Ali van Nes:

Thank you, and good morning, everyone. Welcome to FactSet’s third fiscal quarter 2024 earnings call. Before we begin, the slides we referenced during this presentation can be found through the webcast on the investor relations section of our website at factset.com. A replay of today's call will be available on our website. After our prepared remarks, we will open the call to questions from investors. The call is scheduled to last for one hour. To be fair to everyone, please limit yourself to one question. You may re-enter the queue for additional follow-up questions, which we will take if time permits. Before we discuss our results, I encourage all listeners to review the legal notice on slide two, 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 Philip Snow, Chief Executive Officer; and Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer, for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thanks, Phil, and hello to everyone. As you've seen from our press release this morning, despite slower ASV growth in the third quarter, we improved margins and EPS, and we are increasing guidance on both of these for the fiscal year. I'll say more about that later. First, our results for this quarter. As Ali noted, our usual reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. For the third quarter, organic ASV grew 5%, while adjusted operating margin improved 340 basis points to 39.4% and adjusted diluted EPS rose 15% to $4.37. For the quarter, GAAP revenue increased 4% to $553 million on sales to institutional asset managers, asset owners, partners, and corporates. For our geographic segments, organic revenues grew by 5.5% in the Americas, 2.4% in EMEA, and 3% in Asia Pacific. Turning now to expenses, GAAP operating expenses decreased 2% year-over-year to $350 million. This was driven by lower compensation expense, mainly due to a reduction of $8 million to our annual bonus accrual, as well as a reduction in salary expenses and payroll taxes, partially offset by higher intangible amortization and cloud-related costs. Compared to the previous year GAAP operating margin increased by approximately 420 basis points to 36.6%. This was due to increased revenues combined with reduced operating expenses as a result of lower compensation expense. On an adjusted basis, operating expenses decreased 1.2%. And now looking at each of our four major cost buckets in turn. First, as we have frequently discussed, technology continues to be our main area of expense growth. Specifically, technology costs increased 26% year-over-year. Technology costs now represent about 9.5% of revenue. Secondly, in contrast, employee expenses fell 8.6% year-over-year, driven by lower compensation expenses due to earlier cost reduction efforts and the lower bonus accrual. Third, our third-party content costs increased by 9%, due to the timing of changes in variable fee expenses. And finally, real estate and related expenses saw a 14% decrease year-over-year as we saw the benefits of early and significant steps we took to reduce this expense bucket. As we've mentioned before, thoughtful expense management is positioning the company for future growth, while allowing us to continue to invest in technology and strategic initiatives. Turning now to margin, adjusted operating margin improved by 340 basis points to 39.4%. This was primarily due to an adjustment to the bonus accrual, a one-time payroll tax adjustment, and lower salary expense. The bonus accrual was reduced by about $8 million for the fiscal year, given our lower ASV achievement. This change added about 160 basis points to our adjusted operating margin in the quarter. Additionally, earlier cost rationalization efforts resulted in another 130 basis points of the 340 basis point adjusted operating margin improvement. And as always, you will find an expense block from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percentage of revenue, our cost of services declined by 90 basis points year-over-year on a GAAP basis. Cost of services was approximately 40 basis points lower on an adjusted basis. The decrease was primarily due to lower compensation expense, partially offset by an increase in intangible amortization and cloud-related costs. And in SG&A, as a percentage of revenue, it was 320 basis points lower year-over-year on a GAAP basis. SG&A was approximately 300 basis points lower on an adjusted basis. The decrease was primarily due to lower compensation expense, a reduction in bad debt expense, and lower facilities costs. Turning now to tax, our tax rate for the quarter was 17%, compared to last year's rate of 16.9%. This slight increase was primarily due to higher pre-tax income, partially offset by increased utilization of foreign tax credits and additional tax benefits from stock-based compensation. Turning now to EPS, GAAP EPS increased 18.2% to $4.09 this quarter versus $3.46 in the prior year period. This was driven by higher revenues, margin expansion, and a lower share count, partially offset by higher interest expense. On an adjusted basis, EPS increased 15.3% to $4.37, also driven by revenue growth and margin expansion, as well as reduced share count, partially offset by higher interest expense. EBITDA increased to $240 million, up 16.9% year-over-year due to higher net income. Free cash flow, which we define as cash generated from operations, less capital spending, was $217 million for the quarter, an increase of 13% over the same period last year. This was primarily driven by higher net cash from operating activities and reduced spending on property, equipment, and leasehold improvements. FactSet continues to be a strong producer of free cash flow. And turning now to share repurchases for the quarter, we repurchased 135,150 shares for approximately $60 million and an average share price of $442.12. Our fiscal 2024 share repurchase plan targets $250 million of repurchases. As of May 31, 2024, we had $128.1 million remaining for repurchases in fiscal 2024. Also, yesterday we paid a quarterly dividend of $1.04 per share, which represented a 6% increase in the regular quarterly dividend from the previous quarter. This marks the 25th consecutive year we have increased dividends on a stock split adjusted basis. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. Combining our dividends and share repurchases, we returned $430.1 million to our shareholders over the last 12 months. And during the third quarter, we paid down $62.5 million of our term loan, which brings our gross leverage down to 1.7 times. This is consistent with our plan to repay the term loan in full by the second quarter of fiscal 2025. As Phil mentioned earlier, given the delayed recovery in our end markets, we are now guiding to incremental organic ASV plus professional services growth of $85 million to $120 million for the fiscal year, reflecting 4.8% growth at the midpoint, down from our recent guide to approximately 5%. Revenues are now expected to be in the range of $2.18 billion to $2.19 billion for the year. On the other hand, our expectations for margin and EPS growth for the year have gone up. Specifically, GAAP operating margin is expected to be in the range of 33.7% to 34%, up approximately 100 basis points from prior guidance. And adjusted operating margin is expected to be in the range of 37% to 37.5%, up 70 to 80 basis points from prior guidance. Adjusted EPS is now expected to be $0.40 higher than prior guidance in the range of $16 to $16.40. The effective tax rate guidance remains unchanged in the range of 16.5% to 17.5%. In closing, we continue to manage our cost base carefully so that we can deliver value to our shareholders, while maintaining investment in gen AI and other strategic initiatives. We believe that we are well positioned for growth as the markets pick up. We're now ready for your questions. Operator?

Toni Kaplan:

Terrific. Thank you so much. I wanted to ask regarding ASV, the guidance seemed pretty wide in terms of the range. Are there sort of a wide range of array of outcomes that could happen? I think the midpoint sort of assumes that things maybe stay -- are flat sequentially and so therefore that would maybe be a little bit better than the last few quarters. So just want to get a sense of, you know, you talked about the challenging environment, like any green shoots there, and how we should be thinking about that? Thanks.

Helen Shan:

Yes, no, I think as Phil had mentioned, we had some very good wins earlier in Q3. And so when we take a look at Q4, we've also had a number of deals that have longer decision cycles and that's moved us a bit as well. But if I look at the weighted pipeline for Q4, it's in line with last year and we've been able to sell at the same pace. It's really the end market that's been impacting us from an erosion perspective and cost decisions. So that's why we've gone for a wider range to allow for that, but we're very confident right now at this point that we've de-risked it.

Helen Shan:

Welcome.

Alex Kramm:

Yes, hey, hello everyone. Phil, you talked about, I think three areas of investments here that you're excited about or that you're focused on, rather. If I go back a few years ago, I think we found ourselves in the same kind of situation. Growth had come down maybe from the environment and you felt like you needed to spend a little bit more to get the growth going again. So when you talk about these investments, if I think about the next couple of years, do you think the company needs another, kind of, boost of investments or do you think you can do all this in the current kind of cost base that you have in front of you? Thanks.

Alex Kramm:

Fair enough. Thank you.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Kelsey Zhu of Autonomous. Your line is now open.

Philip Snow:

Well, thanks, Kelsey. So I think we certainly are seeing more activity on the M&A front with the bankers. I think we're seeing a little bit better hiring than we did. Helen might have some more comments on this. And I think if you look at the trends historically as banking fees go up, historically banking hiring has followed that and then historically FactSet’s ASV on the sell side follows that. So if historical trends remain true, no guarantees, you know, I think there are some reasons to be optimistic there.

Kelsey Zhu:

Thank you.

Manav Patnaik:

Thank you. Good morning. I guess I just had a little bit of a run rate question and kind of a two part. One, on the top line, is the UBS CS impact now fully in the run rate? Or do you anticipate more impact? And then just specific to expenses as well, you know, all the headcount efforts and stuff you've made thus far. Is that -- is there more to flow through just trying to appreciate, you know, the dynamics on those two?

Linda Huber:

Yes, and Manav looking at the margin improvement, I want to try to go through the detail of this so everyone understands what's one-time and what continues. So the total good guys on the margin improvement side and this is adjusted operating margin. We're about 540 basis points and then the negatives were about 200 basis points. So let me go through these. The lower bonus accrual of $8 million to get our annual bonus accrual in line contributed about 160 basis points to the good for third quarter and that will not be repeated. In other words, we had to do that adjustment. Lower salaries added about 130 basis points and that will continue. Lower payroll taxes added about 120 and that's a one-time thing. That's based on the CARES Act. It's a refundable tax credit for keeping people on payroll during COVID. Lower facilities expenses added 60 basis points that will continue. Higher capitalization added 40, which will also continue and lower stock-based comp amortization added 20 if that one is caught up and will not continue. So out of the 540 basis points about 280 are one-timers. And then on the negative side We had higher technology costs for 170 basis points and higher third-party data and other expenses for 30 basis points. So 340 basis points overall improvement. And on the good guy's side, about half of that will continue as we move through the year. Hope that helps.

Operator:

Thank you. One moment for our next question. Our next question comes from a line of Faiza Alwy of Deutsche Bank. Your line is now open.

Philip Snow:

Yeah, thanks, Faiza. So on the institutional buy side, I would say we have two key competitors there. And the name of the game is really total cost of ownership. So we feel very well positioned with the portfolio analytics that we have on FactSet, but even better position now that we have invested in our front office tools. So I mentioned that we launched PM Hub, which really connects very nicely the middle office solutions that we have with the front office. So I feel really good about our competitive position on the buy side and those firms really are I think feeling the most cost pressure and the ones taking costs out. So I think the firms that have portfolio analytics solutions are the ones that have the right to compete on the buyer side. And I think we're in good shape there. In wealth, similarly, we have the portfolios on the system. We've done an amazing job with our wealth advisor product and advisor dashboard. And you heard me talk about another workflow today, which is sort of the CRM workflow. So we're really focused very heavily now on building out additional workflows for the wealth space, but we couldn't feel better positioned in the wealth space. I think within banking, private equity, corporates, the hedge funds, that space admittedly is getting a bit more crowded. So there's lots of us in there with fundamental analyst products. I think the work we've done with deep sector, with private markets, the tools that we're building with generative AI, all of those I think give us a very nice position there on the competitive front.

Faiza Alwy:

Thank you.

Surinder Thind:

Thank you. A question about gen AI and just the integration of the tools and the feature set. As clients begin to adopt more and use more, how does that impact the technology costs for you guys? Any code that would be helpful?

Surinder Thind:

Thank you.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Ashish Sabadra of RBC. Your line is now open.

Helen Shan:

Sure. Hi, this is Helen. Let me address the first part, and then I'll turn this to Linda. As it relates to the Credit Suisse and UBS merger, what we are talking about is on a net basis. So -- we were able to capture some of the cancellation back in selling to UBS. So that's a positive from our perspective.

Ashish Sabadra:

Sorry, I was wondering if you could comment on the fourth quarter as well. That was helpful color on the third quarter.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of George Tong of Goldman Sachs. Please proceed with your question.

Helen Shan:

Sure. Hey George, it's Helen. Let me try to answer. I'll do the pricing one first. So the international pricing increased, you're right, we do it every year in Q3. It was 16 versus 16.8 last year. So you can see that we were able to capture pretty much the same as last year. And that reflects an increase in the number of clients that we're able to capture. So we feel very good about that. And it's in line with our expectations. So we believe our pricing realization and value that we're giving clients remain the same. When we think about the Q4, the reason that we moved some of this as we think about the pipeline is that we are seeing deals continue to move, especially on the analytics the buy side in particular. So they're not falling out is a term that we use. So they're not lost. But since they've moved a number of quarters, because the larger the deals until clients have greater certainty about the end markets, and sometimes our own bandwidth, quite frankly, is more constrained. We're seeing that continue to move. So that's part of the reason. And I do want to make one point again, which I made earlier. If we look at what we expect for the year, the underlying demand for our products remains steady. On a gross basis, we are in line with last year. So we're selling as much as we were last year. So it's not a demand problem. But that being said, we have had a number of onetime cancels that we've talked about. So the impact has been on higher erosion, which we believe is in part obviously driven by market.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Andrew Nicholas of William Blair. Your line is now open.

Philip Snow:

Yes. Thanks, Andrew. Great question. So as you could expect, like many firms, we've been looking at this, and I think there are good opportunities for efficiency and client service, quality assurance, content collection, even just engineer -- just code editing, code writing, so we're evaluating that closely. I think we will get efficiencies. The real question is, do we reinvest those in products sort of going back to Alex's earlier question. So there certainly will be efficiencies that we'll get. We're seeing that -- it's just a question of what we choose to do with that in the end.

Shlomo Rosenbaum:

Hi. Thank you for taking my question here. I wanted to ask a little bit just to clarify first on the questions that were asked before in terms of like CS and UBS, the fourth quarter guidance implies a down quarter in revenue, which is notable. I don't think we've seen this in about five years on a sequential basis. And want to know if you were to exclude what's going on with the UBS CS license is going away, would you show growth sequentially in revenue if were to kind of normalize for that? I'm trying to understand if that's -- if there's an environment thing or you're being overly burdened by that. And then just in general, there's been a slowdown in revenue growth and Linda I've asked you this before, but you've pulled a lot of levers in terms of expenses, and we're continuing to see the environment kind of meander around. And what left on the board for you in terms of if we don't see kind of a pickup. We're kind of hoping to see a little bit more, I think, from some green shoots that we noted last quarter. But if those don't materialize soon, what other levers would you pull.

Linda Huber:

So Shlomo, thank you for recognizing that despite the meandering market, which is a good adjective for it. We like that. We have been focused [Technical Difficulty]

Operator:

Thank you. One moment for our next question.

Operator:

Okay.

Operator:

Thank you. Our next question comes from the line of Craig Huber of Huber Research Partners. Your line is now open.

Philip Snow:

It's hard to predict that, Craig, I'll start, and I think Helen may have some comments here. I think for a lot of companies 2024 was sort of positioned as the year of cost cuts. So I think a lot of budgets were kind of set late last year and a lot of firms in a lot of industries, including ours, people were taking out costs. It does feel that things are getting more constructive with the clients and my conversations with salespeople and clients. It feels like those projects that were paused are beginning to come back to life. But I'm not sure I would bank on that any sort of -- real sort of tailwinds from the end markets until potentially next calendar year? I think what we're observing now, I kind of would handicap continuing through the end of the calendar year. Helen?

Craig Huber:

Linda, could you just quickly give us a housekeeping question I have for you here. Just your bonus accruals, what was it each of the first three quarters this year? I think it was $24 million to $25 million quarterly last year. What was it the first three quarters this year? Sorry for the housekeeping question. Thank you.

Craig Huber:

Yes, that's great thank you guys.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Russell Quelch of Redburn. Your line is now open.

Philip Snow:

Yes. Thanks, Russell. So yes, we've not been shy about talking about this. And we have been investing steadily since 2019 in private markets. We've built out, I believe, our coverage from around $4 million to $8 million or $9 million. So we've doubled that. The quality is getting higher. We acquired Cobalt, which you'll remember. And we're just continuing to work with a lot of partners in the ecosystem. So I think this is an important area. Private credit, obviously, is important and something that we're taking a look at. And obviously, we can't comment on any transactions that may or may not be out there right now.

Philip Snow:

You're welcome.

Heather Balsky:

Hi. Thank you so much. I want to first ask with regards to ASV growth, if you could provide some color in terms of what you're seeing with regards to price versus volume right now and how that tracks versus, I guess, what you expected in the year. And then the other question, bigger picture, and I realized you just talked about kind of potentially the malaise we're seeing persist until the end of the year. I know this has been a really tough environment to kind of get visibility, but when you think about the recovery, based on what you've been seeing, how do you think things recover? Or do you think we can have a V-shape recovery -- do you -- do you get the sense that your clients are going to move very gradually, just given all the uncertainty in pad? Just any insight you have?

Philip Snow:

I do want to kind of add on and point out that it's up to us to make our own tailwinds here. So regardless of the end markets, we have a $28 billion total addressable market, the way it's been defined historically. Eight of that is beginning to open up to us now with the feed products that we're creating. And then to build on what Helen just said, I think is firms look to outsource more from a technology and even managed services standpoint, I think that addressable market grows. So there's no shortage, honestly, of addressable market. And I think the companies that are positioned well moving into this can create some of their own tailwinds despite what the market is giving us.

Philip Snow:

You're welcome.

Unidentified Analyst:

This is Guru on for Owen and thank you so much for taking my questions. I wanted to ask about the deep sector offering. I think the last major update was back in Q1 when it helped displace a competitor in banking. So any updates here? Because this really seems like it could be a solid driver give behind AI. So any updates or insights over here?

Unidentified Analyst:

Got it. Thanks a lot.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Scott Wurtzel of Wolfe Research. Your line is now open.

Philip Snow:

I think it's the healthiest one for us, honestly, Scott, thanks for the question. So we have a very active pipeline there of deals of various sizes. And we're beginning to build out some interesting workflows beyond sort of what we've been providing over the last few years. And with the introduction of some of these AI tools, I think we're in very good shape. So I'm very optimistic about wealth and our ability to accelerate from here.

Philip Snow:

Summary, we believe we are well positioned in terms of both our strategy and product portfolio to capitalize on the ongoing megatrends in our industry and for when the end markets become more constructive. Thank you all for your great questions today. We'll see you all in September. Operator, this ends today's call.

Ali van Nes:

Thank you, and good morning, everyone. Welcome to FactSet's second fiscal quarter 2024 earnings call. Before we begin, the slides we reference during this presentation can be found through the webcast on the Investor Relations section of our website at factset.com. A replay of today's call will be available on our website. After our prepared remarks, we will open the call to questions from investors. The call is scheduled to last for one hour. To be fair to everyone, please limit yourself to one question. You may reenter the queue for additional follow-up questions, which we will take if time permits. Before we discuss our results, I encourage all listeners to review the legal notice on slide two, 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, reconciliations 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 Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer, for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thanks, Phil, and hello to everyone. As you've seen from our press release this morning, despite slower ASV growth, we improved margins and EPS in the second quarter. Second quarter organic ASV grew 5.4% while adjusted operating margin improved 130 basis points to 38.3% and adjusted diluted EPS rose 11% to $4.22. I'll now share some additional details on our fiscal second quarter performance. As Ali noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. For the quarter, GAAP revenue increased 6% to $546 million on sales to asset owners, corporates, hedge funds, and private equity and venture capital clients. For our geographic segments, organic revenues grew by 6.5% in the Americas, 4.8% in EMEA, and 6.4% in Asia Pacific. Turning now to expenses. GAAP operating expenses increased 5% year-over-year to $364 million. This was driven by higher employee expense, net of $7 million decrease to our bonus accrual, as well as by increased intangible asset amortization. Compared to the previous year, GAAP operating margin increased by nearly 50 basis points to 33%. This was due to increased revenues, partially offset by higher personnel expenses, including an approximately $11 million restructuring charge. On an adjusted basis, operating expenses grew 4%. Looking at each of our four major cost buckets in turn, as we've frequently discussed, technology continues to be our main area of expense growth. Specifically, technology costs increased 11% year-over-year. Technology costs now represent about 8.4% of revenue, consistent with our medium-term outlook. In contrast, employee expenses grew only 1% year-over-year, driven by increased compensation expenses, partially offset by the lower bonus accrual. This small increase reflects some of the cost reduction efforts we took during the second quarter. Next, our third-party content costs increased 3% due to higher variable fee expenses. And finally, real estate expenses saw an 8% decrease year-over-year as we took early and significant steps to reduce this expense bucket. We believe we have now rightsized our real estate footprint. As we have mentioned before, thoughtful expense management is positioning the company for future growth while allowing us to continue to invest in technology and strategic initiatives. Turning now to margin. Adjusted operating margin improved by 130 basis points to 38.3%. This was due to lower personnel expenses, given the lower bonus accrual and higher capitalization benefit, partially offset by higher technology expenses and higher bad debt expense. As always, you'll find an expense block from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percentage of revenue, our cost of services was flat year-over-year on a GAAP basis and about 90 points lower on an adjusted basis. And SG&A as a percentage of revenue was 40 basis points lower year-over-year on a GAAP basis. The decrease was due to revenues outpacing the increase in SG&A expenses and lower compensation costs, partially offset by an increase in bad debt expense. SG&A was about 40 basis points lower on an adjusted basis. Turning now to tax. Our tax rate for the quarter was 16.4% compared to last year's rate of 16.1%. This increase was due to higher taxable income, offset by higher stock option exercises and higher foreign credits, which reduced the tax rate. Turning now to EPS. GAAP EPS increased 8% to $3.65 this quarter versus $3.38 in the prior year period. This was driven by higher revenues and margin expansion, partly offset by a higher tax rate. On an adjusted basis, EPS increased 11.1% to $4.22, also driven by revenue growth and margin expansion, partially offset by a higher tax rate. Adjusted EBITDA increased $218 million, up 9.2% year-over-year due to higher net income, driven primarily by an increase in operating income, excluding the impact of depreciation and amortization and the impact of non-recurring non-cash expenses. Free cash flow, which we define as cash generated from operations less capital spending, was $122 million for the quarter, a decrease of 17% over the same period last year. This was due to the timing of remitted payroll taxes related to employee stock compensation and higher income taxes payable, which are seasonally higher in the second quarter. Turning to share repurchases. For the quarter, we repurchased 113,050 shares for $52.3 million at an average share price of $462.23. Our fiscal 2024 share repurchase plan targets $250 million of repurchases. We have $188 million remaining for repurchases in the second-half of fiscal 2024. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. Combining our dividends and share repurchases, we returned $434.1 million to our shareholders over the last 12-months. And regarding leverage, during the second quarter, we paid down $62.5 million of our outstanding term loan, which brings our gross leverage down to 1.8 times. This is consistent with our plan to repay that term loan in full by the second quarter of fiscal 2025. Finally, as Phil mentioned, we've carefully managed our cost base while continuing to invest in GenAI and other strategic initiatives. We believe that we are well positioned for growth as the markets pick up. We are now ready for your questions. Operator?

