FactSet Research Systems Inc. (FDS) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the FactSet Third Quarter Earnings Conference Call. All lines have been placed on mute to avoid 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, Stephanie, and good morning, everyone. Welcome to FactSet’s third quarter 2018 earnings conference call. Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the Webcast on the Investor Relations section of our Web site at factset.com. These slides will be posted on our Web site at the conclusion of this call. A replay of today’s call will be available via phone and on our Web site. This 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 your question to one plus a follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparably GAAP measures are in the appendix to the presentation and in our earnings release issued this morning. Joining me today are Phil Snow, Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. And now, I'd like to turn the discussion over to Phil Snow.

Thanks, Rima. Good morning to everyone and thank you for joining us on the call today. As we’re near the close of our fiscal year, we are pleased with our achievements and remain committed to executing on our growth strategy and returning value to shareholders. In September, we’ll celebrate 40 years as a company, and while a lot has changed, the one thing that has remained constant is the strong collaboration with our clients. We have developed some of the best-in-class solutions in our industry and become an integral part of our clients’ daily investment process. This quarter, we saw strong revenue and EPS growth, and although we saw a dip in our organic ASV growth rate, we believe we have a solid Q4 pipeline that will allow us to close our fiscal 2018 within our guidance range. Turning to third quarter results, we grew organic revenue at 6% and ASV at over 5%. Adjusted diluted EPS increased 18% to $2.18 boosted by the U.S. tax reform and our share repurchase program. Adjusted operating margin for the quarter was 31%, a slight decrease from last year and last quarter; however, we are very focused on achieving our medium-term goals of increasing operating margin by 100 basis points per year over the next two years. This quarter, we took actions to streamline parts of our organization and to optimize costs, and we believe these actions in combination with our continuing efforts to integrate our acquisitions paved the path forward to margin expansion. We increased ASV by $9 million in the last three months. The increase was primarily driven by analytics, CTS, wealth, and our annual price increase to our international clients. Our cross-selling efforts drove many of the wins this quarter. Analytics added more than 50% of the net increase in ASV this quarter, and we highlighted our risk offering at our Investor Day as a key driver within analytics. This quarter was no different with a number of multi-asset class risk wins. CTS had another strong quarter maintaining a high growth trajectory year-over-year and we’re really excited about the Open FactSet Marketplace which launched in April. This new platform offers both core financial and alternative datasets. Examples are ESG, satellite, and sentiment data to address the growing demand for more integrated content across our client base. We’re seeing particularly strong interest from the quants within hedge funds as well as traditional asset managers. Our wealth management business also performed well this quarter with workstation deployments across top tier clients displacing our main competitors. Much of our client count and workstation increase this quarter is coming from the wealth business. We’ve executed well against our strategy of broadening our wealth solutions and capturing wins with large clients. We also saw cancellations this quarter but at a decreased rate compared to the same quarter last year. Most of the cancellations were due to firm closures and firm consolidations, a recurring theme in the industry. However, this quarter versus last year, we saw a reduction in cancellations from firm consolidations. For the last two quarters, we’ve seen a reduction in cancellations but we still believe that the cost pressures in the industry have not abated. We performed well this quarter with our client retention rate increasing to 90%. Turning to our geographic breakdown, our Americas organic ASV growth was 4%, driven by analytics and CTS products, primarily sold to institutional asset managers. Outside of the Americas, ASV grew organically by 7% with Asia-Pac growing over 13% and Europe growing at 5%. In Asia-Pac, we gained new clients and increased sales to existing clients particularly in Singapore and Australia. In analytics, both fixed income and equity products and CTS were the main contributors. We also opened a new office in Shanghai which strengthens our position in the growing Chinese market. EMEA had a stronger Q3 than last year. In addition to the price increase, we had major wins in Europe with analytics, CTS, and an increase in workstation sales. The UK and Nordic regions performed particularly well this quarter. We had a good win in Europe with an integrated BISAM portfolio analysis solution, a great example of our portfolio lifecycle strategy to cross-sell and up-sell our broader suite of products. In conclusion, we believe we remain on track to achieve our annual and medium-term goals as laid out at Investor Day. We’ve got good visibility as we start our final quarter for fiscal 2018 and feel positive about our pipeline. Our integration efforts continue to enhance our product offering and the up-selling and cross-selling of these products helped secure some important wins this quarter, and we continue to return value to our shareholders through our balanced capital allocation framework. We increased our quarterly dividend for the 13th year in a row raising it by 14% and we bought back $122 million in shares this quarter increasing the pace of our buyback program as we improved our cash collections. Let me now turn the call over to Maurizio to talk in more detail about our financial results.

