FactSet Research Systems Inc. (FDS) Q1 2018 Earnings Report, Transcript and Summary

Good morning. My name is Jamie and I will be your conference operator today. At this time, I'd like to welcome everyone to the FactSet First Quarter Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Rima Hyder, Vice President of Investor Relations, you may begin your conference.

Thank you, Jamie and good morning, everyone. Welcome to FactSet’s first quarter 2018 earnings conference call. Before we begin, I'd like to point out that the slides we will reference during the course of this presentation can be accessed via the website on the Investor Relations section of our website at factset.com. These slides will be posted on our website at the conclusion of this call. A replay of today’s call will be available via phone and on our website. The conference call is being transcribed in real-time by FactSet’s CallStreet Service and is being broadcast live at FactSet.com. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question plus a follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our Form 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, the reconciliation to the most directly comparably GAAP measures are in the appendix to the presentation and in our earnings release issued this morning. This non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these GAAP financial measures may not be the same as similarly entitled measures reported by other companies. Joining me today are Phil Snow, Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. I'd like to now turn the discussion over to Phil.

Thanks, Rima and good morning, everyone and welcome to today's call. At FactSet, we're rapidly responding to the dynamics of market change. Our platform content, award-winning analytics and service, position us well to partner with our clients and to provide innovative workflow solutions to meet the challenges facing our industry head on. The first quarter is generally a lighter quarter for us versus the rest of the year and is really not a good indicator for the full year. We gave you annual guidance this quarter and the midpoint of this guidance indicates higher growth in ASV than you are seeing in our first quarter. And looking out at the remainder of the first half, we feel much better about Q2 ASV than we did for Q2 the same time last year. A quick note on annual guidance and why we made this change. As our business evolves, we've taken a look at our key metrics and the information we provide you and we believe annual guidance more closely aligns the focus of the investment community with the goals of our company. The move to annual guidance has received core shareholder support and Maurizio will provide you more detail during his comments. Let's take a quick look at first quarter results. We saw the continuation of themes from prior quarters, the shift from active to passive, focus on total cost of ownership and ongoing consolidation in the industry. Against this backdrop, we grew organic revenues at 6% and organic ASV at 5% year-over-year. Adjusted diluted EPS increased 17% to $2.04 and adjusted operating margin was 31.7%, which was within the range we expected. We acknowledge the deceleration in the ASV growth rate this quarter and are laser focused on executing on our strategy to reaccelerate. We saw quite a bit of churn with increased add-on sales and the addition of new clients being offset by cancellations. The increase in ASV this quarter was driven by Analytics in CTS. Within Analytics, we saw strong contribution from risk, portfolio reporting, portfolio of services and fixed income. CTS had a strong quarter with continued momentum around our expanding suite of standard data feeds. Wealth was also a solid performer this quarter. Within the Analytics product, we enhanced our multi-asset class risk offering, adding a linear factor risk model to our existing Monte Carlo model. Clients can now integrate equity, fixed income, alternatives, private assets and currency factors to gain a full transparent view of risk distribution at the portfolio, factor and asset levels, using a Monte Carlo or a linear approach. This increases our competitive positioning in the market and makes us stickier with clients already using our Analytics suite. Turning to our international business. International ASV grew organically by 7%, fueled by growth in the Asia-Pac region. International ASV now represents over 37% of our total ASV. Asia-Pac grew almost 13% with increased analytics and workstation sales to asset managers. Europe ASV grew 5%. Our European segment, which includes both Europe and the Middle East has been impacted by the regulatory environment and political events resulting in delayed purchasing decisions. In terms of integration, we continue to make great progress across products and platforms for all of our acquisitions. FactSet Digital Solutions is progressing ahead of schedule resulting in cost synergies. BISAM product integration is in line with expectations and our integration efforts have opened up tremendous up-selling and cross-selling opportunities with our clients and we see these opportunities today in the pipeline for fiscal 2018 and beyond. Quick note on MiFID II. MiFID II, as we all know is scheduled to take effect in January in Europe, and research is one area where both buy-side and sell-side clients have seen significant change requirements as a result of the MiFID II inducement rules. This has meant pricing models and business practices have had to adapt significantly. We're seeing a substantial interest in our research on bundling solutions, which is part of the opportunity for us, but more importantly, allows our clients to leverage our technology solutions for MiFID II compliance. As far as the sell-side research impact is concerned, sell-side research users are less than 10% of the total users on FactSet. So, we really expect a negative impact from MiFID II to be minimal. In conclusion, as we look to the second quarter and beyond, we believe we have both a healthy sales and product pipeline, giving us the confidence we can achieve a higher topline growth rate as well as delivering double-digit earnings growth and value to our shareholders as we've done consistently for years. Let me now turn it over to Maurizio to talk about our first quarter 2018 financial results and annual 2018 outlook.