Faiza Alwy:

Yes, hi. Good morning. So I wanted to talk a little bit about the pipeline and what you're seeing from here. Phil, I think you said that industry cost cutting appears to be stabilizing, and you're seeing some pockets of recovery. So maybe just start there and give us a sense of what you're hearing from your clients?

Helen Shan:

Sure. Thanks for your question. Yes, we're seeing sort of a health -- we are seeing a healthier pipeline in H2 versus H1. We're seeing higher deal volume. I would say that the pipeline is more along the lines of last year, if not a little bit stronger. The makeup is about half of it is coming from buy side, 20% in the dealmakers or banking, 20% wealth and the rest in partnerships. So we're seeing the pipeline accelerate since the beginning of the calendar year, really the strength in data solutions, in the middle office and in Quant Solutions. But as Phil was just saying, timing on decisions is a little bit difficult to gauge. And more of our pipeline, I would say, are in the later stages of the funnel, which gives us more confidence, but many of them are really more into the fourth quarter.

Operator:

One moment for our next question.

Operator:

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

Philip Snow:

Sure, Manav. Thanks for the question. You're right. It is a much smaller piece of our business, and we're really stressing sort of the subscription part of FactSet. I think that's who we are as a company and how we continue. But what we have observed is as we've become more of an enterprise solution for clients, and we're delivering more mission-critical services for them, particularly with analytics and off-platform that you need sort of another level there to sort of help the clients. So we do think that there's a good opportunity for clients to outsource solutions to FactSet and leave it up to us to do what we do best. And a good example of that was last -- at the end of last year, we had that very large outsourced performance deal with one of our clients, where we really invested heavily in this group to build that out. And I think we're seeing continued momentum and interest in this. So it's a piece of our business that we think is necessary. You're right, it is typically, I think, a lower-margin business. But we think overall, combined with the solutions that we're including with it, which is the main part of the sale, that it's a good opportunity for us.

Kelsey Zhu:

Hi, good morning. Thanks for taking my question. I was wondering if you can share a little bit more color on how much pricing, cross-selling and new logo drove Q2 ASP growth, and how much do you expect them to drive growth for the full-year?

Operator:

Thank you. One moment for our next question. Our next question comes from Heather Balsky with Bank of America. Your line is open.

Linda Huber:

Thank you, Heather. It's Linda. We had talked about how our expenses tend to ramp up as we move through the calendar year. So I think it's fair to say that margins we've been fortunate enough to put up in Q1 and Q2 will decrease a bit as we move through the back half of the year. So we did adjusted operating margin of 37.6% in Q1 and 38.3% in Q2. So I think it would be fair to expect arithmetically something closer to 35% for the back half of the year to get us to the midpoint of our guidance of 36.5%. And again, it is our intention to hit the midpoint of that guidance on adjusted operating margin despite a slightly softer top line. So you should expect a little bit of the technology cost to continue to move up as we go through the year. And of course, we've taken some actions to ensure that we have the appropriate headcount and appropriate location for our employees going forward. So we think we're in a good place, and we are prepared to deal with the cost base so that it works for the lower end of the revenue range. So we've got all that in the mix and so a little bit lower in the back half of the year. Thanks.

Alex Kramm:

Yes, hello everyone. Phil, would love to come back to some of the commentary you made for the third quarter and fourth quarter outlook. It sounds like third quarter, you said fairly soft relative to last year. So maybe you can just flush out if that's, again, lower pricing expectations or just lower net sales. And then on the fourth quarter, you sound pretty optimistic. So maybe you can just back that up a little bit, because I think you made a comment that hiring was actually an area that's still pretty soft from what you can see, and I think the fourth quarter is very dependent on hiring. So it maybe flushes out, maybe you just have a great pipeline of non-hiring-related 4Q expectations. So a little bit more color would be great.

Helen Shan:

Yes. No, that's exactly right. Thanks for your question, Alex. As I mentioned, we do have a healthy H2 pipeline. Phil focused on the seven-figure deals. I focus on six and seven-figure deals. So that's up year-over-year, I'd say, almost sort of 5% in terms of total numbers. So I think that gives us some greater visibility and confidence. And because of these total -- these TCO conversations, a lot of the pipeline is focused on competitive displacements, which has been strong for us. So the ability for us to convert those will be important. The strength of the markets, both capital markets and flow of deals are important as you know, especially as it relates to banking and wealth. For right now, we're just -- we're not assuming that banking is all of a sudden going to pop up with sort of flat to last year, although we'll know more, as you know, in the Q3 and Q4.

Andrew Nicholas:

Hi. Good morning. I wanted to ask about budgets and maybe cyclical sensitivity from like a business line or maybe even product-type perspective. It sounds like you've seen some stabilization. There's some pockets of recovery. But I'm just curious, are clients maybe more apt to push off platform or workstation purchases or decisions than they are on the data side or on the middle office side? Just curious if there's a difference in the way that people are prioritizing their budgets and their spend at that level or from that perspective?

Operator:

Thank you. One moment for our next question. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Helen Shan:

Yes. No, thank you, Toni. So yes, I would say a couple of things. The type of total cost of ownership conversations is definitely higher. We've had a lot of C-suite conversations, which I would say is probably more than we've had in the past. And the need to find, I'll say, new alternatives is on top of clients' minds. So I'd say yes to that. As it relates to the pricing, as mentioned on new business, we're seeing greater pressure there. Is pricing overall coming down? I would say it depends on the firm type of large deals. I think you're seeing more of that leverage coming through. But so far, our price realization has been flat to last year.

Operator:

Thank you. One moment for our next question. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Helen Shan:

Sure. Owen, I'll touch a bit on that. So I think there's a couple of things that we've taken into account. Yes, we do have a very strong pipeline, as mentioned. That being said, we also have the impact of the CS-UBS merger. We talked a little bit about that on our last call. Timing of that, of course, is not in our -- we don't control that. So that's being reflected in our lower end of the guidance. We also had the large wealth -- cancel that Phil just mentioned there. That is a one-off, but that also plays into our view as well. And we are a little more conservative in how we're looking at the environment. I'll let Linda talk about the capital markets piece, but we don't try to build in a bounce back into our numbers.

Operator:

Thanks. One moment for our next question. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Helen Shan:

Sure. This is Helen. So yes, I think a lot of our client count growth is driven by new business. So I think you're seeing a bit of that take place right now as you're seeing that come down. But I don't think there's anything in particular that we're looking at. Typically, that's driven by corporates and wealth. This quarter, we actually saw some good growth in partners, which is a little bit more on the fintech side. So I don't -- we're not looking at the client count as something that -- to be focused on necessarily.

Craig Huber:

Thank you. Linda, I want to go back to the question on the ramp for cost if we could in the back half of the year. It seems to me just looking at your guidance here, your revenue guidance, your operating profit guidance for the year that it's gutted you up quite significantly your cost in the back half of the year by roughly $60 million over the six months versus the first-half of the year and stuff? And if I got that math right, why is that? I mean obviously, in recent years, your fourth quarter has ticked up the cost versus what you reported in the second quarter. But prior to the last two years, that was not necessarily the case. So I just want to hear a little bit more color on that, please. Do I have that right, you are expecting cost up significantly in the second-half versus the first-half, which does seem a little strange to me. One more thing if I could add because you have had a pretty large restructuring charge in the second quarter, one of the larger ones you've had in recent years. That should help the cost of anything, obviously. So any thoughts, I'd appreciate. Thank you.

Operator:

Thank you. One moment for our next question. Our next question comes from Russell Quelch with Redburn Atlantic. Your line is open.

Philip Snow:

Russell, it's Phil, and I'll start and I'm sure Linda has some additional comments. So yes, we've been talking about three areas there where we've been focused. So as you can imagine, there's a lot of developers at FactSet. So they are currently being armed with tools that look very good in terms of being able to increase the efficiency of producing code. The question is like how do we apply that? Do we apply it to more product? Or do we apply it in other ways? So I think we're getting a good handle on what those efficiency gains could be and which parts of our tech stack and product it makes sense to apply them. We're also looking at content collection. But as you mentioned, we have quite a large number of our employees in low-cost locations. So we've done a lot to automate workflows for content collection over the years. This adds, I think, some more juice to that even. So there's some good opportunity there. Although the people of costs there are much lower, so the efficiency gains may not be as high as they are with engineering, for example. And then there's a big opportunity for us in terms of just supporting clients. So FactSet is a very good tool. Some people use it in different ways. Some people use it in a programmatic way. So there's a lot of coding that's involved if you really want to customize your workflow. So I think it can really help both clients and people that support those clients internally. So those are three of the bigger buckets. We do see opportunity. And we're going to be looking very hard at how we can apply that in our rolling three-year plan. So we're just beginning our efforts there to think about a budget for next year and the following years, and this will certainly be part of that equation.

Operator:

Thank you. One moment for our next question. Our next question comes from Keith Housum with Northcoast Research. Your line is open.

Linda Huber:

Yes, great question. We are -- we've added some automation to our time tracking, which has helped us be more accurate. And I think for the year, we're looking somewhere between $80 million and $85 million, which is better than we did last year. I don't have that number right at hand, but it has grown. So you're going to see some more coming through in terms of that capitalization. It probably has not peaked out quite yet. But we feel pretty good about what we're doing there and that it's very helpful to everyone involved that we spread these costs generally over three years would be the normal situation there. So pretty much right down the middle of the road in terms of how you would think about the time period over which we spread those costs. So I think that should help you a little bit. As we move forward, we'll probably look at that capitalization percent of revenues kind of moving up to 3% to 4% of revenues. I think we have previously said sort of 2.5% to 3%. But again, with automated tools, we are doing a better job of tracking the cost of building software and then moving that through in a capitalized manner.

George Tong:

Hi, thanks. Good morning. You mentioned earlier that price realization against your rate card is about flat versus last year, and that price realization in new business is a bit lower, reflecting a more competitive environment. Can you talk a little bit about where you're seeing the most competition come from? And how would you describe pricing trends among your competitors?

Operator:

Thank you. One moment for our next question. Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo, your line is open.

Linda Huber:

Yes. Shlomo, it's a great question and one that we discussed with our Board of Directors earlier this week. I think we've done a pretty good job on all the cost buckets. You're right, we wanted to plan to take these charges at midyear. So we adjust our expense rate in some areas down as we go through the rest of the year. So over the past few years, unfortunately, we've had to take three sort of different rounds of personnel actions, and we want very much for those to be done. We consider those to be done with the possible exception of a huge geopolitical event that we haven't planned. So we want to think that we have the cost cuts well in hand. And I think what we're looking for as we move into FY '25 is we have to look at closer to flat personnel growth. So we're going to try to ensure that we've got that model right. I think we've got our offshore balance about correct, which is about 68% right now. But we did want to get the expenses right for the rest of the year in keeping with the lower end of the range on the top line so everything comes out well. From here, I think we're in a pretty good place. I think we've done what we need to do. And we're hoping that are we there yet that we do get there soon enough that we can see some help from the top line. But we've got the costs well in hand, and I think we've thought it through and executed pretty well. So thank you for that, Shlomo. That's great.

Philip Snow:

Thanks, operator. So in closing, while results this quarter were mixed, actions taken this quarter position us well to capitalize on market shifts. Our focus at FactSet is on innovating for our clients' long-term efficiency, and that's the reason we really remain an anchor partner for them. And I'm confident in our ability to execute on the opportunities we talked about in the pipeline for the second-half. Operator, that ends today's call.

Ali van Nes:

Thank you and good morning everyone. Welcome to FactSet’s first fiscal quarter 2024 earnings call. Before we begin, the slides we referenced during this presentation can be found through the webcast on the investor relations section of our website at factset.com and are currently available on our website. 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. The call is scheduled to last for one hour. To be fair to everyone, please limit yourself to one question. You may re-enter the queue for additional follow-up questions, which we will take if time permits. Before we discuss our results, I encourage all listeners to review the legal notice on slide two, 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 discussion of risk factors that could cause actual results to differ materially from those forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations 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 Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer, and Kristi Karnovsky, Chief Product Officer for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thanks, Phil, and hello to everyone. As you've seen from our press release this morning, Q1 organic ASV and revenue growth exceeded 7%. I will now share additional details on our fiscal first quarter performance. As Ali noted, a reconciliation of our adjusted metrics, compared to GAAP is included at the end of our press release. First, a few observations on macro conditions. Last Wednesday, the Federal Reserve decided to hold rates constant and signaled three quarter point rate cuts next year. Inflation has eased, but remains higher than the Fed's 2% target. Equities rallied on the news as rates fell across the yield curve. While this news was helpful, it will take time for capital markets and deal activity to pick up. As Phil mentioned, we expect that market recovery will come later than we anticipated in our September fiscal year 2024 guidance. For the quarter, GAAP revenue increased 7% to $542 million. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12-months and foreign exchange movements, increased 7% to $541 million, due to higher wealth sales and increased sales of data. For our geographic segments, organic revenues grew by 8% in the Americas, almost 6% in EMEA and 8% in Asia Pacific. Turning now to expenses, GAAP operating expenses increased 6% year-over-year to $353 million, driven by higher employee expense, technology costs, and royalties. Compared to the previous year, GAAP operating margin increased by approximately 80 basis points to 35%. This was due to a decrease in professional fees, personnel and facilities costs, partially offset by higher technology-related expenses. On an adjusted basis, operating expenses grew 9%, primarily driven by technology expense, which increased 28% year-over-year. We've continued to invest in technology to drive growth with technology costs now representing about 9% of revenue consistent with our medium-term outlook. Employee expense grew 8% year-over-year primarily due to increased salaries for existing employees. Third-party data content costs increased 12%, due to lapping a one-time accrual release in the first quarter of fiscal 2023, as well as higher variable fee expenses. Finally, our continued efforts to right-size our real estate footprint resulted in a 1% decrease in year-over-year facilities expenses. Looking at margin, adjusted operating margin decreased by 70 basis points to 37.6%, driven by the previously mentioned higher technology expenses partially offset by lower facilities, professional services, and T&E expenses. As always, you'll find an expense walk from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percent of revenue, our cost of services was about 140 basis points higher than last year on a GAAP basis and about 220 basis points higher on an adjusted basis, largely due to technology and personnel costs. And SG&A as a percentage of revenue was 230 basis points lower year-over-year on a GAAP basis and about 150 basis points lower on an adjusted basis. This was due to decreases in professional fees, facilities expenses, and personnel expenses. Turning now to tax, our tax rate for the quarter was 15.2%, compared to last year's rate of 13.4%. This increase was primarily due to lower benefits related to stock option exercises and restricted stock vesting. The remainder of the increase was due to higher pre-tax income and a higher foreign tax rate, partially offset by foreign tax credits. Turning now to EPS, GAAP EPS increased 9.1% to $3.84 this quarter versus $3.52 in the prior year. This was driven by higher revenue and margin expansion, partially offset by a higher tax rate. On an adjusted basis, EPS increased 3.3% to $4.12, driven by revenue growth, partially offset by margin compression and a higher tax rate. EBITDA increased $219 million, up 9.3% year-over-year, due to higher net income and higher income tax add-backs. And finally, free cash flow, which we define as cash generated from operations, less capital spending was $139 million for the quarter, an increase of 56% over the same period last year. This was driven by significant higher net cash from operating activities, which was nearly $50 million greater year-over-year due to higher cash collections. Turning to share repurchases for the quarter, we repurchased 135,950 shares for $59.9 million at an average price of $440.67. We intend to continue our share repurchases during fiscal 2024 with a target of $250 million of purchases spread ratably throughout the year. We remained disciplined in our buyback program and committed to returning long-term value to our shareholders. Combining our dividends and share repurchases, we returned $378.6 million to our shareholders over the last 12-months. As a reminder, we also increased our dividend by 10% to $0.98 per share in the third quarter of fiscal 2023. And finally, turning to our revised guidance for fiscal 2024, as Phil mentioned earlier, we expect that the market recovery will happen later in the year than anticipated when we first gave guidance for fiscal 2024. Given this revised view, we are guiding to incremental organic ASV plus professional services growth of $110 million to $150 million, reflecting 6% growth at the midpoint, down from our original 7% growth guidance. Given the headwinds in ASV and the lag timing of ASV in the first-half of the fiscal year, we are lowering our expected revenue range to $2.2 billion to $2.21 billion. At the midpoint, revenue growth is also expected to be approximately 6%, a deceleration of about 75 basis points from our previously issued guidance. We've reduced our GAAP operating margin guidance to 32.5% to 33%, which is down from 33.1% to 33.5%. However, it should be noted that we have not changed our adjusted operating margin guidance of 36.3% to 36.7%. At the midpoint, this provides 30 basis points of continued margin expansion. While we have already met our adjusted operating margin medium term outlook of 36%, we are committed to balancing continued sustainable margin expansion with investments to drive top-line growth. It is also worth noting that our effective tax rate guidance has been reduced by 50 basis points to 16.5% to 17.5%. And finally, adjusted EPS is expected to range from $15.60 to $16, which represents 7.8% growth at the midpoint and a $0.10 reduction from guidance at the midpoint. As Phil mentioned, we continued to execute disciplined expense management to support strategic investment to grow our top line. Accordingly, we expect to take a $10 million to $15 million charge in the second quarter of fiscal 2024. Focus areas for expense reduction include both variable and personnel related costs. Despite the uncertain environment, we remain confident in our long-term growth. We have a diverse pipeline and are seeing improved price realization and increased interest in our products. In addition, our enterprise contracts and diverse end markets provide us with downside protection in an uncertain market. As a result, we are confident that we are positioned well for the future. We are now ready for your questions. Operator?

Seth Weber:

Hi, good morning. Thank you. I guess I just wanted to ask, get a little bit more clarity on the updated outlook. Can you just talk about whether deals are falling out of the pipeline? Are deal sizes getting smaller? Any pressure on the pricing side? Or do you really feel like this is all just kind of getting pushed to the right just while your customers try to navigate the macro environment? Thank you.

Helen Shan:

Yes, and maybe I can add a little bit to that. Thanks for the question. So as Phil just said, I do think that the continued demand for our middle office offerings and data and middle office services has really been strong and similarly for data feeds. Right now the total cost of ownership has been the differentiator for us, but there are the exogenous events that are impacting budgets and timing and hiring. So what changed from 90-days ago? Let me try to break that down a bit for you. I would look at around 40 basis points coming from the impact from pricing pressures and lower price realization. We definitely see that being a part of the dynamic that's playing out. We're seeing some impact from higher erosion. That's about 30-some basis points and then 25 basis points coming from what we view as delayed decisions and spend. We're seeing more of that coming into the fourth quarter and from that perspective, that makes it a little bit tougher to gauge exactly when that will come to fruition. We have not seen a lot of fallout. So that again helps us think about the strength of our business, but not necessarily the timing of it. If you think about the reduction by firm type, the way we look at it is about half of it will come from deal makers, which is largely banking. And we can see right now weaker net hires, but it's very difficult to tell until we get into the second-half, as you know, for seasonal hiring. From the buy side, that's about 25% of our total. There we're seeing a bit of the higher erosion due to cost realization, cost rationalization rather, and also delayed decisions. We're actually seeing good opportunities in the six plus figure, but those take longer to come about. And then lastly, on wealth, strength like was mentioned, very strong on the wealth side of a great win this quarter -- wins this quarter. But if I take a look at what else is happening there is that we're seeing some slowdown in advisor hiring and then some losses on smaller firms. We still see a path to hit the higher end of our revised range would have put us back into the midpoint. Things such as higher conviction on the improvement in the capital markets, so that we would see more investments that are in flight go back into technology, higher investment banking flow that we think would drive higher seasonal hiring. And then we've got a number of large competitive opportunities in our pipeline, all in that six and seven figure deal range. And those can change and determine whether or not we hit the high end as well. So hopefully that gives you a sense of what drives the delta between our guidance.

Helen Shan:

Welcome.

Toni Kaplan:

Thank you. I was hoping you could talk a little bit about the price increase that you're implementing for the upcoming calendar year. I know Helen you just mentioned some difficulties in passing through price, but I guess what's the sort of list price increase and what your expectation is for how that flows through? Thanks.

Toni Kaplan:

Terrific, thank you.

Operator:

Thank you. [Operator Instructions] Our next question comes in the line of Alex Kramm from UBS.

Helen Shan:

Alex, hi. It’s Helen. Thanks for your question and thanks for the specifics. So you've hit the nail on the head on a number of your points. So yes, last year we had a very strong Q2 and so this year, while we've not changed our rate card, the actual annual price increase is a little bit lower than last year. So that is part of the reason, so you're spot on there. The other is that we do know or anticipated a couple of material headwinds, one is the impact of the acquisition of Credit Suisse by UBS and the downsizing that occur there. Now we might be a little bit conservative there, but that's going to have a pretty material impact to our growth year-over-year. And that's where the Q2, we will see a much more weak Q2 growth rate.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Faiza Alwy from Deutsche Bank.