Thank you, Phil, and good morning to everyone on the call. As Phil said, we believe we are on track to close out our fiscal 2018 in our guidance range. We made good progress versus our goals this past quarter. Also, this quarter’s results are impacted by certain one-time charges related to restructuring actions that we undertook this past quarter. Let’s now go through our third quarter results. GAAP revenues in the third quarter increased 9% to 340 million and 6% to 333 million on an organic basis versus the third quarter of 2017. Looking at our segment revenue, U.S. revenues grew 5% organically and international revenues increased 7% on an organic basis. This growth comes primarily as a result of higher sales from our international price increase, analytics, data feed products, and an increase in workstation sales. ASV increased to 1.36 billion at the end of our third quarter. Organic ASV increased 5% year-over-year and 9 million since the end of our second quarter. This increase was primarily driven by higher analytics, CTS, and wealth management sales. Additionally, this quarter we also implemented our annual international price increase, which added 4.5 million to ASV. This increase was comparable with our increase last year. Let us now take a look at our operating expenses. Operating expenses for the third quarter totaled 247 million, an increase of 10% year-over-year, primarily driven by restructuring charges and certain one-time administrative expenses. Our GAAP operating margin decreased 70 basis points year-over-year to 27.4%, primarily due to the previously mentioned restructuring charges, a negative impact from foreign currency, higher data costs, and incremental legal fees. Adjusted operating margin of 31% was lower than last year’s margin of 31.9%. Without the negative impact of FX this quarter, adjusted operating margin would have been 31.4%. Third quarter cost of services expressed as a percentage of revenues increased by 170 basis points compared to the year-ago period. The increase was driven by the restructuring costs, additional employee compensation and higher data costs. Higher employee costs were due to merit increases in the last 12 months, increased hiring and the impact of foreign currency. SG&A expenses expressed as a percentage of revenues were down 100 basis points compared with the third quarter of fiscal 2017. The decrease was primarily the result of FX hedging gains, our revenue growth rate outpacing the growth of employee compensation which was flat and holding other SG&A expenses such as rent, office and professional fees constant. These decreases were partially offset by current year restructuring costs. Our client and workstation accounts were both up this quarter versus our fiscal second quarter of 2018. In the past three months, we added 80 new clients and 860 new users in both cases, primarily as a result of our wealth management solutions. We now have close to 5,000 clients and over 89,000 workstation users. Moving on to the tax rate, our quarterly effective tax rate was 16.5% compared with 23.2% a year ago, primarily due to the U.S. tax reform that we discussed last quarter. GAAP EPS increased 15% to $1.91 this quarter versus $1.66 in the third quarter of 2017. The increase was primarily attributable to the lower tax rate from the U.S. tax reform. Excluding intangible asset amortization, the deferred revenue fair value adjustment and other non-reoccurring items, adjusted EPS grew 18% to $2.18 this quarter. Free cash flow, which we define as cash generated from operations less capital spending, for our third quarter was 120 million, an increase of approximately 35 million or 42% over the same period last year. The increase was due to a significant improvement in cash collections, a lower effective tax rate, timing of prepayments and reduced capital expenditures. Our DSO decreased to 39 days at the end of our third quarter versus 42 days a year ago. Moving on to our share repurchase program, we repurchased 620,000 shares for 122 million during the third quarter under our existing share repurchase program. We were opportunistic in buying back shares and were able to accelerate our pace of buybacks with the increase in our free cash flow. And as Phil already mentioned, we increased our dividend once again this quarter by 14% to $0.64 per share per quarter. 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. The only changes to our fiscal 2018 guidance are minor adjustments to GAAP and adjusted diluted EPS. GAAP diluted EPS is now expected to be in the range of $6.92 and $7.17. Adjusted diluted EPS is expected to be in the range of $8.37 and $8.62. The midpoint of the adjusted EPS range represents 16% growth over the prior year. Our ranges were refined during the quarter based on our latest expectations for how we expect to close the full fiscal 2018 year. We have also enhanced our disclosure by providing a reconciliation of GAAP to non-GAAP EPS in the back of the press release. With one quarter to go we expect to execute on our annual goals for fiscal 2018. The sales teams are gearing up for our fourth quarter which is our busiest quarter in terms of sales activities. Our fourth quarter pipeline reflects this increased activity. With our broad suite of products, client retention is up this quarter and we believe we can continue to gain more clients and more market share. Thank you for your participation in today's call. We're now ready for your questions.