Thank you, Phil, and good morning to everyone on the call. Before we get into the details of the quarterly results, I want to point out that our GAAP quarter-over-quarter comparisons were impacted by restructuring actions initiated by the company. These actions are a part of our efforts to realize more synergies from the recent acquisitions and leverage the scale of our business. You will see the impact of these actions throughout our results. Additionally, our results also include a positive impact from the adoption of FASB’s ASC 718, which changes the way companies account for employee share-based payment transactions. We told you last quarter that this accounting standard update would be effective for us starting with our fiscal 2018. Let's now go through the first quarter results in more detail. GAAP Revenues in the first quarter increased 14% to 329 million, and 6% to 304 million on an organic basis versus the first quarter of 2017. Looking at our segment revenue, U.S. revenues grew 5% organically primarily as a result of wins from analytics and data feeds products. International revenues increased 7% on an organic basis with strong performance from the Asia pacific region. ASV increased to 1.32 billion at the end of our first quarter. A year ago, we had higher ASV in our first quarter, primarily due to higher trading volumes from our Portware EMS business. Organic ASV increased 5% year-over-year and approximately 1 million since the end of our fourth quarter. This increase was primarily driven by increased sales to existing and new clients, partially offset by higher cancellations. Let’s now take a look at our operating expenses. Operating expenses for the first quarter totaled 240 million, an increase of 21% year-over-year, primarily driven by our recent acquisitions, and the previously mentioned restructuring actions. First quarter cost of services, expressed as a percentage of revenues, increased by 490 basis points compared to the year-ago period. The increase was driven by higher compensation costs, depreciation and amortization expense, and data costs. Higher compensation costs were due to the recent acquisitions, base salary changes and incremental hires in our centers of excellence located in India and the Philippines. SG&A expenses, expressed as a percentage of revenues, were down 60 basis points compared with the first quarter of fiscal 2017. The decrease was primarily the result of foreign exchange hedges and prior year acquisition related costs, partially offset by the current year restructuring actions. Our GAAP operating margin decreased 430 basis points year-over-year to 27.1%, primarily due to the previously mentioned restructuring charges. Adjusted operating margin of 31.7% was lower than last year’s margin of 33%, primarily due to the acquisitions but an improvement from the fourth quarter of 2017 by 50 basis points. We expect to improve our adjusted operating margin as we get through fiscal 2018. Our first quarter effective tax rate was 18.3%, a decrease from 25.9% a year ago, primarily due to a benefit of the aforementioned accounting standard update. Adjusted EPS grew 17% to $2.04. This includes a $0.09 benefit from the accounting standard update. Without this benefit, adjusted diluted EPS would have been $1.95, up 11% versus prior year. Free cash flow, as we define, we define as cash generated from operations, less capital spending, for our first quarter was 55 million, an increase of approximately 17 million or 43% from the same period last year. The increase was due to higher net income, a lower effective tax rate and reduced capital expenditures and timing of certain payments. Excluding recent acquisitions, our DSOs decreased from 37 days at August 31st to 36 days at November 30th. We continued to increase our client count this quarter. Client count increased by 65 resulting in over 4,800 clients. In contrast user count decreased by 253 users to over 88,000 users. The decrease in user count was primarily driven by StreetAccount users which carry a lower ASV versus the average workstation ASV. Moving on to our share repurchase program. We've repurchased 165,000 shares for $31 million during the first quarter under our existing share repurchase program. As of November 30, 2017, approximately $213 million remained for future share purchases under the share repurchase program. We remain committed to returning capital to shareholders and maintaining a balanced capital allocation framework. Now, let's turn to our guidance for fiscal 2018. Starting with this quarter, we will discontinue quarterly guidance and provide you with annual guidance. We plan to update you each quarter on the annual guidance we have issued today. We are also introducing ASV guidance for fiscal 2018. Our high and low end of ASV guidance range is predicated on a number of factors. One, stable market conditions. Two, our ability to integrate the acquisitions and offer our clients a true Enterprise solution, and three, continuous product innovation to strengthen our offerings. Organic ASV is expected to increase in the range of $65 million and $85 million over fiscal 2017 implying a growth rate in the range of 4.9% to 6.5%. GAAP revenues are expected to be in the range of $1.34 billion and $1.36 billion. GAAP operating margin is expected to be in the range of 28.5% and 30%. Adjusted operating margin is expected to be in the range of 31% and 32.5%. The annual effective tax rate is expected to be in the range of 21% and 22.5%. The tax guidance does account for the stock-based compensation accounting standard update but does not take into account any potential impact from the pending U.S. corporate tax reform bill. We expect that a lowering of the U.S. corporate income tax rate will have a favorable impact on our annual effective tax rate. GAAP diluted EPS is expected to be in the range of $7.60 and $7.80. Adjusted diluted EPS is expected to be in the range of $8.25 and $8.45. The midpoint of the adjusted EPS range represents over 14% growth compared to the prior year. Adjusted diluted EPS for the fiscal 2018 includes an estimated $0.26 impact from the stock-based compensation accounting standard update. As Phil said, the first quarter is not an indicator of our full year performance and we have a healthy sales pipeline that we need to execute on to achieve our full year results. We remain confident in our sales strategy; integration plans and product innovation will allow us to grow this year. Thank you for your participation in today's call. We're now ready for your questions.

