Q2 2022 Factset Research Systems Inc Earnings Call

Thank you for standing by and welcome to the Factset second quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

I ask a question during the session you will need to press star one on your telephone.

Please be advised that today's call is being recorded should you require any further assistance. Please press star zero I would now like to hand, the call over to Kendra Brown SVP Investor Relations.

Thank you and good morning, everyone welcome to <unk> second quarter 2022 earnings call before we begin I would like to point out that the slides we will reference during this presentation can be <unk>.

Access via the webcast on the Investor Relations section of our website at Factset Dot com the slides will be posted on our website at the conclusion of this call and 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.

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.

<unk> 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.

Thank you Kendra and good morning, everyone. Thanks for joining us today.

Before I begin my remarks, I want to remind everyone that we are hosting an investor day on Tuesday April 5th both in person in New York City and via live stream, we look forward to sharing more about our business strategy growth initiatives and long term financial outlook at this event to register please see our website.

May also reach out to Kendra for additional details I hope to see many of you there.

I'm pleased with our impressive second quarter and first half results as we executed on our pipeline and built on our strong momentum from Q1, our organic a S. B plus professional services growth accelerated to 9% in the second quarter led by growth in workstations and analytics and are capturing higher price increases in the Americas.

We also saw several large renewals, which further affirmed the strength of our offering and investments in both product and content. Our strategy continues to drive top line growth and allows us to capture more share of wallet with our clients.

Growth this quarter was strongest among our buy side clients with the biggest contributions coming from asset managers and wealth clients all buy side firm types experienced accelerated growth in the second quarter with broad based strength across all workflow solutions, we continued to see double digit growth from banking well hedge fund and copper.

Our clients, along with private equity and venture capital funds and partners.

Retention was a key driver this quarter with our investments in content and technology continuing to resonate.

New business accelerated globally led by the Americas, while we had success with larger deals. We also continued to see a high volume of small and medium sized client wins with.

We're pleased that our performance resulted in a 22% increase in adjusted EPS from the prior year period, and an adjusted operating margin of 33.7% exceeding our prior guidance.

Our third quarter look solid with a strong pipeline for a second half as such we are adjusting our fiscal 2022 guidance to reflect 8% to 9% a S V growth expansion of our adjusted operating margin and adjusted EPS of $12.75 to $13.15.

Linda will walk you through the details shortly.

Our focus remains the same to build a leading open content and analytics platform. This quarter, we continued to scale our content refinery and enhance the client experience with personalized workflow solutions Factset open ecosystem and cloud enabled components provide flexible tools that enhance efficiency and connectivity.

Crossed the front middle and back office.

All cloud program allows us to meet clients, where they work with the innovative products and technology partnerships with enterprise software providers are expanding the reach of our platform and earlier. This month, we announced a strategic partnership to integrate Portway, a leading execution management system with Blackrock Aladdin platform to provide clients with a C.

Most experience across multi asset portfolio management and trading execution.

Our content refinery also continues to drive meaningful asked me as we build out our offering focusing on ESG data for well private markets and deep sector. We see the acquisitions, we've made over the last year, helping accelerate growth.

And we are seeing continued success with private equity and venture capital clients with our integration of cobalt on track.

We closed several new cobalt deals over the quarter and our cobalt plus workstation offering is expanding our pipeline to new sales.

Deep sector was a driving factor in key sell side renewals this quarter as client dependency on content and workflow solutions grows. We also see new business traction with corporates as our deep sector offering expands our addressable market.

Fiscal year to date, there have been over 30 key releases across seven sectors, including integration of BT research into documents such.

Our investment in our digital platform is paying dividends advisor dashboard is driving expansion and new business with its next best action capabilities, providing tangible efficiencies and insights for wealth advisers hyper personalized workflow driven solutions fueled by our content differentiate us in the market and provide continued greenfield opportunities.

Go on scope co, Rob Roby, and Jonathan Reid will provide more details on our products and initiatives to drive growth for our research and advisory analytics and trading and C. T S workflow solutions as part of Investor Day.

I'd like to officially welcome the CUSIP Global services team to Factset I've had the pleasure of meeting many members of the C. G. S team and look forward to continuing to build on our industry leading brand. In addition, we are very pleased with our new relationship with the American Bankers Association, whose leadership, we met with earlier this month in Washington D. C. We look forward to her.

