FactSet Research Systems Inc. (FDS) Q3 2019 Earnings Report, Transcript and Summary

Good morning. My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to the FactSet Q3 2019 Earnings Call. 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, Investor Relations, you may begin your conference.

Thank you, Christine, and good morning, everyone. Welcome to FactSet’s third fiscal quarter 2019 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 website at factset.com. The 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. 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 one 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 comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer and Helen Shan, Chief Financial Officer. I'd now like to turn the discussion over to Phil Snow.

Thanks, Rima, and good morning everyone. I am pleased to say that we are continuing our long record of steady growth in the second half of our fiscal year with growth across all our key metrics including ASV revenue, EPS and margin. Cost pressures in the financial sector remain, but clients are looking to invest in technological solutions that drive efficiencies and we continue to benefit from their response to what’s smarter and more connected data and analytics. This provides us with the ever growing opportunity to take higher wallet share. Now moving on to the third quarter results, this quarter our sales team achieved comparable gross sales and expanded our footprint globally at net new clients and users. At the same time, we did see a higher than expected rate of cancellations due to industry-wide ongoing cost pressures. We think of our business in half year increments and as we pointed out in our last call, we expect our second half to be more weighted towards the fourth quarter. Turning to ASV. Analytics and wealth were the main drivers this quarter, along with the annual price increase for our international clients. Our ASV this quarter was impacted by a multi-year agreement with a corporate client that came to an end this year, outside of this cancellation, ASV would have grown in line with our fiscal third quarter of 2019. Helen will discuss this in more detail, but we did benefit on the revenue side from this cancellation as it resulted in a one-time sale of data to the same clients. This cancellation impacted our CTS business ASV, otherwise CTS had a solid quarter. Sales for the standard data feeds accelerated through our data exploration products which removes the friction from the trial and evaluation process and this was the biggest contributor to CTS ASV. Within analytics, our core equity portfolio analytics solutions and transactional revenue from our trading solutions were some of the biggest drivers of growth. The recent launch of our portfolio management platform and continued progress on risk portfolio services and API solutions allow us to believe in the growth trajectory of this business. However, while analytics was the largest contributor to growth, changes within our specialist sales force and unexpected cancellations let us to fall short of expectations. Additionally, we overestimated how quickly we can monetize some of our new products and we’ve taken the necessary steps to address these challenges and believe that these adjustments will have a positive benefit on analytics overall. Taking all of this into account, we now believe that we’ll finish the year between $70 million to $75 million for ASV, plus professional services maintaining our mid-single-digit growth targets as we told you at Investor Day last year. We’ve increased guidance for our other key metrics such as margin and EPS and Helen will walk you through those in a few minutes. Wealth had another strong quarter as it continued to expand, gain share and take competitive volumes. With the strong pipeline of dynamic sales team that continues to target larger clients we believe wealth is well positioned to finish this year strong and will continue to be a growth driver for us. And within research, the results came in better than expected with workstation wins and RMS sales. However, the business also experienced higher cancellations from continued pressure on the buy side. Cancellations in general were higher this quarter across all our regions, mainly from firm closures and consolidation continues to be a trend in our industry. We are proactively making changes to our sales processes, renegotiating client contracts and ensuring clients understand the full value of the FactSet products to help mitigate future losses. Another significant change we made this past quarter was to move all the products sales specialists into our various business lines we have instead of continuing to align them to general sales. This organizational change will give the heads of these businesses more line of sight into products and sales and allow for even more specialized client experience with our sales teams. In terms of geographic breakdown, we continue to have a growing global presence with the diverse clients taking advantage of our open, flexible and configurable offerings. Looking at our Americas and international businesses, Americas delivered a solid growth rate of 5% driven by analytics and CTS and the EMEA and Asia-Pac regions grew 4% and 11% respectively benefiting from the annual international price increase this quarter. Analytics and CTS both continued to be growth drivers in these regions. In summary, this quarter is a great example of the FactSet team’s ability to perform even amid sector-wide challenges. We said last quarter that we remained cautious given client cost pressures and this quarter saw increased cutbacks across the industry with clients increasingly tightening belts with an eye to future volatility, which resulted in the higher than usual cancellation rates. Despite these obstacles, we demonstrated growth in Q3 across ASV, revenue, EPS and margins and we remain confident in our long-term strategy and believe we are well placed to help clients navigate a changing environments. Our open and flexible solutions are resonating in the markets, which is seeing growing technology adoption as clients search for new ways to drive efficiency and create value. We believe our solutions will continue to serve as mission-critical for clients and their dynamic investment workflows. We also continue to focus successfully on cost disciplines and higher ASV and EPS growth and are taking steps to accelerate our sales pipeline and we remain a strong steward of returning capital to shareholders with this quarter marking our fourteenth consecutive year the company has increased dividends. Let me now turn the call over to Helen to talk in more detail about our performance this quarter.

