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FactSet Research Systems, Inc. (NYSE:FDS)
Q3 2018 Earnings Conference Call
June 26, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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.

Rima Hyder --Vice President, Investor Relations

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 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. 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 yourself 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 comparable 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.

Now, I'd like to turn the discussion over to Phil Snow.

Philip Snow -- Chief Executive Officer

Thanks, Rima. Good morning to everyone, and thank you for joining us on the call today. As we 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 much 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. 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 data sets. 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 work station deployments across top tier clients displacing our main competitors. Much of our client count and work station 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've 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 strengthened opposition 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 Nordics 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 life cycle strategy to cross sell and upsell 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 have good visibility was we start our final quarter for the Fiscal 2018 and feel positive about our pipeline. Our integration efforts continue to enhance our product offering and the upselling and cross selling of these products helped secure some important wins this quarter.

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 dollars 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.

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

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 the 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 feeds products, and in increase in work station sales.

ASV increased to $1.36 billion at the end of our third quarter. Organic ASV increased 5% year-over-year and over $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-tine 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 grants, office, and professional fees, constant. These decreases were partially offset by current year restructuring costs.

Our client and work station counts were both up this quarter versus our fiscal second quarter of 2018. In the past three months, we added 80 new clients, and 850 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 work station users.

Moving on to the tax rate, our quarterly effective tax rate was 16.5%, compared with 23.2% a year ago, primarily due the US tax reform 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 US 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 $55 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 repayments, 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 we were able to accelerate our pace of buybacks with the increase in our free cash flow. 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 $6.92-7.17. Adjusted diluted EPS is expected to be in the range of $8.37-8.62. 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, or 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. 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.

Questions and Answers:

Operator

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

George Tong -- Goldman Sachs -- Analyst

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

Philip Snow -- Chief Executive Officer

Sure. Q3-over-Q3 we added approximately the same amount of ASV as we did last year. To remind everyone, we think of our sales cycle in halves. Traditionally, the Q2 and Q4 quarters have been much bigger for FactSet over the years. This year is no different. As Maurizio just mentioned, we're gearing up for our fourth quarter. We believe we have a very strong pipeline for Q4. We have good visibility into the pipeline and we have some large deals that we're excited about.

George Tong -- Goldman Sachs -- Analyst

Got it. 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?

Philip Snow -- Chief Executive Officer

That's 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 StreetAccount 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. Typically, we're going to be adding new clients on the long tail. I think that's what you're seeing this quarter.

George Tong -- Goldman Sachs -- Analyst

Got it. Thank you.

Operator

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

Mike Reed -- Cantor Fitzgerald Research -- Analyst

Hi. This is Mike Reed on for Joe. Thanks for taking the question. With the Shanghai office opening, can you talk a little bit more about the environment in China and some of the drivers and challenges there?

Philip Snow -- Chief Executive Officer

The China market is 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 we'll be able to set up infrastructure in a way where the speed of the product within mainland China is going to be faster than it has been historically. That's obviously a big deal for clients. 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 have a great team out there. I was out there to help open the office a week or two ago and got to meet some clients in China. At least from where we sit, it's a greenfield opportunity and one we're excited about.

Mike Reed -- Cantor Fitzgerald Research -- Analyst

Thanks. On ASV growth by segment, was that fairly similar to some of the growth numbers you showed for FY17 at Investor Day? Or has that improved or slowed in any areas?

Philip Snow -- Chief Executive Officer

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

Mike Reed -- Cantor Fitzgerald Research -- Analyst

Thank you.

Operator

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

Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst

Good morning. Thank you. I wanted to follow-up with that prior question. On the research and portfolio management side, you still are seeing modest growth? I was trying to triangulate the deceleration and aggregate ASV with -- the newer solutions sound like they were all doing well. But, the overall deceleration in ASV has maybe inferred that the core research work station business decelerated a bit.

Philip Snow -- Chief Executive Officer

Yeah, we're definitely seeing more pressure there. We continue to broaden our footprint, but the success that we're having really is historically moving from work station to workflow with a big emphasis on our analytics and our platform solutions.

Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst

Maurizio, on the margin side, you sound like you're very confident in still getting the 100-basis points a year of margin expansion. Margin disappointed a little bit this quarter, and it sounds like you're taking some incremental restructuring actions. Maybe you could help us quantify the potential benefit from those restructuring actions? But, probably, more importantly, why you're still confident in getting the 100-basis points a year?

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

This quarter, you saw a slight decrease of about 40 basis points from Q2. 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 our increase in the margin. It's driven by the restricting that we put in place in Q4, which will help us with a number of other items to really bring back the margin 100 basis points higher going forward into Fiscal 2019.

Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst

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

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

No. We've recently put through a restructuring effort to optimize some of our cost, which is really head count at the end of the day. We put that through in early June. So, we'll start to see that benefit in Q4 and then we'll see the full benefit come through in Fiscal '19.

Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst

Okay. Thank you.

Operator

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

Hamzah Mazari -- Macquarie Group -- Analyst

Good morning. Thank you. The first question is around active to passive flows and the impact to your business. Could you update us on what you're seeing there and then how you're positioned longer term?

Philip Snow -- Chief Executive Officer

Yeah. 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 fits with FactSet very well, is the resurgence of quants in the market. A lot of the active 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.

With the launch of the Open:FactSet Marketplace, we're seeing a lot of initial interest in the quants, with the data sets that we're putting up. That's not the only segment of the market we're going after, but that's the one we're beginning with.

Hamzah Mazari -- Macquarie Group -- Analyst

Great. Just a follow-up for Maurizio. I know you announced moving on at the end of December. Any thoughts there? How are you thinking about the search process? I enjoyed working with you, Maurizio. Thank you.

Philip Snow -- Chief Executive Officer

So, we've been actively looking for a replacement for Maurizio, who has done a fantastic job at FactSet over the years. I'm sure he's excited about his next chapter. We are making good progress with the search and will hopefully have an update for you on that shortly.

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

It's been a pleasure working with you also.

Hamzah Mazari -- Macquarie Group -- Analyst

Great. Thank you.

Operator

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

David Chu -- Bank of America Merrill Lynch -- Analyst

Hi. Thank you. 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. What's changed here? I would assume that you're adding back, or excluding, the restructuring charges to get to adjusted EBIT. Just some color on what's changed over the last few quarters.

Philip Snow -- Chief Executive Officer

One of the things 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. These are a multi asset class risk solution that is typically sold at the enterprise level for our clients. That requires quite a bit of effort from an implementation standpoint. We made an investment there in the analytics group to staff so we could close that business effectively and continue to do so. We did effectively look 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.

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 in FY19.

David Chu -- Bank of America Merrill Lynch -- Analyst

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

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

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

David Chu -- Bank of America Merrill Lynch -- Analyst

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

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

There is still some variability there within our EPS guidance. We wanted to home in to a certain extent with the last quarter coming up. We also have additional disclosures in the back of the press release that go from non-GAAP to GAAP, which enable us to be a little bit more precise in our guidance going forward.

David Chu -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you very much.

Operator

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

Toni Kaplan -- Morgan Stanley & Co. LLC -- Analyst

Thank you. Phil, you mentioned a strong 4Q pipeline. I just wanted to get a sense of the main drivers there. How are the summer classes for the banks versus last year? By-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 specifically timing related this quarter? Just anything in regard to the pipeline would be helpful. Thanks.

Philip Snow -- Chief Executive Officer

Sure. The hiring classes for the bank is always a big piece of Q4. We can never get perfect visibility into that, but I think we're feeling pretty good about it. The sales team has become better and better about managing the pipeline on a weighted basis and it 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 CTFs. You're going to see analytics. We expect the wealth business to continue to do well. It's a similar story to this quarter, just much more heavily weighted in Q4 than Q3 as the usual.

Toni Kaplan -- Morgan Stanley & Co. LLC -- Analyst

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

Philip Snow -- Chief Executive Officer

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

Toni Kaplan -- Morgan Stanley & Co. LLC -- Analyst

Great. Thank you.