[Operator Instructions] Your first question comes from Bill Warmington with Wells Fargo. Your line is open.

Good morning, everyone. So, first question, I wanted to ask was on the ASV growth. You'd mentioned that you were expecting an improvement from first quarter and you've given a range of 4.9% to 6.5%. And I wanted to ask about what gives you the confidence that you are at or near the bottom of the ASV growth and what's going to drive that acceleration for the rest of the year?

Hey, Bill its Phil Snow. Thanks for the question. So, we have pretty good visibility into Q2 and we obviously keep track of that year-over-year, so when we look at how much ASV we've actually booked at this point in Q2 versus the same time last year, it's definitely ahead of that. We have good visibility on our annual price increase, which we expect to execute on and get a little bit more than we did last year. So, all of those things I think kind of lead us to believe that we'll see a reacceleration in Q2 We could possibly get back to the levels that we exited Q4 at of last fiscal year and then we'll just have to execute exceptionally well in the second half to accelerate. But we're confident in our salesforce, as Maurizio stated, and from the acquisitions we've done, it does take time to integrate and to develop new product. But I can tell you that in terms of new product coming to market, I feel much better about our position this year than a lot of the previous years. So we're going to be able to see some things come out that are going to really help our sales teams sell individual solutions as well as the portfolio of lifecycle. So all of those things for us add up to us being confident in the guidance that we gave you for the fiscal year and our thesis for reaccelerating.

And then for my follow-up question on the 2018 EPS guidance $8.25 to $8.45, I wanted to ask if the U.S. corporate tax reform bill does go through at 21% as expected, what would that EPS look like?

So we're still -- Bill, this is Maurizio. So, we're still waiting for the final bill to be put into law. But let me give you a little bit of context.

I know you wouldn't -- I know you wouldn’t be able to wait.

So, if you look at pre-tax income or for FactSet, approximately 40% of that is overseas, so taxed overseas predominantly in the U.K. at around a 17% tax rate. The other 60% is U.S. and that U.S. tax rate today is 35%. If the tax law goes through, that becomes 21% on that piece of pre-tax income and for us, if the law is effective as of January 01, 2018, we'll have a bit of a hybrid tax year this year, whereby the first four months of the fiscal year will be at the old statutory rate in the U.S. and the other eight months will be at the new statutory rate. And then for fiscal '18, we will see the full benefit going forward. So, if you take in those percentages and that mix, you can get to somewhat of a benefit that FactSet will realize going forward.

Got it. Very helpful. Thank you very much.

Potentially. It's not signed yet.

Thank you very much.

Yeah.

Your next question comes from Anj Singh with Credit Suisse. Your line is open.

Hi. Good morning. Thanks for taking my questions. First off, I was wondering if you could elaborate a little bit on the delay in purchasing decisions you referenced? I supposed it's not surprising in light of some of the commentary from a competitor of yours, but just trying to get a sense of how much of this is weighing in your fiscal '18 is the outlook? Is this material? Or is this really getting offset by some of the momentum that you're seeing in your business?

So, I think -- correct me if I'm wrong, but I think you're referring to Europe where we're seeing sort of a delay and a slowdown in purchasing decisions from clients over there as they sort of waiting for it to come out in January. So Europe is an important part of our business. But we have as I mentioned a lot of exciting solutions we can offer around MiFID II and a lot of great product coming to market. So, we're not -- we don't think it's going to have a material impact on the rest of the business. We think we can definitely overcome that.

Okay. Got it. And a follow-up for Maurizio, on the margins, it's nice to see that they've bottomed at 4Q as you'd spoken to last quarter. So just curious where are you getting the lift from? Is it more on the FDSG and the cost side? Or is it more on the buy same side of let’s say higher revenue contribution from these deals? Just any color there, thanks.

Yeah, it's a little bit of both. One, FDSG is executing very well on cost synergies, and we're starting to see that uplift in our operating margin and we're starting to see a bit of an uplift on the buy-same side also and that's more revenue-driven. So, it's a little bit of a mix of both and the way we are looking at the operating margin, we see -- we are projecting a steady increase, little by little by each quarter to get back to our historical rates.

Okay. Okay. Got it. Thank you.

Your next question comes from George Tong with Goldman Sachs. Your line is open.

Hi, thanks good morning. Your ASV per customer growth this quarter was relatively flat. Can you discuss your initiatives and progress in selling more solutions per client given your expanded offering of workflows?