Thank you, Phil, and good morning, everyone. It’s great to be here with all of you. We delivered strong operating results in the quarter with over 7% growth in both GAAP and organic revenue versus the previous year. This increased the [indiscernible] fees led to a growth of over 20% in GAAP operating income resulting in a solid expansion in our operating margins. In addition, we grew adjusted diluted EPS by 20%. The one-time sales data to a corporate client as referred by Phil earlier increased GAAP revenues by $5 million. Our quarterly results, in particular, revenues, operating income and cash were positively impacted by this sale. For comparability purposes, we exclude this transaction from our results on an adjusted basis. I will now walk us through the specifics of our third quarter. GAAP and organic revenue increased 7% to $365 million and $366 million respectively versus the prior year. Growth was driven primarily by analytics, CTS and wealth as prior period ASV is more fully recognized as revenue in the third quarter. For our geographic segments, over the last twelve months, Americas revenue grew 8%, international revenue grew over 6% organically. Americas benefited from an increase in wealth, analytics and CTS. International revenue was largely driven by analytics and CTS. ASV plus professional services increased to $1.45 billion at the end of our third quarter at a growth rate of 5.6% year-over-year and up $4.5 million since the end of our second quarter. The growth was driven primarily by analytics and wealth and reflects our annual price increase in our international segments. The positive impact to ASV from pricing was approximately $5 million, in line with prior year. GAAP operating expenses for the third quarter totaled $247 million, nearly flat versus last year. As a result, our GAAP margin increased 470 basis points to 32%. Adjusted operating margin increased to 34%, a 310 basis point improvement from the third quarter of 2018, a level we have not seen in five years. This improvement continues to be driven in part by increasingly disciplined expense management and lower employee costs. Similar to the second quarter of 2019, movements in foreign exchange rates were also a positive driver this quarter, but to a lesser extent. The dollar strengthened against several of the currencies to which we have the greatest exposure including the pound, the euro and the Indian rupee providing us favorable impact to our margins of approximately 80 basis points. As a percentage of revenue, the expense improvement came largely from our cost of services which was 360 basis points lower than last year on a GAAP basis. On an adjusted basis, the improvement was 250 basis points and margins were impacted positively by faster growth in revenue versus cost of services year-over-year. Contributing factors include decreases in both employee compensation and contractor fees. This benefit was partially offset by an increase in computer-related expenses as we continue to upgrade our technology stack. SG&A expenses, expressed as a percentage of revenue, experienced an improvement of 110 basis points over the prior year period on a GAAP basis. On an adjusted basis, this improvement was approximately 60 basis points. This result is driven primarily by expense reductions in travel and entertainment, marketing, as well as employee compensation. Given our solid results, we are increasing our guidance range for both GAAP and adjusted operating margins. Our tax rate for the quarter was 18.6%, impacted primarily by added period and one-time tax adjustments. Excluding these discrete items, our tax rate would be 14.2%. Our tax rate has trended lower this quarter from a higher level of stock option exercises and that we are lowering our guidance for the fiscal 2019 annual tax rate. I would discuss that further in few minutes. GAAP EPS increased 24% to $2.37 this quarter versus $1.91 in the third quarter of 2018. This increase is attributable to higher revenue, improved margins, and a lower effective tax rate. Adjusted diluted EPS grew 20% to $2.62. A reconciliation of our adjustment to GAAP EPS is disclosed at the end of our press release. Free cash flow, which we define as cash generated from operations, less capital spending, was $148 million for the quarter, an increase of 24% over the same period last year. This is the strongest free cash flow we have seen in the history of FactSet. The strength was primarily due to higher net income, and improved working capital including increased cash collections, partially offset by higher capital expenditures. Our CapEx has trended higher this year due to our new office space build out for some of our locations and increased investments in technology. Looking at our share repurchase program for the second quarter, we repurchased 175,000 shares for $48 million at an average share price of $272. Additionally, this week, our Board of Directors approved an increase of $210 million to the existing share repurchase program, bringing a total of $300 million now available for share repurchases. Over the last twelve months, we have returned $327 million to our investors in the form of dividends and share repurchases. We remain committed to buying back our shares at a steady pace and continued to balance the capital allocations between business investment and shareholder returns. Moving to our annual outlook for the year, we are increasing and narrowing our guidance range for most of our metrics, like margin, EPS, ASV, plus professional services. ASV plus professional services for the year is now expected to be between $70 million and $75 million. We are tightening our GAAP revenue range to $1.42 billion and $1.44 billion. Our GAAP operating margin is benefiting from this quarter’s non-core sell transactions and now be between 30% and 30.5%. We are also increasing our adjusted operating margin guidance to 32.5% and 33%. We are pleased with the cost discipline measures that we have taken to be able to implement in order to achieve these results. As I explained earlier, our tax rate has trended lower this year due to one-time items and a higher than expected impact from stock option exercises. We are lowering our annual effective tax rate for the full year. We now expect it to be between 16% and 16.5%. And finally, we are increasing and tightening our ranges for earnings per share. GAAP diluted EPS range is $8.90 and $9. Adjusted diluted EPS range is between $9.80 and $9.90. The midpoint of this guidance represents a 15% growth over the prior year on an adjusted basis. We are proud of our operating results this quarter. Our dedication to cost discipline and process improvement continues to yield growth and we are on track to finish the year on a strong note for revenue, margin and EPS. As we continue to make prudent investments to drive business growth aligned with our long-term strategy, we expect that FactSet will remain resilient despite sector and industry headwinds. And of course, we look forward to continuing our proven track record of returning value to our shareholders. With that, we are now ready for your questions. Christine?