Strong and collaborative relationship with the a b a the.

The addition of CGS aligns well with our multi year strategy to invest in content and technology. This is a natural extension of our content refinery as we significantly expand the breadth and reach of our robust suite of data management solutions.

We look forward to sharing more on C. G S at our upcoming Investor day.

As part of the CGS transaction, we came to market with our inaugural $1 billion senior notes offering I'm very pleased that this offering received investment grade ratings from both Moody's and Fitch, reflecting the strength and consistency of our financial health.

Looking across our regions, we saw broad based strength across all workflow solutions. The Americas continues to be the biggest contributor to growth with the ASB growth accelerating to 10% over the quarter.

Growth was driven by improved retention and new business wins with corporates wealth private equity and venture capital firms and asset owners. The region also benefited from higher price increases across all firm types.

S V growth accelerated to 8% in EMEA, making the fourth straight quarter of consistent improvements, we saw strength from wealth and asset managers among existing clients and expansion among our banking clients. We also saw new business wins with corporates and asset owners.

Asia Pacific also had another strong quarter with ASP growth of 14% asset managers in particular, I think growth across the region with broad based strength across our product portfolio with both new and existing clients.

In summary, I'm proud of our first half performance our momentum continues as we successfully invest in technology and develop our content refinery. Our pipeline continues to build as we head into the second half of our fiscal year driven by demand from both new and existing clients.

While we see some choppiness in the market today Factset has a proven history of growth and volatile markets our products and solutions are mission critical for our clients, particularly in times of market volatility as we hope the investment community generate alpha and identify the next best action faster, we continued to see increased demand for our solutions, which re.

Enforces our conviction that our strategy is delivering and will continue to deliver sustainable growth. We believe that our culture and performance driven mindset creates a strong advantage both in how we serve our clients and as we focus on attracting retaining and developing top talent in this competitive and dynamic environment.

We're dedicated to investing in our people and giving our team the support and flexibility they need to navigate and be successful I could not be more proud of our constant team effort to deliver personalized innovative and efficient solutions for our clients.

Our focus on our people as part of a larger effort to become a more diverse thoughtful and impactful organization, we're committed to sustainable growth for our clients employees investors and communities.

And the principles underlying this commitment are built into all aspects of our business we.

We recently released our fiscal 2021 sustainability report, which highlights our progress, including creating a sustainability plan and signing the U N P. R I and global compact among others. The report also outlines our commitments to the future.

I really encourage you all to take a look.

Finally, the ongoing invasion of Ukraine is top of mind for US just as it is for the rest of the world.

During these troubling times, the safety and security of our team is a top priority.

In light of the situation in Ukraine, Factset has decided to discontinue all commercial operations and delivery of products and services to clients inside Russia, and we are terminating all contracts with vendors in Russia. These actions will not have a material impact on our business or our client relationships.

Linda will now take you through the specifics of our Q2 performance Linda over to you.

Thank you, Phil and Hello to everyone on the call we've been extremely busy in the second quarter as we work to close the acquisition of C. G. S went to market with our investment grade inaugural senior notes offering negotiated a new credit facility and put the finishing touches in place for April 10th Investor Day, I joined silver and Rec.

I think the efforts put forth each day by our Factset employees. Our teams have done amazing work. It has been an exciting time in the Companys evolution.

As you've seen from our press release. This morning, we are pleased to report acceleration in our top line with double digit revenue growth and high single digit growth inorganic a S. D plus professional services I will now share more details on our second quarter performance consistent with our definition of organic revenues and a S. D. We will exclude any rare.

The new NASD associated with C. G S. When reporting organic related metrics for the 12 months following the acquisition date.

And still stated earlier, we grew organic <unk> plus professional services at 9% and acceleration reflects increased demand for our digital solutions disciplined execution on our sales pipeline and pricing strategy and a supportive external environment with tailwind from the capital markets and overall economic growth benefit.

From our investments in both content and functionality are validated by our annual price increase for example in the Americas, our price increase yielded $21 million 7 million in more than the prior year.

While an inflationary environment did enable us to raise the rate of price increases above our historical 3% to 4%. We also realize these price increases across a wider base of clients.

GAAP revenue increased by 10% to $431 million for the second quarter organic revenue, which excludes any impact from foreign exchange acquisitions and deferred revenue amortization also increased 10% to $431 million.