[Operator Instructions]. Your first question comes from George Tong with Goldman Sachs. Please go ahead.

Hi. Thanks. Good morning. Organic ASV growth in the quarter decelerated to 5.3% despite easier comps in the year-ago period. Can you provide some context behind the deceleration and discuss how the pipeline is evolving?

Sure. Hi, George. It’s Phil Snow. So Q3-over-Q3, we added approximately the same amount of ASV as we did last year. And just to remind everyone, we really think of our sales cycle in half. Traditionally, the Q2 and Q4 quarters have been much bigger for FactSet over the years, and this year is no different. So, as Maurizio just mentioned, we’re gearing up for our fourth quarter. We believe we have a pretty strong pipeline for Q4. We have good visibility into the pipeline, and we have some large deals that we’re really excited about.

Got it. And then as a follow up, ASV per customer modestly contracted in the quarter. Can you elaborate on the factors that contributed to the decline and when you expect cross-selling initiatives to help drive positive growth in ASV per customer?

So that’s really not something we track. We have a broad range of customers that pay us anything from a few thousand dollars a year if they’re a street account user to a lot more than that. We did add 80 clients net for the quarter. Many of those clients were smaller wealth shops as well as corporate clients, so the slight decrease might have been attributed to that, so typically we’re going to be adding new clients on the long tail essentially, so that’s I think what you’re seeing this quarter.

Got it. Thank you.

Sure.

Your next question comes from Joseph Foresi with Cantor Fitzgerald. Please go ahead.

Hi. This is Mike Reid on for Joe. Thanks for taking the question. The first one I guess with the Shanghai office opening, can you talk a little bit more about the environment in China and maybe some of the drivers and challenges there?

Yes, so the China market’s really an exciting new market for us. We’ve been servicing it out of Hong Kong for some time, but there are many great advantages to being in China, one of them we believe is that we’re going to be able to setup infrastructure in a way where the speed of the product within Mainland China is going to be faster than it has been historically, and that’s obviously a big deal for clients. So where we’re having success in China and a lot of the Asia-Pac region is with our more advanced analytics products. That’s really where we’re competing. We’ve got a great team out there. I was actually out there to help open the office a week or two ago and got to meet some clients in China, so at least from where we sit, it’s really a Greenfield opportunity and one that we’re excited about.

Okay, thanks. And then ASV growth by segment, was that fairly similar to some of the growth numbers you’ve showed for FY '17 at Investor Day or is that improved or slowed in any areas?

It takes time to move these numbers. I would say it was very similar. The CTS growth rate continues to do very well, close to the 20% that we looked at. I would say that there’s really good momentum behind analytics and wealth, and the research and PMT segment is still growing in low-single digits and where we’re seeing the majority of the market pressure.

All right. Thank you.

Sure.

Your next question comes from Glenn Greene with Oppenheimer. Please go ahead.

Thank you. Good morning. Just wanted to follow up with that prior question. So on the research and portfolio management side, you still are seeing kind of modest growth. I was just trying to kind of triangulate the sort of deceleration in aggregate ASV with sort of the newer solutions sound like they are all doing well, but the overall deceleration in ASV may be infer that the core research workstation business may be decelerated a bit.

Yes, we’re definitely seeing more pressure there. We continue to broaden our footprint but the success that we’re having really is as we’ve talked about historically moving from workstation to workflow with a really big emphasis on our analytics and our platform solutions.

Okay. And then Maurizio on the margin side, and you just sound like you are very confident in still getting the 100 basis points a year of margin expansion. Margins sort of disappointed a little bit this quarter, and it sounds like you’re taking I guess some incremental restructuring actions. Maybe you could help us sort of quantify the potential benefit from those restructuring actions and probably more importantly why you’re still confident in getting the 100 basis points a year?