[Operator Instructions] Your first question comes from the line of Manav Patnaik from Barclays. Your line is open.

Hi, good morning. The first question I guess is, when you at first initiated guidance around the ASV you had almost sounded like it was conservative and you had a bunch of these renewals and all in the back half, but you didn’t add to that. So I was just curious like, what was the real change that you are kind of referring to today, like, was it just a lack of visibility or did something materially changed along the way in terms of that shift?

Hey, Manav, it’s Phil. Thanks for the question. So, yes, it is difficult for us typically to look one year ahead, we – I think have stated multiple times, it’s a little bit easier for us to see kind of three to six months out. So based on what we saw in terms of the market and what we thought each of our businesses could do over the year, that was our guidance at the beginning of the year. I would say, to summarize, research, CTS, and wealth are all pretty much coming in as or above expected from the beginning of the year. But the biggest area where we are seeing kind of a difference is our analytics business. So, analytics business as you know grew at 10% at the end of last year and I would say that’s the one where we are seeing the biggest difference versus our original projection. Now it still is a growth driver. It’s going to add, we believe the most absolute ASV out of any of the different business lines this year. But it’s just not growing as quickly as we anticipated it would.

Okay. And then, maybe, if I would just follow-up on that point then, can you just elaborate more, is that because of competition or I guess, anything there on why it’s slowing down? It sounds like temporarily but just why is that happening?

Yes, so there are few things that when we look into it. One is, the fixed income piece of that business is not growing as quickly as it did last year. Part of that we believe has to do with some of the specialist organization that I spoke about. So, our specialists were in the sales organization for a few years for analytics and we gotten away from having a completely specialized fixed income team. And it was more of a multi-asset class team. But I think what we’ve learned over the last few years is, it’s good to have additional specialization within the group. So, we’ve shifted about a third of the client facing sales force back into our business lines so that the leaders of those businesses now can work more closely with the sales specialists who are still going to work very closely with the general sales population, but we do think that that was a piece of it. It’s certainly wasn’t all of it. Another one is I think we overestimated a little bit how much revenue or ASV we would get from some of the newer products. So, part of that was our APIs that we opened up. It was hard to predict. We now have four or five APIs out in the market for analytics. We are selling them, which is not getting as much as we thought we would at the beginning. But we are very confident in that strategy and we believe over time we will get material ASV and growth from opening up the analytics suite outside of the core workstations. So, if I was to highlight two things, those would be the two.

All right. Thanks guys.

Your next question comes from the line of Bill Warmington from Wells Fargo. Your line is open.

Good morning, everyone.

Good morning.

So, I wanted to ask for some more detail on the Q3 expense speed and just you ran to a number of the numbers if you could summarize it for me in terms of how much came from FX, from acquisition integration, from core expense reduction? And then, trying to get also a sense from – of how sustainable it is?