Linda Huber:

Yes. Hi, Faiza. Yes, we are thinking through what it means to have at the midpoint a $15 million reduction in revenue. So obviously, we would like to offset that and it is our intention to hold adjusted operating margin where we said at about 36.5% midpoint. So we've got to adjust our expenses. We've talked about taking a charge which we will have more details on in the second quarter earnings call. So that's at the half year mark if you will. So we're shooting for about $30 million in cost cuts and we're looking at $10ish or so million dollars of cost cuts. The first thing you do is look at your variable costs. The easiest one is T&Es. We're looking at sort of a $1 million to $2 million of a cut there. Professional services is another one we're looking at. Call that $3 million to $4 million. So call that bucket sort of $5 million in total. And then we're looking also at our bonus calculations. So, we've just taken our guidance down a bit, and we would expect that our bonus pool will come down a bit as well, maybe about $5-ish million, but we don't know until we get to the end of the year. So that would be about a total of $10 million. And then we've talked about a $10 million to $15 million charge, which would probably lean more toward personnel and headcount reduction thoughts. We're working through that right now. We have not made any final decisions on that. And of course, that process has to be handled very, very carefully with an eye toward holding our investment funding, which is incredibly important to us, particularly given AI, which we'll be talking about in a bit. But we want to make sure that we bring our expenses back into line with our revenues. Now if you look at our buckets, we had talked before about if you look at our third-party data costs, they're up a bit in the first quarter, because we lapped a really good audit release last year, but those will be about flat for this year. And if you look at our real estate costs, we've taken pretty close to $90 million in charges to right size our real estate footprint. So on that one, those costs will actually be flat to down a bit year-over-year. Technology costs are going up. We've talked a lot about that. This is a technology company and three big drivers for the tech costs, amortization coming through because we're building more of our software as we've talked about, also more cloud expense and also more third-party software purchases. Footnote there on cloud expense, please watch that carefully. If Kristi and the team are successful with what they're trying to do for AI, cloud expense may go up. We have to watch that carefully, but that's an important area of investment for us, so we'll keep our eyes on that, which leaves people, which is about 65% of our expense base. So we're going to have to make sure we've got everyone in the right place for what we're trying to do going forward. And I think that probably would provide about enough detail. In terms of the ramp for expenses, we put up $338 million for the first quarter. We would expect that to jump up to the neighborhood of $350 million for the second quarter, and then as a result of the charge sort of flatten out through the rest of the year. And yes, our margin tends to be a bit higher in the first quarter. We would see it might come off a bit as we move through the year, so the sort of normal trend that you see at FactSet. So that's a lot of information. I hope that's helpful and really appreciate your question, Faiza.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Manav Patnaik from Barclays.

Phil Snow:

Oh yes, hey Manav, thanks for the question, it's Phil. We certainly are seeing opportunity. So as we go through these periods of market uncertainty, it's always a great opportunity for FactSet to work with our clients, who typically want to do more with us and trust us. So that's become an even more sophisticated conversation as our product suite has expanded. And just in the last few weeks, I've heard a couple of very encouraging situations where it just feels like there's more of a top-down push now at the bigger clients to really save, to drive cost savings in our direction. So that is encouraging to me. I think at some firms, there was still a bit of choice given to users, but we are an anchor partner of choice for our clients based on our strategy and our open platform. Our investments in generative AI and our approach there is landing really well. So I just feel more optimistic than I have in a long time about the long-term prospects of FactSet and our competitive position. I'm happy to go through this firm type by firm type, either on the call today or some other time with you. But overall, I think it's just a timing thing for us and getting through this period of uncertainty in the markets and I think them are in really good shape.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Heather Balsky from Bank of America.

Linda Huber:

Yes. Heather, it's Linda. I actually listened to an interview with Brian Moynihan on the way up this morning, so maybe we'll quote you back your own firm's information here. I think the question is the timing of the turn, and I don't think anyone can predict that particularly clearly. If they can, they should be, of course, running a hedge fund. But in any case, we have thought this might come a little bit sooner. What we're trying to say is that the turn is going to come a little bit later in the year than we had thought. It should be noted that investment banking and banking hiring is a lagging indicator, okay? So we've had 500 basis points of interest rate increases. Times got tougher and so hiring is in fact a lagging indicator There is a view that I also heard this morning, not from your boss, that Jay Powell shot the bears last week. So, how long will it take for capital markets to come back? If you speak to various institutions, they're saying they're seeing much greater activity right now. The tenure this morning was at 3.9, which beats the heck out of 5. So we would expect that things will turn up. How quickly will that happen? Very difficult to say. So we're trying to be realistic about what we think about the pacing of that turn. But we do particularly with the Fed announcement last week, we do think that it is coming. It just may take a bit longer than we thought. And there's a lot of focus on AI. We have incredible conversations going on with our clients, and we'll be speaking more about that as others might want to ask about it. But we do see the turn coming. It's just a question of when. So I hope that makes things a bit clearer, but we appreciate your boss's interview this morning.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Shlomo Rosenbaum from Stifel.

Linda Huber:

Yes, Shlomo, I'll let Phil talk a little bit about how far we can go with the Centers of Excellence. But you're right, we have good representation in those Centers of Excellence and that's working really, really well for us. We do have our thoughts on efficiency coming from GenAI. Probably a little bit premature to talk about that. We're going to focus on the client side first and that's really where we're looking hardest right now, but efficiency for engineers is really important, efficiency for our you know our help desk kind of function is very, very important and in future calls we'll talk more about that. Shlomo, to answer a question you didn't ask, we did want to thank you for your noting that we had improved free cash flow and that we collected about $50 million more in cash collection than we did in the previous period last year. So in addition to our giant macro calls that we have to make, we also have to make sure we're collecting our cash appropriately. So appreciate your note on that, but I'm going to turn it over to Phil on COEs and also on the GenAI opportunity for ourselves. Phil?

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Andrew Nicholas from William Blair.

Phil Snow:

Yes, thank you. There's a lot in there. So on the M&A front, the three buckets that we continue to spend time on are wealth, wealth technology, private markets and filling out, continuing to fill out the portfolio life cycle. So those are the three areas of higher interest. We do look at other interesting content assets. And yes, your instincts are right. The market is beginning to throw a little bit. I think a lot of sponsors are beginning to bring assets to market as they need to show some returns to their clients. I don't know about the multiples coming down part, but still to be determined. But we're in a much better position than we were six months ago just because we've executed very well on the CUSIP acquisition and effectively gotten our leverage down to the range that we said that we would -- we did what we said we were going to do. So we're active. We're looking at tons of stuff. On the AI front, I mean, the -- I guess I'll answer it this way. The -- I think the winners in artificial intelligence are going to be people that own the data, right? So we're in a great position there, because we have a ton of data that we collect ourselves. We obviously have a lot of third-parties that contribute data into our ecosystem, and we connect that well. That's the real value there. And then clients are also trusting us with their data. So potentially, data -- the price of data assets may go up, but also it might be easier for some newer firms to collect data. Now newer firms that have data are going to need very often platforms like FactSet to monetize that. It's hard to go into a bigger bank or a bigger asset management as a small company and get their attention and get through all of the different things that you need to get through to have that sale. So we're in a great position here. And yes, we're actively looking at what's available in the market.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of George Tong from Goldman Sachs.

Linda Huber:

Yes. George, it's Linda. We're not going to talk about headcount reductions via firm types. The main reason being that we haven't made our full decisions yet. We're looking to put our investments toward our higher value and our emerging opportunities. And obviously, we're looking really closely at products that we may have had for a while or opportunities that maybe have not lived up to everything that we had hoped for them. Also, in terms of where that headcount might come from, obviously, we have to look hard at our onshore locations to make sure we're getting the best use out of our resources there. But again, all this is in progress right now, and we'll have a little bit more information as we go into the Q2 earnings call. But we haven't made those decisions yet. And I don't think we're going to give that degree of granularity even when we get to that time. We're looking to take out $10 million to $15 million on cost. We're going to do it very thoughtfully. Senior management of the firm is looking at this with great caution to make sure that we're really thoughtful about what we're doing. This doesn't come easily to us. So we want to take the time and get it right. And I don't think we're going to go into too much more detail than that.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Craig Huber from Huber Research Partners, LLC.

Phil Snow:

Well, we won't give exact numbers. But what I can say is that banking was probably affected the most. And I think you saw that in our press release, right? We saw, I think, much weaker hiring or more churn on the banking side than we did last year. On the asset management side, things came down a little bit, not dreadfully. We did see definitely weaker penetration in the front office. So we've begun to see the buy-side clients, I think, reduced headcount a little bit more than they have in the past. But overall, the growth rates of asset management, asset owners and hedge funds didn't come down dramatically. Wealth went up quite a bit because of that big deal we had in Q1. And then some of the smaller parts of our business like private equity, venture capital and corporations in an environment like this, we did add new logos in both of those areas, but not at the rate that we might have had in previous years. So hopefully, that helps.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Kelsey Zhu from Autonomous.

Helen Shan:

Hi, Kelsey, it's Helen. Thanks for your question. Let me try to get to it. So when we think about wealth, as we mentioned, we had a very good win this quarter that helps us a lot. And so when we think about what wealth clients are trying to do right now is that they are looking really to improve and modernize their platform. They started with a lot of the large wealth firms, as you know. And now we're seeing that now with the midsized firms coming through. So that's where we're seeing more of that deal flow. Just as a reminder for the large clients that we have been able to win through competitive displacement that includes Merrill, Royal Bank of Canada, Raymond James and Bank of Montreal. And with this newest one, which actually for us is the one the longest or rather the highest total contract value, there was a displacement of a long-time incumbent. And so we look forward to building that relationship with them for the long-term since our contract with them is actually longer than average over five years. And so as wealth clients, now the mid-tier client -- wealth clients are now coming on board and wanting to modernize their platform because their clients are demanding more sophisticated digital technologies, and they don't have the platform to be able to scale, and that's where they're turning to us. Total cost of ownership is really quite key. And so the discussions that we're having include everything from -- and this is back to your question, whether or not they want to get the data from APIs, for example, which does require more development costs. They need people to put that in versus, say, one of the products we're seeing a lot of demand for us, which are widgets, which are easier to put in and therefore, quicker. So those are some of the dynamics we're seeing. That's where we're expanding beyond the wealth platform only and going into data and then also into the CRM side, which is allowing our wealth clients to focus on their top line and giving their advisers the tools to be able to drive top line growth.

Russell Quelch:

Hi, Thanks for having me on. So you had good user count growth and a slowdown in the client growth. And I think that's because of those two large deals you called out. I'm interested in, is this a purposeful tilt in the sales strategy towards targeting larger enterprise deals? And therefore, should we expect ASP growth to be maybe more lumpy, more volatile on a quarterly basis going forward as a result of that approach? And I also wondered, can you be a bit more specific around what you've assumed to be the size of the impact from Credit Suisse in your ASP this year? And if that's all going to come in the second quarter, please?

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Jeffrey Silber from BMO Capital Markets.

Kristi Karnovsky:

Sure. Hi, Jeffrey, this is Kristi. Yes, we're very excited about FactSet Mercury. But maybe it will be helpful if I talk a little bit about the whole AI Blueprint and just highlight the areas in there where I think FactSet is really differentiated in our approach to responsibly leveraging AI to deliver value to our clients. So the first pillar of the blueprint is all about what we call mile-wide discoverability. And FactSet Mercury, which we talked about in the press release, it's our conversational AI interface and it's designed to unlock discoverability of all of the content and functionality that FactSet has to offer for our users. And it's really going to become the mainstay of the FactSet user experience of the future, which is going to be a lot more personalized and insight driven. And I think what's really interesting with Mercury, it's really our approach to providing auditability back to the reports and documents in context, that's going to be a real time saver for users because it's going to enable them to act quickly on that information that they're getting back and then move on with a high level of confidence to the next steps that they're taking. So really, throughout the whole development process leading up to the data release, we conducted extensive user research. And through this, we really validated how important it is to deliver that auditability of the data back to our users. And we've already gotten great feedback on this and how we're approaching that in the client meetings that we've had as well as the other features that it offers like suggested and next steps to guide users to insights that they might not have even realized were available. The second pillar of the AI Blueprint is what we call mild deep workflow automation. So our strategy is really way beyond building an answer bot and kind of stopping there. So we're going user-by-user type, workflow by workflow to leverage GenAI and help streamline the workflows of each of our different client types that we know really well from over 40 years of supporting them. So you would have read in the release that the first release of FactSet Mercury is geared for junior bankers, but it will expand from there. But so for now, for junior bankers, in addition to being able to answer any questions that they have about companies, it can take a lot of steps out of the bank or pitch book building workflow process. So one great example of that is just by enabling them to simply ask for any chart in natural language and then have it delivered to them as a custom formatted FactSet Active Graph, which is then forever refreshable inside their pitch decks. So they don't need to search through a gallery. They don't have to adjust any setting. It's just super easy for them. And then the last pillar of our strategy is what we call mile-high innovation acceleration. We're very excited about what GenAI unlocks in our own product development process, and our teams are busy here, building some really amazing solutions. But it's also, I think, important for everybody to remember that we're developing those things in ways that can be leveraged as building blocks by our clients in their own products. And I think our open flexible approach to this is very differentiated and unique. And we've already begun to commercialize our data solutions in that way. And I think there will be more demand for these building blocks as clients make more progress with executing on their own AI road map. So those are the three pillars. And yes, we're very excited about FactSet Mercury launching into our FactSet Explorer's beta program last week.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Owen Lau from Oppenheimer.

Kristi Karnovsky:

I can talk -- this is Kristy. Thank you for the question. I can talk a little bit about the approach we think we're going to take here. What I was talking about with mile-wide discoverability with FactSet Mercury, we see that really as a natural evolution of the FactSet user experience. And so some level of conversational experience would be included with our different workstation packages. And I know that this is going to help users unlock more value and improve their efficiency. For what we call the mild-deep workflow automation in our AI Blueprint, things like pitch book building and automation with GenAI for investment banking or portfolio performance commentary for the buy side and other mild-deep workflows. We are currently working on the best commercial models for this. We're going to be able to significantly streamline these workflows and drive a measurable level of efficiency for our clients. So there's definitely going to be value there for them. And I think we're going to be able to share more color in future quarters as we make more progress and we get a little bit further along in the FactSet Explorer beta program. Yes, so hopefully, that gives a little bit more color.

Owen Lau:

Got it. Thanks a lot.

Operator:

Thank you. [Operator Instructions] Our next question comes from the line of Ashish Sabadra from RBC Capital Markets.

Helen Shan:

Hi, thanks for that question. Yes, you're right. We -- as Linda had talked about, we thought a bit of the recovery would improve more quickly into the second half of the year, it's probably a little bit later. And so what we're hearing right now and clients are sort of finishing up their budgeting process that most budgets are probably more flat. And what -- but they're still being asked to do a lot more with what they have. And as I mentioned before, their ability to scale is still something that's top of mind. So to your point around the six to seven figure deals, yes, certainly, some of that will depend on budgets improving. As mentioned, some of the benefit we have in our open platform is you can do things in pieces. So you don't have to commit to the whole redo of a platform, for example. But certainly, as more dollars are being allocated to technology and GenAI, we feel we're pretty well positioned to take advantage of that.

Helen Shan:

Welcome.

Surinder Thind:

Hi, Linda, just a big picture question here. I guess if I'm interpreting your prepared comments correctly, it seems like you're attributing some of the change in your outlook to kind of the market recovery taking maybe a bit longer than that -- than what you guys had anticipated back in September. But I guess given how much sentiment has improved since that time or at least in the last 45 days, like can you help me understand why this is the case? Like could you not argue that from where we stand today, the outlook from a client perspective should be more positive now than when you initially gave guidance? Like -- it seems like there's a bit of a disconnect, and I'm not sure if there's some near-term dynamics here because I know October was obviously very negative from a sentiment perspective and then we had a complete reversal. So I'm just not sure if we're seeing the reversal yet in people are still kind of focused on the October -- the sentiment at that point in time. It just seems like there's a bit of a disconnect here.

Phil Snow:

Yes. Thanks, Linda. So yes, I mean, the sales cycles for our clients do take some time particularly for our enterprise solutions. So I really hope sentiment has turned and like we spoke about on this call that it's just a question of timing. So to summarize, we're very excited, obviously, about artificial intelligence. We have a lot of FactSetters out in the market, working with our clients and nothing beats sort of showing the product to the client and getting that wow back from them. So we're all really behind this. We've made a lot of progress in the last year, and I feel like we're really in good shape versus the competition based on what I'm seeing. We did take the guidance down just because the turn is taking a bit longer than we thought, which we just spoke to. Second quarter will be a little slower than planned just to summarize. So we may be taking a bit of a conservative view there. And we did mention the -- in particular, the Credit Suisse acquisition by UBS, which was well known. And then just to summarize, I'm going to give a bit of a plug for FactSet Focus. So we're having our flagship user event in Miami this April and the beginning of May. It's the first time we've done this in a number of years. We're bringing together top thought leaders, industry experts and key decision-makers from both the finance and tech sectors. We're really going to be focused very heavily on artificial intelligence and really demonstrating what we've done there. And hopefully, that will be really engaging for anyone that attends. So that's it. We'll see you all next quarter. Operator, that ends today's call.

Kendra Brown:

Thank you, and good morning, everyone. Welcome to FactSet's fourth fiscal quarter 2023 earnings call. Before we begin, the slides we will reference during this presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com and are currently available on our website. A replay of today's call will also be available on our website and via phone. After our prepared remarks, we will open the call to questions from investors. This call is scheduled to last for one hour. To be fair to everyone, please limit yourself to one question. You may re-enter the queue for additional follow-up questions, which we will take if time permits. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risk 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 of the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer; and Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer, for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thanks, Phil, and hello to everyone. As you've seen from our press release this morning, we delivered Q4 organic ASV plus professional services growth of $145 million. With 43 consecutive years of top-line growth, FactSet has a proven history of stability during market volatility, which is clearly demonstrated in our performance. I'll now share additional details on our fourth quarter and full year performance. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. The 7% growth rate for organic ASV plus professional services was in line with our most recent guidance for the year. Our sales team executed well, building on a strong first half and a higher price increase across a larger client base. However, during the second half of the fiscal year, the team had to deal with increased erosion, softer expansion, and a slight decrease in new business. Turning to revenue. Our full year revenue of $2.1 billion was also within our guidance range of $2.08 billion to $2.1 billion. To help offset the weaker top-line, we carefully and thoughtfully trimmed our headcount, which helped to expand our adjusted operating margin by 230 basis points to 36.2%. This increase exceeded the top end of our guidance range of 36% and our previous medium-term outlook goal of 36% by the end of FY '25. Finally, both GAAP and adjusted EPS were impacted by a one-time charge of $6.8 million and an approximately $20 million provision for confirmed and expected unrealizable tax assets. This higher tax rate provision had a $0.68 negative impact on fiscal '23 adjusted EPS, resulting in an adjusted EPS growth of 8.3% to $14.55. Without this one-time adjustment, adjusted EPS would have been approximately $15.25, or 13.6% growth. I'll provide more detail during the tax discussion later in the call. Turning now to our fourth quarter results, as Phil noted, we grew organic ASV plus professional services by 7% year-over-year, as higher price increases offset erosion and new business began to pick up. We also continue to improve pricing discipline, which is driving stronger price realization. For the quarter, GAAP revenue increased 7% to $536 million. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange movements, increased 7% to $535 million, driven primarily by Analytics & Trading. For our geographic segments, organic revenue grew by 6% in the Americas, 9% in EMEA, and 10% in Asia Pacific. Growth was primarily driven by Analytics & Trading and Research & Advisory in the Americas and Asia Pacific, and by Content & Technology Solutions and Analytics & Trading in EMEA. GAAP operating expenses increased 14% year-over-year to $419 million, driven by higher facilities impairment expense and restructuring costs. Compared to the previous year, GAAP operating margin decreased by 460 basis points to 22%, primarily due to those non-recurring charges and higher technology costs, partially offset by lower third-party content costs and lower FX impact. Excluding both non-recurring costs, GAAP operating margin was about 800 basis points higher than the prior year. On an adjusted basis, operating expenses grew 4%, driven primarily by technology expense, which increased 26% year-over-year. This was mainly due to higher amortization of internal-use software, increased third-party software costs, and accelerated cloud spend as part of our hybrid cloud strategy. We also invested in our content refinery expansion and other strategic areas, such as generative AI. We have continued to invest in technology to drive growth, with technology costs now representing 9% of revenue, consistent with our medium-term outlook of these costs being 8.5% to 9.5% of revenue. People expense grew 3% year-over-year, primarily due to increased salaries for existing employees. As a percentage of revenue, our people expense was 168 basis points lower than the prior year, driven by a lower bonus accrual, partially offset by higher salary expenses. We ended fiscal 2023 with a bonus pool of $105 million and with 67% of our employees operating in our Centers of Excellence. Adjusted operating expense growth was partially offset by a reduction in our third-party content costs, which decreased 4%. Our team continues to do a stellar job proactively managing and negotiating contracts. As a percentage of revenue, growth in third-party content costs was 57 basis points lower year-over-year. Finally, our efforts to right-size our real estate footprint resulted in a 7% decrease in facility expense year-over-year. As a percentage of revenue, this was 50 basis points lower than the previous year. Overall, adjusted operating margin improved by 210 basis points to 33.6%. You'll find an expense walk from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percentage of revenue, our cost of services was about 75 basis points lower than last year on a GAAP basis and 85 basis points lower on an adjusted basis, largely due to personnel costs, expenses related to CGS, and technology costs. And SG&A as a percentage of revenue was 385 basis points lower year-over-year on a GAAP basis and about 125 basis points lower on an adjusted basis, primarily due to decreases in professional services, partially offset by increased personnel costs. Facilities impairments as a percentage of revenue were around 440 basis points higher year-over-year on a GAAP basis. Turning now to tax. Our tax rate for the quarter was 39.9%, compared to last year's rate of 10.3%. This increase was due to several factors. First, we had higher pre-tax income, which increases the overall tax rate, as credits related to R&D and foreign earned income are less impactful. We also saw a diminishing benefit from tax incentives in our Centers of Excellence. Finally, the finalization of prior-year returns came into play. Our fourth quarter results include an out-of-period adjustment related to an ongoing review and analysis of certain tax positions, resulting in a one-time charge of $6.8 million and $20 million provision. We believe this $20 million provision represents the maximum remaining amount of net unrealizable tax assets. Upon completion of our review and prior to filing our Annual Report on Form 10-K, we plan to take a one-time charge with respect to this provision to reflect the confirmed actual amount of net unrealizable tax assets. The final amount of this charge is not expected to differ significantly from the current $20 million provision. At this time, we've concluded that this adjustment is not material to the current period financial statements. The adjustment relates to the accounting of tax balance sheet accounts, including deferred tax assets and liabilities. All local, federal, and foreign taxes payable have been paid in a timely manner, subject to normal audits of open years. The increase in tax provision was partially offset by higher benefits from stock option exercises and refunds from amended returns. Looking ahead, we expect that higher pre-tax income will increase our overall tax rate. In addition, our foreign tax rate is expected to be higher due to the increase in the UK statutory rate. We've taken strategic measures intended to offset our overall rate and are guiding to 17% to 18% effective tax rate for fiscal '24. GAAP EPS decreased 37.5% to $1.68 this quarter versus $2.69 in the prior year, driven by non-recurring charges and the higher tax provision, which had a $0.68 impact. On an adjusted basis, EPS decreased 6.4% to $2.93. Adjusted EBITDA increased to $172 million, up 8.6% year-over-year, due to higher income tax add-backs and impairment charges, partially offset by lower net income. And finally, free cash flow, which we define as cash generated from operations less capital spending, was $156 million for the quarter, an increase of 15% over the same period last year. This was primarily driven by the timing of income tax payments, partially offset by higher capital expenditures. For the fourth quarter, ASV retention remained greater than 95% and client retention was 91%, which speaks to the stickiness of our solutions. We ended the quarter with almost 8,000 clients with 383 new logos added year-over-year. And user count increased by about 10,000, primarily within banking, corporate and private equity and venture capital firms. For the quarter, we repurchased 264,400 shares for $109.6 million at an average price of $414.63. At the end of fiscal '23, we had $4.5 million available for share repurchase. As a result, our Board authorized a new share repurchase program of up to $300 million, which became effective on September 1. We intend to continue our share repurchases in FY '24 with a target to repurchase $250 million spread ratably throughout the year. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. Combining our dividends and share repurchases, we returned $315.3 million to our shareholders over the last 12 months. As a reminder, we also increased our dividend by 10% in the third quarter, marking the 24 consecutive year of dividend increases. And finally, turning to our guidance for fiscal 2024, as Phil discussed earlier, we expect a weaker first half of fiscal '24 and a stronger second half, driven by improved client sentiment. As client budgets reset at the turn of the calendar year. We expect to execute on our existing pipeline. Given these expectations, we are guiding to incremental organic ASV plus professional services of $130 million to $175 million, reflecting 7% growth at the midpoint. And with respect to modeling income and expenses for the year, please note that for the full year, we expect interest expense to be $60 million to $65 million and capital expenditures are expected to be in the range of $90 million to $95 million. We expect adjusted operating margin of 36.3% to 36.7%. At the midpoint, this provides 30 basis points of continued margin expansion. While we have already met our adjusted operating margin medium-term outlook of 36%, we are committed to balancing continued sustainable margin expansion with investments to drive top-line growth. Finally, adjusted EPS is expected to range from $15.65 to $16.15, which represents 9% growth at the midpoint. In closing, we are encouraged by the opportunities before us. In 2024, we anticipate that our investments in generative AI, connected refined content and digital solutions will drive expanded market share and increased retention. We are equipping our teams to harness the rapid pace of innovation to remain the partner of choice for our clients. We're now ready for your questions. Operator?