Yes, so this quarter you saw a slight decrease, about 40 basis points from Q2, and so that’s a little bit from us reinvesting in certain areas of our product which we discussed last quarter. Going forward, we’re confident about bringing back the margin or increasing the margin. It’s really driven by the restructuring that we put in place in Q4, which will help us with [indiscernible] item to really bring back the margin -- to bring it back 100 basis points higher going forward into fiscal 2019.

So there weren’t any incremental restructuring actions. These were the prior ones that you had announced back in the fourth quarter.

No. We’ve recently put through a restructuring effort to optimize some of our costs, which is really headcount at the end of the day, and we put that through in early June and so we’ll start to see that benefit in Q4 and then we’ll see the full benefit come through in fiscal '19.

Okay. Thank you.

Your next question comes from Hamzah Mazari with Macquarie. Please go ahead.

Good morning. Thank you. The first question is just around active to passive flows and sort of the impact to your business. I don’t know if you could update us on what you’re seeing there and how you’re positioned longer term?

Hi, Hamzah. It’s Phil. So I don’t think we’re seeing anything that different in terms of the flows and some of the pressure that’s putting on our clients from a cost basis. One thing that we’re excited about which really I think fits with FactSet very well is the resurgence of quant in the market. So a lot of the active managers I think are becoming more quantitative in their approach. The pendulum has swung back in that direction. We have a strong suite of products within analytics that service the quants. And with the launch of the Open FactSet Marketplace, as I mentioned in my comments, we’re seeing a lot of initial interest from the quants with the datasets that we’re putting up, that’s not the only segment of the market we’re going after but that’s the one who we’re beginning with.

Okay, great. And just a follow up for Maurizio. I know you announced sort of moving on at the end of December. Any thoughts there and then sort of how you’re thinking about the search process? And I enjoyed working with you, Maurizio. Thank you.

Hamzah, it’s Phil Snow. So we’ve been actively obviously looking for a replacement for Maurizio. He’s done a fantastic job for FactSet over the years. I’m sure he’s excited about his next chapter and we are making good progress with the search and we’ll have hopefully an update for you on that shortly.

And it’s been a pleasure working with you also.

All right. Thank you.

Your next question comes from David Chu with Bank of America. Please go ahead.

Hi. Thank you. So in the past few quarters there was mention about margins improving sequentially over the course of fiscal '18. It sounds like ex the FX, margins were flat quarter-over-quarter in 3Q. So what’s changed here? I would assume that you’re adding back or excluding the restructuring charges to get to adjusted EBIT. So just some color on what’s changed over the last few quarters?

Hi, David. It’s Phil Snow. So one of the things that we talked about on our last call was taking some of the benefit we got from an improved tax rate to invest in a couple of areas for the company. So that’s short term. We’ve had a lot of success with our risk offering over the last few quarters and these are multi-asset class risk solutions that are typically sold at the enterprise level for our clients and that requires quite a bit of effort from an implementation standpoint. So we made an investment there in the analytics group to staff so that we could go ahead and close that business effectively and continue to do so. And we did actively look at a few market segments of FactSet across our employee base globally where we felt there were some pressures from a salary standpoint and we made some adjustments in a few cities. So that was a short-term effort. I think that’s what you’re seeing. What Maurizio talked about in terms of our optimization efforts you’re going to begin to see the effect of that we believe in Q4 and moving into FY '19.

Okay, great. And so should we expect like margin expansion to accelerate over the course of fiscal '19 or would it be somewhat like even over the course of the year?

David, I think you should foresee a gradual increase to margin to get to 100 basis points higher going forward.

Great. Thank you. And just lastly, why is your EPS guide so wide when we only have one quarter to go?

There’s still some variability within our EPS guidance and we really wanted to home into a certain extent with the last quarter coming up and we also have additional disclosures in the back of the press release to go from non-GAAP to GAAP which enabled us to be a little bit more precise in our guidance going forward.

Okay. Thank you very much.

Yes.

Your next question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Thanks. Phil you mentioned strong 4Q pipeline. Just wanted to get a sense of the main drivers there. How are the summer classes for the banks versus last year? Like buy side was a little bit weaker this year but is there something that you’re seeing there that might be better in fourth quarter or was there something maybe very specifically timing related this quarter? Just anything in regards to the pipeline would be helpful. Thanks.