Yeah, absolutely. So, hi, George this is Phil. I'll start with our very largest client. So, we've actually created a specialized team now within sales called our strategic client group which focuses on our very largest accounts and we've had some very good conversations with them about our entire offering, talking about our product roadmap, really using them as lighthouse accounts to sort of also help guide us in terms of what they would like to see as a group in terms of integration. So, our strategy is resonating with them. Our salesforce’s and our executive team is beginning to have conversations at a higher and higher level in these firms, and I think our solutions combined with the flexibility of our platform and the strength of our content lead us to -- feel that we can really do well within these larger accounts, and as we build-out solutions for them, cascade that down through the rest of the client base.

Very helpful. And then, as a follow-up, can you – I know you touched on this earlier, but elaborate on what you're hearing from clients on the expected impact of MiFID, specifically around spending and headcount trends and how much of an impact from MiFID do you think was reflected in results this quarter and how do you expect that impact to evolve over the next two to four quarters?

So, for us, as I stated, I think the impact we're seeing in Europe is just in delayed purchase decisions. The impact on our business in terms of our research offering, I think is positive. So, as I indicated, less than 10% of our users are sell-side research users. In fact, that user-base has actually been growing healthy over the last 12 months. We've been adding users in sell-side research and taking market share there. So – and we have very few clients now, I think, that pay us in soft dollars. So, net-net, we view it as a positive. The negative for us right now is, I think, the uncertainty within the client base, particularly in Europe, about how this is going to affect them and they're taking a little bit more of a cautious approach.

Very helpful. Thank you.

Sure.

Your next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Thank you. Good morning. Phil, I think you mentioned and correct me if I'm wrong, that you were seeing additional demand for unbundled solutions. What specifically? Is that data feeds and is that at the expense of workstations? I just wanted to understand that comment a little bit better.

Sure. So, as you know, we've developed a very good off platform business driven by us transitioning to being a content company and the latest wave of that really is a standardizing the feeds that we have out there so that clients can consume a lot of them and have them tied very closely to each other, which is one of FactSet's core strengths. So, we're thinking about or we are executing on a strategy to be more flexible with our clients, so a good example would be, if you wanted an API into one of our Analytics engines, we're having conversations with clients and partners around that and are pretty close to releasing something that would allow a client that wanted to do something that traditionally they've needed to do in the FactSet Workstation within a different environment that they are constructing. So, we don't view this at all as cannibalistic. We actually view it as accretive. Our clients are telling us they still want to use many components of the FactSet Workstation, but us being open in terms of our approach and providing flexibility will get us to be an Enterprise solution. We don't live in a world now where everybody needs a terminal in front of them of some sort or other and we think this is a big competitive advantage for us versus some of our bigger competitors. Another great example is something we call FactSet Views, so you can actually take any component of the FactSet Workstation if you wanted to, and deploy that within a different environment by itself. So that's another example of unbundling. So, the two I just mentioned are views of API, and we're just thinking about this in a lot of different dimensions now as we see our industry evolve.

Got it. And then, I know you mentioned that you're expecting to get normal pricing this year. I think typically in the past; the gross price increases I believe are about 3%. Is that sort of where you're expecting to be at this year? That would be helpful. Thanks.

Hey, Toni, it's Maurizio. Yes, exactly, it's 3% on those clients that are eligible within their contracts to get the price increase for the year. And that's the U.S.

Thanks a lot. Yep. Thanks.

Yes.

Your next question comes from Hamzah Mazari with Macquarie Capital. Your line is open.

Good morning. Thank you. The first question is just, if you could just broadly characterize just the end markets. We had talked about stabilization in the end market, but it feels like client cancellations were up a bit. Maybe just any color. Is the client cancellation an impact of buy-side consolidation or this is just normal churn in the business? Just any sense of what you're seeing there in terms of the end market?

Yeah. I'd say we saw a little bit more churn this Q1 than we did last Q1. We sold more products and we added more clients, but on the flip side, we saw more smaller firms go out of business and so on, so that offset each other. So, the trend that we've been talking about now for a couple of years in terms of active to passive, total cost of ownership and so on, they're still with us. I think we're executing well in this environment and a lot of the churn you see is really up in smaller accounts. It's typically hedge funds or smaller asset managers that are underperforming versus passive strategies.

Got you. And just a follow-up, you had referenced a potential change in your pricing model longer-term to an enterprise-wide system from seat-based. Maybe any thoughts in terms of timing of that and then sort of anything we should expect in terms of disruption there? Is that going to be a pretty seamless process? Any big picture color there would be helpful.

So, we're taking a very careful look at our pricing. We've had a few different pricing models at FactSet over the last couple of decades and it’s been a very flexible pricing model, but to scale our business, we think we need to simplify that a little bit more for our salesforce and the clients. So, we're really getting down to the atomic level on some of the workstation packages we have as well as add-ons and that will in turn build up to an enterprise pricing model over time. But I would not expect us to be out in the next quarter or two. I would expect to see the impact of this over a longer time period. Now, we are talking with some of our larger clients that have big deployments with FactSet already about enterprise pricing for those are probably going to be a little bit more custom as we build up this more structured scalable model.