Operator

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

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

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

Philip Snow -- Chief Executive Officer

The way I'll answer that is, I think we feel good about the product offering that we have for the marketplace. We've done some good acquisitions. The integration of those acquisitions is 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. I think 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 pressure 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 we stated at Investor Day.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

Okay, and for Maurizio, what can you talk to about the $4 million of accelerated vesting? What was that all about?

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

The $4 million of accelerated vesting.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

To get back to the adjusted EPS. If you look through some of the numbers over there, there was accelerated vesting that --

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

[Crosstalk] So the $4 million you're talking about are the total charges in the back of the press release. It's $4.4 million, and the majority of that is the restructuring charge we took from that. More than half of it was restructuring.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

So, if I'm looking at the adjusted net income and other non-recurring items at $4.7 million that you're referring to?

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

Right. And the majority of --

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

[Crosstalk] You're saying that stock-based compensation acceleration is a minority part of that.

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

Correct.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

Can you disclose what the acceleration was about? Is that normal that we don't usually pay attention to it?

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

It's normal. It's part of our restructuring charge and it's something we've had in the past also, which is just part of the overall number.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

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

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

Correct.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

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

Operator

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

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Hi, everyone. I was looking at some of the new regs coming out of the SEC, specifically the new [audio cuts out] regs. It looks like investment managers are going to have report a significant amount of additional data around risk and portfolio concentration as well as position holding. You see that as any benefit, potentially, to FactSet or conversely would there be some additional costs that you need to expend to get to full functionality?

Philip Snow -- Chief Executive Officer

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. We have a very good product to solvency and the import is one that we're also very focused on. 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.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Got it. There has been some discussion about some of the tax provisions, that they're serving to claw back some of the corporate tax cut, especially for 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?

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

We will 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.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Okay. Thank you.

Operator

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

Alex Kramm -- UBS Investment Bank -- Analyst

Hello, everyone. Just a couple of things to follow-up on that were discussed earlier. On the restructuring program, maybe you can give a little bit more color on a couple of things. First of all, why now? Why did you feel like you needed to do something right now? Also, I think you guys generally are regarded as having best in class sales, so to do a restructuring at this time. Should I be worried about the sale effort and or you don't feel like it's going to inhibit growth in any way?

Philip Snow -- Chief Executive Officer

I wouldn't be worried about that. We were really just looking internally at some of our lower ROI investments and making sure we had our best resources focused on the highest return on investment opportunities for the company. A lot of what you saw was across all groups at FactSet. It wasn't like we were singling out sales by any means. It's really just an optimization. You will still see 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 sale side is, a couple of things that we've been doing is focusing on some of our larger accounts.

We 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. We're looking at our sales force and making sure we have a higher proportion of our investment going to the products like analytics and CTS that are growing faster. That's a big of an evolati8on, but we think over time it's really going to help out.

Alex Kramm -- UBS Investment Bank -- Analyst

Thank you. That's helpful. Coming back to the pipeline, just so I hear you correctly. Last year, in the fourth quarter, you did $32 million of organic sales. When you compare the pipeline to that now, how would you characterize it? I think you said the 3Q was going to align with last year. Would you say 4Q pipeline's going to align with what you saw last year or any incremental color would be great.

Philip Snow -- Chief Executive Officer

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

Alex Kramm -- UBS Investment Bank -- Analyst

Thank you.

Operator

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

William Warmington -- Wells Fargo & Company -- Analyst

Good morning, everyone. 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. 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 small and midsized wealth managers. So, what's your strategy for going down market? What's the timing of that likely to be?

Philip Snow -- Chief Executive Officer

When we did the acquisition of IBMS in Frankfurt, that opened up and brought a segment of the wealth market to us. The other thing that's opening up great opportunity for us is the FactSet web products. We've released a lot more product, 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. 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.

This is a segment we're very excited about and we wouldn't have broken it out separately if we didn't think it was something we could capitalize on moving forward.

William Warmington -- Wells Fargo & Company -- Analyst

On the FactSet Marketplace, the revenue model there -- specifically, whether it's incremental revenue from the client or whether that's included in the subscription. The value proposition for the data provider, and then what kind of initial uptake you've seen from clients?