Sure, thanks for that question. When we think about what we accomplished in Q3, it’s really a continuation of execution on our operational plans. So, for the quarter, I would say, about 220 basis points were from operational efficiencies and I would classify that really into little less than half with - what is from expense management of discretionary items, T&E, as well as marketing. And the balance is driven by productivity improvements and that continues to reflect the mix change between high and low cost countries in terms of the percentage of employees. So let me give you a little bit additional color on that. If you look at the number of employees in Q3 this year versus last year, we saw a reduction in our – in the number of employees in our high cost countries by 4% and an increase in our low cost countries by 6%. And so that really accounts for that mix change. And I’ll address this - the long term view on that. And then in the rest [build] [ph] was on FX. So where the favorable FX provides about 80 basis points for us. So that is around the quarter of the beat that we had in terms of the improvement in the margins. And that’s – it aligns how we did it last quarter, except the last quarter was over 50%. So more of the improvement this quarter came from operational efficiencies. As it relates to the sustainability, another good question, let me try to address that, if you think about the drivers of where we are getting the benefit, it really is starting with the way that we operate. We established business units, lines of business a couple of years ago and this year we now have cost centers and we have budgets and we have now put the accountability broader and deeper into the organization. So we have folks in our leadership team who have the accountability, have the discretion to be able to manage their headcount and expenses and they are doing that. They are managing their spend and they are now making more informed decisions. The other again is the mix between high and low cost countries. The percentage mix has changed. So if I look at this year to last year, we now have 2% higher end of our employees in low cost countries and so, if I think about those two things plus some of the integrations that we were – the expense reductions that were expected, which quite frankly, it’s now integrated with the rest of our businesses. But we do know of certain contracts, whether it’s in technology or in content and we’ve been able to rationalize and those have come through in 2019 as well. So, while we continue to look for ways to vest back in for long-term growth, we do believe that a lot of what we have accomplished, we should be able to sustain.

Okay. And for my follow-up is I want to ask about the – you moved your terminal business to the cloud a couple of years ago and that enabled you to lower the cost of delivery and to pursue and win some higher seat count opportunities like wealth management. And when do you move your underlying FactSet infrastructure to the cloud? And what does that mean for near and mid-term margin targets?

So, just to clarify, I mean, we have our own sort of private cloud. The web product that we deployed to the large wealth, we did in others that’s still in our private cloud. What we have up in the public cloud now is more of the open FactSet architecture which is part of what CTS is doing. And we do use the public cloud for a few other things, particularly on the analytics side when we need additional capacity for some very heavy duty calculation. So, I think we are still on a migration to the public cloud. We can’t give you an exact timeframe we’re considering all that as part of our multi-year strategy, but I think what we have learned is that’s the direction we need to go. It’s the direction the world is going and it’s going to allow us to develop products a whole lot faster and it’s also going to remove a lot of friction from the sales process. So we saw that with? CTS having the CTS offering up in the public cloud and having the data discovery module has lowered the amount of time it takes to begin trialing our products by orders of magnitude. It takes sort of a day now to go up and begin looking at all of the content we have and to make a decision versus what it might have taken previously which was weeks for both us and the clients to begin setting up the trial and getting it all set up. So, that’s a great business model. We think we can leverage it for lots of pieces of our business. The analytics APIs that I mentioned on the previous question, lot of those were available now. If you go into our developer portal, so that’s another example of where we are removing friction and exposing our products in new and interesting ways to the clients.

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

Hi. Thank you for taking my questions. Hey Phil, I am just trying to understand the dynamics between revenue and ASV right now. I am seeing like the revenue kind of organic revenue growth kind of inch up, but I am seeing the ASV growth kind of inch down. And usually those things move in tandem and if I am seeing the ASV inch down, usually revenue should follow the other direction and it doesn’t seem like you are saying that that’s what you think is going to happen. It sounds like you are confident what’s going I was hoping you can kind of give us a little bit more background on that?

So, what I’ll do is I’ll describe the one-time deal or transaction that I mentioned for Q3 and then how I am going to follow-up I think a little bit on your question as well. So, I think I mentioned in my script we did have a one-time pretty large cancellation in Q3. It was about $4.5 million in ASV to a corporate client. So, this has been a ten year – over a ten year contract where FactSet was distributing one of our core content sets that we collected and the client decided to go in another direction. And I would say that’s very comparable to FactSet over time, we’ve taken all of the third-party contents internally, but you’ve seen us turn into a content company and sort of going in other direction for some content. So, there always a buy build common decision when it comes to content. So, that obviously negatively impacted our ASV for this quarter. I may have misspoke a little bit in my script. I think what I meant to say was, in the absence of that $4.5 million transaction, our growth rate would have been pretty consistent with the last quarter and on an absolute ASV basis, pretty consistent with Q3 of last year. We did get a one-time payment of $5 million at the end of this contract which Helen mentioned that was booked as revenue, but I’ll let Helen explain that in a little bit more detail.

Sure. So, I think the number that you are looking at there for revenue, that’s a GAAP number of over 7%. And so that includes this $5 million one-time benefit from the sale. So, if you strip that out, we are more at a 5.7% increase and that is more aligned, I think to that what you are trying to get at in terms of the – a lot between ASV and revenue.