Growth was driven primarily by a research and advisory and analytics solutions.

All regions saw notable growth for our geographic segments on an organic basis revenue growth for the Americas was a 10% EMEA grew at 9% and Asia Pacific came in at 14% all regions, primarily benefited from increases in analytics.

Increases in research and advisory solutions provided an uplift in the Americas, while content and technology solutions was a key driver in EMEA.

GAAP operating expenses grew 12% in the second quarter to $308 million impacted by several changes incurred during the period.

As we spoke about during the last quarter most of our employees are working in a hybrid or remote capacity. This quarter, we recognized $10 million in impairment charges as we focus on right sizing our real estate footprint to reflect our new work environment, we anticipate additional impairment charges related to real estate in Q3 of this year as we exit.

Office space in various locations worldwide, we expect discharge will be about $45 million in the third quarter and.

In addition to real estate impairment costs, we also incurred $5 million and transaction expenses related to the C. G S acquisition.

Given that we closed the acquisition on March 1st the first day of our fiscal third quarter. There will also be additional charges for the acquisition in the third quarter, we expect discharged be out about $14 million in the third quarter.

Compared to the previous year, our GAAP operating margin decreased by 100 basis points to 28, 6% and our adjusted operating margin increased by 110 basis points to 33, 7%.

<unk> our guidance on this measure improvement was largely due to lower employee compensation expense as a percentage of revenue and lower content costs as a percentage of revenue.

As a percentage of revenue our cost of sales was 365 basis points lower than last year on a GAAP basis, and 295 basis points lower on an adjusted basis. This decrease was primarily due to lower employee compensation as a percentage of revenue and lower technology related expenses as a percentage of revenue.

Our ongoing shift to the public cloud.

When expressed as a percentage of revenue SG&A was 470 basis points higher year over year on a GAAP basis, and 185 basis points higher on an adjusted basis. The primary drivers include real estate exit costs expenses related to the CGS acquisition increased employee compensation expense.

And higher bonus accrual.

Moving on our tax rate for the quarter was 10% compared to last years rate of 16%, primarily due to lower projected levels of income before income taxes, and a tax provision reduction related to the lower rate GAAP EPS increased 13, 6% to $2.84 this quarter versus $2.

And 50 cents in the prior year adjusted diluted EPS grew 22% to $3.27. Both E. P. S figures were largely driven by revenue growth margin expansion and a lower tax rate a reconciliation of our adjustments to GAAP. EPS is included at the end of this press release.

As noted in our press release EBITDA increased to $146 $8 million up 11, 1% from the same period in fiscal 'twenty 'twenty. One we are now providing this EBITDA measure to allow added transparency for both our equity and debt investors and finally free cash flow, which we defined as cash generated from op.

Operations less capital spending was $110 million for the quarter, a decrease of 15% over the same period last year, primarily due to higher estimated tax payments.

Our ASD retention for the second quarter remained greater than 95%. We grew the total number of clients by 18% compared to the prior year driven by the addition of more corporate private equity and venture capital and wealth clients.

This quarter, we reached the milestone of more than 7000 clients for the first time in our history.

Our client retention remains at 92% year over year, reflecting the strength of our product portfolio and exceptional execution by our sales teams.

As announced in our January C. G S investor call, we suspended our share repurchase plan for the remainder of fiscal 2022 to prioritize excess cash flow for repayment of debt to reduce our leverage levels. We are committed to reducing our outstanding debt as quickly as possible. We are therefore, extending our pause on share repurchases.

At least until the second half of fiscal 2020 three while we will continue to make minor share repurchases to offset the dilutive impact of stock option grants, we expect to keep our share count relatively flat throughout this period.

Finally, we anticipate our dividend program will continue to deliver value to our shareholders as it has in the past.

Given our outstanding first half performance the acquisition of C. G S and visibility for the rest of the year, we're updating our guidance for fiscal 2022 we expect organic ASD growth of $130 million to $150 million raising our midpoint by more than 8% from our initial 2022 guidance set in Sept.

Timber of $105 million to $135 million. This represents an acceleration of our organic growth rate of 7% from fiscal 'twenty to 'twenty, one reflecting our conviction in fact sets continued momentum.

C. G. S is not included in organic as the guidance, we expect CGS to contribute about $5 million and a S. D. In fiscal 2022 keep in mind that our August 31st fiscal year means that we are only including C. G. S results in our last two quarters of this fiscal year.