Seth Weber:

Hi, good morning, and thanks for taking the question. I wanted to ask for a little bit more color on the wealth business, if you could. I saw the ASP was really strong, up 9%. But then I thought I heard in your comments some comments about some client cost cutting. So, I'm just trying to understand really what the message is there. And if you could just give any more detail on larger accounts versus smaller and the broader competitive environment? Thank you.

Helen Shan:

Yeah. No, thank you for that. Phil is exactly right. I mean, we do have a pretty healthy pipeline, and it is a mix. We have some very large opportunities with full deployments and then we've got smaller ones, which may be more seat-driven. If you compare it to 2022, where there was a lot more hiring going on, that's a bit of the difference. And as noted, we didn't have a mega deal this year per se, but there's a lot of opportunity in the pipeline that supports that. So, we feel very strongly about wealth. And quite frankly, if you look at where a lot of the clients are focused on, they're all focused on their wealth businesses also.

Phil Snow:

Yeah, absolutely. We feel like we're gaining market share, yeah. Most of the wins are displacements of other competitors, yeah.

Operator:

Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.

Phil Snow:

Yeah, we feel good about the 6% to 8%, Manav, that's why we put it out there. I think if we break it down by firm type, we anticipate doing about the same level of growth on the buy side as we did this year. And as you know, we've been evolving into more of a solutions provider for our clients. So, despite headcount pressure, which we certainly did see on the buy side, we still think there's a great opportunity to take market share. We are anticipating slower growth within banking. There are some things in the pipeline that I think Helen might be able to speak to. But we're not anticipating a blockbuster hiring here in banking as part of our algorithm. We just spoke about wealth, so we're definitely anticipating some acceleration on the wealth side. And then, in the partners part of our business, which we're now separating out a bit, we're expecting a more constructive environment there. We actually had -- it wasn't a great year for us in that part of the business. I'm not talking about CGS, CUSIP, I'm talking about the rest of the partners business. So, Helen, do you want to give some more commentary on the pipeline?

Operator:

Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is now open.

Linda Huber:

Yeah. Hi, Jeff, it's Linda. We have made very good progress and we're quite proud of that. As we move forward, we feel that our workforce -- our people is a big potential contributor to this. So, as we said for FY '24, we think the growth in that bucket will be about 3% to 4%; real estate, probably 3%; and third-party growth -- data growth of about 3% to 4%. So, all of those are pretty modest numbers and we feel like we've made really good progress. On technology, it's a different story. We are a technology company. We're driving harder for AI. And so, we had talked about a 24% increase in the technology budget for FY '24. A lot of that is the increase in amortization for third-party -- for our own software, increased third-party data purchases and, most importantly, increases in cloud expense as we have some facilities now on-prem and we're getting ready for increased usage for GenAI. So, what I think will happen in the future is we'll see the technology line start to flatten out as we get to peak amortization and then things start to move down in that regard. But again, really, really great control over three of the cost items. And then in technology, we just have to continue to invest. So, hope that helps you out.

Kelsey Zhu:

Hey, good morning. Thanks for taking my question. So, CTS, including CUSIP, grew by 9%. I was wondering what the growth rate would look like for the original CTS business and CGS. And then I think when you acquired the asset, you were guiding for a mid-to-high single digit growth for CUSIP. Is that pretty much still the goal going forward? Thanks.

Operator:

Thank you. Our next question comes from the line of Alex Kramm with UBS. Your line is now open.

Helen Shan:

Hey, Alex, it's Helen. Yeah, I'm happy to try to answer that question, so thank you. You're right, we're early in the year, and -- but we have greater visibility, of course, in our first half. So, I'll talk to that specifically. We are expecting current market conditions in the first half, but I'm going to go by firm type here. So, when you talk about buy side, we actually finished the year quite strong with both asset owners and hedge funds. So, the three things that we see right now in the pipeline is, one, we're continuing to gain traction in the middle office. So, building off of some of the great wins we had in the asset servicing space, we would expect that to continue. Second, we're seeing strong demand in the data feeds business, so both for company data, as well as our data management solutions, where we're really leveraging the strength of our concordance for content for clients. We had two significant wins, one in real-time, one in tech data, both displacing competitors. And as a result, we're getting inbound discussions around that. So that's also filling up our pipeline. And then, third, as Phil mentioned earlier, the strength in offerings we have in the front office are also gaining traction. Part of our GenAI enhancements will be supporting that. And so, we expect to be able to get greater market share in that space. And we actually think that will help on the retention front as well. On the banking, you're absolutely right. We are seeing -- we're going to have a challenging H1 comparison, Alex, because the banking workforce reductions really didn't impact us until our second half, because they came through more in the early spring timeframe. And we also expect most of the impact potentially from any reductions from Credit Suisse to happen more in the early calendar year as well. So, that's going to impact our H1 results. There have been some positives in the capital markets activity, but we're not building a recovery in the first half. So, to your point, we do think that there will be a potential uplift in the second half, but not in the first half. We actually did fine in banking overall, because we had two huge wins

Faiza Alwy:

Yes. Hi, thank you. Good morning. I wanted to ask about GenAI. Phil, you mentioned a number of new products that you're working on. And so, I'm wondering, how you're thinking about the timing of commercialization of these products? And do you view this as a new product revenue opportunity? Or should we think about it more as something that's going to help improve retention? And relatedly, it seems like there is a number of smaller new companies that are out there that are introducing GenAI products that folks seem to be willing to pay for. How should we think about your approach to M&A to enhance your position within GenAI products?

Operator:

Thank you...

Phil Snow:

Yeah, happy to do that. Thanks for the prompt. And yes, so in using GenAI [columns there] (ph). Yeah. So, we've had 25 to 30 under knees tables -- knees-under-table meetings with our clients. We've seen a lot of enthusiasm from all firm types. And a lot of that has to do with our capabilities, the data, the technology, and our relationships with clients. But there's a desire out there to codevelop some things. So, we're working very closely with some large banks. There's opportunities there for bank automation. I think everyone's always felt that, although the processes that are out there haven't evolved much over the years. But I think this is the time they will. On the buy side, I mentioned in my earlier comments, there's an opportunity to radically improve the life of a portfolio manager or a research analyst that's having to sift through so much information. And on, the wealth management side, we talked earlier about other workflows, right? So, can we get into proposal generation? Can we get into augmented prospecting for our clients? These are all great opportunities. So, we're very encouraged and we're moving very quickly.

George Tong:

Hi, thanks. Good morning. At the midpoint of your guidance for ASV plus professional services organic growth of 7% for next year, that guide is essentially unchanged from growth that you saw this year for fiscal '23. And you mentioned that the first half of the fiscal year, we'll see some pressure, followed by improvement in the second half of the year. Does that suggest that you expect trends to get worse compared to this quarter before they get better such that you land at that 7% growth at the midpoint next year? And can you talk about which areas of the business you're assuming undergoes the most inflection over the course of next year?

Operator:

Thank you. Our next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.

Phil Snow:

Maybe I'll start and then I'm sure Linda will add some additional comments. So, we've been looking at how we work ourselves and thinking about how can we be more efficient ourselves internally. We have a lot of engineers at FactSet, a lot of people that code that are even client-facing. So, I think it's pretty common knowledge that there should be some efficiency here, right? So, we're piloting a lot of copilot solutions with our technologies to kind of understand what that means at different levels of the organization. We have a large client service and support group here at FactSet. We've released a tool to about 400 people that are the front-line support for our clients that assist them in generating answers for clients. So, that's in the beginning stages there. And then, of course, we collect tons of data. So, about half of FactSet's employees are in the Content or Data Solutions part of our business. So, we see a lot of opportunities there. So, we do see significant opportunity. The question is the timing and how much of that we'd like to reinvest, right, in terms of some of the new products that we're thinking about to drive growth.

Operator:

Thank you. Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Your line is now open.

Helen Shan:

Hi, Ashish, it's Helen. Thank you for that question. I think from our perspective, I don't want to say we've hit a bottom. That's too strong of a word. But when I think about this year and last year, I would expect that two things to happen. One is that the erosion reduction will actually be more leveled off, and I think that's an important thing to sort of keep in mind. Banking is key, but we actually grew the number of seats in banking overall. Please keep in mind that part of that isn't just around the clients that we have, but the new clients that we win, and we have a couple of very good opportunities. So, we look at that as part of our -- when we talk to firm type. The second is pricing, which, in the past, I think we've talked about a third, a third, a third. I think from a pricing perspective, it actually added more this year from a percent basis than in the past. We see it continuing to add in 2024, although closer back down to maybe a quarter or less than a third. And I think that's probably more of the -- a bit of a headwind that I would look to than necessarily just thinking about seats. So, that's how I would take a look at some of what's built into our guidance. We have some large deals in there. We'll see if those come through. They got pushed from '23 to '24. And then, there will be, I'm sure, continued focus on costs by our clients.

Heather Balsky:

Hi, thank you for taking my question. Just another question on the first half versus second half revenue outlook. You talked about the hiring assumptions. When you think about the back half versus the first half on the wealth and buy side, I'm curious what's kind of baked in your outlook in terms of customer sentiment. And you talked earlier about sort of formation of -- on the wealth side, whether or not that potentially picks up. Just what should we take into account? Thanks.

Operator:

Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open.

Helen Shan:

Yeah, I'll talk a bit about the green shoots. The areas that we are seeing some pick-up a little bit, which is always a bit of a harbinger for us, is on the new business. So, in Q4, new business started to make a bit of a recovery in terms of number of transactions. So, we see that as a positive. The one positive also, I would say, overall, even for new business, is that if I look at the average size of the transaction throughout the year, the volume was lower, but the average was pretty much the same. And that, I think, is a testament to the value that clients are seeing. So, we take that as a positive. The other area is around managed services, which we have seen an uptick there. I've been mentioning asset servicers as something that's a positive, but we will continue to see that as one. And then also, as I can see in the pipeline, what we call data management solutions has also been a driver -- we expect to be a driver for us, and that's been picking up as well. So, when you look at all those pieces, I think that that's really where the benefits come in. And of course, your second question, it's probably best to have that with Ali and Kendra afterwards.

Toni Kaplan:

Thanks so much. I was hoping you could talk about your increase in employee count, was about 5% this quarter year-over-year. Is that sort of a normal increase for you now organically, or is it maybe a little bit light? And should we expect sort of around that level for '24? And maybe you could go into, are you hiring sort of more salespeople or technology or product development? Just trying to understand where the growth areas within the employee base are. Thanks.

Helen Shan:

Thank you. I'm going to ask our CFO if I can do more hiring. No, I think one of the benefits of what we've done this year, which is really to become closer to the client, is to have ourselves go to market by firm type and also by workflow solutions. And what that gives us is the ability to actually become more productive. So, our ability now is not covering different types of firm types and talking about things from a product perspective, but rather knowing the workflow and being able to leverage that across clients. And we've actually gotten some very good feedback from clients on that piece. And maybe I'll just add back to a point that Phil and Linda made around GenAI and our client discussions with a larger -- the top 25. What comments we got back, which I thought was very encouraging, is, one, which differentiates us from some of our competitors and some of these smaller upstarts, that the way we talk to them about how GenAI can help them was about their workflow, not about a product, not about something that they are yet to build, and then we were able to show them how we're already incorporating it into the products we have today. So, I think both of those resonate well, and that's going to help as we go to market with the current sales force that we have.

Operator:

Thank you. Our last question comes from the line of Craig Huber with Huber Research Partners. Your line is now open.

Linda Huber:

Craig, I think we'll look to our usual pattern of seasonality. Generally, the spend builds throughout the year. And as Helen said, we're looking for the back half to be stronger than the first half, so we'd like to sort of match that with our expense growth. So, I think what we want to do is be very careful on expense growth in the first half of the year. I think that's really important that we try to match up revenue growth with our expense growth. So, we're going to be very thoughtful in the first half of the year. The second half of the year, I think as we build into our technology budget and some things with GenAI start to catch, I think you should look for our normal trend, that expense growth would be heavier toward the back half of the year and, particularly, in Q4. So, hope that is helpful in terms of your phasing.

Phil Snow:

Thank you. Before we wrap up, I want to announce the return of our flagship user conference, FOCUS '24, in Miami next April. We're looking forward to bringing key clients and stakeholders together to network and share ideas on the theme of innovation. Innovation is our focus for the coming year, and I'm very optimistic about our opportunity. And in closing, I really want to thank all FactSeters and our teams for a job well done in fiscal '23. I'd also like to thank Kendra Brown for her excellent work, leading Investor Relations over the past two years. And going forward, she will be heading our Banking and Sell-Side Research business. And as previously announced, Ali van Nes will take over the Investor Relations role. You can contact Ali with any follow-up questions after today's call. Thank you all for joining us today. We look forward to speaking with you again next quarter. Operator, that ends today's call.

Kendra Brown:

Thank you and good morning, everyone. Welcome to FactSet’s third fiscal quarter 2023 earnings call. Before we begin, the slides we will reference during the presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com and is currently available on our website. 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. [Operator Instructions] 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, reconciliations 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 Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer, for the Q&A portion of today’s call. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thank you, Phil and hello to everyone. As you have seen from our press release this morning, we delivered solid operating results in the third quarter with continued growth for organic ASV, GAAP revenue and adjusted diluted EPS year-over-year. I will now share some additional details on our third quarter performance. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew organic ASV plus professional services by 8% year-over-year. While we are seeing lower expansion and higher erosion due to the macroeconomic environment, our performance reflects excellent execution by our sales team. Pricing realization continues to improve with our international price increase, adding $17 million in ASV this quarter, up $4.5 million from last year. Internationally, 7% more clients were subject to the annual price increase than in the prior year. Fiscal year-to-date, our 2023 price increase has yielded $18 million more ASV than last year. GAAP revenue increased by 8.4% to $530 million for the third quarter. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange movements, increased 8.5% to $530 million. Growth was primarily driven by Analytics & Trading and Content & Technology solutions. For our geographic segments, on an organic basis, revenue growth for the Americas was 9%, benefiting from increases in Content & Technology solutions and Analytics & Trading. EMEA revenue grew at 7.5% primarily driven by Content & Technology solutions and Analytics & Trading. And finally, Asia-Pacific revenue growth came in at 7.9% due to increases in Research & Advisory and Content & Technology solutions. While GAAP operating expenses decreased 8.6% year-over-year to $358 million, adjusted operating expenses grew 9.4%. The drivers were as follows. First, people. Our cost rose 10% year-over-year in the third quarter primarily due to increased salaries for existing employees. As a percentage of revenue, this was 68 basis points higher year-over-year driven by higher salary growth as a percentage of revenue, partially offset by higher labor capitalization and lower bonus expense. For fiscal 2023, we still expect the bonus pool to be in the range of $100 million to $105 million. Head count increased by 12.9% year-over-year with most new positions in our Centers of Excellence. Overall, 65% of our employees are located in our Centers of Excellence. Next, facilities expense remained relatively flat, increasing by only 1.6% year-over-year as more employees return to in-office work. Our continuing efforts to right-size our real estate footprint mostly offset this increase. As a percentage of revenue, facilities expense was 24 basis points lower year-over-year. Moving on, technology expenses increased by 22.5% driven by third-party software costs and higher amortization of internal-use software, partially offset by lower cloud-related expenses and lower depreciation. As a percentage of revenue, growth was 90 basis points higher year-over-year. In partnership with our Chief Technology Officer, Kate Step, we have realized increased capitalization through improved time tracking and other efforts. Technology costs currently equal 7.8% of our revenue and will likely continue to increase as we invest for growth. As part of our medium-term outlook, we anticipate technology costs being 8.5% to 9.5% of revenue. And finally, our team continues to do an excellent job of controlling third-party content costs with expenses increasing by only 1.9% year-over-year despite the inflationary environment. As a percentage of revenue, growth in third-party content cost was 31 basis points lower year-over-year. Given the pressure on our top line, it is imperative that we focus on cost management. Using our downturn playbook, we took proactive steps to control our expenses, protect margins and preserve EPS. We are now going to further identify areas where we can reduce costs. As part of the efforts Phil spoke about earlier, we plan to take an approximately $45 million restructuring charge in the fourth quarter. This charge includes approximately $15 million to $20 million for continued real estate rightsizing as discussed in last quarter’s call. Compared to the previous year, our third fiscal quarter GAAP operating margin increased by 1,260 basis points to 32.5% mainly driven by the prior year’s $49 million impairment charge and expenses related to the acquisition of CGS. Excluding both non-recurring transactions, GAAP operating margin was around 30 basis points higher than the prior year. Adjusted operating margin decreased by 60 basis points to 36%. This was largely driven by higher personnel costs and technology expenses partially offset by lower third-party content costs and lower facilities expense. You will find an expense walk from revenue to adjusted operating income in the appendix of today’s earnings presentation. As a percentage of revenue, our cost of sales was 7 basis points higher than last year on a GAAP basis and 283 basis points higher on an adjusted basis largely due to personnel costs, expenses related to CGS and technology costs. As a percentage of revenue, our impairment expense was 994 basis points lower than last year on a GAAP basis as we lapped the prior year’s impairment charge. On a GAAP basis, SG&A was 269 basis points lower year-over-year as a percentage of revenue and 46 basis points lower on an adjusted basis primarily due to decreases in professional services, partially offset by increased personnel costs. Turning now to tax. Our tax rate for the quarter was 16.9% compared to last year’s rate of 12.2%. Our higher tax rate is primarily due to lower stock option exercises. Our current expectation is that we will end fiscal 2023 with an effective tax rate of 14% to 15%. While we continue to experience variability, which includes increases in foreign tax rates, we are researching strategies to help reduce the overall rate. GAAP EPS increased 79.3% to $3.46 this quarter versus $1.93 in the prior year driven by the lapping of the prior year’s non-recurring items, partially offset by a higher effective tax rate. Adjusted diluted EPS grew 1% to $3.79 primarily due to revenue growth offset by a higher effective tax rate and lower operating margin. Adjusted EBITDA increased to $205 million, up 15.6% year-over-year due to higher operating income. And finally, free cash flow, which we define as cash generated from operations less capital spending, was $193 million for the quarter, an increase of 9% over the same period last year. This was primarily driven by cash generated from working capital changes and the timing of income tax payments. Our ASV retention for the third quarter remained greater than 95%. We grew our total number of clients by 451 compared to the prior year driven by corporate and wealth clients and partners. With client retention of 92% year-over-year, our sales and client support teams are to be commended for continuing to execute well despite market conditions. We remain committed to returning long-term value to shareholders. As previously discussed, we resumed share repurchases in the third quarter. We repurchased 165,950 shares for a total of $67.1 million at an average share price of $404.29. Under our current plan, which we anticipate completing in the fourth quarter, $114.2 million was available for share repurchases as of May 31, 2023. And additionally, this week, our Board of Directors approved a new share repurchase authorization plan of $300 million that will take effect on September 1. Over the last 12 months, combining our dividends and share repurchases, we have returned $202.1 million to our shareholders and recently increased our dividend by 10%. This marks the 24th consecutive year of dividend increases. And finally, our guidance for fiscal 2023. While there are signs that the macro environment will start to recover over the next few months, the markets remain uncertain. Last quarter, we updated our guidance to reflect organic ASV growth of $145 million to $175 million, a slight deceleration from the guidance provided at the beginning of the fiscal year. This range reflects ASV growth of $135 million to $165 million from the core business and $10 million in ASV growth from CUSIP Global Services. We also updated our revenue guidance from $2.08 billion to $2.1 billion, which was a slight deceleration from the previous guidance. As discussed earlier, we are reaffirming our guidance for those metrics, but at the lower end of the ranges. For GAAP operating margin, we expect our one-time restructuring charges to decrease our guidance range to 29% to 30%, a 50 basis point decrease from the previous guidance. GAAP diluted EPS is expected to be in the range of $12.24 to $12.65. For adjusted metrics, we expect our financial discipline and cost management focus to drive an adjusted operating margin of 35% to 36%. This represents a 100 basis point increase from the previously communicated guidance range and meets our 2022 Investor Day outlook 2 years ahead of our 2025 target. Finally, we are increasing the range of adjusted diluted EPS by $0.25 at the midpoint to $14.75 to $15.15 for fiscal 2023. In closing, we are encouraged by our performance this quarter and our ability to execute on a solid pipeline as we finish the fiscal year. We are confident in our ability to balance macro headwinds with margin expansion and expense management to continue investing in our people and products. As the pace of innovation accelerates, our deep content moat and open digital platform will strengthen our partnership with our clients and allow us to capture additional market share. We are committed to sustainable growth and excited about the opportunities before us. And with that, we are now ready for your questions. Operator?