Sure. Yes, the hiring classes for the bank is always a big piece of Q4, so we can never get perfect visibility into that but I think we’re feeling pretty good about it. And again, the sales team I think has become better and better about really managing the pipeline on a weighted basis and gives us more confidence in a number that we see in there. So I think the drivers are not going to change that much. You’re going to see CTS, you’re going to see analytics, we expect the wealth business to continue to do well. It’s I think a similar story to this quarter just much more heavily weighted in Q4 than Q3 as usual.

Okay, great. And I know that recently you’ve said you haven’t really seen impacts from MiFID II in terms of your international price increases, but just wanted to get an update on how MiFID II is playing out if you are seeing any sort of impacts in the business, that would be helpful?

We’re not right now. So we did significantly better in EMEA this Q3 than the same quarter last year and our price increase went through really very smoothly. So we’re not seeing anything yet that’s really affecting us from previous years.

Great. Thank you.

Sure.

Your next question comes from Shlomo Rosenbaum with Stifel. Please go ahead.

Thank you for taking my questions. Phil, just want to ask you a question in terms of kind of the metrics versus what’s really going on inside the company. It looks like the ASV growth kind of slowed sequentially but you talked to a strong pipeline. Internally, based on your guide and the stuff that you can’t necessarily share with the street, are you feeling that the business is picking up momentum, losing momentum or kind of same as what it was last quarter?

The way I will answer that is I think we feel really good about the product offering that we have for the marketplace. We’ve done some good acquisitions. The integration of those acquisitions is really beginning to produce product that we feel is going to have an impact moving forward. The Open FactSet Marketplace that we’ve released we think is going to help accelerate the CTS growth even further. So I’d say there’s a lot of excitement within the sales team about what we have to offer and our ability to grow faster. But there are still market pressures out there. The backdrop is not changing. It’s challenging. Clients do have cost pressures and that’s the environment we’re selling into. But just in terms of what we have to offer and the problems we can solve for our clients I feel as good as I’ve ever felt at FactSet and that was something that we stated at Investor Day.

Okay. And then this one’s for Maurizio. What can you talk to about the 4 million of accelerated vesting? What was that all about?

The 4 million of accelerated vesting --

To get back to the adjusted EPS, so if you look through some of the numbers over there, like there was accelerated vesting that was added back?

So the 4 million you’re talking about is the total charges in the back of the press release, 4.4 million. And the majority of that is the restructuring charge that we took. More than half of it was restructuring.

Okay. So if I’m looking at the adjusted net income and I guess this other nonrecurring items at 4.7 that you’re referring to?

Correct.

And you’re seeing that the stock-based compensation acceleration is a minority part of that.

Correct.

And can you just disclose like what the acceleration was about? Was there something – is that normal that we don’t usually pay attention to it?

It’s normal as part of the restructuring charge and it’s something that we’ve had in the past also which is just part of the overall number.

Okay. So that’s triggered by the restructuring charge.

Correct.

Okay, now I get it. Thank you very much.

Okay. Yes.

Your next question comes from Peter Heckmann with Davidson. Please go ahead.

Hi, everyone. I was looking at some of the new regs coming out of the SEC, specifically the new N-PORT, N-CEN regs and it looks like investment management record a significant amount of additional data around risk and portfolio concentration as well as position holding. Do you see that as any benefit potentially to back that or conversely would there be some additional costs that you need to expend to get to full functionality?

Hi, Peter. It’s Phil Snow. So we have more of an emphasis on regulatory solutions than we’ve had historically. We have a very talented group that’s looking at all of these regulations that are coming out. And we have a very good product, the Solvency II and I think N-PORT is one that we’re also very focused on. So regulation is going to put pressure on our clients from a cost standpoint and something they’re going to have to spend money on, but we think that’s an opportunity for us to deliver good solutions to our clients to help them with that.

Got it, okay. And then just a quick follow up. There’s been some discussion about some of the tax provisions that are serving to claw back some of the corporate tax cuts, especially those companies that have significant international operations. Can you just talk about a preliminary range that you think about the effective tax rate for next year?