Great. Thank you.

Sure.

Your next question comes from Manav Patnaik with Barclays. Your line is open.

Yeah, hi. Good morning. The first question I wanted to just hash out a bit more is your assumptions of stable market conditions in your guidance and maybe even a little bit more narrowly, it sounds like with the MiFID impact I think on the sell-side you're seeing assumptions are just deferred, I guess, deal signing as opposed to maybe any headcount reductions something, I just want to clarify that. And I guess, it seems like you’re not assuming any impact on the buy-side from the MiFID stuff because it does add more P&L pressure to them, right?

Yeah. So, I think I'm just going to go back to the previous statements. The feedback that we're getting from our team in Europe is that decisions are getting delayed, which is causing some of the impact, but I wouldn't focus too much on MiFID II as it relates to FactSet. I think our broader opportunity is outside of that. It's something that we'll navigate through and that we're very focused on creating solutions for. One thing we've done over the last two quarters is really filled out our regulatory team, so we've hired quite a few experts from the marketplace in terms of risk, legal, compliance to really think about as new regulations come out how we can create more solutions for our clients, so we see this as a Greenfield opportunity for us as a company and in terms of our exposure to MiFID II right now, we think we've got a good balance there. So, as I mentioned, we've got good penetration in sell-side research. We're taking market share, if buy-side clients decide to bring more of the research in-house, we feel that we have, I mean, that's one of our strongest segments is buy-side research. We're set to really capitalize on that if they feel they want to do more of that and consume less of it from the sell-side.

Okay. Got it. And then Maurizio just on the tax color you gave us, that was helpful but just to follow-up on that. I mean, I guess there are no, I'm sure like you take the R&D tax credit. I'm sure you use some other credits around. Are any of those lost or will it just simply be that reduced number you sort of gave us that math to?

So, from what we have read, the R&D still will be a benefit to FactSet, which is significant for us. There are a number of a few other minor items that will go against us in this new plan, but it seems that for the most part, it's fairly clean but again, we have to thoroughly go through, but that's what we have seen so far. So, the largest one is the R&D, we believe that is included so we will still get that benefit. There's some minor items that will hurt us a little bit potentially.

Okay. Got it. Thanks a lot, guys.

Your next question comes from Shlomo Rosenbaum with Stifel. Your line is open.

Hi, good morning, thank you for taking my questions. Hey, Phil, you talked a little bit about increased churn in the quarter and the one thing that's in the press release that's heightened increased churn on StreetAccount subscriptions. Is it particularly StreetAccount, or is it more across the base or what exactly is going on with StreetAccount that you'd have more cancellations there versus some of the other products you're having?

So that's a good question, Shlomo. For those of you that don't know the history, when we acquired StreetAccount they have an excellent standalone web product and that's one of the few kind of web products that FactSet kept. We also did a massive push to integrate StreetAccount within our workstation it's in a big piece of our client base. So, even though the individual licenses are down for the web-only product, the adoption of StreetAccount within our client base is actually very high. The usage of it is way higher than it was last year, as we continue to invest in the product. These are typically very low-priced seats relative to the traditional FactSet workstation. In fact, in Q1, we saw a positive ASV from StreetAccount web, so it's likely that we lost some users at a lower price point and added users back at a higher price point, so I really wouldn't read too much into that. The other thing that we used to have was a dedicated salesforce selling StreetAccount web products and that team has now been integrated into the broader FactSet salesforce. That may also have had somewhat of an impact there, but it's not material in terms of ASV, in terms of how it's affecting us either way.

Okay. Thank you. And then could you just maybe delve in a little bit more to the ASV deceleration? It seems that you had an acceleration last quarter, deceleration this quarter. Is it just it's a lighter sales quarter in general or could you just give us a little sense, is there something changing in the end markets that is moving quarter-to-quarter? Is last quarter the anomaly? Is this quarter the anomaly? We're clearly just trying to gauge the trends verses what you're seeing in the ground.

Sure, it's good. So yeah, if you look back, Q1 for us is traditionally our lightest quarter. It's not a good indicator of the full-year. In fact, our salesforce is really more gold on hats rather than quarters and as I spoke earlier we feel much better about Q2, which is a much bigger quarter for us than Q1 every year than we did at the same time last year, so in terms of the half versus last year, we feel good about that and we fully expect to for our growth rate to accelerate in Q2.

All right. Thank you.

Your next question comes from Alex Kramm with UBS. Your line is open.