We will see unexpected deceleration in GAAP operating margin given our real estate footprint restaurant rationalization restructuring costs from Q1, and M&A costs. However, C. G. S is accretive to our adjusted operating margin is reflected in the 50 basis points of planned margin expansion from the previous midpoint.

And finally, we expect adjusted EPS to be $12.75 to $13.15 versus the $12 to $12.30. We had stated previously raising the midpoint by eight 6%.

We will be providing medium term goals for growth and margin at our Investor day, but we will not be addressing this longer term view on today's call.

As we look to the second half of the fiscal year. We are encouraged by our pipeline by our ability to capture value based pricing demand for our digital platform and high retention with our client base, we have confidence in continuing to see a higher volume of deals with a healthy mix of large medium and small wins. However.

However, the macro and geopolitical environment remains more uncertain than usual, we do not know the full impact of the Ukraine conflict, which could potentially lead to a recession scenario. In addition, there's variability in our bonus pool, the exercise of stock options and our tax rate all of which can make a significant difference in our financial results.

Even with these challenges our guidance reflects the belief that we are well positioned for the future.

And with that we're now ready for your questions operator.

Thank you as a reminder to ask a question you will need to press star one on your telephone again its star one on your Touchstone telephone to ask a question to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Manav Patnaik.

Patrick of Barclays. Your question. Please.

Yeah, Hi, good morning.

And then just on the you said contribution to guidance, you've got 5 million F. E. S. V. I guess can you just help us bridge.

The nature of their revenue contracts I thought the contribution would be.

And similar question around the margin 60 basis points is there some other kind of integration cost that youre assuming in there.

Sure Manav I think we probably should be just a bit clear about what's happening with CUSIP here first of all.

Our organic measure of a S. D of course does not include CUSIP. So what did we buy when we bought the CUSIP business, which closed on March 1st the ASD from CUSIP for a full year will be $159 million and looking at the half year.

Here in other words, the two quarters that were getting from CUSIP.

We expect to see about $80 million of a S. D. As for the last two quarters of this year on the revenue line, which is a little bit different.

We saw about we'll see about $180 million of revenue coming from CUSIP that $80 million is recurring and about $10 million is one time.

So the 5 million that we quoted we should've wrote written a bit more effectively in the script to explain that that 5 million is additional incremental growth above and beyond what we bought in CUSIP when.

When we closed it on March 1st.

So the a S D run rate initially $159 million growth for the back half of the year above that from CUSIP will be $5 million and I mentioned the revenue contribution to you as well so sorry, if we weren't as clear as we should've been about that Manav.

That's super helpful.

And then just maybe if you could talk about I think you alluded to it but just what's the potential factset downturn playbook could look like should the macro again, because all of us.

Yeah sure Manav, we don't have an official downturn playbook, yet but.

I think there are a couple of things that are that we would look to do.

We've been investing pretty strongly in our business and I'm you know I think we would think about which of those investments are most core if we did find ourselves in a downturn as you can see and I'm sure. We'll talk about a little bit later, we've been pretty thoughtful about our real estate footprint change.

We've taken a $10 million charge. This quarter, we took about a $9 million charge last quarter and we're letting everyone know that we expect a $45 million charge and real estate as we get to Q3, so the real estate footprint by more finished with all of this will have reduced.

The run rate on real estate costs by about 40% will talk a bit more about this in investor day, which again matches, what our employees want with a hybrid work environment.

Of course, if we hit an air pocket or bonuses would proportionately come down and I think we'd look a little bit more carefully at some of our other costs, but pretty typical stuff take a look at at core investments take a look at the real estate footprint bonus pool comes down and I think we'd repay art re.

Prioritize a bit.

Alright, Thank you very much.

Thank you. Our next question. Our next question comes from Toni Kaplan of Morgan Stanley . Your question. Please.

Yeah.

I wanted to actually follow up on that adjusted operating income margin guidance you raised it by 50 bps for the year I would've thought that T. G. S. Would've added about 100 deaths since it's all in there for six months and you've been running above guidance in the first half as well on on margin. So.

The organic margin guidance and second half lower than what you were previously expecting or is there conservatism or you know, what's driving that only 50 basis points increase in that margin guidance.

And the <unk>.

Let me take a shot at that and Phil will add some comments to it.