We’ll be providing that guidance come September for fiscal 2019. The only thing I can tell you is that on the tax reform bill we only got two-thirds of the benefit this year because it was enacted on January 1st. There’s a little bit more benefit to FactSet in fiscal '19 but we’ll come out with that full year guidance in September.

Okay. Thank you.

Your next question comes from Alex Kramm with UBS. Please go ahead.

Hello, everyone. Just a couple of things to follow up on that were discussed earlier. On the restructuring program, maybe you can give us a little bit more color on a couple of things like – first of all, like why now – why did you feel like you needed to do something right now? And then also I think you guys generally are regarded as having best-in-class sales. So doing restructuring at this time, should I be worried about the sales effort and the service or you don’t feel like it is going to inhibit growth in any way?

Hi, Alex. It’s Phil Snow. So I wouldn’t be worried about that. We were really just looking I think internally at some of our lower ROI investments and just making sure that we had our best resources focused on the highest return on investment opportunities for the company. So a lot of what you saw was across all groups at FactSet. So it wasn’t like we were singling out sales by any means. So it’s really just an optimization. You’ve seen some of the benefit of that coming through next quarter we believe. But we have a very talented sales force. What I would say on the sales side is that we’re – a couple of things that we’ve been doing is really focusing on some of our larger accounts. We’ve had a big effort to focus on those this year and we expect to see some real improvement in the larger accounts coming through next year. And we’re really looking at our sales force and making sure that we’ve got a higher proportion of our investment going to the products like analytics and CTS that are growing faster. So that’s a bit of an evolution but we think over time that’s really going to help out.

Okay, thank you. That’s helpful. And then just coming back to the pipeline just so I hear you correctly. So last year I think in the fourth quarter you did 32 million of organic sales. So when you compare the pipeline to that now, how would you characterize it because I think you said the 3Q was kind of in line with last year? So would you say 4Q pipeline is going to align with what you saw last year or any incremental color would be great?

There’s going to be a range there. So it is our biggest quarter by a long shot and we have some larger deals in there. So a lot of it how we do relative to last year is really going to be a function of those bigger deals closing in Q4.

All right, thank you.

Your next question comes from Bill Warmington with Wells Fargo. Please go ahead.

Good morning, everyone.

Hi, Bill.

So first question on wealth management. In the past your push into wealth management has been focused mostly on the high end of the market, typically 500 million in AUM and above. But now as you complete your migration from a large mainframe environment to more of a distributed server architecture, it would seem to open up an opportunity to really go down market after the smaller midsized wealth managers. So my question is what’s your strategy for going down market and what’s the timing of that likely to be?

Hi, Bill. It’s Phil. So when we did the acquisition of IDMS in Frankfurt, that really opened up a broader segment of the wealth market to us. The other thing that is opening up a great opportunity for us is the FactSet Web products. So we released the Web products and we’ve made a lot of enhancements recently to that product specifically for the wealth market. So it’s being received exceptionally well. We’re getting a lot of feedback from our clients about what they want to see in there. And you’re absolutely right. Now that we’ve gone to a more distributed architecture, it allows us to deploy a lot more desks at a lower price point and have it be much more profitable for the company. So this is a segment that we’re very excited about and we wouldn’t have broken it out separately if we didn’t think it was something that we would capitalize on moving forward.

And then on the FactSet marketplace, just wanted to ask about the revenue model there and specifically whether it’s incremental revenue from the client or whether that’s included in the subscription? And then the value proposition for the data provider and then whether you’ve – what kind of initial uptake you’ve seen from clients?

Great questions. So we released the Open FactSet Marketplace this quarter with a number of alternative data providers. The business model really is a royalty-based model, so the vale proposition for the data provider is they get to put their content up into the FactSet ecosystem where they get access to institutional clients. We also do a really good job of concording [ph] data. That’s one of our core competencies as a company. So tying their datasets to our datasets and to other datasets there, that’s a real pain point for clients. So we’re taking that pain point away. And those two things are why so many alternative data providers and data providers are interested in being part of the FactSet ecosystem. So what you’ll see over time is that we’ll get royalties from these alternative data providers as they put their data up onto the FactSet system. So we’ve got an enormously positive response from the market. There’s lot of providers that want to be in the ecosystem. I would not expect to see a meaningful uptick in revenue for a little bit of time because it is going to take time to get these things out into the marketplace and to trial them. So we weren’t expecting a large impact this fiscal year but we do expect some positive impact to our growth rate from the Open FactSet Marketplace as CTS accelerates next year.