Okay. And then, just if you don’t mind, just on a follow-up, in terms of what you are seeing in terms of pipeline, what you are selling, you mentioned certain things you are not selling as well as they were before. Some of that sounds a little bit more kind of belt tightening type stuff or I guess, just the environment is not quite good as good as you thought it would be. But on the other hand, the tone of what you are saying just seems still pretty confident, should we see kind of a pickup from here? In other words, is your pipeline building that you would expect that we’re still bouncing off the bottom in terms of the growth rates or because, I think you said that, kind of 5% to 7% organic growth was more at the last Analyst Day is the way to think about things and just wondering if you could comment in that context?

, : We have so much great products coming to markets within each of our business lines and we felt larger deals that’s in the pipeline than FactSet historically has had. Some of those are pretty binary right, so sort of like a BAML deal and you either get it or you don’t. So that can actually obviously materially affect growth rate, but I do feel that we have a very good opportunity to continue the pace we have and accelerate from here.

The next question comes from the line of Toni Kaplan from Morgan Stanley. Your line is open.

Okay, thank you. Phil, you mentioned the sort of unexpected cancellation. Could you give us a bit more color on, are there any commonalities across client types? Are they sort of newer clients or long-term clients? The size of the clients or is there any way to sort of group them as opposed just – that would be helpful?

So, Toni, your question is about the client sets that cancelled completely?

Yes.

Yes. So, I think we showed that we would net around 50 positive clients for the quarter. I would say, most of the positive additions that were on the wealth and corporate side which is pretty consistent. We are adding a lot of new names in wealth and in corporations. I think what we saw was a bit of a tick down in the institutional asset management space and a little bit of a tick down in terms of hedge funds. Hedge funds though were a positive, what this Q3 last year. So, I think we continue to do very well in existing hedge funds with our CTS fees in particular. But I think we are seeing, I think it’s not unexpected, right. The both challenged part of the market is the institutional asset management space. So, we are seeing very good growth in the asset owner space which is smaller for us, but they are relatively newer compared to the industry. But if I was to summarize it, I think it’s the institutional asset managers or the traditional asset managers that are seeing the pressure. But we are seeing the cancellations.

Okay, great. And I know, Helen, you talked about the margin sustainability to an earlier question, but just trying to figure out an update on originally at the Investor Day last year, there was sort of a target of 100 basis points to margin expansion over the next few years and this year I think, you have had – you have outperformed that. And so, just trying to get a sense of have you accelerated the pace for just given as that has been a big contributor or should we still be looking at the 100 basis point next year as well? Thank you.

Sure. Thanks for your question. Listen, we are pleased about how we’ve been executing our operational plan and our ability to meet and actually see our commitment for FY 2019. As we stated on the last call, we are not looking to manage to a margin but really grow revenues and earnings. We are going through our strategic plans of this right now and so we are planning to determine how do we best invest to sustain for long-term growth and this is going to include spending in areas such as in content and in our infrastructure including technology, technology stack and our people. We are not necessarily – we did get a benefit from FX for this year and – but we are not necessarily assuming that going forward. But we will come back to you when we got new information as it relates to our margins going forward.

Thank you.

Your next question comes from the line of Peter Heckmann from Davidson. Your line is open.

Hi, thanks for taking my question. This may just be a follow-up, but it’s a wide range of potential growth rates in the fourth quarter really just a product of the position of your guidance or are there some other uncertainties that you are trying to convey?

I make sure I follow your question because we narrowed our guidance across the board?

But, so if we take out the first three quarters, the fourth quarter is implying kind of 1% to 7% revenue growth.

Because I think you are talking about revenues because the numbers are so large, 1.42 to 1.44. You are trying back into – I wouldn’t necessarily look at trying to look at that miss. It was much wider before if you look at our original guidance that was widest, because the numbers. I think it’s the lot of number here that might be a little bit confusing. I don’t see that we – you should necessarily look to a difference in our – we are not trying to convey a material difference in our growth rate.

Okay, okay. And then just as a follow-up, can you just talk about the tax items that occurred and was that added back with the non-GAAP EPS?

Yes, sure. Happy to do that. So, yes, these were related to a number of things including adjustment to our provision from last year. R&D tax credit, some impact from U.S. Tax Reform, the toll charge true up. So it’s really a number of things, again out of this period and in some cases from last year. So that helps drive that delta, but also as we mentioned overall, the higher exercise of options by employees where we get the tax benefit of that, it was higher than we would have expected and that’s a material reason as well.

Got it. Thank you.

You are welcome.

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

Yes, hey, good morning everyone. Just, Phil, in your prepared remarks, when you were addressing the tough environment out there, you were talking about taking steps with your clients to make sure cancellations will decline, et cetera. It sounded to me like, you have taken some pricing steps maybe on the negative side to maybe lock in some clients. Can you just flush it out a little bit to know what’s going on there? Thank you.