Brendan Popson:

Good morning. This is Brendan on for Manav. Just first off, I want to ask on the ASV guidance. And obviously, the high end is still there, but you are talking about it closer to the lower end. Is the higher end still possible? Did you leave it that way because there is a couple of deals in the pipeline? You are not sure if you’re going to close, so that’s not to count on that or can you just walk through the logic of the way you’ve kind of framed the guidance update?

Brendan Popson:

Great. And then just – a quick follow-up, Linda, on the margin, obviously, last year, you were caught a bit by surprise, the Q3 to Q4 decline. Can you just help us with – we see updated guidance, but just help us with how you’re thinking about that sequentially? It looks like the midpoint would be almost – not quite 500 bps, but almost, which is what it was last year. So if you could just help us with how to think about that?

Brendan Popson:

It is. Thank you.

George Tong:

Hi, Thanks. Good morning. I wanted to follow up on the margin question. Based on your updated full year guide for margins, fiscal 4Q margins are tracking to contract year-over-year to approximately 30%. Can you talk about the reasons behind the year-over-year margin contraction?

George Tong:

Got it. That’s helpful. And then your – you mentioned that the 35% to 36% is a pull-forward of what was originally targeted to be 2025 – fiscal 2025 margins. Have you provided an updated outlook for what EBITDA margins could be in fiscal 2025? And what would be a reasonable pace of annual margin expansion over the next 2 years?

George Tong:

Great. Thanks very much.

Alex Kramm:

Hey, good morning, everyone. Two questions on ASV. I’ll do them one by one. The first one is a little bit more near-term. Can you just – when it comes to the fourth quarter and the outlook, there was a question before, but when you think about the guidance here, if I assume the low end, can you actually just tell me what that means for the fourth quarter, what’s implied? There were a lot of restated numbers. I think you’ve done $84 million in organic so far this year. So that would imply, I think, $61 million by my math, but not sure if that’s the right number. And if that is the right number, it’s a slight reduction from last year, but given this environment and slowdown in hiring classes, it seems like it could be worse. So just maybe put that 4Q implied in the context of the environment.

Alex Kramm:

Alright. I’ll follow-up on the exact number for the 4Q implied later then. In terms of my second question, this is maybe a little bit of an early look into 2024. But let me put it in context a little bit. If I go back to your investment phase, so basically before you – I think 2017 to 2019 or so, the ASV growth in average was something around 5%. And I would say when I go and look at that environment, it was a fine environment, not great. And then obviously, you went into a great environment in last couple of years. But now I think we’re seeing layoffs. We’re seeing, even on the buy side, staff reduction. So I would say the environment we’re entering here is markedly worse than what we saw prior to your investments. So again, if I put that in the context of the 5%-or-so growth that you did in that period, like is that a good starting point to think about what’s about to hit here or how would you describe the outlook, I guess, a little bit more quantitatively?

Alex Kramm:

Okay. Fair enough.

Alex Kramm:

Alright. Thanks, again, Helen.

Heather Balsky:

Hi, thank you. I wanted to ask a couple of questions on the margin. So the first question is – and I know someone else previously kind of asked about how you’re thinking about margins going forward. But I’m curious in terms of some of the pullback on costs, how much of that is permanent? And how much do you think comes back as sales and ASV start to reaccelerate? And then I have a follow-up.

Phil Snow:

Well, I just – I think we have a long-term view of our business. So through all of this, we want – the top line is very important to us and a year or so ago, we talked about maintaining a high single-digit growth rate over the next few years. So there is certainly that – we keep that in mind. I think, along with what Linda has been talking about, about sustainable margin expansion. So we feel we can chew gum and walk at the same time, particularly with all of the advancements we’ve made in technology.

Phil Snow:

Yes. Let me spend quite a bit of time on this. So it’s an excellent question. So the first thing I want to do to frame this for everybody listening is that FactSet is probably one of less than five companies on the planet that has the decades of data that’s important to this industry stitched together in a clean way. So that is so important. And I would argue that the value of even what was called commoditized data before has gone up. So we have that. That is a moat that we will continue to build on. And I talked earlier about the merging of our data – we’ve created data solutions out of two groups at FactSet, but that is something that’s so valuable to FactSet, the content refinery. We’ve done a lot already to re-architect our data hub and how we collect data, but this is going to supercharge those efforts essentially. So that is the foundation, something that’s critically important. FactSet is also masterful. It’s stitching data together. So you’re going to have to have well-coded data, quality data. You’re going to have to have the trust of the clients in this market. You don’t want to have products that are creating hallucinations or things that aren’t true, right, for our clients. So FactSet has all of those components. We’re going to be focused on three things. First of all, the product, we want to create that wow factor for our clients and the ability to come in and essentially surface anything or ask questions. And a lot of the examples that are out there today in the market, we’ve been doing those few years. You can already go into FactSet into our search bar and type in sort of basic questions and get those answers back very accurately. We’re focused on the next level of that. So that’s important. We have a lot of people thinking about that. Content collection, which Linda just mentioned, this is something that we’ve been doing for decades. We’ve gotten more and more efficient at it over the years, and we continue to invest in that. So this could actually provide a great opportunity for more efficiency, but it could also create an opportunity to put more – even more data in the platform. So that is something we have to consider carefully. And the third bucket is really the support of our clients. I mentioned in my opening comments that about 50% of the help desk questions we get are around FactSet FQL language or FDS codes, which I’m sure many of you are using and have used in the models that use to build FactSet and other things. So these are three areas of significant impact. The whole company is rallied around this. It’s one of those things that really just gets everyone motivated. So it’s a little less about like how many millions of dollars are we going to set aside to invest in this. It’s how do we get the whole company thinking about this and making sure that this is part of the fabric of what they do every day. So we’re so energized by this, and we feel there is a massive opportunity for us moving forward in both the product side and potentially the efficiency side.

Phil Snow:

Yes. You are welcome.

Hans Hoffman:

Hi, good morning. This is Hans on for Stephanie. Could you just update us on the pipeline in the wealth channel? And could you give us an update or an idea of the mix of the customer size in the pipeline? Is it mostly kind of large contracts that you could potentially win there? Or is there sort of a lot of smaller wealth advisers that can move the needle for you?

Hans Hoffman:

Got it. That’s helpful. And then just in terms of revenue growth, could you maybe parse out in terms of how much is coming from price, cross-sell and new logo wins? Is it still kind of roughly one-third between those three buckets? Or is there maybe any one of those kind of driving growth here?

Hans Hoffman:

Got it. That’s helpful. Thank you.

Toni Kaplan:

Thanks so much. Wanted to go back to the topic of data. And so I guess there is two questions that I wanted to ask. So Phil, you mentioned the value of the data going up, and we’ve definitely appreciated that as well. I guess, one, do you see that potentially impacting the cost of the data that you’re getting going forward? And two, wanted to also understand maybe some additional color on initiatives in terms of creating the proprietary data. Just what are you getting that is not from public filings? Anything like that would be super helpful. Thank you.

Toni Kaplan:

Super helpful. And I know that it’s a little bit early to start talking about price increases for next year. But I did want to just ask, you’ve been working a lot on price optimization and bundling and a strategy around that. Just trying to understand that if we go into a period where it’s just more challenging than it has been, I guess, how do you see price playing out in sort of a worse environment? Are you able to still optimize price well because of the strategies you have in place? Or does potentially next year, if things stay like they are now, is pricing a little bit less of a driver in that type of environment? Thanks.

Toni Kaplan:

Thank so much.

Kevin McVeigh:

Great. Thanks so much. I don’t know if this would be Linda or Phil, but Linda, I know you mentioned some green shoots potentially forming. Can you maybe help us reconcile that to the 3% head count reduction? Is that a function of just more efficiencies or just reallocation? I wanted to start there, if possible.

Phil Snow:

And maybe I’ll just add, too, some thoughts on the core buy-side business at FactSet. So I know at the end of our press release, it shows our growth rates for buy side and sell side, and it shows the buy side going down, I think, 80 bps. So part of that really just has to do with the fact that we’ve now included CUSIP in those numbers. So I think you can attribute about 75% of that change to just CUSIP being included, which is a mid-single-digit grower. But when we report the buy side, it includes, at least today, institutional asset management, asset owners, hedge funds as well as partners, corporates, wealth and private – not private equity, that’s on the sell side. But the IAM hedge fund and asset owner firm types all did better this Q3 than last Q3. So despite this environment, we’re doing really well with the buy side. And the middle-office solutions that we have in analytics are best-in-class now. And we feel like all the work we’re doing to improve the front-office experience on the buy side is going to begin to pay off pretty soon. So we feel really good about that. So despite this environment, when you look at our user count, it went up this quarter. It didn’t go up as much as last Q3. But every firm type that we have, we had an increase in users. So we do feel like we’re sort of through the worst of it, but it does take clients a little bit of time to sort of feel that themselves and begin to speed up decision-making again. So I don’t think it’s going to snap back immediately. But we do feel as we sort of work our way out of this that we feel good about our prospects going into next year.

Phil Snow:

Yes. So I mean, obviously, you highlighted two of the deals that recently came to market. So I don’t – I think what Nasdaq is doing, that’s – we don’t compete with Nasdaq. And I think the business that they acquired, we don’t – we won’t really play in that workflow. But we feel very good about our strategy, our consolidated platform, our prospects. We feel like we have the scale to continue to take market share aggressively. Linda and her team have done an awesome job of sort of getting CUSIP integrated with the rest of FactSet and paying down our debt into the range that we committed to. So we do feel that we’re very well poised here if we wanted to do something. And to sort of build on Linda’s comments, we’re beginning to see some activity, right? So some interesting things are beginning to bubble up. We’re in a position to do them if we want to. And we’ve been consistent in saying that the areas that make sense for FactSet are wealth, private markets those are at least a couple. We haven’t changed our view there. It’s just a question of when those assets that we’re interested in are becoming available and if we can get them at a price that makes sense for the company. But it is something we’re focused on, and it’s a muscle that we’ve continued to develop. Anything you want to add there, Linda?

Kevin McVeigh:

Thank you.

Shlomo Rosenbaum:

Hi, thank you very much for taking my questions. Just from a high level, I just want to make sure I am understanding what happened in bridging the commentary from last quarter to this quarter? Last quarter, the discussion was that small to midsized clients were slowing decision-making, but the larger clients were really kind of on the same path that you guys had expected. Is what’s happening now that your – the larger clients are also kind of slowing down on that decision-making? And then also in the banking clients, it seemed to be last quarter, you thought that, that was something that was very much tied to what you would have seen if there would have been contagion from Silicon Valley Bank and then First Republic. And we didn’t really see that, but is it a matter of kind of the markets just being choppy so that the clients are still kind of hard to read in terms of where it’s going to net out for hiring? I just want to make sure I am understanding that that’s really what’s going on behind it. And then I have a follow-up question about cost takeout.

Shlomo Rosenbaum:

Okay. And then just I am not used to seeing FactSet doing more kind of general reductions in force. Usually, the company, at least in the prior downturns, I didn’t see that very much. Can you talk about a little bit where you are taking the costs out? I mean how are you being surgical enough to make sure that you are not impacting the potential to grow the business?

Shlomo Rosenbaum:

Thank you.

Operator:

Thank you. Our next question comes from the line of Owen Lau with Oppenheimer. Your line is now open.

Phil Snow:

Sure. Hi, it’s Phil. Thanks Owen. So, the way we are thinking about it at least today, right, is we are just going to significantly improve the search capabilities on FactSet. That’s sort of one thing that we are focused on. We think there is other sort of research that we can produce from the content we have today that will be valuable to clients. So, we are still evaluating this. But my guess is, right, that we are going to just continue to improve that experience of the FactSet user that’s using like some version of our product, which will allow us to take more market share from our clients and improve retention. So, I think that’s how I would think about it for now. And on the cost-savings side, yes, it’s easy to sort of put numbers in a spreadsheet and say, okay, we will get rid of half of this type of user. But it’s obviously, not that simple an equation. So, data and technology keeps moving, it always has. You always need to produce more value than you did the previous year. So, the question for us is that balance between, okay, what are the cost efficiencies we can gain versus how much of that do we want to reinvest in the product. So, we are going to maintain that long-term view. And I think even if we felt we could take out significant costs, we believe, again, that the top line is important and reinvesting that in more functionality and more data is a good thing. So, we are at the beginning of this. It’s moving very quickly. We are moving very quickly. And as I mentioned in my opening comments, we think that the big buckets of opportunity are within products, within content collection and with support. But we just – we don’t know exactly where it’s going yet, other than we feel really good about our position.

Phil Snow:

No, absolutely not. Deep sector is one of our major product initiatives. It’s gotten significant investment over the last few years. It’s getting more through this year’s investment process. And we are including it in – today in our products. So, if you are a FactSet user today, you will just see more and more functionality and more data appear, depending on what company you are looking at and what sector that’s in. We are also creating feeds of this. So, the discrete product sales would be more feeds if you wanted to use that as part of your quantum research product. But it is having a nice impact for us, particularly in banking now with retention. And a lot of these – a lot of why you win or lose in banking is these large multiyear deals with the bigger banks, and we feel that we are in a better position than ever as those come up for renewal.

Operator:

Thank you.

Operator:

Our next question comes from the line of Craig Huber with Huber Research Partners. Your line is now open.

Helen Shan:

Sure, happy to do that. So, when we take a look at the investment management firms, I break them out into a couple of different pieces. Like you said, there is hedge funds. We call it – in our buy side, we have asset owners as well as investment management firms. The larger ones who have begun and really are committed to their digital transformation are the ones that we have the most success with because they are ready to go and they really are working with us, whether it’s through blueprinting things that we have done with them or to really help put in some of the solutions for them. So, that pipeline has remained strong. And so when I talk about the fact that they are clients that are ready to make – move forward, but maybe are constrained either by bandwidth or by initial dollars, that’s – those are the ones, Craig, that I am more referring to. I think some of the smaller firms, if they haven’t really started that or gotten committed to that journey, then those are the ones that are pulling back right now and not necessarily spending where they would have done it last year. As it relates to hedge funds, we have actually done quite well with them. They continue to form new bids and actually are buyers of our data. And it doesn’t even – when we talk about funds, it doesn’t even have to be hedge funds. It can be for any of the asset managers. If they close a fund and open a new one, a new fund, we are able to capture that as well. So, that’s really the state of what we are seeing in the markets.

Phil Snow:

Well, so the integration has gone swimmingly well, and we believe that we are going to hit all of the metrics that we set out to meet on the numbers side by the end of the year. Issuance is a bit down. I think you probably saw that in quarter – in this quarter. But if you believe that the markets are going to come back, hopefully, we see an upswing there. But all of the commentary we made previously about this business, which we don’t break out completely separately, none of that has changed.

Phil Snow:

You’re welcome.

John Mazzoni:

Hey. This is John filling in for Seth. Just a quick one, could you just remind us what percentage of the international book was captured during this round of price increases? I believe you said 7% more year-over-year. But what was that base?

John Mazzoni:

Okay. And then maybe just on a different note, if kind of the environment continues to be a bit sluggish. Could you just remind us around the different levers have been pulled? And really, if what area we are in, in terms of innings, in terms of the downturn playbook, and what those buckets could look like if we would potentially see another year or 2 years of kind of sluggish economic growth and potentially lower headcounts? Thanks.

John Mazzoni:

It does. Great color. Thank you.

Faiza Alwy:

Yes. Hi. Thank you. So, I know we have covered a lot of ground. I just had a couple of quick clarification questions. One is a follow-up on Alex’ question regarding the ASV base, if you don’t mind just confirming for us that the base for fiscal ‘23 for that $145 million increase is $2027.4 [ph] million, I think that would be very helpful for everyone.

Faiza Alwy:

The total amount of ASV that you had at the end of fiscal ‘22 that you are going to grow off of by $145 million.

Faiza Alwy:

Okay.

Faiza Alwy:

Okay. It sounds good. And then just a second, I guess it’s a clarification question, and I might be stating the obvious. But what I am hearing is that given the overall macro environment, demand environment, we might be below the medium-term targets as it relates to the top line or the ASV growth. But we expect to make up for it on margins such that we are able to maintain the 11% to 13% EPS growth outlook that you had talked about at Investor Day last year. Is that the right way to think about fiscal ‘24? And if so, are there any parameters that you can put around it?

Helen Shan:

Yes. No, I just wanted to go back to your question to make sure that I understood it. So, if you are asking about the total ASV for FY ‘22, I think you said 2027.4, that is the number I would use.

Helen Shan:

Well, it depends on where we end the year. But yes, our ranges include CGS, and this would include CGS as well.

Helen Shan:

I think probably this makes sense for you to follow-up with Kendra afterwards. I am not sure when you say accelerate. If you are asking whether our fourth quarter is larger than our third quarter, the answer is yes. Historically, it has always been larger, and it will be larger this time around as well.

Operator:

Thank you. Our next question comes from the line of Keith Housum with Northcoast Research. Your line is now open. Keith, your line is open, please check your mute button. Our next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.

Phil Snow:

Yes. So, I mean that’s a pretty technical question. So, there are – the things that you mentioned certainly will help there. We are exploring all of the different things that could make it more efficient. Today, the content collection process is a combination of machine and humans. So, we feel for a lot of things – just obviously, you are still going to need a human in the loop for good judgment and so on, quality assurance. So, it’s probably a little bit more of the tools themselves evolving to a way where we can get the information in front of the human in a more teed up way where it makes them just much more efficient. So, we use StreetAccount as the first example here. So, our StreetAccount new service, which many of you use, does an awesome job and it has historically of pulling together lots of different sources, getting it in front of a professional who then puts it into bullet points, which make it so easy for you to consume. And what took one of these very skillful people 30 minutes to do previously for an S&P 500 company took them two minutes, right, in this last iteration. And that’s just like at the very beginning of trying something fairly simple. So, that’s a massive efficiency. We still need that person to look it over, make sure that they are adding the added value that they will always add to get there. But that’s just one very clear example. This is a rapidly evolving space. And we just – we are partnering with lots of firms here, and we are evaluating lots of different LLMs, including open-source. But we are very encouraged by the early signs that we have seen on both the content collection side as well as the coding side.

Operator:

Thank you. Our next question comes from the line of Russell Quelch with Redburn. Your line is now open.

Phil Snow:

Sure. Thanks Russell. It really has to do with the data that we have on FactSet. So, we collect a ton of proprietary content ourselves. We also are very – are trusted to integrate third-party as well as client data. So, it’s that amalgamation and that library of all that data that’s well stitched together that investment professionals will need to use. And it’s the reason they have used platforms like FactSet over the years. So, we are in a – that’s what you need to really get going. I think if you are a firm that doesn’t have that data already, I am sure you could start today and maybe be more valuable in the future. But recreating all of that history for a fundamental analyst, a quant analyst, if you are looking at client portfolios, it doesn’t matter. That is one of the key things that folks are going to need. So, it’s not going to matter how good your technology is unless you are pointing it at quality data. And there have been other instances in our industry of people trying to come up with cheaper alternatives of FactSet and other providers. And I don’t think many of those have been successful, frankly. So, I do think that given the data we have, given the relationships we have with our clients, given all the investment we have made in our platform to sort of be AI first and open the platform and redo the content refinery, all of those things for us – and having the relationships and the trust with our clients, all of those things add up to me to be a very powerful formula.

Phil Snow:

If you are talking about the medium-term guidance we gave out at Investor Day, I think it was last April, yes, we are obviously going to be taking a close look at FY ‘24, and we will give more color on that when we speak to you in three months.

Phil Snow:

You’re welcome.

Jeff Silber:

Thanks so much. I know it’s late. I will just ask one. You talked about the uncertain environment here. And I think, Linda, you said you might be optimistic that there might be darkest before the dawn. What are you looking for? And what should we be looking for to get some confidence that these guys are starting to open up a bit.

Linda Huber:

I would add that – it’s Linda, in the past short period of time, we have come through 500 basis points of rate increases from the Fed, the banking issues that were happening in March, credit contraction that’s resulting from some of those issues, and then the self-imposed debt ceiling issues that recently cleared. So, those are four macro factors that have been very disruptive to the capital markets that have absolutely nothing to do with the health of FactSet’s basic products and business. So, the capital markets are cyclical. And for those of you who are newer to the industry and perhaps earlier in your careers, this sort of capital market slowdown happens every few years. And generally, when the markets reopen, things rebuild very quickly. The hiring and firing cycles at banks, Helen and I were talking about just the other day as two former investment bankers, they wax and wane. It’s just the way the industry works. So, I would caution against overreaction, but I will turn it over to Helen and see what she has to say.

Jeff Silber:

Alright. It’s very helpful. Thanks so much.

Phil Snow:

Thank you all for joining us today and all the great questions. We look forward to speaking with you again next quarter. In the meantime, feel free to contact Kendra Brown with additional questions. Operator, that ends today’s call.