Got it. Thank you very much for the insight.

Sure. Thank you.

Your next question comes from Manav Patnaik with Barclays. Please go ahead.

Hi. This is Greg actually calling on for Manav. Just wanted to ask about the AI space. You’re seeing S&P make a pretty proactive move with Kensho and even companies like Moody’s have taken minority stake. So just wondering how you’re thinking about investments in the AI space?

Hi, Greg. It’s Phil. So we do have a team here that focuses on machine learning and AI. Traditionally they have been very focused on our content collection efforts. I think there’s still a lot more we can do there to use machine learning to automate more of our content collection and just get more data onto our system. And Gene Fernandez who joined us back in November from JPMorgan, he has been taking a look at that group. I think we’ve made a couple of additional hires. So we’re looking very closely at what internal processes we can leverage ML and AI for and what client workflows can we do the same with. So it’s a work in progress but something that we are focused on.

Okay, that makes sense. And then maybe on what you’re seeing in the marketplace during this period of transition for Thomson Reuters’ F&R business as a way to close the Blackstone deal. Similar to other consolidation in this space are you seeing opportunities during this period of transition or how should we think about that?

No, I wouldn’t say that the competitive environment has changed that much. So we’ve been competing against Thomson for a long time and there’s really no change in terms of where we’re seeing them in the marketplace and how we’re doing.

Okay, fair enough. Thank you.

[Operator Instructions]. Your next question comes from Peter Appert with Piper Jaffray. Please go ahead.

Thanks. So Phil or Maurizio, can you give us a number on the growth rates for the research PM business versus the newer initiatives in private wealth, CTS, analytics?

Peter, it’s Phil. I think at Investor Day we said that we would break out those numbers once a year. So you can expect to get an update from us in Q4. But as I already stated on the call, the processes have not changed materially from when we presented to you a few months ago.

Got it. How about margin differential? Is there a significant differential in profitability in the various product offerings?

Peter, it’s Maurizio. There’s going to be slight differences between the different offerings. There’s so much of FactSet’s expense that is shared to all of those different groups that it becomes a little bit more of a theoretical exercise for us at the end of the day. But there are some differences there that are up and down but they’re very comparable.

Okay. Thank you.

Your last question comes from Keith Housum with Northcoast Research. Please go ahead.

Good morning, guys. Thanks for getting me in here. Phil, a question for you about the pipeline. If I look back at the second quarter transcript, you said the pipeline was the best it’s ever been and it sounds like the pipeline is good again this quarter. Is the pipeline – is that period to close, is that getting longer based on the market conditions and I guess what gives you the confidence that the strong pipeline would be able to turn around and close here in the fourth quarter?

Yes, so I don’t think anything has changed from Q2 in terms of the gross pipeline. So the number of opportunities we have in there is the largest it’s ever been from an ASV standpoint. But I would say as we move more to workflow and we move more to enterprise solution, particularly within analytics, there is a little bit of a longer sales cycle there for selling multi-asset class risk solution versus just going out and selling another FactSet with PA on top of it. So it really depends on the solution. But as we move to larger deals with our clients, the sale cycle for those things that are really going to impact the top line maybe taking a little bit longer.

Okay, I appreciate it. And then Maurizio, just coming back to your op margins again and I apologize if you answered this already. But in terms of the acquisitions and the integrations there, would you say the added integration is proceeding as planned or has there been any hiccups or not being able to capture the operating margins that you’re hoping for?

I think we’re progressing on increasing our margin for both FDSG and BISAM which really are the ones that we really need to execute on over a two-year period since we purchased them. And we’re one year in but we have made a good amount of progress but there’s more to be done there and that will really help us get to our 100 basis point increase for fiscal '19.

Great. Thank you.

There are no further questions at this time. Phil Snow, I turn the call back over to you.

Thanks again everyone for joining us on our call today. If you have additional questions, please call Rima Hyder. We look forward to talking to you all next quarter.

Thank you. This concludes today’s conference call. You may now disconnect.