Sure. So, I think really what we are doing there, Alex, is continuing to elevate the level of conversation we have, particularly with our larger clients. So, given the breadth of our offerings now, and the challenges our clients face, there is a very good opportunity to sit down with them, educate them about everything we can do from a content and technology and workflow standpoint and look to get into multi-year agreements where we can grow and succeed together. So I think that’s a little bit more of what we are referring to. Of course, in a competitive environment price does come into it. But I think we are looking to have conversations with clients before their contracts come to an end to talk about lengthening the contracts and restructuring things in a way which is a win-win.

Okay. Thank you. That’s helpful. And then just, just for the 4Q guidance on ASV or the implied 4Q guidance, maybe what’s split in here is here, but if I look at the sequential quarter-over-quarter increase that you need at the midpoint, I think it’s still a decent step-up and I know the fourth quarter is usually a pretty good quarter and I think somebody asked that before in terms of the pipeline. Can you just describe, like, are there couple of big wins that you have in the pipeline that need to happen to get to this or is this a very diverse set of wins that you are looking for. I guess, I am trying to ask like, are you really looking for couple big ones here to make the year or is it just business as usual that should get you there?

That’s a good question. It’s the second. It’s the business as usual. So I took a very close look at the pipeline. Q4 is a massive quarter for us. But in there is a very strong diverse portfolio of opportunities both by geography and by business lines. So, there are no massive deals either on the positive or negative side. And I believe will impact the quarter in a binary fashion. I think it’s really just a question of the sales team executing at a very high level which they will do to close a large number of deals in a relatively short period of time. But that’s what we do every Q4.

All right. Very helpful again. Thank you.

Sure.

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

Hi, this is Drew Kootman on for Joe. I just wanted to ask about how the impact of wealth management this year and what you see moving forward?

Yes, so, obviously we had that fantastic deal that we signed last year and executed on this year and we captured the majority of the revenue in the first half. What we’ve been doing for the rest of the fiscal year really is just building the pipeline. So, we got a lot of interest from a lot of clients given the visibility of that deal. We’ve had some very successful trials that we’ve been running and I would expect the majority of the impact to start hitting next fiscal year not in Q4 of this year.

Great. And then, just as a follow-up, looking at the Americas, it looks like it continues to be strong. So maybe you could just touch on the demand there and what you are seeing from there?

Yes. So, the Americas team is performing very well. In a lot of ways, it’s our most mature business just in terms of the profits that we have for this market and the size of the sales team. I think Americas is really going to benefit highly from some of the new products that we’ve been releasing. A great example is our portfolio management platform. So, we’ve been hard at work the last two or three years integrating the acquisitions we did for what we been calling the portfolio lifecycle. And this quarter is the quarter that we released our portfolio management last one, which we believe will have good impacts for us in the front office of the buy side and the Americas sales team now I think is really getting geared up as to go out there and begin to educate clients about this offering.

Great. Thank you.

Your next question comes from the line of Ashish Sabadra from Deutsche Bank. Your line is open.

Thanks for taking my question. Phil, maybe just a quick follow-up. You talked about increased competitive pressure we’ve also - which is being on cancellations, but you're also seeing some of your clients having cost pressure and then the changes within your sales force as well. So, question there is, with all these headwinds, is there any potential risk to converting the pipeline in the fourth quarter given fourth quarter is such a strong in terms of ASV and pipeline conversions?

I've got a lot of confidence in our sales force and we have a great products and clients like working with us. They trust FactSet. So I think we are very well positioned to execute on Q4. There is nothing as I look out over the next few months that makes me feel any different than I felt at this time last year.

Okay. That’s helpful. And maybe, Helen, a quick question, so one-time revenue of roughly $5 million which we saw in the third quarter, is it fair to assume that it flowed directly to the bottom-line in the sense there wasn’t really any cost associated with it?

Yes. There is.

And so, what was the – sorry, go ahead.

Yes. So, you are correct on that. So, that’s why you are seeing that difference between GAAP to more significant difference between GAAP and adjusted this quarter. So you are right, that just flowed straight through.

Okay. Thanks.

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

Thanks guys. Can you guys discuss what you are seeing from the sell side? It looks like ASV moderated quite a bit after five straight quarters of acceleration?

Yes, so, the sell side is pretty lumpy. We’ve had a very good run in terms of increasing our footprint on the sell side. Q4 was a little hard for us to gauge. That’s when a lot of the banks do their hirings and that’s actually one of the hardest things to predict in terms of the Q4 pipeline sometimes as how many new hires the banks will hire and that can be a lot of people multiplied by the price of the FactSet workstation. So, we typically get more visibility on this as the quarter comes to a close. But we are very pleased with the work we’ve done on the sell side and we are doing a lot within our products particularly on the content side that I think is going to be exciting for our sell side clients as we move into the next fiscal year.