Philip Snow -- Chief Executive Officer

Great question. 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 value 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 concurring data. That's one of our core competencies as a company. So, tying their data sets to our data sets and to other data sets -- that's a real pain point for clients. We're taking that pain point away, and why so many alternative data providers and data providers are interested in being part of the FactSet ecosystem.

Over time, you'll see that we'll get royalties from these alternative data providers as they put their data up onto the FactSet system. We have an enormously positive response from the market. There are lots 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's 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.

William Warmington -- Wells Fargo & Company -- Analyst

Okay. Thank you very much for the insight.

Operator

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

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

Hi, this is Greg calling on for Manav. I wanted to ask about the AI space. You've seen S&P make a pretty proactive move with Kensho, and even companies like Moody's have taken minority stakes. How are you thinking about investments in the AI space?

Philip Snow -- Chief Executive Officer

We do have a team here that focuses on machine learning and AI. Traditionally, they've been very focused on our content collection efforts. I think there is still a lot more we can do there to use machine learning to automate more of our content collection and get more data onto our system. And Gene Fernandez, who joined us back in November from JP Morgan 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. It's a work in progress, but something we are focused on.

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

That makes sense. 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? How should we think about that?

Philip Snow -- Chief Executive Officer

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

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

Fair enough. Thank you.

Operator

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

Peter Appert -- Piper Jaffray Companies -- Analyst

Thanks. Could you give us a number on the growth rates for the research PM business versus the new initiatives -- the private wealth CTS analytics?

Philip Snow -- Chief Executive Officer

I think at Invest Day we said that we would break out those numbers once a year. You can expect to get an update from us in Q4. But, as I already stated on the call, the growth rates have not changed materially from when we presented to you a few months ago.

Peter Appert -- Piper Jaffray Companies -- Analyst

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

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

There are going to be slight differences between the different offerings. There is so much of FactSet's expense that is shared to all of those different groups. 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.

Peter Appert -- Piper Jaffray Companies -- Analyst

Thank you.

Operator

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

Keith M. Housum -- Northcoast Research Holdings LLC -- Analyst

Good morning, guys. Phil, if I look back a second quarter transcript, I think you said the pipeline was the best its ever been. It sounds like the pipeline is good again this quarter. Is that period to close getting longer based on the market conditions? What gives you the confidence that a strong pipeline will be able to turn around close here in the fourth quarter?

Philip Snow -- Chief Executive Officer

I don't think anything's changed in Q2 in terms of the gross pipeline. 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 to enterprise solutions, particularly within analytics, there is a little bit of a longer sales cycle there for selling a multi asset class risk solution versus just going out and selling another FactSet with PA on top of it. It depends on the solution, but as we move to larger deals with our clients, the sales cycle for those things that are really going to impact the topline may be taking a bit longer.

Keith M. Housum -- Northcoast Research Holdings LLC -- Analyst

Appreciate it. Maurizio, coming back to the margins again. I apologize if you answered this already. In terms of the acquisitions and integrations, would you say the integration is proceeding as planned? Have there been any hiccups or not being able to capture the operating margins you were hoping for?

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

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

Keith M. Housum -- Northcoast Research Holdings LLC -- Analyst

Great. Thank you.

Operator

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

Philip Snow -- Chief Executive Officer

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

...

Operator

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

Duration: 47 minutes

Call participants:

Philip Snow -- Chief Executive Officer

Maurizio Nicolelli -- Senior Vice President & Chief Financial Officer

Rima Hyder --Vice President, Investor Relations

William Warmington -- Wells Fargo & Company -- Analyst

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

George Tong -- Goldman Sachs -- Analyst

Mike Reed -- Cantor Fitzgerald Research -- Analyst

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Company -- Analyst

Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst

Toni Kaplan -- Morgan Stanley & Co. LLC -- Analyst

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

Peter Appert -- Piper Jaffray Companies -- Analyst

David Chu -- Bank of America Merrill Lynch -- Analyst

Keith M. Housum -- Northcoast Research Holdings LLC -- Analyst

Alex Kramm -- UBS Investment Bank -- Analyst

Hamzah Mazari -- Macquarie Group -- Analyst

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