Hi, good morning, everyone. Just wanted to come back to the ASV guidance for this year and the visibility that you have. I think you answered earlier that obviously you have a lot of visibility in the second quarter and you feel good about that. But if I think back, I think when you do new signings often when you displace a competitor you'll get that term away for free for a year so you should have a little bit of visibility even beyond the second quarter. So, do you have a number or any sort of anything that you can share with us, how much of the ASV for the full-year is already kind of baked in beyond the second quarter?

Yeah, I'm not sure where you got your give a terminal away for a free and charge for it later, so yeah, we typically have very good visibility out 90 days. It is a little bit harder to predict the full-year, just sort of given what could or could not happen in the marketplace, so we gave you a good range for the year. We feel very good about that range and we're confident in our salesforce and strategy and if we get good up-tick with some of the new products that we're coming out with, I think we're hoping to be at the midpoint or above that for the year. Alex Kramm Okay, fair enough, and then maybe just on the cost side, employee count jumped a lot year-over-year. I know that a lot of that is the acquisitions, but can you talk about maybe Maurizio about the expectation for employee count from here throughout the year considering that I think part of the margins the way it was synergies with these integrations. Thank you.

Yeah, so if you, this is Maurizio. So, if you look at our headcount growth over the last 12 months, it’s been fairly significant but at 8% plus but if you really look -- if you peel out the acquisitions, headcount grew 2.6% during the period and the next 12 months we see something very similar. We'll be gauging headcount growth very similar to ASV growth, probably at the lower end in terms of ASV growth, so if we have ASV growth somewhere in the 5% range, we will have headcount growth somewhere lower than that in line with the last 12 months.

So, we shouldn't expect employee count to actually drop considering that you probably have overcapacity right now?

I wouldn't say we have overcapacity. I think it will be in line with ASV growth or slightly below it. And then what we have done historically.

All right. Fair enough. Thank you.

Your next question comes from Joseph Foresi with Cantor Fitzgerald. Your line is open.

Hi, guys this is Mike Reid on for Joe. I appreciate you taking our question. Can you give us some more detail on the restructuring charges taken and maybe when and where we could see the associated benefits?

Yeah, so it's Maurizio. So, we had sizable restructuring efforts both in Q4 and in Q1, it's really related to two things. One, us reviewing the overall cost base of the company and trying to streamline it and becoming more efficient and then also reviewing our acquisitions and seeing where there's opportunity to remove costs going forward. I think you've seen quite a bit over the last couple of quarters. I think you'll still see some of that going forward but at a much lower – at a lower rate than what you've seen this quarter and the previous quarter.

Okay. Thanks. And then on the remaining benefit from the accounting change to be seen this year, do you think that will probably be spread evenly over the remainder of the year, will there be any seasonality to that or can you not tell at this point?

It's difficult to tell because it's really driven off when employees exercise. If you look at the benefit that we have included in the year, in our projections it's very similar to last year. But it's very difficult to determine which quarter will have more or less and it's another reason why we went to annual guidance, because we believe the number that we have out there for the annual is right around what we believe will be for the year and I think that's the reason why we've gone with annual guidance because it helps us better gauge it and also give the best estimate that we can give.

Okay. Yeah. That makes sense. Thanks guys.

Your next question comes from David Chu with Bank of America. Your line is open.

Hi. Thank you. So, can you just give us an update on how non-terminal revenue performed in the quarter? Just wanted to see if collectively they're still growing double-digits and if you're seeing any changes to the trend versus recent quarters?

So, hi, David it's Phil. If you're referring to the CTS business, yeah, it's definitely growing in double-digits and had an exceptionally strong Q1 and looks to be having a good Q2.

Yeah, I mean speaking more broadly to kind of everything that's non-terminal, so Analytics, CTS, Portware, like RMS, collectively is that growing double-digits?

I don't know if we've done the full math on that this quarter but I would say not given that we're growing at around 5%. The Analytics suite was a big contributor to the quarter. We sold a lot of Analytics product. Portware we closed a couple of institutional clients, big clients but it does take time for the transactional revenue and Portware to build up when you sign the new clients. So, we're really encouraged that we continue to close more of those. And we also closed our first FactSet EMS clients in the quarter. So FactSet EMS is a more configurable – or sorry, a less configurable version of Portware meaning that it's not a fully customized solution. What we've created there is something that's scalable, that the general salesforce can go out and sell. It's easier to support and the implementation time is severely reduced from the larger sort of custom Enterprise solution for Portware, so that's definitely an exciting product that we're anticipating over time will have a good impact for us.

Okay. Thanks. And in terms of a follow-up, so ASV for the sell-side continues to weaken despite strong deal-related activity. So, can you just describe what you're seeing more broadly?

On the sell-side?

Yeah, on the sell-side.

So, I think we're continuing to see pressure that we're seeing on the buy-side just in terms of total cost of ownership. We've seen good penetration of the FactSet terminal and we do face some competitive pressure there in terms of one of our clients, one of our competitors going out and essentially bundling a lot of their solutions together and essentially forcing clients to take more product than typically they would want.