I think.

We're being thoughtful about this but we would note that this is at historically are very difficult to predict sort of timeframe here for the back half of the year, obviously the geopolitical situation.

Is tense and changing every day and with the fed obviously looking at it five six are increases in interest rates. We do have a period here, which is which is unsettled.

We've been thoughtful we've been a bit conservative that might be fair.

But we've only owned CUSIP now for 23 days. So we're still trying to figure out what we have there and how that business will react to these conditions as well. So we have obviously increased the guidance. We are optimistic but we're also thoughtful that we are not in control of either the fed or world events and with that.

I'll pass it over to Phil Yeah. So thanks, Linda I mean, what I might also add that Tony as you know, we're being thoughtful about our employees as well so we did invest quite a bit in.

In compensation in equity for some employees in Q2.

Our our attrition is checking a little bit higher than it was pre pandemic. So nothing to be too concerned about but we definitely recognize that there's you know there's a lot of movement in the on the talent front. So we want to make sure that we're prepared for that and doing everything we can for for for all effects or is that or adding great value to our company and Tony one other thing.

With CUSIP.

Quite honestly, we built in.

Several million dollars of expense for transition costs for CUSIP some of that around the technology transfer.

And some of that around the movement of the employees over to Factset.

It's a critical part of the financial system, obviously, the CUSIP system.

Has to remain working perfectly and because of that we are we were sure that we funded that well enough. So that the transition goes smoothly and that we have no hiccups.

Yeah, great. Thanks that some set up.

Perfect.

Just wanted to also touch on you mentioned the recent volatility in the market there's been a slowdown in M&A I know Phil you highlighted how the product is actually you know really valuable during these types of times I'm just wanted to understand if you had any change in.

Client conversations in the recent weeks since we've seen this a little bit more uncertainty and I know you talked about you know small and medium sized client wins during the past quarter or so is that something that you.

A little bit more at risk going forward or are you know just want to hear about if anything is has changed yet you know or if you think it just won't.

Nothing much yet Tony so I've spoken to Helen a lot about this so I think as you as you highlighted factset always does very well in times of volatility and where we're beginning to see some more strength, which is very encouraging is within the institutional asset management client types. So actually that drove a lot of the acceleration.

This quarter from a firm type standpoint.

That really wasn't from seats necessarily it was more from analytics and enterprise solutions so that.

Ongoing trend of our biggest clients wanting to rely on less partners and consolidate onto platforms like factset.

Is certainly out there.

And I believe in times like this it really forces that conversation then.

Really it's to our benefit in terms of the relationship we have with them and all that we've done to invest so nothing to be concerned about yet and we've got a very broad portfolio here to win with we might expect a little bit more I think than if it was a hit in Europe , probably be Europe in terms of decision, making but so far so good.

Yeah, Tony just to follow up on that.

The rebalancing of portfolios is going on at quite an intense rate right now and as we see the increases in interest rates that would potentially make fixed income more attractive. So what we do is provide tools to help investors and investor owners look at those transitions.

The thing is many of our clients are banks and as interest rates move up net interest margin or NIM for banks is growing.

So banks are in a relatively healthy place with that addition to to NIM and the fact that there is volatility might be helpful to active managers as opposed to indexers.

And that may be helpful to the uptake on our products as well. So volatility is is not necessarily problem and in fact may be a tailwind for factset.

Thank you.

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

Hi, Good morning, Thank you for taking my questions.

The first one I had was on a comment you made I think Linda on price realization.

In the Americas in the quarter.

I'm, just wondering where I think more specifically you said that you were getting a wider range of clients with price increases could you flesh that out a bit more where where were you able to get price. This past quarter that you hadn't been able to historically and maybe what you would attribute that to is that in.

<unk> pressures or specific.

Based enhancements from some of your investments over the past couple of years any more color there would be great.

Yeah, I'll take a shot at it Andrew and then filled will add.

We've been working very hard on value based pricing and appropriate bundling of our services as we've moved forward.

The 3% to 4% price increase has been sort of our rack rate our realization has been somewhat less than that because of various factors and with additional discipline and focus and really good communication and training of our sales team our realization has gotten better.

We've moved first in the U S. Regarding this sort of activity and we'll move on to the rest of the world as we get into the third quarter and later in the year. So the fact that our realization is going up.