Kendra Brown:

Thank you and good morning, everyone. Welcome to FactSet's second fiscal quarter 2023 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast and are currently available on the Investor Relations section of our website at factset.com. 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 two, 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 Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thank you, Phil, and hello to everyone on the call. As you've seen from our press release this morning, we're pleased to report continued high single-digit organic ASV growth and double-digit growth of revenue and adjusted EPS year-over-year. I will now share additional details on our second quarter performance. Consistent with our definition of organic revenues in ASV, we will exclude any revenue in ASV associated with CUSIP Global Services when reporting organic metrics. Given the first anniversary of the CGS acquisition on March 1st, 2023, CGS will be included in the organic results of FactSet as a component of our CTS business starting in the third fiscal quarter of 2023. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew organic ASV plus professional services by 9.1% year-over-year and acceleration over the last quarter and a solid finish for our first half. Our performance reflects the strength of our recurring sales model and disciplined execution by our sales team as our clients look to technology and data to drive alpha. We saw improved retention and expansion among existing clients. Price realization also continues to improve as we executed a higher price increase over a larger client base. GAAP revenue increased by 19.5% to $515 million for the second quarter. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange increased 8.9% to $470 million. Growth was driven primarily by CGS and our Analytics & Trading and Content & Technology solutions. For our geographic segments, on an organic basis, revenue growth for the Americas was 8.2%, benefiting from increases in Content & Technology solutions and Analytics & Trading. EMEA revenue also grew at 8.2%, primarily due to growth in Analytics & Trading. And finally, Asia Pacific revenue growth increased 15.3% due to increases in Research & Advisory and Content & Technology solutions. GAAP operating expenses grew 12.4% in the second quarter to $346 million. And I'll now detail the drivers based on our primary cost buckets. First, people, our expenses grew by 10% year-over-year in the second quarter, primarily due to increased salary and bonus expenses for existing employees. As a percentage of revenue, this was 350 basis points lower year-over-year, driven by slower salary growth as a percentage of revenue, higher labor capitalization and FX benefit. We saw headcount increase by 10.3% year-over-year, with two-thirds of these new positions located in our Centers of Excellence. And as a reminder, more than 66% of our employees are located in our Centers of Excellence. Next, facilities expense decreased by 7% year-over-year due to our reduced real estate footprint lapping of the previous year's impairment charge of $10 million and FX benefit. As a percentage of revenue, this was 360 basis points lower year-over-year. As we continue our intense focus on cost management, we expect to take another real estate charge of approximately $15 million to $20 million later this fiscal year. Moving on, technology expenses increased by 27%, driven by increased cloud spend, third party software costs and higher amortization of internal use software. As a percentage of revenue growth was 50 basis points higher year-over-year due to higher capitalization of internal use software. As we explained during last year's Investor Day, we anticipate technology costs being 8.5% to 9% of revenue over the medium term. Technology expenses will likely continue to increase as we invest for growth. And finally, third party content costs increased by 5% year-over-year. Our team is doing an excellent job of controlling third party data costs despite inflationary pressure. As a percentage of revenue growth in third party content costs was 70 basis points lower year-over-year. And now turning to the margin front. Our GAAP operating margin increased by 430 basis points to 32.9% compared to the previous year. Our adjusted operating margin improved by 330 basis points to 37%. Margin expansion resulted from higher revenue, lower personnel costs as a percentage of revenue. The lapping of the prior year's impairment charge and lower content and facilities costs. These savings were slightly offset by higher technology costs and expenses related to CGS. As a percentage of revenue. Our impairment expense was 230 basis points lower than last year's on a GAAP basis. You'll find an expense walk from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percentage of revenue, our cost of sales was 50 basis points higher than last year's on a GAAP basis, largely as a result of increased amortization of intangible assets expenses related to CGS and technology costs. This was partially offset by lower personnel costs as a percentage of revenue. On an adjusted basis, it was 180 basis points lower due to lower personnel costs as a percentage of revenue, partially offset by expenses related to CGS and higher technology costs. And finally, on a GAAP basis, SG&A was 245 basis points lower year-over-year as a percentage of revenue and 150 basis points lower on an adjusted basis. This was primarily due to decreases in facilities expense and professional services. This was partially offset by an increase in T&E as our teams resumed essential travels. Turning now to tax. Our tax rate for the quarter was 16.1%, a 6.2% increase compared to last year's rate of 9.9%. The higher Q2 tax rate is due to higher pre-tax income and lower stock option exercise. Going forward, it's important to note that we expect more volatility in our tax rate. One driver will be foreign tax. In April, the UK statutory rate will increase from 19% to 25%, increasing FactSet's foreign effective tax rate and reducing the tax benefit of foreign income. Stock option exercise will also fluctuate with our stock price generally, resulting in lower tax rate when the stock price is higher and higher tax rate when the price is lower. Also, as we finalize our tax returns for prior years, we have the potential for one -time charges, which could also be helpful. Even with this variability and a higher tax rate for the second quarter, we expect to end fiscal 2023 with an effective tax rate of 13.5% to 14.5%. GAAP EPS increased 19% to $3.38 this quarter versus $2.84 in the prior year. Adjusted diluted EPS grew 16.2% to $3.80. Both EPS figures were driven by higher revenue and margin expansion, partially offset by increased interest expense and the higher tax rate. Also of note, Q2 EBITDA increased to $200 million, up 45.4% year-over -year due to higher operating income. And finally, free cash flow, which we define as cash generated from operations less capital spending was $147 million for the quarter, an increase of 34% over the same period last year. This was due to higher net income, partially offset by increased capitalization costs from internal use software. We would note that strong free cash flow continues to be an attractive feature of FactSet's business model. Our ASV retention for the second quarter remained greater than 95%. We grew our total number of clients by 558 compared to the prior year, driven by corporate and wealth clients and channel partners. Our client retention remains at 92% year-over-year, demonstrating excellent execution by our sales and client support teams. Moving on to our balance sheet, during the second quarter, we completed another $125 million prepayment of the three-year term loan for the CGS acquisition. This was our fourth prepayment since the start of the loan. This brought our gross leverage ratio down to 2.4 times from 3.9 times level when we initially financed the CGS acquisition. This is well within our 2.5 times to 2 times gross leverage target and appropriate for our investment grade rating. Given that we are within our target range, we will slow the pace of repayment of the remaining 500 million outstanding balance of the term loan, which matures in 2025. Also, given our reduced leverage levels, we intend to resume share repurchases for the remainder of fiscal 2023. We currently have $181.3 million available for share repurchase under the company's existing authorization. We plan to allocate this amount equally in the third and fourth fiscal quarters. While bringing our repurchases back to previous levels will take time. We're focused on returning capital to shareholders. We will provide updates on our share repurchase program in the coming months. As Phil stated earlier, given our reduced core ASV outlook and the inclusion of CUSIP Global Services as part of our organic results, we are updating our guidance for fiscal 2023. We expect organic ASV growth of $145 million to $175 million, which is a $15 million reduction in core ASV growth at the midpoint. The decline is offset by the $10 million addition of CUSIP and remains within our medium term outlook of 8% to 9% organic ASV growth. Given the headwinds to ASV and lag timing of ASV in the first fiscal quarter, we expect revenue for fiscal 2023 to be in the range of $2.08 billion to $2.1 billion. At the midpoint, revenue growth is expected to be about 13%, a deceleration of 95 basis points from our previously issued guidance. Despite a slightly softer top line, we are confident that our disciplined expense management will allow us to protect margins and preserve EPS. Consistent with our downturn playbook, areas of focus include ongoing real estate rightsizing, rationalization of third party content costs and limiting hiring to essential positions. Based on forecasted performance, we also expect our year-end bonus pool to be in the range of $100 million to $105 million, roughly $10 million less than last year, which will provide an additional margin benefit. As a result of these measures, we are maintaining adjusted margin guidance of 34% to 35%, consistent with our Investor Day commitment of 50 basis points to 75 basis points of adjusted margin expansion on average per year. And finally, given the strength of our adjusted operating margin and revenue growth, we expect adjusted EPS of $14.50 to $14.90 for fiscal 2023 as previously communicated. Despite the uncertain environment, we remain confident regarding long-term growth. We have a diverse pipeline and are seeing higher retention, better expansion, improved price realization and increased demand for our products. In addition, our enterprise contracts and diverse end markets provide us with some downside protection in a turbulent market. As a result, we remain committed to our medium term outlook and are positioned well for the future. And with that, we're now ready for your questions. Operator?

Brendan Popson:

Good morning. This is Brendan on for Manav. Just want to ask on, the ASV – obviously, not entirely unexpected with everything going on. I appreciate the disclosures there on where it's coming from. I want to ask, you talked about two-thirds of being from banking. Would have expected maybe some of it's coming from venture capital to, if you guys walk through where exactly you expect that impact to be. And maybe it's just -- it's venture capital just such a small part of ASV doesn't matter. But if you could quantify that for us too, that would be great.

Brendan Popson:

Okay. And then just one follow-up pivoting over to margin. Obviously, a really strong performance in the first half. And I know that second half is typically seasonally worse, but it's still, the number you guys have there still feels a little conservative, even if ASV comes in a little lower. Is there something to call out? I mean, it sounds like maybe more real estate charges are coming in. I mean, it seems like it feels like the 30 even 35 seems pretty beatable. But just -- if I'm missing something, just let me know.

Brendan Popson:

Great. Thank you.

Alex Kramm:

Yeah. Hey, good morning, everyone. Just quickly on the pricing, $30.7 million, clearly a nice increase from last year. But if I look at this correctly and I just look at your U.S. ASV, I think that works out to roughly 2.5%. I think you've been talking about the rec rate 6%. So just wondering, I know you don't get it on all of your book of business, but just talk about maybe if you saw a little bit more incremental pushback than you expected or how pricing discussions had gone relative to expectations and how we should be thinking about the European increase, which should be coming in the next quarter?

Alex Kramm:

Okay, great. Thank you for the color. And then second question, I'm not sure if I'm the right person to ask it, but I will anyways. I mean, obviously UBS is buying Credit Suisse and I think this is the first, I guess, bulge bracket marriage or forced marriage that we've seen since the financial crisis. So when I go back to 2008, 2009 performance, you certainly saw that impact. Phil, I heard you in terms of highlighting how big some of - or how big the biggest customers are. But could you talk about how something like that may impact you? I would assume this is more a fiscal year '24 event. And then if I think about the relative size relative to what you said earlier, I mean, it's like 15 million plus or minus the right ballpark for a client of that size. Or can you help us a little bit about a potential impact here?

Alex Kramm:

Fair enough. Thank you.

George Tong:

Hi, Thanks. Good morning. Your ASV guidance plans for slower growth from the banking category. Can you describe what you're seeing with the sales cycles there and the broader pipeline? How much of the guidance reduction reflects what you've already seen versus conservatism around what you expect to see?

George Tong:

Got it. That's helpful context. And as a follow-up on a turn to margins, you had mentioned before that you expect margins to move lower heading through the year and understand the seasonality of margins. If you look at year-over-year comparisons with margins, which essentially would wash out seasonality, how do you expect margin -- margins to progress year-over-year? And what are the key puts and takes as you think about margin expansion or contraction year –over-year?

George Tong:

Very helpful. Thank you.

Operator:

And thank you. And one moment for our next question. And our next question comes from Andrew Nicholas from William Blair. Your line is now open.

Philip Snow:

Yeah. Thanks for the question. Yeah, we feel confident. You know, we've had this asset for a year now, so we're still getting to know it. It's a very steady, consistent business. We're executing exceptionally well. We've got a great sales team. Almost all of the employees that came over during the acquisition are still with us and very happy. And I think some of, you know, the growth can just be attributed to good execution, frankly, in terms of the contracts. And as new issuance comes out, you know, it is getting -- into issuing CUSIPS for new asset classes isn't a very quick process, right? There's a lot of parties you have to bring to the table and get on board to do that. So we're making good progress there on the two areas that I mentioned, particularly the loan entity IDs. So it's a consistent business. You know, I think you should see steady performance from it. But again, we're just getting to know this asset really well now that we've had it for a year.

Philip Snow:

Yes. Thanks for the follow-up question. There are no gaps related to the product that we intended to take to market, so we're doing very well with the advisor workstation. And, you know, some of the reasons we're winning really are just the ease of use of the interface, the speed of it, the flexibility FactSet's, you know, superior analytics capabilities, integrating portfolios. The advisor dashboard that we've layered on top of -- of this for some clients really suggest the next best action for the advisors. That's been a big hit and just I think our open and flexible technology in addition to the interface itself, allows the firm to bring in feeds and other components that they may want into other parts of that business. So it continues to grow in double-digits. It was a double-digit growth for I think seven or eight quarters in a row now. So a very consistent performer and we still see a lot of room here to grow. The tailwinds in the space and as you pointed out, there are some obvious adjacencies that could -- fax it could get into -- could get into. So we're looking at those, you know, and if there's an opportunity to do something, either buy or build, we'll take advantage of that. Helen, do you want to add on?

Andrew Nicholas:

Great. Thank you.

Faiza Alwy:

Yes. Hi. Good morning. Thanks. Phil, I wanted to ask about investments because it looks like the pace of investments is going to accelerate, which is -- which is typically the case seasonally. But I'm curious if, you know, given the recent volatility, if you're thinking around the types of areas that you're investing in has evolved at all?

Faiza Alwy:

Great. That's very helpful. Just as a follow-up, I wanted to ask about capital allocation. So Linda you mentioned that you expect to slow the pace of repayments on the debt side. Maybe talk about how you're looking to balance debt paydown versus share buybacks like should we expect all buybacks to happen immediately this year? Or just give us a bit more color in terms of how you're -- how you're thinking about those things?

Faiza Alwy:

Yes, very helpful. Thank you.

Craig Huber:

Great. Thank you. My first question, if you go a little bit deeper, if you would please, on the sales cycle that you're seeing on your buy side clients, both you know the asset managers, hedge funds, but also love to hear a little bit on the venture capital and private equity firms out there, how that sales cycle is tracking for you?

Craig Huber:

And then how would you characterize the -- the revised ASV outlook here in terms of conservativeness given -- given the environment, I don't blame you for being conservative there and but just how did you put that together in terms of as the question came up earlier, I just want to hear a little bit further about what you're hearing from clients versus what you layered on top of that, trying to anticipate about tougher economic and stock market backdrop?

Helen Shan:

Yeah, I think it's also important to keep in mind the shape and mix of our banking book. So, so first of all, we have seen acceleration in a lot of the cross-selling we're doing. So as banks are, we've had growth in data feeds, API integration, digital solutions in there. So it's not only around the workstation itself. And then the other piece is to really think about both the large banks, sort of the majors, as we call them, and then the middle market banking clients where a number of advisory boutiques actually are making opportunistic hiring decisions. And so that's helped keep the book in decent shape. So we do expect this sector to be slower than last year. But I think the diversification and what we're offering them and the mix of the client portfolio and of course the multiyear contracts that have minimums, two thirds of our book have minimums in there in the banking. So that gives us some downside protection. So I feel pretty good about our ability to manage through that -- that downturn.

Operator:

And thank you. And one moment for our next question. And our next question comes from Ashish Sabadra from RBC Capital Markets. Your line is now open.

Philip Snow:

Hey, Ashish. It's Phil. I'll start. So, yeah, we're seeing very good pipelines for both Analytics and CTS. And this really I think is just in line with the mega trends that we've seen on the buy side for the last few years. So all these firms are going through their own transformations. They want to do more with less partners essentially. So they're looking for those anchor partners like FactSet that they can work with that have the majority of what they need from a technology and content standpoint, and then they want to shorten the tail. There's also a shift to outsourcing. So we're seeing a lot of the asset services beginning to do more for asset management clients. You know, we think we're in about 70% of the asset services at different stages of working with them, but we've got very good partnerships there that's really built up over the last year or two where FactSet's superior middle office solutions, whether it's risk performance reporting or all the multi-asset class capabilities. We can deploy those now to the buy side either directly ourselves or through partners like asset services. So that's a big trend. We're also seeing very good strength in asset owners. That firm type accelerated this quarter for -- for some of the same reasons, just the strength of those solutions that we offer. So that's a trend. I think also, you know, Helen mentioned sort of the open technology that's working very well with wealth clients. That's true with, you know, asset managers as well. So there's lots of ways that we can help them. On the CTS side, the real time data had a very strong quarter. We had that key deal. We see a lot of opportunity there, a very strong pipeline for what we're calling market data-as-a-service. So FactSet is delivering this through the cloud, which is new. So for clients that have had very heavy on-prem solutions for real time, historically, we're offering a next generation solution for them that we think is very exciting. So that's one of the things I would highlight in CTS.

Linda Huber:

I was just going to add one quick thing. In this sorts of periods, the thing you want to focus on as well is retention. And our retention has continued to be incredibly strong. And as we think about the expansion with the buy side from a workflow perspective, we continue to see strength in the middle office with performance solution. And as Phil said back office with real time where we're the only provider with a ticker plant in the cloud and that's a differentiating factor that's very much resonating. And then to your last point, when we see delays, we are not seeing -- seeing those deals necessarily fall out, meaning they're not lost or cancelled. And I think that plays a bit into the comment made around when they will -- when they will come actually become monetized.

Linda Huber:

Yeah, no, wealth is a terrific growth area for us and Bank of Montreal deal is in this quarter, but it's just part one we believe as they continue on their complete digital transformation. In fact, it's in the statement that they gave in the press release, we'll -- we'll follow them through that. So but it is in this quarter.

Operator:

And thank you. And one moment for our next question. And our next question comes from Russell Quelch from Redburn. Your line is now open.

Linda Huber:

Russell, it's Linda. Yeah, best-in-class in our competitor set is above where we are. But there are different businesses. Some of the companies have an index business which has a 75% plus margin, and some of them have ratings businesses which have 55% plus margins. We have neither of those businesses. We think we're doing really well. On the margin increase front, we've said 50 basis points to 75 basis points on adjusted operating margin and that we will see that on average over the next few years. So we've been making really good progress on that. Are there more things we could do on margin? The answer is definitely yes. I spoke about what we're looking to do in terms of further reduction in our real estate footprint, and we're very proud of the cost control efforts that we've put in place already. I think the main part of the effort here that Phil may want to pick up on is what we're doing to automate our content collection. And that's kind of the -- the biggest opportunity that we have. And technology is changing very rapidly in that area. We are able to move much more quickly with content collection and do much more, much more quickly than we were able to do previously even a year ago. And I'm not sure that it's relevant to comment on what happened really ten years ago. This company was very, very much different ten years ago. So we're working on the margin. We have done what we said we will do even with a $15 million decrease in the core ASV growth, we're still holding margin for -- for the year with the increases that we had spoken about before. So maybe I'll turn it over to Phil here and let him talk a little bit more about some of the opportunities that we see particularly in the content area.

Russell Quelch:

Okay. Yeah. Thanks. Okay. Just as a follow-up, in terms of client growth, the client growth has been under 100 for two consecutive quarters now I think. To what degree do you think that's due to just the backdrop or is there an element to which we're seeing the impact of increased competition particularly in financial markets, workstations from some of your peers?

Russell Quelch:

Thanks both.

Kevin McVeigh:

Great. Thanks so much. Hey, Phil, you had a comment on the call where you talked about CTS tilting more towards technology as opposed to content. Can you maybe just disaggregate that a little bit? How much, if you can, how much does CTS today is kind of content versus technology and is there a meaningful difference in the growth there? And then is it kind of the -- the Snowflake relationships and Helen describing that technology adoption or is it to Helen's point earlier just the sophistication of the clients you're serving?

Kevin McVeigh:

Super helpful. And then -- this may be obvious, but Linda, if you could just humor me. The difference in the ASV relative to the revenue. It looks like a $5 million tweak and I know CUSIP comes in versus the revenue looks like it's $15 million to $20 million. Is there any way to think about the delta between those two?

Kevin McVeigh:

Thank you.

Shlomo Rosenbaum:

Hi. Thank you very much for taking my questions. Phil, can you elaborate a little bit on the cancellations you touched on? Is there something in particular? Is it people getting laid off? Is it some firm closures? Maybe you can just expand on that a little bit?

Shlomo Rosenbaum:

I thought you were when you're discussing Americas, that you had some area that you said you were some of the positives or one of the negatives. I thought there was -- there were some cancellations that you had highlighted. Could be that I misunderstood it?

Shlomo Rosenbaum:

Okay. Go ahead.

Shlomo Rosenbaum:

Okay. Thank you. And then, Linda, you talked a little bit about real estate potential, additional real estate that you're planning to do some more actions on the rest of the year. If you look at your downturn playbook, is there a lot more levers that you can kind of push in that downturn playbook beyond what you've kind of laid out for us in the last several quarters? In other words, if you -- if we do see that this kind of spirals more after, as you noted, was a very eventful weekend last weekend?

Shlomo Rosenbaum:

Thanks for pre-empting that.

Operator:

And thank you. And one moment for our next question. And our next question comes from Toni Kaplan from Morgan Stanley. Your line is now open.

Linda Huber:

Hey, Toni. I'll take a shot at that. I think for cross-selling, it becomes a little bit around client budgets. So we did talk about a longer sales cycle. It would be remiss of us to not also note that clearly folks are tightening their belts. So there is some of that coming into play. That being said, as I mentioned earlier, for our larger clients, many of them had set budgets. They need to continue to invest. So we've not seen some of the major changes on that front. There may be if they need to take something major in terms of change especially in certain areas right now because of changing from one provider to another. But in terms of add on, especially on feeds, we've seen very good positive momentum there. So I think the pressure will be more along the lines of material, new projects as opposed to expansion.

Philip Snow:

Yeah, typically -- typically, our risk offering, Toni, is delivered through our analytics suite and that will be multi-asset class risk is really where the momentum has been for us over the last number of years. So we have a number of risk models on our system from third party providers that we integrate and then we do a lot of our own work on the risk side as well. So our FactSet really giving that choice and then very good analytics that are integrated with the rest of your portfolios, your performance suite, all of that has come together so nicely. With the acquisition of BISAM, Vermilion and getting those integrated into the core FactSet platform. So we just see, you know, when you go out and you're closing an asset owner or an asset manager risk usually is at the heart of their middle office system. And we believe that we've done such a nice job there. We have good momentum. It wasn't a particularly strong quarter for risk. It's a consistent performer, but it's always in the mix there with, you know, the rest of -- the rest of things. It's really at the heart of it. This quarter in analytics, we did very well with our quant product, which is which we're investing in, and we also did very well in fixed income. So it's nice to see fixed income have a good quarter as well.

Operator:

And thank you. And one moment for our next question. And our next question comes from Owen Lau from Oppenheimer. Your line is now open.