Okay. Thank you very much.

Sure.

Your next question comes from Peter Appert with Piper Jaffray. Your line is open.

Hi, Phil and Maurizio. This is Kevin talking for Peter Appert. How are you guys doing?

Good.

Great. Go for it.

So, a lot of your competitors are moving from paperwork station or paper password pricing models to an Enterprise one. Any updates from your last quarter earnings call on your progress moving towards this model, if you wish platforms and products might inherit that pricing model if you do choose to implement them into your product?

Yeah, so I think I answered that in some amount of detail already on this call. So, when we think about Enterprise pricing for our very largest clients, we've got solutions going from research, portfolio management and trading through to analytics. So, once we have all of those into components that are easy to roll up into an Enterprise pricing model, we can do that. So, it's going to take a little bit of time. We do think in the meantime though that for some of the acquisitions that we've done, we can go in and create new packages for analytics, for PMT, for research as we step towards true enterprise pricing.

Okay. Thank you.

Sure.

And my second question is regarding some competitive dynamics in the marketplace. Are there any changes that you're seeing in the marketplace that might add pressure to your topline next quarter, three quarters?

Not really. I think it's the same competitors that you would expect for us and within different segments of our business, we compete with different firms out there and by and large we view it all as opportunity for FactSet. We were very confident in our strategy. We're confident in our salesforce and we believe that our approach in terms of working with our clients and the flexibility of our platform make us the long-term winner.

Thank you.

Your next question comes from Ato Garrett with Deutsche Bank. Your line is open.

Good morning. I have another question relating to full-year guidance on ASV. You said that you feel pretty strongly about the pipeline and what things look like in 2Q. Then previously you said that you really weren't happy with mid-single-digits growth for ASV. I'm just trying to get a sense of, is this a new normal for the business looking at that ASV growth at about 6% or do you think there's ways to really push above it as we think about where the business is and where the end markets are and the pressure associated with it?

Yeah, I definitely think there's ways to push above it. So, we can't control the end markets, but what we can control is the product that we produce and how we partner with our clients. So, all of the work we've done over the last couple of years in terms of the acquisition, getting them integrated, creating new product that's really beginning to come to market now, and I think that combined with our open platform really gives us the thesis we need to get back to high single-digits and hopefully eventually double-digit growth.

Okay. But that – certainly with the given guidance that doesn't seem like something on the horizon for this year, if I'm understanding, but long term…?

No. Not – based on the guidance, no. We're hoping to reaccelerate. We think we have a good plan to do that but again it's hard to tell three quarters out for us exactly.

Okay. Great. And then you mentioned that MiFID you see as really as an opportunity going forward and recently, you announced you admit you had a partnership to look at, multi-asset class, best execution. So just thinking about your existing product portfolio as it relates to MiFID, do you feel that's pretty robust or are you going to be looking to make more partnerships so you can offer a complete solution to clients for MiFID compliance?

Yeah. We're really, I think, at the beginnings of it. So, we have a good solution for research, in terms of research unbundling. Some of that's our own product. Some of it's in partnership with Liquidnet and ONEaccess. For our Portfolio Management and Trading capabilities, we have stuff that's MiFID compliant for best execution and the new product that we'll be bringing to market will also be MiFID compliant.

Great. Thank you.

Sure.

Your next question comes from Peter Heckmann with D.A. Davidson. Your line is open.

Good morning, everyone. Wanted to follow-up on the content or data streams business. Prior to you entering that market there were a number of scale providers, and so I'm just trying to get a better idea what's the competitive advantage there? Is it better delivery, cleaner data, better pricing? What's allowing you to gain share from some of the incumbents?

So, I would say the main advantage we have with our data feed business has to do with the concordance of data. So, one of the things FactSet does exceptionally well is take all kinds of structured and unstructured content and link it together for our workstation and what we've been able to do is take that underlying entity data map and expose that to clients so all of our feeds will link to that. So of course, you could get all of these feeds from different people, but one of FactSet's competitive advantages and value-adds has always been the integration of data. It's how we started our company and that's really what we're focused on in terms of delivering feeds to the marketplace. So, if you're a quant or any type of user, you want to know the connections between the datasets to look for alpha and to gain intelligence, and that's what we're doing in our feed business and as we accelerate the on-boarding of alternative datasets, which we're focused on, we plan to apply that same methodology that we always have, so that as well as the community of users on FactSet for us spell a real advantage in this area.

Okay. That's helpful. And then, given your success there, should we expect to see FactSet rolling out more evaluated pricing-type solutions, potentially some proprietary ones?

We're not currently focused on that. Some of the underlying ingredients for that we don't own ourselves, so we're focused on other types of data at the moment.

Thank you.

Sure.

Your next question comes from Tim McHugh with William Blair & Company. Your line is open.