Okay. And then, Helen, just based on the guide, it looks like intangible asset amortization is really expected to fall off in the fourth quarter. Just wondering if I am thinking about this correctly?

Sorry, that you expected to fall off you said?

Yes, because I mean, it looks like there is about over $5 million this quarter right? Or around $5 million and based on your annual outlook, does it – is it expected to fall off quite a bit?

Okay. So, that’s all your question, do you want to follow-up with Rima. But there is nothing material change that we would see happening. So that might be something which needs to clarify with you.

Okay. Sounds good. Thank you.

Okay. Thanks.

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

Hi, good morning. So I'm - just stocks, big outperformer obviously, and I am wondering if that has any impact on your thought process in terms of the pace of buybacks going forward?

Sure. Thanks for that. I’ll take that one. Year-to-date, we’ve bought back stock around 150 million. But we are opportunistic is how we enter into the market, like you, we watch the share price every day. So, we are pretty happy with the trajectory of how the stock performed over the quarter. But from our perspective we weren’t necessarily in the market though to chase that. We’ve continued to be very good about returning cash to shareholders. We increased our dividend this past quarter and we just increased the share repurchase program. So right now, we are looking for – how to continue to target around 200 million for this fiscal year. But, again, we are opportunistic. So, we’ll see how things go.

And then, Phil I am wondering if you have any thoughts on the change in competitive dynamic was Refinitiv now separated from Thomson Reuters. Whether you are seeing they are having any impact on the market or any changes in behavior related to that?

No, Peter. I mean, we’ve actually not seen much of a change in behavior. So, there are – we do compete with Refinitiv. I would say that's primarily going to be on the wealth side, I would say moving forward. But beyond that, we have not seen much of a change at all.

Okay. Thank you.

Sure.

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

Hi, thanks. Good morning. You called out the cancellation by a large corporate client this quarter since we decided to go in another direction. Can you elaborate on why the client canceled, if it was due to pricing or product capabilities? And then talk about how cancellation rates more broadly are trending?

Yes, so that’s it’s difficult to put yourselves in the mind of the other client. But I think, as I mentioned earlier, if you are thinking about having contents within your organization or on your platform, you’ve got a buy build or a partner decision. It’s something that FactSet faces every day and I think in that case, they’ve probably decided either building it or partnering with someone else who was the best solution for that and that can be complicated in terms of the decision-making process. When we are talking about cancellations of this size, on FactSet, this was a little bit of an outlier for us on the place that we do have a very good business with corporate. But this was probably the largest one that we had. So, I would not expect more of this size or frequency like I said this was a ten year contract. It was a very long contract. So there was nothing about our products which we’ve continued to improve and is massively successful on our platform and that was the reason for the cancellation.

Got it. And you indicated that you overestimated how much revenue you would get from new products and that contributed to some of the ASV guidance modifications. Can you discuss what caused that overestimation? Whether it’s a function of evolving competitive dynamics more recently? Whether it’s due to pricing or if it’s due to sales force efficiency?

It’s a great question. A lot goes into I think the business plan. When you are releasing these products there is a lot of factors. So I think, one of the things I am excited about is the increased discipline that we have here internally in terms of what we are spending our money on our projections, I think we can get better and better over the time. I am very confident in the direction. Like I said, we’ve already begun to monetize analytics APIs. But we just learned a few things in the market in terms of the functionality of the clients would want, how we want to price this and so on. So, that’s really all the color I can give you Tong.

Got it. Helpful. Thank you.

Sure.

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

Hi this is Mario Cortellacci filling in for Hamzah. Could you just give us an update on what you are hearing from clients given the current environment. Just one of you maybe you can compare what you are hearing in the U.S. versus Europe, versus Asia, and kind of compare those for us?

So, I think the themes very consistent Mario globally. Clients are looking to drive efficiencies within their organizations so that they can free up their resources to work on higher value activities and really look for more offer and so on. So, a lot of our conversation is really around how we can help them with those efficiencies. Part of that is just them consolidating their services onto FactSet. Lots of clients are trying to make sense of the all the data they have within their organizations as the pace of data explodes and people need to look and see-through more of it. So we have lots of conversations with clients around how to help them organize their data. How to outsource stuff. Things they want to do in the public cloud that we can help them with. It really is not that complicated. I think clients just want to do some of the things more efficiently with firms like FactSet so they can really focus on where they add value.

Got it. Thanks. And just a quick follow-up. I mean, we know that there are pressures from clients regarding cost, but, I mean, could you give us a sense of, I guess, where or when you can reach an equilibrium or do you have working timeframe that you guys use while planning for the future? Or how do you think about catalyst that could help you with pricing longer term?

