we're going to bring in because we're always growing our headcount. And certainly, as you pointed out there, we have great opportunities in emerging markets. So on the content side, we're investing very heavily in the content that serves the emerging markets, and then on the sales and marketing side, we're certainly investing as well in building on offices in those locations and sales force in those locations. So we're in São Paulo, Brazil, we're 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've got feet on the ground in those particular area. So hopefully, we're doing the best we can for shareholders, but thank you for the first time somebody asking me that maybe we should take margins down and invest more in our business.

No. My purpose is not to take margins down, it's not -- I think you're doing a great job in positioning cash. My question is, do you invest more aggressively in opportunities? Just to take margins down, I'm sure you understand that was not 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 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 there 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?

Well, I'll answer the question and hopefully Michael will chime in. So we're not an industry like the auto industry where everybody knows exactly how many cars were sold last month. So the data we get is 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 client activity that we see and information we hear in the marketplace. If you look at the fact, we grew clients last quarter, we grew seats last quarter. Those are 2 very clear metrics. I'm very comfortable that if you check the channels that we did well relative to the -- on those 2 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 it's not as scientific as knowing how many cars are out there. As to why somebody chooses FactSet, one of the great things about our product line is it's very diverse. What an investment banker thinks of FactSet and why they use the product versus a portfolio manager are very, very different in what they find and value in our system. Lots of commonality in the functionality. Peter mentioned that the Sidebar spreadsheet functionality is a wonderful workflow for both the investment banker and the buy-side workflow, in analyzing companies in Excel. But it's very much an individual decision as to what they find. I would say, in general, our news and quotes 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 I'd throw out there.

I would only add that every client situation is unique and FactSet sales force, the fact that the consulting force spends a tremendous amount of time trying to understand client workflows, client investment process. And it's really based on gaining that understanding that we're able to align products, databases, et cetera, with the clients' needs to identify opportunities to help clients to be more efficient, to help them gain an information advantage, what have you. So it's really that one client at a time approach has served us well.

We're users and we're very pleased with the product, and that's why we're shareholders. My other question is this, in negotiating with buyers are you finding that the buyers are becoming bigger and the indices that you are compelled to negotiate with have -- are just bigger in terms of size and revenue than they were a year or 2 ago? Is there any trend that you see that would make -- put the buyer in a more competitive position?

I don't see anything that's changed. Certainly, if you look at just your business, the assets under management in the industry and how much your total assets under management is 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.

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

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

Our next question is from Mr. Glenn Greene of Oppenheimer.

Maybe a question for Peter, obviously, you sort of called out the big block on the sell-side sort of the competitive win, which drove a good chunk of your user growth. But trying to just get a sense for sort of more normalized user growth on a couple of different ways to sort of thinking about it. Is there a 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, x that big sort of client win?

Glenn, I think what we are 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 get a little flavor whether it's been buy- or sell-side that's been driving the user change. And it has certainly ebbed and flow from most quarters. And this quarter was a little unique because it was -- 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 for FactSet that was driving it.

Did you have buy-side user growth this quarter?

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.

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 the context of this question is I've been getting a lot of investor questions related to concerns regarding the competitiveness of PA or potential for competitive share losses. The data that you just provided kind of suggest that you're not seeing that, but maybe just some color, kind of color what you're seeing in terms of the PA base and did you kind of go out of your way to sort of call out that metrics because of those concerns? Just some color what you're seeing on PA.

Hey, Glenn, it's Mike. I said it on a couple of other calls and it's important to remember that PA is a suite of products. There's certainly the traditional PA workstation, but over time we've added a great deal of functionality to that, including risk, launch, the ability to publish results and we find that, that's what clients want. Clients want a complete solution, that it will 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 as comprehensive and complete a solution as we do. We're still very excited about the growth opportunities. 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 upsell opportunities within our existing client base. Additionally, the functionality that we deliver is sufficiently compelling for new clients that PA is oftentimes the key driver in a clients' decision to purchase FactSet. So yes, there is competition out there, but we feel like our product continues to improve, and we're encouraged by the metrics that we're seeing.

So then, it sounds like 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?

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, seat 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 the buy-side of the business. And that, that revenue would be independent of seat growth, meaning that it's not double counted. If somebody who already had FactSet purchased PA, that doesn't change the seat count number. So I know as an analyst, you'll look at the seats or the client count and the seat count and think, well, that's the only 2 dimensions that exist, but ASV in the buy-side was healthy because it was driven by the PA suite.

[Operator Instructions] No questions.

Thank you very much.

Thank you, operator.

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