Hi. Yes, thanks. First, I just thought earlier there was a comment about pricing and I thought you said you hoped to capture more than you did even last year, but then I thought later you said you're pushing to the same rate increase. So, could you just, kind of, I guess, clarify or elaborate on, is the pricing any different than you were pushing previously?

No, so it's very similar to last year. It's Maurizio, by the way. It's very similar to last year, 3% on clients that are eligible to get a price increase going forward. And so, when we look at the price increase this year given that our client base has grown, we're seeing a bit of growth in that price increase overall in total ASV for Q2. It's really a function of the business just being bigger than 12 months ago.

Okay. So, percentage wise no different?

Correct.

That's fair. All right. All right. And on margins, the other maybe clarifying comment. I think you talked about kind of hoping to sequentially improve margins from here, but if I look at the guide kind of your fiscal Q1 was right at the middle of the range you gave for the year, which implies up and downsize as to where you are at in Q1. So, can you, I guess, square those two things? Why the lower end of the guide there if you expect sequential improvement/

The guide is a range. Right? It's going to have a low end and a high end. We are modeling and projecting the company to increase gradually on a quarter-by- quarter basis and at the top end of that range is 32.5% and our goal is to get to the upper end of that range as we progress through the rest of the fiscal year.

Are there any particular factors other than I imagine obviously revenue growth rates, but would make you include kind of or make you think about the risk of lower sequential trends?

There's always risk, right? Just like in our ASV guidance, our ASV guides at 65 million to 85 million. Right? There is risk on both ends and so in our margin guidance, again, it's risk on both sides of the guidance. The 31% would be affected if for some reason we slowed in revenue or we had to increase our expenses for some unforeseen reason.

Your next question comes from Glenn Greene from Oppenheimer. Your line is open.

Thank you. Just a couple of follow-ups. I wanted to first, Phil on the MiFID topic. You're sort of framing it as a sort of a limited impact because the sell-sides, I think you said 10% of your seats. I just want to get a little bit more color in your thinking around why there wouldn't be perhaps a buy-side impact as there's perhaps going to be shrinking their budgets and why that wouldn't be a concern for you?

So sure. If they're shrinking their budgets, it means they have less money to spend with firms like FactSet and our competitors, so obviously that would be one factor that would put pressure on us and it will just be up to us to execute on if they're lowering their research budgets to penetrate those firms in other ways. So, it’s a net-net I think we've got a very distributed portfolio of solutions. Research is one area for us, but a huge piece of our business is Portfolio Management and Trading, Analytics. We have our off-platform business now our wealth business. I think we're bullish on our overall chances and MiFID II is something that everyone is navigating through and we're focused on it as a company.

Okay. And then you talked about churn which has been sort of an ongoing issue over various quarters. I just wanted to sort of frame it. Is it sort of comparable to what it’s been the last few quarters, did it get somewhat worse, maybe contrast the buy and sell-side? Obviously, heard your comments on StreetAccounts, but was wondering if it was broader than that?

So it was a little bit more pronounced than Q1 of last year but again, Q1 is a small quarter, so I would say that it was just there were a few more cancellations than we saw in Q1 of last year, but we offset that with more add-on business, so and the stuff that's really sticking with our clients is our value-added analytics things that I think -- as we move forward we'll be stickier within the client base than our traditional FactSet workstation.

Your last question comes from Keith Housum with Northcoast Research. Your line is open.

Good morning, gentlemen. Maurizio, just a question for you on tax reform and I appreciate the color on the annual impact. Is there also going to be a one-time impact in terms of bringing back some of those earnings either deemed or actual? And could that have an impact on your cash flow going forward the rest of the year?

So, there's a pole tax from what we've read that we would have to pay on earnings and cash and investments overseas. That is payable over eight years if we choose to pay it over eight years and again, this is all that we have read. We haven't seen the final law, so I don't think that will have a material effect on our cash flow. Keep in mind if that does get enacted then there's quite a bit of cash that FactSet has overseas that can come back to the U.S. that becomes more available to us.

Okay. Great. And then foreign exchange is, obviously, been moving quite a bit over the past year. What impact on EPS are you guys baked in there for I guess the change that we've seen in FX so far, this year?

So, FX during the first quarter had minimal impact. It was actually a slight benefit to us because we have some very favorable hedges in place. Going forward, there's a slight detriment to our overall cost base but still very manageable, just within our overall cost structure, so we don't see a material impact even as rates have gone against us a bit over the last three to six months.

Great. Thank you.

There are no further questions at this time. I will turn the call back over to Phil Snow for closing remarks.

So, thanks, everyone for joining us on our call. If you didn't see it, we mentioned in our press release that we plan to have an Investor Day on April 17th in New York and the details of this event will be released in early calendar 2018, so we hope to see many of you there and if you have additional questions, please call Rima Hyder and we look forward to seeing you again next quarter. Thanks.

This concludes today's conference call. You may now disconnect.