Could you restate the question?

Sure, yes. I mean, so we know that there is costs from – I am sorry, there is cost pressures from clients. Do you wanted to see if you ever thought about like an equilibrium regarding pricing or if there is a timeframe that you use while planning for the future or maybe if you think about catalyst that could help you with pricing longer term?

So, it’s - pricing is something we are looking at. FactSet is very modular in terms of our pricing and we may have overcomplicated things as we’ve evolved as an organization. So, we are in the middle now of evaluating our business model. And as we open up our platform, we are considering new ways that we can get into enterprise agreements with our clients. So, that’s a piece of work that’s ongoing. And I would expect that you might hear more from us on that. But it wouldn’t be for probably at least a couple of quarters.

So, I guess, one thing you might consider obviously the way to continue to capture prices is putting more value for the client, as Phil was saying. That’s what we are focused on. Clients want to pay for what they don’t continue to have pricing pressures, but the way to get to the ability for equilibrium to use the word, is that we will continue to add value and clients will want to pay for that.

Thank you.

Our next question comes from the line of Keith Housum from Northcoast Research. Your line is open.

Good morning. I was hoping to explore the professional fees item that you guys have included in ASV. If you could provide a bit of color obviously that must be increasing, but how long does you should take grow professional fees to turn around and get recognized into revenue? And then, perhaps is the margin profile different from those fees and you would think of the rest of the ASV bucket?

Sure. Let me try to talk that through and then any follow-ups you have, you can definitely have with Rima. But the way that we take a look at professional fees is that we look at that over the last twelve months and add that in. We don’t try to project out for say, from – and you’ll think about ASV as an annual subscription value, professional fees are quarter-by-quarter. So, from that perspective, it's really looking backwards on what we have already captured. In terms of how that comes through from a revenue perspective, it goes through in the quarter then it gets realized.

Got you. Helen, the margin profile of that business?

Well, it’s more of a people-intensive business. But honestly it gets added on to some of our – it’s a mix. So, some of it gets added on to our other existing business. So we don’t really necessarily look at its own standalone business.

Okay then, just real quick in terms of the change in sales leadership over the quarter. Any change in the sales strategy in terms of how you guys go to market?

So, I think, sales was executed exceptionally well over the last two years. I think the biggest change is moving the sales specialists into the business lines that we created. I think the biggest impact we will see there is within analytics and CGS. So, about a third of our client facing sales force or sales specialists that know these products in very high detail, they are very good at pre-sales and they also do the implementation. So, we think we will get great efficiency by moving the specialists into these groups. That’s one change I think we’re also going to be looking at the FactSet consultants and how they are coupled up with the sales force to make all of our client facing staff a little bit more commercially focused, not just the general sales people and continuing to push out the regional model that we’ve begun over the last two years as well as expanding our focus on the C-suite. So, we had the strategic client group which is, our top thirty or so clients. But that’s been very successful in elevating conversations and we are looking at ways to expand that within the different regions. So, that’s the summary. I think some of you will have an opportunity to meet Franck pretty soon as we meet with you between quarters. And I think he’d be very excited to talk to you about some of the changes he is planning to bring to the organization.

Thank you.

Sure.

Our last question comes from the line of Patrick O'Shaughnessy from Raymond James. Your line is now open.

Hey, good morning. So, Symphony Communications raised another $165 million in capital during the quarter. Are you guys seeing any signs or any evidence of adoption of Symphony as a chat tool by your client base at this point?

So we have partnered with Symphony over time. We do see within our clients good, I think adoption within the clients. But we’ve not yet seen a lot of cross - cross phone communication. So, I think it’s there. But we don’t see a lot of communication directly between the buy side and the sell side on Symphony. But I am not – I don’t want to position myself as an expert in that area by any mean, so.

Okay. Fair enough. And then, maybe one last quick question on the tax rate. So, moving lower this year due to this stock benefits. Any implications as we kind of think about modeling tax rate going forward? Are you kind of looking that as a benefit isolated to fiscal 2019 at this point?

Right. So, I wouldn’t necessarily, at this point change the view on that. That is such a – I’ll use the word unpredictable. Given the trajectory of our share price, if it continues we would expect this to be a continued positive for us. So, I would probably just say within our range for now.

Thank you.

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

Well, thanks everyone for joining us on the call today and we are encouraged by the growth we achieved this year amid challenging headwinds and see this as a proof point that our long-term strategy is working. We expect to finish the year with strong revenue, margin and EPS and to continue to capture wallet share and deliver value to shareholders. If you have additional questions, please call Rima Hyder and we look forward to speaking with you all next quarter. Operator, that ends today’s call.

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