- Organic ASV and Professional Services Growth: 5%
- Adjusted Diluted EPS: $4.37
- Adjusted Operating Margin: 39.4%
- GAAP Revenue: $553 million, increased by 4%
- Client Count: 8,029 clients
- Net New Logos: 9
- User Count: Exceeded 208,000
- Overall ASP Retention: Higher than 95%
- Client Retention: 90%
- Americas Organic ASV Growth Rate: 5.7%
- EMEA Organic ASV Growth Rate: 4.4%
- Asia-Pacific Organic ASV Growth Rate: 6.1%
- GAAP Operating Expenses: Decreased 2% to $350 million
- GAAP Operating Margin: Increased by 420 basis points to 36.6%
- Adjusted Operating Expenses: Decreased 1.2%
- Technology Costs: Increased 26% year over year
- Employee Expenses: Fell 8.6% year over year
- Third-Party Content Costs: Increased by 9%
- Real Estate and Related Expenses: Decreased by 15% year over year
- GAAP EPS: Increased 18.2% to $4.09
- Adjusted EPS: Increased 15.3% to $4.37
- EBITDA: $240 million, up 16.9% year over year
- Free Cash Flow: $217 million, increased by 13%
- Share Repurchases: 135,150 shares for approximately $60 million
- Quarterly Dividend: $1.04 per share, a 6% increase
- Gross Leverage: 1.7 times
- Revenue Guidance: $2.18 billion to $2.19 billion for the fiscal year
- GAAP Operating Margin Guidance: 33.7% to 34%
- Adjusted Operating Margin Guidance: 37% to 37.5%
- Adjusted EPS Guidance: $16 to $16.40
- Effective Tax Rate Guidance: 16.5% to 17.5%
Release Date: June 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FactSet Research Systems Inc (FDS, Financial) achieved organic ASV and professional services growth of 5% in the third quarter.
- Adjusted diluted EPS rose to $4.37 for the quarter, reflecting a 15% increase.
- The company maintained a high overall ASP retention rate of over 95% and a client retention rate of 90%.
- FactSet Research Systems Inc (FDS) continues to innovate with new products like the Portfolio Commentary and PM Hub, which have received positive client feedback.
- The company has a strong free cash flow of $217 million for the quarter, up 13% from the same period last year.
Negative Points
- FactSet Research Systems Inc (FDS) faced challenges due to clients tightening budgets and cost rationalization, leading to extended decision-making and lengthened sales cycles.
- The third quarter is seasonally the weakest for the company, impacting overall performance.
- The Credit Suisse-UBS merger resulted in cancellations that accounted for approximately 30 basis points or two-thirds of ASV deceleration quarter over quarter.
- The company experienced slower growth in the EMEA region, with an organic ASV growth rate of only 4.4%.
- Despite the positive outlook, the company had to lower its annual organic ASV plus professional services growth guidance to between 4% and 5.5%.
Q & A Highlights
Q: The guidance for ASV seems wide. Are there a wide range of outcomes that could happen? Any green shoots in the challenging environment?
A: We have more visibility now on Q4, with a mid-range of 4.75%. We wanted to de-risk the low end, so we feel confident about this range. There are many swing deals in the quarter, but we have strategic wins and new tools that are encouraging. (Philip Snow, CEO; Helen Shan, CRO)
Q: Do you think the company needs another boost of investments to get growth going again?
A: We have ongoing multiyear initiatives like deep sector and private markets that are promising. We've freed up dollars for generative AI and data platform investments, unleashing innovation. We'll evaluate further investments during our rolling three-year plan. (Philip Snow, CEO)
Q: What are you hearing from your sell-side customers? When do you expect sell-side ASV growth to reaccelerate?
A: We see more M&A activity and better hiring trends. Historically, banking fees and hiring trends lead to FactSet ASV growth. Middle market and boutique banks are hiring more, but large investment banks remain conservative. (Philip Snow, CEO; Helen Shan, CRO)
Q: Is the UBS-CS impact fully in the run rate? What about expenses and headcount efforts?
A: The majority of the impact from the UBS-CS transaction is reflected this quarter, with a smaller impact in Q4. On expenses, lower bonus accruals and payroll taxes are one-time benefits, while lower salaries and facilities expenses will continue. (Helen Shan, CRO; Linda Huber, CFO)
Q: How would you assess the competitive dynamics at this point?
A: On the institutional buy side, total cost of ownership is key. We feel well-positioned with our portfolio analytics and front office tools. In wealth management, we have strong offerings and are building out additional workflows. The banking and private equity space is more crowded, but our deep sector and AI tools give us a competitive edge. (Philip Snow, CEO; Helen Shan, CRO)
Q: How does the integration of gen AI tools impact technology costs?
A: It's a bit unknown, but technology expenses are rising due to investments. As clients use more AI tools, compute costs will increase. We are monitoring this and will factor it into pricing. The value delivered to clients should outweigh the added expense. (Philip Snow, CEO)
Q: Was the CS-UBS headwind just a negative impact, or were there cross-sell opportunities?
A: The net impact includes some recaptured cancellations by selling to UBS. Revenue lags ASV, and we had an unusual one-time acceleration of CUSIP revenues last year, affecting comparisons. (Helen Shan, CRO; Linda Huber, CFO)
Q: Are you assuming elongated sales cycles or increased client events in the updated ASV guide? How does international pricing compare to the prior year?
A: We are seeing deals move due to longer decision cycles, especially on the buy side. International pricing increased to 16% from 16.8% last year, reflecting steady demand. (Helen Shan, CRO)
Q: Will AI drive internal cost savings in 2025?
A: We expect efficiencies in client service, quality assurance, content collection, and engineering. The real question is whether we reinvest those savings in products. (Philip Snow, CEO)
Q: How would you describe the current environment for sell-side and buy-side customers? Are you at the bottom?
A: It's hard to predict, but 2024 was a year of cost cuts for many firms. Projects that were paused are coming back to life, but we don't expect real tailwinds until next calendar year. (Philip Snow, CEO; Helen Shan, CRO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