Linda Huber:

Thanks for that question. Yeah, we did see accelerated growth in the quarter, which is terrific. And in particular, some good demand in the first half in both Australia as well as in Japan. If I think about Australia, they had greater and improved retention and increased demand from asset owners in particular, as you know, they would be the super funds who are going through some consolidation and trying to gain efficiencies. And so they've got a lot of complexity on the data side. And as Phil just mentioned, our ability to help them manage through that, to connect their -- the different various data sets has really been a differentiator for us. So our concordance offering has helped them, for example, in creating an entity master. Now Japan has their own issues, but they've also expanded in terms of accelerated growth with asset managers. So we continue to see double-digit growth there in analytics. Now we do see that Hong Kong is still recovering. So I think we mentioned that last quarter, but activity has picked up a lot given post the relaxation of the zero COVID rule. So we think the pipeline there is beginning to book, but at this point, it's coming from, as you know, a bit of a low base. But we're very pleased to see the -- the improvement happening out in APAC.

Philip Snow:

Hey, Owen. It's Phil. So ESG is a very small piece of FactSet's business. Our strategy here is just to provide the picks and shovels that anyone in the market that wants to can build a view of ESG. You know, we'll provide choice of data that's out there, but we're not in the business of creating ESG ratings or anything like that. So, you know, we'll provide the tools that clients need, but it's not a huge focus for us. And you know what? I don't want to get lost today, right, with all of the volatility of the market is this was FactSet's strongest Q2 ever. We had a very good quarter and we had three deals across different parts of our businesses in the seven figures. We had a fantastic real time deal, which is new. We captured a large sell-side research deployment, which is very exciting. And then we had the BMO wealth deal that we've been able to be more public about. So all of this really points to the strength of our business, the diversity of it, and I think a reason for us all to be optimistic moving forward.

Philip Snow:

So in closing. Yes, sure. Thank you, Owen, and thanks everyone for your questions today. In closing, thank you all for joining us today. Please note that in conjunction with the first anniversary of our inaugural investment grade senior notes offering, we will be hosting a conference call for our fixed income investors on April 13th. Linda and I will give an update on performance and take questions from investors. Details can be found in our press release that we just issued on March 21st. In the meantime, feel free to contact Kendra Brown with additional questions and we look forward to speaking to you again soon Operator, that ends today's call.

Kendra Brown:

Thank you, and good morning, everyone. Welcome to FactSet’s first fiscal quarter 2023 earnings call. Before we begin, I would like to point out that the slides we will reference during 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 Linda Huber, Chief Financial Officer. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thanks, Phil and hello to everyone on the call. As you've seen from our press release this morning, we reported high single digit organic ASV growth and double digit year-over-year growth in revenue and adjusted diluted EPS. I'll now share more details on our first quarter performance. Consistent with our definition of organic revenues in ASV, we exclude any revenue in ASV associated with CUSIP Global Services when reporting organic related metrics for the 12 months following the acquisition date. We will, however, provide some specifics on CGS, so you can continue to understand its performance as part of FactSet. Beginning March 1, 2023, the first anniversary of the CGS acquisition, it will be included in our organic results as a component of our CGS business. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew organic ASV plus Professional Services by 8.8%. As Phil stated earlier, this is a strong start to our fiscal year as compared to our typically lower revenue first quarter. Our performance reflects increased demand for our content and solutions, higher retention and continued expansion. We saw strength in the workstation for banking, key client wins with our Enterprise solutions and our subscription-based ASV continued to support value-based pricing. GAAP revenue increased by 18.9% to $505 million for the first quarter. Organic revenue, which excludes any impact from foreign exchange and acquisitions, increased 8.3% to $460 million. Growth was driven primarily by CGS and our Analytics & Trading and Research & Advisory solutions. All regions saw notable growth. From our geographic segments on an organic basis revenue growth for the Americas was at 7.6%. EMEA grew at 7.2% and Asia Pacific came in at 14.9%. All regions primarily benefited from increases in Analytics & Trading and Research & Advisory solutions. GAAP operating expenses grew 10% in the first quarter to $333 million. Let me now review our expenses based on our primary cost buckets. Starting with people, our expenses grew 4% year-over-year, primarily due to increased salary expenses for existing employees and higher stock based compensation expense. As a percentage of revenue this was 572 basis points lower year-over-year, demonstrating our continued focus on achieving a sustainable balance of investment in our talent and productivity. Next, real estate costs decreased by 21% year-over-year, driven by the right-sizing exercise we performed in fiscal 2022. As a percentage of revenue this was 181 basis points lower year-over-year. Third, technology expenses increased this quarter by 11%, driven by increased cloud spending. As a percentage of revenue growth was 51 basis points lower year-over-year. And finally third party direct content costs decreased by more than 12% year-over-year, driven by our continued focus on financial discipline and data governance. As a percentage of revenue growth was 156 basis points lower year-over-year. While this is a good result for the first quarter, we expect the annual rate to grow at 5% to 6% in line with the outlook we gave at our April 2022 Investor Day. Compared to the previous year, our GAAP operating margin increased by 517 basis points to 34.1% and our adjusted operating margin increased by 471 basis points to 38.3%. Improvement was driven by higher revenue, lower personnel costs as compared to revenue and lower content and real estate costs. These expenses were offset by higher technology expenses and costs related to the integration of CGS. Regarding our first quarter margin, I want to remind everyone that our first quarter margins tend to be seasonally higher than in subsequent quarters. While we've had a strong first quarter margin performance on both a GAAP and adjusted operating basis, we remain committed to balancing investment in our business with returning value to shareholders. As such, we continue to anticipate 50 to 75 basis points of margin expansion for the full fiscal year 2023. Further, we expect our fiscal 2023 adjusted operating margin to be between 34 and 35%. This means we anticipate that margins will likely be lower in the subsequent quarters of fiscal 2023. You'll find an expense block from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percentage of revenue, our cost of sales was 380 basis points lower than last year on a GAAP basis and 450 basis points lower on an adjusted basis. On a GAAP basis, SG&A was 140 basis points lower year-over-year as a percentage of revenues and 20 basis points lower on an adjusted basis. Moving on, our tax rate for the quarter was 13.4% compared to last year's rate of 10.2%. Our higher rates primarily due to higher pre-tax income and an increase in the UK statutory tax rate from 19% to 25%, which will continue for the foreseeable future. GAAP EPS increased 26.2% to $3.52 this quarter versus $2.79 in the prior year. Adjusted diluted EPS grew 22.8% to $3.99. Both EPS figures were driven by higher revenue and margin expansion and were partially offset by increased interest expense and a higher tax rate. As noted in our press release, adjusted EBITDA increased to $200 million, up 38.2% from the same period in fiscal 2022. And finally, free cash flow, which we defined as cash generated from operations less capital spending, was about $89 million for the quarter, an increase of 37.8% over the same period last year. This was due to higher net income, partially offset by increased capitalization costs related to internal use software. Before moving on, I want to provide additional financial housekeeping items to help with modeling. First CGS continued to perform well, adding $3 million in incremental ASV for the quarter. We expect it to grow in the mid-to-high single digits. As a reminder, we will update guidance next quarter to include CGS. Once it is included as part of our organic results, we will no longer report on CGS separately. Next, interest expense for the quarter was $16 million. For the full year, we expect to end fiscal 2023 with interest expense of about $66 million. As a reminder, we paused share repurchases to prioritize debt repayment following the CGS acquisition. As such, no additional shares have been purchased since the first quarter of 2022. As of the end of November, 2022, our weighted average diluted share count was 39 million shares. Moving on to the bonus accrual, given our performance so far, we expect the bonus pool for fiscal 2023 to be about $100 million. Our operating income benefited from the strength of the U.S. dollar versus major currencies we hedge. However, we expect exchange rates to be volatile throughout the year, so the impact will fluctuate. As a reminder, 95% of our revenue and most of our expenses are denominated in U.S. dollars. Next, we ended the fiscal quarter with capital expenditures of about $18 million up $9 million from the prior year period. This was driven by increases in capitalization as well as technology expenditures. As we discussed on our last earnings call, we expect an increase in CapEx this fiscal year to be about $68 million at the midpoint as we move to our hybrid cloud strategy, increased focus on capitalization and consolidate our offices in Paris as part of our real estate strategy. And finally, we expect our dividend program to continue delivering value to shareholders. Fiscal 2022 March 23 consecutive years of growth and we paid a quarterly dividend of $0.89 on December 15. Our ASV retention for the first quarter remained greater than 95%. We grew the total number of clients by 13% compared to the prior year, driven by corporate wealth and private equity and venture capital clients. Our client retention remains at 92% year-over-year reflecting the stickiness of our Content and Digital platform. Turning now to our balance sheet, we continue to pay down the term loan related to the acquisition of CGS. In the first fiscal quarter, we made another planned prepayment of 125 million, bringing our gross leverage ratio down to 2.7 times from the initial 3.9 times level when we financed the CGS acquisition. Following our next planned prepayment of $125 million in the second fiscal quarter, we expect to be within our target leverage ratio of 2 to 2.5 times. The strength of our net income and adjusted EBITDA has allowed us to move faster than expected to reach this target. As a reminder, while we may make minor share repurchases to offset the dilutive impact of stock option grants during this time, we do not intend to resume our share repurchase program until at least the third fiscal quarter. Next, I'd like to discuss our downturn playbook. As Phil mentioned, we are still experiencing supported [ph] end markets and FactSet has historically fared well during periods of volatility. Should anything change, our downturn playbook gives us levers to reduce our operating expenses by 2% to 3% or $24 million to $36 million. Given market uncertainty, we have proactively implemented parts of our downturn playbook to protect margins and prioritize investment. Actions taken to date include limiting travel to client engagements and essential business needs, revisiting our real estate footprint and focusing on the continued reduction of third party content costs. In addition, we are also monitoring our open positions to ensure focus on roles that are essential to our business. Finally, we've restructured our cloud budget as part of our hybrid cloud strategy, which will use both cloud and on-premise computing to run our core platforms. This change will save more than $20 million over the next five years, including $7 million this fiscal year. In closing, we are confident in our ability to navigate the changing market conditions. While it's still early in the fiscal year, we have confidence in our pipeline as we look ahead and as stated before, we are reaffirming our guidance for 2023. With that, we're now ready for your questions. Operator?

Manav Patnaik:

Thank you. Good morning. Linda, you gave us kind of the, what to expect from margins. I guess looking forward, I was just wondering, was there, is there any cadence for ASV throughout the year based on what you see in the pipeline or is there any seasonality to pricing perhaps that we should keep in mind?

Philip Snow:

Great. Hey Manav, thanks for the question. Yes, so for the rest of the year at least what we're looking at today, we're still looking more positive for Q2 and Q3 and Q4 than we were this time last year. Some of that is definitely supported by price. As we, as I indicated on the last call we said we were going to go out at more than a 4% price increase and conversations are going well with clients. Clearly they're all going through their own introspection about trying to figure out what's happening in the markets and budgets and I believe are getting finalized now. So we'll have more visibility, but it's hard to argue, frankly, with the amount of investment FactSet has put into our platform over the last few years. So we've got great relationships with clients. Conversations are going well. We do believe that we'll be successful in executing on the price increase. And there's a lot going on in the markets right now. I'm cautiously optimistic. Our strategy is a good one and we'll get more information, particularly as we head into January in terms of what the rest of the year looks like. We have better visibility on Q2 and Q3 and as you know, Q4 is such a big quarter for us. We need a bit more information in terms of how that's going to play out.

Manav Patnaik:

Got it. Thank you.

Operator:

Thank you and one moment for our next question. And our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open. Please go ahead.

Philip Snow:

Most of it seats Toni. So I think what you're seeing there is the investment that we've made in deep sector and private markets. So those new or newer content sets for FactSet that are getting expanded out are allowing us to get into maybe different parts of the bank, more users than we might have historically and just give us a good competitive advantage. So that's really helping with renewals and it's helping us gain new users of the banks.

Philip Snow:

Yes, a bit of both. So we're going to I imagine see less hiring on the buy side. We're also within institutional asset management, I should say, and for the larger transformations clients are going through, we're not, we're not seeing a lot of this yet, but I imagine that some of them may be deciding to pause some of these transformations that they're going to go through. I don't think it's negotiable with them. They have to go through these transformations, so we're confident that the solutions we're providing are the right ones. But it could be as they're trying to figure out their own futures they may be pausing on some of these larger deals.

Operator:

Thank you and one moment for our next question. And our next question comes from the line of Andrew Nicholas with William Blair. Your line is open, please go ahead.

Philip Snow:

I think they're pretty uniform Andrew. Europe did have an exceptionally strong quarter this quarter, but as I look out into the next six months, there are different puts and takes there by region. Asia looks a little bit stronger frankly, for the next six months maybe than the Americas and EMEA, but I wouldn't say that there's any one region that's dramatically different than others. In terms of where we might see more effects from recession, I would imagine that Europe just generally might get hit harder than other regions. But we haven't, we don't see a lot of impact from that yet.

Philip Snow:

Linda's been spending a lot of time with Kate.

Andrew Nicholas:

Yes, thank you very much.

Unidentified Analyst:

Hi, this is John filling for Ashish. Thanks for taking my question. Maybe just quickly on the people cost, it seems like head count is up around 7% over the last 12 months, really focusing Content & Analytics, Trading & Sales, could you maybe talk about any potential benefits you're seeing on just hiring technology talent as well as just the people bucket as a whole? Thanks,

Linda Huber:

Yes, as Phil said John, we're watching headcount day by day. It's very important that we get that right and not run too hot. As Phil said, our attrition has come down very nicely. Some of that is the result of the market being a little bit more employer friendly and some of the moves we made in our compensation last year to make sure that we're rewarding our people and our high performers appropriately. So we got that right. You're right, we have increased headcount quarter-over-quarter for the first quarter. About 65% of that headcount is in centers of excellence, so our lower cost locations. And we've been very careful about bringing on that headcount largely to support our deep sector effort, which we've talked about before, to help with the sales effort and to assist with analytics and trading. So, so far so good, but the trends are attrition down and hiring has to be sized accordingly to make sure we don't get out over our skis. But we are seeing a much healthier retention picture than we did at this time last year which is a really nice thing. So hope that gives you a bit more clarity.

Philip Snow:

Yes, the wealth pipeline continues to be healthy. We have a good mix of larger deals that we continue to work. And now in terms of markets, that's one of the markets where we just feel like in the long run we've got just such a great opportunity and more tailwinds.

Operator:

Thank you, and one moment for our next question. And our next question comes from the line of Alex Kramm with UBS. Your line is open. Please go ahead.

Philip Snow:

Yes, nothing I'd call out yet, Alex. So similar to last year, not a lot of conversations have reached my desk, which is a good sign in terms of how the conversations are going. And as I've said it's very hard for clients to argue with the value that FactSet has put into the product. So my sense is that clients are understanding this. Everyone is seeing it everywhere in terms of inflation and we're coming in, I believe, at a very moderate place relative to what clients may be seeing from other providers, which gives us a great opportunity to capture more market share. We've certainly gotten some inbound opportunities as a result of that for sure.

Philip Snow:

Yes, it is absolutely a sign of that Alex and consistent across the other firm types that we're servicing. So FactSet is continuing to push beyond being just a workstation company. We've gone way beyond that already. But we're giving a lot of thought to within each client type what adjacencies can we get into and as we open up the platform and work with other partners, what more can we do for clients? Wealth, wealth is a relatively newer firm type for us, so there's a lot more, I think, room for us to expand than some other firm types where we're more well established. That's probably a good follow-up with Kendra later in terms of the detail on the Model. There's probably a little too much detail for this call and if you want to have a follow-up with our wealth team, I’m sure they’d be very happy to talk to you about what they’re doing there.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of George Tong with Goldman Sachs. Your line is open. Please go ahead.

Philip Snow:

There are, I mean, hey George, thanks for the question. There are deals like that every year. So I think this year and Kendra can or Linda can get into this later if we need to. But I believe there are less large renewals this year than we might have seen in previous years. So there are definitely a couple. And there are a couple of very interesting deals that we’re working on that are larger in Q2 and Q3 and Q4 for this year, some sell-side related, some partner deals.

Philip Snow:

Yes. So I said these are things that we’re watching out for. We’re not seeing a lot of them yet, right? So there are indications that it may be happening. And again, we’re -- I don’t know if you saw that Financial Times article, which was a good one, that came out a few weeks ago, but it was an article I think it was idle asset managers pull a money into technology platforms and really speaks to the investment that a lot of the -- a lot of asset managers are having to make to be competitive. And this plays really well into FactSet’s hands in terms of all the work that we’ve done on the PLC, all the work we’ve done to open the platform, all the work that we’re doing with partners in the space, some of which we’ve been public about, some of which we haven’t. So these transformations are not going to stop. Then clients are not going to completely cancel these. It’s just a question of the pace at which they go. But overall, I’m very optimistic about our position in the marketplace for these deals and our ability to execute.

Operator:

Thank you and one moment for our next question. And our next question comes from the line of Craig Huber with Huber Research. Your line is open. Please go ahead.

Philip Snow:

Yes. So overall, it’s pretty healthy, Craig. So we -- there’s less hiring than there was last year, but I don’t believe it’s down significantly. The buy-side number that you see in our press release has a lot of components to it. So maybe it’s helpful to sort of go through that so everyone understands what we’re looking at. The two firm types where we’re seeing the most headwinds now and less revenue than last year are corporates. So we did add a number of corporates this year. They make up a good part of the new firm creation for the quarter, but it’s a lot less than it was in the prior year. And we had a really lumpy quarter with partners. So that’s some of what -- that’s what’s in the buy-side number that you’re seeing. Above that, I would say that institutional asset management, hedge funds and wealth are all kind of a little bit less than last year or on par with last year in terms of what we’re seeing in the environment. And on the plus side, asset owners are doing exceptionally well. So asset owners typically have a much longer view, and we’re crushing it in asset owners versus last year. That’s very encouraging in terms of the work that we’re doing there on the PLC and working with partners. And we’re seeing great adoption of multi-asset class solutions from the asset owners, and we’re seeing positive signs on the fixed income side. So -- but hopefully, that’s helpful in terms of thinking about the overall buy-side number that we give you.

Linda Huber:

Yes. Thanks for that, Craig. And your observations are correct. In the fourth quarter, we really worked hard to ensure that we had compensation right. So you saw a couple of things. You saw a merit pool, which was stronger than usual to deal with inflationary adjustments in a number of countries and the U.S. You also saw bonuses, which were quite fulsome because we had a very strong FY 2022. And then you saw that we also worked harder on equity, and equity-based compensation moved up as well in FY 2022. So the goal there while we were running strong, was to make sure we had a compensation picture correct for our employees coming off the great resignation. So as we move forward into this year, we’re watching our costs very carefully. The entire situation has shifted, Craig, to one of conservatism around costs. I talked about our three buckets that are going well and are nicely controlled. I think the place where we watch here very closely is our people bucket, which includes both headcount and compensation costs. So we’re watching those very, very carefully, as Phil said. A couple of things to notice on the revenue side for the first quarter. Last year, we had a record ASV level in Q1 that was about $17 million. This year, we’re running at about half of that. So the timing change matters to us in terms of how the revenue comes through later in the year. So that makes my job just that much more exciting to make sure that we’re managing correctly for the margin. So we’re doing that. The other thing, Craig, to take a look at is the dollar had been very strong. Recently, the dollar has been retracing about one-third of that strength. So we have to be careful on the impacts of the later ASV, on timing and the conversion to revenue. And then we also have to be careful on what’s happening with FX, which has been unusually bouncy as we have moved through the last couple of quarters. So hope that helps, but we’ve got an eagle eye on those cost buckets and we did pretty nicely managing them in the first quarter. I’m happy to have the 38.3% margin in the bank, and that will help us as we move through the rest of the year. So prudence is the name of the game here. Hope that helps.

Operator:

Thank you. And one moment for our next question. And our next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is open. Please…

Philip Snow:

Hi Faiza, thanks for the question. I’d characterize it as being exceptionally strong. If you just start with the FactSet workstation, all of the investments we’ve made in content are in there as well as we’ve really upgraded a lot of the applications that our clients use in terms of ease of use, searchability, alerting clients. So you see that reflected, frankly, in our workstation numbers across a number of firm types, and that’s grown significantly over the last five years. On the analytics front, we continue to do great things with the portfolio life cycle and work with asset servicers and other partners in the space to go in and really be the core of -- or anchor partner for our clients in terms of what they want to achieve from the back, middle to front offices. So that -- there’s a lot of runway for that, frankly. The market is looking for accretive solutions. They’re looking for companies that are ahead in terms of technology and innovation, and FactSet checks all those boxes. And on the CTS front, we’ve done a lot to expand that product suite. One of the things we’re very excited about is real time. That’s a pretty small piece of CTS today, but there’s billions of dollars of market share out there on the real-time space. You might have seen that we made a recent investment in BMLL, which is a very good tick history product, which you need to do -- you need to complement real time. So this is an area of great opportunities. So there’s just more and more ways we can help our clients. And the investment we’ve made over the last three years and continue to invest really put us in good stead. And I’d be remiss not to sort of mention the FactSet relationships that we have with our clients. Many of our clients are trusted partners. They’ve been with us for a long time. And this is the type of environment, frankly, where they need help. And we’ve been there for them in the past, and we’ll be there for them in the future. So I feel as good, frankly, is about our competitive position as I have in almost my entire 10-year at FactSet.

Linda Huber:

Yes. Faiza, I think we've mentioned this a bit in the script. So let’s talk about our leverage levels and go back and think about that. So when we purchased CUSIP, our gross leverage level went up to 3.9 times. We’ve made a number of pay downs of $125 million basically per quarter. Now our gross leverage ratio is 2.7 times. We’re looking to get back within what would be considered typical for our level of investment grade rating, which is 2.5 times to 2 times. So we have one more payment to make, which is what is anticipated to get inside that leverage level. And then we may not continue at the exact same pace of pay down prepayment on that term loan as we had done before. At that point, we’re going to speak to the rating agencies, be clear to resume our share buybacks and we’ll think about what we want to do with that. The remaining Board authorization, I want to be crystal clear here, authorization is $181 million. That doesn’t mean that’s what we’re going to spend. That means that’s what the authorization is, so you can note that. And we’re going to think about what we want to do with this after we have those conversations. So the interest expense presumes all those things that I had mentioned. And if we do get back into the share repurchase market, please note that’s going to be back-end loaded and it won’t move the average share count all that much for FY 2023 as a whole. It will be helpful as we move into FY 2024. So hope that, that gives you all the detail that you need, Faiza.

Operator:

Thank you. And one moment for our next question. And our next question comes from the line of Kevin McVeigh with Credit Suisse. Your line is open. Please go ahead.

Linda Huber:

Yes. I think it’d be good, Kevin, to think about sort of the midpoint of that amount. And I think it’d be fair to say we’ve probably implemented about one-third. We’re taking a close look at what we want to do with T&E because, obviously, the top line is paramount here, and we’ve got to get that right. So we’re looking at some of the other things that we need to do mostly around people. We’re being extremely cautious on new hires, as we had said and we’ll see what happens with the bonus line. It’s too hard -- too difficult to tell at the end of the first quarter how that will lay out. Just to be clear, the bonus line, we are expecting, as I had said in the housekeeping section, about $100 million. We have booked about 24 for the first quarter. Generally, that number is ramped up a bit as we move through the year. So maybe you go from 24 to 26 in the fourth quarter if things play out the way that they have in previous years. That’s a question mark. So we’ll think about what happens with that. If we don’t do as well as we expect and the center point of our guidance matches what our bonus targets are, there’s -- it’s all very clear cut. If we come in light, perhaps our bonus line comes down by $10 million, which would save about another one-third. But it’s way too early to talk about that right now. So the solution is to make sure we’ve got it right in terms of the pace of hiring, keep that focus on the technology budget. And we’re going to take another pass through our real estate footprint, probably as we get towards the fourth quarter. Any change we make in that real estate footprint, though, the expense saves will be something we’ll see in FY 2024. For the most part, it will come in later in fiscal year 2023, so not going to be of too much help to us in that bucket. But as I said before, eagle eye on all these buckets, and we’ve got to support growing the top line. Our second and third quarter pipelines look even better than last year, as Phil had said. Just want to reemphasize that. So mainly, we’ve had a bit of a timing shift. So we’re dealing with that and making sure we’re matching the costs accordingly. So I hope that’s helpful, Kevin.

Philip Snow:

Hi Kevin, it’s Phil. So if you are talking about where the talent is located?

Philip Snow:

Yes. So the last few years have been very interesting, right, from a talent standpoint. We’ve learned a lot. We’ve taken the approach of having a hybrid work environment, which is why Linda is talking to you about real estate expense. So we do have more options globally. We have very good centers of excellence in India and the Philippines. Those continue to crank. But as we move forward, we want to make sure that we’re -- we have the very best talent we can globally and that we’re exploring all of our opportunities there. So we’ve made some moves actually to make it possible for us to hire employees in more locations if we needed to and that’s a piece of work that we’re in the middle of right now.

Philip Snow:

Yep, you’re welcome.

Hans Hoffman:

Hi, this is Hans Hoffman on for Stephanie. So for my first question, given you guys sort of noted sort of a more challenging environment, could you just update us on what you’re seeing in terms of client cancellation trends?

Hans Hoffman:

Got it, that’s helpful. And then just for my follow-up, could you just talk a bit about where you sort of see the biggest opportunity in the sort of next stage of investment in technology and content?

Linda Huber:

No one has asked us about the CUSIP business to this point in the call, and I want to make sure that we’re clear that we also see opportunity coming from the CUSIP business. It’s not technology exactly as the last questioner had asked. But let me just point out some interesting points on CUSIP. So we’re very happy with the acquisition. We’re very happy with the team and we’re very happy with our relationship with the American Bankers Association, which is going great. We were just down to see them a few weeks ago. So CUSIP’s growth of $48 million contributed in revenue in Q1, about $42 million of that from subscriptions and the rest from the issuance business, about $6 million, which is a little bit slower, but still really good growth in the things you don’t think about like municipal bond issuances and also certificates of deposits, which have grown very dramatically as interest rates continue to grow on those types of investments for individuals. o done very well with that. Overall, 7.6% growth, and we’re very pleased with that. We see more growth opportunities coming from CUSIP. The retention grew about -- contributed about two-thirds of that growth and new logos, about one-third of that growth. Now we – as we’ve said before, we see very good opportunities in a couple of areas

Shlomo Rosenbaum:

Thank you. Yes, Linda, you absolutely did front-run the AR DSO question. I was going to ask you about that coming back up again. But I want to shift to just a little bit. Historically, the sell-side has been a lot more volatile in downturns than the buy-side. Is there any difference in the combination or the composition of what’s in the sell-side right now that would lead you to believe that the case would not be the same if we end up in some of the banks just decide not to hang on to people the same way? Is there some way that you would think that we wouldn’t start to go – or start to see there be more of a drag on the growth as opposed to being a positive for the growth?

Linda Huber:

Shlomo, just a couple of things to note. The M&A pipeline is still very strong. So there might be some interest to making sure headcounts stay pretty fulsome at the investment banks. Also, some of the trimming you’re seeing now, those firms have not engaged in that what would be more normal trimming through the pandemic. So it’s been a couple of years since they did that, and you’re seeing some of that happen. And again, there’s the question of headcount versus compensation for them. So we’ll see what happens next. But analyst classes look to be about the same size. The lesson learned through the pandemic is that those more junior employees are important. They have to be brought on and trained. So just a few more points there that might help you.

Philip Snow:

Well, one is we’re just taking a long-term view here to sustainable margin expansion. So Linda has I think, come in and really put in a good framework for us. Some of that is just sort of a multiyear effort to make sure that we expand our margin on a reasonable basis. Attrition has come way down because of all of the great actions we took through the year. And people expense is our biggest expense. So I think that’s – the thing we’re keeping an eye on the closest is just making sure that our headcount expense is moving ahead at the right pace. And yes, there’s so much news out there right now about possible recession and layoffs and cost cutting. We’re just – we’re positioned well relative to a lot of other companies just in terms of our business model and our investment, but we just want to make sure that we’re being conservative enough as we get into January when clients will be printing their budgets. We still don’t have great visibility on what the budgets of our clients are going to look like. So that’s the thing that I think will give us a lot more confidence in terms of the numbers that we can project.

Philip Snow:

Yes.

Keith Housum:

Thank you. Good morning, Phil and Linda, I appreciate it. In terms of just trying to understand, and I guess going forward, if we do hit more of a downturn, where the risk is greatest for FactSet in terms of customers closing? I noted that PE and VC firms. If I would think we most likely would like to close, you guys are doing very healthy now. So where do you see the business risks of losing customers as we do go into this year downturn?

Keith Housum:

Great. I appreciate that. And then in terms of your revenue stream, remind me – I know most of it is being reoccurring, but what portion of your revenue is nonrecurring? And how did that do in the quarter versus, I guess, obviously, recurring part?

Keith Housum:

Great, thank you. Good luck.

Operator:

Thank you. And one moment for our next question. And our last question comes from the line of Owen Lau with Oppenheimer. Your line is open. Please go ahead.

Philip Snow:

Hey, Owen. So FactSet’s overall, our overarching ESG strategy is just to be an agnostic agent in the ecosystem for our clients. ESG is so fragmented. There’s different focuses region by region globally. And we probably have the best selection of ESG in the market. And we integrate so many other providers. In fact, that adds its value in terms of concording that data so that firms that are creating their own ESG composites don’t have to go through all the pain of managing the data. So building applications on top of that to provide clients their own tools to create their own view, that's primarily what we’re focused on. It’s not a meaningful contributor to ASV today. I think some of it probably doesn’t show up directly as ASV as its own product, but there’s a lot of value that we’ve put into the workstation. So I believe most users that subscribe to a workstation can access whatever ESG products they’re subscribing to in the market. So that’s really where our primary focus is right now.

Philip Snow:

You, too. Yes. So thank you all for joining us today. We’re off to a good start in fiscal 2023. While economic uncertainty persists, we are constantly talking to our clients and are really well prepared to respond to any market environment. I’m confident in our ability to drive continued sustainable growth, and FactSet is a consistent performer with a proven history of successfully navigating volatility. We have a resilient business with an innovative product mix, differentiated content and diverse end markets. And we are only further strengthening our offerings as we continue to invest in our products to enhance our competitive position and the value we deliver to clients. Before wrapping up, I really want to thank all FactSetters globally for their continued high level of execution and engagement and hopefully, everyone at the firm is having fun. I know I am. I think most FactSetters are. We’ve invested, and we have a great culture. So it’s a good place to be right now. Please be well this holiday season. We look forward to speaking with you again next quarter. And in the meantime, feel free to contact Kendra Brown with any additional questions. Operator, this ends today’s call.

Kendra Brown:

Thank you, and good morning, everyone. Welcome to FactSet’s fourth fiscal quarter 2022 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com. The slides, as well as a replay of today’s call, will be posted on our website at the conclusion of this call. 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 two, which explains the risks of forward-looking statement 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 is in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer; and Linda Huber, Chief Financial Officer. I will now turn the discussion over to Phil Snow.

Linda Huber:

Thank you, Phil, and hello, everyone. I join Phil in congratulating FactSetters for an outstanding fiscal 2022. As I approach my one year anniversary as CFO, I am excited by everything we have been able to accomplish together. Our 9% organic ASV growth, adjusted operating margin expansion and 20% adjusted diluted EPS growth, not to mention our largest acquisition, investment grade ratings and successful financing, are a testament to the hard work of our talented teams. I look forward to continuing to work across the organization in fiscal 2023 to build on FactSet’s history of strong performance and returning value to shareholders. Our growth rate for organic ASV plus professional services beat the high end of our guidance range due to our investment in product and excellent execution by our sales team. Retention moved the needle here, with higher price increases across a larger base of clients, reduced erosion as demand for our products increased across client types and successful cross-selling opportunities. Full year revenue also exceeded the high end of our range with help from CUSIP Global Services. Adjusted operating margin was in line with the higher end of our range. Our margin increase was driven by effective expense control in the core business, as well as the addition of the CGS business, resulting in 500 basis points of margin expansion. Our decision was to reinvest about 360 basis points of this margin growth back in our people and products, while allowing the margin for shareholders to rise about 140 basis points. As Phil stated, we are committed to balancing investment at a similar pace for the next few years while delivering our commitment to margin expansion. Finally, we generated solid earnings, exceeding the top end of our guidance range, through strong revenue growth, disciplined expense management and operating leverage. Let me now walk you through the specifics of our fourth quarter performance. As you have seen from our press release this morning, we are pleased to report the acceleration of organic ASV plus professional services and revenue. Before we begin, I’d like to remind everyone that consistent with our definition of organic revenues and ASV, we will exclude any revenue and ASV associated with CGS when reporting organic-related metrics for the 12 months following the acquisition date. However, we will provide some specifics on CGS, so you can continue to track its performance. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew fourth quarter organic ASV plus professional services by 9%. This increase reflects momentum across our product portfolio. With current levels of market volatility, we see higher demand for our products as clients focus on driving alpha, as well as finding efficiencies. Fourth quarter GAAP revenue increased by 21% from the prior year period to $499 million, growth was driven by our Research & Advisory and Analytics & Trading solutions and CGS. Organic revenue, which excludes any impact from foreign exchange, acquisitions during the last 12 months and deferred revenue amortization increased 10% to $453 million over the prior year period. We saw organic ASV acceleration across all workflow solutions in each of our regions. For our geographic segments, organic revenue growth over the prior year period for the Americas was 9%, EMEA at -- was 8% and Asia-Pacific at 18%. Turning now to expenses, GAAP operating expenses grew 25% year-over-year to $367 million, impacted by several charges incurred during the period. First, this includes the recognition of $13 million in intangible asset amortization related to CGS in the fourth quarter. As we spoke about last quarter, this intangible asset amortization will be a recurring charge. Also, we saw a higher bonus pool in line with stronger than anticipated ASV performance. In the fourth quarter, our bonus accrual was $37 million, bringing the total bonus pool to $111 million for the fiscal year. As previously stated, we invested $40 million in people and product this year. This is also consistent with commitments we made at Investor Day to continue to grow these buckets to sustain growth. Looking ahead to fiscal 2023, we expect a similar level of investment. Given these expenses, our GAAP operating margin decreased by 240 basis points to 26.5% compared to the prior year period. Adjusted operating margin saw a slight decrease of 10 basis points year-over-year to 31.5%, driven by higher personnel expenses, increased technology expenses and transactional foreign currency impact. As a percentage of revenue, our cost of services was 50 basis points higher than last year on a GAAP basis and 130 basis points lower on an adjusted basis. Primary drivers include higher technology and content related expenses, including expenses related to our shift to the public cloud, as well as amortization of intangible assets and other costs associated with CGS. When expressed as a percentage of revenue, SG&A was 169 basis points higher year-over-year on a GAAP basis and 142 basis points higher on an adjusted basis. The increase is primarily driven by growth in compensation, comprised of higher salary expenses for existing employees, higher bonus accrual in line with stronger ASV performance and higher stock-based compensation expense as we distributed equity more broadly throughout the organization. Moving on to tax, our tax rate for the quarter was 10.3% compared to last year’s 14.7%. This was primarily due to lower pre-tax income and a tax benefit related to finalizing the prior year’s tax returns. GAAP EPS increased 2.3% to $2.69 this quarter versus $2.63 in the prior year, primarily due to higher revenue and lower taxes, partially offset by higher interest expense and margin compression. Adjusted diluted EPS grew 8.7% from the prior year to $3.13, largely driven by higher revenue, offset by the impact of higher interest expense from FactSet’s investment grade senior notes and outstanding term loan. Adjusted EBITDA in the fourth quarter increased to $158.5 million, up 16% year-over-year. And finally, free cash flow, which we define as cash generated from operations less capital spending, was $136 million for the quarter, a decrease of 20% over the same period last year, driven by higher working capital, which includes the timing of estimated tax payments and deferred revenue movements related to CGS. CUSIP Global Services exceeded expectations, adding $6 million in incremental ASV since the close of the acquisition on March 1, 2022. In Q4, CUSIP’s diverse asset class coverage partially offset a weaker issuance market with significant year-over-year gains in time deposit CDs and private placements. In the fourth quarter, our ASV retention remained above 95% and our client retention improved to 92%, highlighting the continued and stable demand for our solutions. Compared to the prior year, we grew our total number of clients by 17% to more than 7,500 clients, largely due to the addition of more wealth and corporate clients. Our user count grew 12% year-over-year, growing to almost 180,000, primarily driven by sales in our Research & Advisory solutions, particularly amongst wealth management users. And turning now to our balance sheet, we continue to progress on the prepayment of the term loan related to the acquisition of CGS. In the fourth quarter, we made a planned prepayment of $125 million, bringing our gross leverage ratio down to 3.1 times from the initial 3.9 times level when we financed the CGS acquisition. We expect to make two more payments of $125 million in each of the next two quarters, enabling us to reach our gross leverage target of 2 times to 2.5 times in the second half of fiscal 2023. As a reminder, while we may continue minor share repurchases to offset the dilutive impact of stock option grants during this time, we do not intend to resume our share repurchase program until at least mid-2023. Lastly, we would like to remind investors that we increased our regular quarterly cash dividend in the third quarter for the 23rd consecutive year. The increase was 8.5% for a per share dividend of $0.89. Turning now to our outlook for fiscal year 2023, we are guiding to incremental growth of $150 million to $180 million for organic ASV plus professional services. The midpoint of this range represents a 9% increase, reflecting continued momentum in our business and our commitment to our medium-term outlook. Please note that CGS is not included in our organic ASV guidance at this time, given that it will not impact organic ASV until the last two quarters of the 2023 fiscal year. We expect adjusted operating margin of 34% to 35%, with the midpoint providing 60 basis points of margin expansion, which aligns with our medium-term outlook of 50 basis points to 75 basis points of margin expansion each year. Finally, we expect adjusted EPS of $14.50 to $14.90, representing almost 10% growth at the midpoint. Given our outperformance in fiscal 2022, we are still on track to deliver 11% to 13% EPS growth over the medium-term. We are confident of our ability to continue to grow in the face of market uncertainty. Our subscription model, diverse product portfolio and enterprise solutions make us a stable long-term investment. Looking ahead to fiscal 2023, growth will be driven by improved retention. We expect two-thirds of our topline acceleration to come from existing clients with low double-digit expansion offset by normal erosion plus increases in price realization. In the past, the majority of our growth came from cross-selling. However, given the incremental improvement in pricing this year, we anticipate the split will be more even between the two. We expect the balance of growth will come from new business, with continued growth in wealth, private equity and venture capital firms, as well as corporates. Our continued investment in technology and content should drive growth in new markets and cross-selling opportunities for existing clients. Drivers include continued commitment to the digitization of our platform. Kate Stepp, our new CTO, is taking a fresh look at our digital strategy. Example areas of focus include scaling the use of cognitive technologies, expanding our API program and driving improved capabilities and productivity in our use of the public cloud. Next, continued evolution in our content refinery, as discussed previously, we plan to make direct investments toward deep sector, real-time, private markets and ESG, development of these content sets are intended to drive retention and expansion across firm types, and finally, workflow solutions for the front office, wealth manager and private equity and venture capital firms will be key. In closing, we are pleased with our performance in fiscal 2022, as we spoke about during Investor Day, we are seeing the benefit of our strategic investments and we feel we have a long runway ahead of us. We believe we are strategically placed to deliver on our targets for fiscal 2023, as well as our medium-term outlook. While we acknowledge the uncertainty in the macro environment, we believe that our focus on investing in our people, content and technology will continue to drive growth over the longer term. And with that, we are now ready for questions. Operator?

Ashish Sabadra:

Hello.

Ashish Sabadra:

Hi. Can you hear me okay? Thanks. Thanks for taking my question.

Ashish Sabadra:

So we saw some pretty strong momentum across all three workflow solutions and thanks for giving some clarity around the growth drivers going forward in terms of pricing, cross-sell and new wins. But the question that we get from -- that we are getting is around that $150 million to $180 million of ASV growth outlook in the light of the market volatility and concerns about potential layoff on investment banking and pullback on spend by asset managers. So I was wondering if you could just provide some more color on the confidence around the ASV growth for 2023? Thanks.

Ashish Sabadra:

That’s very helpful color, Phil. Really appreciate that. And maybe on my follow-up, just on the margin front, particularly as we look at 3Q versus the 4Q margins. Again, Linda, you provided some really good color around reinvestment. But I was just wondering, as we think about how much of it was maybe higher compensation versus more hiring, we obviously saw a big step-up in hiring in the fourth quarter. How should we think about for -- going into 2023 and in this particular inflationary environment, how do we think about salaries and compensation going forward? Thanks.

Ashish Sabadra:

That’s very helpful color. Thanks again.

Operator:

Thank you. Please standby for our next question. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is open.

Linda Huber:

Sure. So over the course of the year and I am not going to go into fourth quarter, CGS gives us about 500 additional basis points of margin. And as we said in the script, we reinvested 360 basis points of that margin and we increased our margin over the course of the year by 140 basis points, which we think is pretty significant amount and far in excess of the 50 basis points to 75 basis points that we had guided toward. So as we roll forward, we have increased margin that comes from CUSIP, but we are going to be thoughtful about how we deal with that margin. And again, we would see that we will reinvest about two-thirds and probably about a third will drop down to the bottomline. So we would expect that that will continue at sort of the same pace next year.

Phil Snow:

Hi, Faiza. It’s Phil. So, yeah, in 2022, we went out with a 4% price increase and we anticipate we will be asking for a little bit more than that going into 2023, which is completely appropriate given the level of investment we have made in the product and obviously our costs. We don’t expect to be market leading in our price increase, right? We want to be conservative here and make sure that we are thinking about our long-term relationships with our clients. But based on what we were able to do in terms of getting realization from 4% this year, we feel pretty confident that we can get a bit of an uplift going into 2023 with price.

Phil Snow:

I’d also add on that in terms of price realization, we have been able to -- well, I really simplify our rate card and go-to-market and I think capture price for new sales much more than we had in the past. So that’s really helped us in terms of how we execute and the sales force has done a tremendous job in taking a much more simplified set of packages to market. And it’s made the client’s lives easier, it’s made our lives easier, it’s really helped all around. So that’s part of what we think about when we think about price as well.

Phil Snow:

Yeah.

Owen Lau:

Yeah. Good morning. Thank you for taking my question.

Owen Lau:

Hey. So on the stock-based comp, I think, three months ago, we were still talking about the downturn playbook and I think FactSet can adjust the comp accrual to control the expense. I am just wondering, given the current market conditions, are you not winding up that downturn playbook anymore, have you changed any of your view in terms of giving stock-based comp going forward, any more color would be very helpful? Thanks.

Phil Snow:

Just probably reiterate something I said in my opening remarks, which is the numbers that Linda just mentioned have allowed us to go broader and deeper in the organization in terms of the number of employees that are participating in the bonus and equity pools, which is really great that we are able to do that, and obviously, has very good consequences for us in terms of talent retention moving forward.

Linda Huber:

Owen, it’s Linda. I do think we are going to be able to meet that EPS growth expansion and one of the things to consider here -- actually, two things to consider. One is the tax rate, so we are guiding to 12.5% to 13.5% next year. Our history has been that we have had one-off items that have been flattering to our tax rate, so we may find ourselves in that situation again. Secondly, we can’t predict what option exercise will be, which is beneficial to our tax rate as well and brings it down, so that one is hard to predict also. So the tax rate might be something that could be helpful to EPS. Thirdly, we have not modeled in any share repurchase for 2023. We thought that was the conservative thing to do. We are hoping to be able to go back into the share repurchase market once we bring our leverage down to where we need it to be, which is 2 times to 2.5 times gross leverage for the company and we are pretty close to that already. We have gone from 3.9 times to 3.5 times to 3.1 times at the end of our fourth quarter. So if that happens, share repurchase will be pushed more towards the back half of the year and it won’t help us that much, but it would be some wind at our backs. So those are some of the various factors, and of course, if we do better on the margin line that will come down into EPS as well. So just some things to consider as puts and takes on the EPS outlook.

Linda Huber:

Sure.

Manav Patnaik:

Thank you. Linda, maybe just to ask another way, the 9% growth -- organic growth that you are talking about for the year, is that much different if you look at either the sell-side or buy-side ASV? Just trying to put it in context, it sounds like you guys don’t see any need to go to the downturn playbook contrary to what the market is telling us.

Manav Patnaik:

Okay. And then the comments around not including CUSIP in the organic growth, I just want to clarify that. So in the second half of the year, I guess, of your fiscal year, it will be part of organic and so does that then -- if it’s growing mid- to high-single digits, does that then drag down that number ultimately for the year?