Is very very important to the top line and where we're quite happy with the separate but a lot of it involves a better analytics for clients better information and data on usage and those sorts of things so.

Pricing is important value based pricing is important but the effort will continue around the globe and expand.

As we move into the third quarter, but where we're quite happy with with what we're seeing in the investments in our product. Our product is really made them more valuable to customers maybe filled might want to add a bit more about that I think you said that perfectly Ottawa extra to add that Linda.

Yeah.

Great No that's helpful and then.

Maybe for my follow up and I apologize if I missed it I think I cut out a little bit during the prepared remarks, but could you update us on how youre thinking about the balance sheet and optimizing the balance sheet, having now gone through the debt offering is there any better sense for your level of comfort on the leverage front or or a range for us to think about.

In the medium to long term. Thank you.

Sure we're pretty excited that we were able to purchase the CUSIP business. It provided strong cash flow to us and we were able to go to the public markets with a billion dollar bond deal split in two five and 10 year tranches and we did that on February 15th.

Prior to the geopolitical situation getting worse, we were noticing if we did that deal today rather than at the time that we did.

The 10 year has moved about 36 basis points and spreads have widened about 25 basis points. So our timing was fortunate and we felt really good about what we've been able to do so a couple of comments on leverage so everybody can kind of follow along here.

Our gross leverage that is leverage before we take into account cash balances is about 3.9 times right now and we've made commitments that we will reduce that leverage.

As quickly as we can so our plan is basically to look at paying back about $125 million a quarter that may vary a bit and so our thinking is that that leverage will come down to about 2.5 times gross leverage by this time next year and at that point it would be right to start conversations about what.

We would think about resuming share repurchase with two five times gross leverage where we're much closer to typical investment grade leverage. So our target is two to two and a half times gross leverage and we think we can we can get there over the next year, we've made commitments on that and we're quite serious about getting there.

The other piece for this which is which is interesting is on our floating rate exposure with hedged excuse me, 80% of that so our our bond pieces are fixed rate and we've hedged our floating rate pieces.

At the at the Ah.

The balance of 80%. So we think that puts us in a pretty good place as interest rates continue to move up so we're pretty happy with that posture as the yield curve is moving around flattening out, but we think for an initial inaugural offering we did pretty well and we're pretty pleased about it. So I hope that helps you with.

With a full and complete answer.

Very much so thank you.

Thank you. Our next question comes from Ashish Sibaja of RBC. Your question. Please.

Thanks for taking my question just wanted to follow up on the CGS acquisition based on the prospectus. It seems like the CGS margins were high 50% I understand there's some investments that you're making in trying to make sure you transition some of the technology and back office work within Factset, but as we think.

About a normalized margins for that business. Once you are done with the transition how should we think about those margins and any thoughts on accretion now that you've owned it for less than a month, but.

As we think as we have better clarity on the funding costs and margins how should we think about the accretion on an annualized basis going forward. Thanks.

Sure I think you are in the right right Zip code.

One attractive feature of the CUSIP business is that it does have fulsome margins I think the answer to your question No. Ashish is we're going to have to see we need to finish the transition process with the integration.

As you've heard we're running a technical services agreement.

With the seller of the business that could last up to a year's time, we're hoping we're able to transition off of that a little bit more quickly and potentially at that time, we might have a better view on what additional accretion would be but I think we're gonna have to we're going to have to live together now that we're married and so we're going to have to see how that.

It plays out but for right now I think you're in the right Zip code.

Thanks, Linda and then maybe just a quick question on analytics, you flagged that analytics was strong across all regions.

I was just wondering if you can talk about the pipeline there going forward and give any additional color on it.

There are certain products within the analytics, which are driving the strength or certain.

<unk> end markets, which are driving that strength in analytics.

Hey, Ashish, it's Phil Yes, I'm happy to talk about that as I pointed out I believe on the last earnings call. We have good momentum in analytics I see that carrying through into the second half are we suddenly have a very high quality pipeline for the second half and a lot of them are greater than a million dollar deals in analytics is a big part to do with that in terms of.

What drove analytics this quarter I'd highlight our portfolio services products.

And also we had a very good quarter for and risk those are the two that.

I think stood out to me in terms of driving the acceleration for Q2.

Thanks, Phil and congrats on a solid quarter. Thank you.

Thank you.

Thank you. Our next question comes from Owen Lau of Oppenheimer. Please go ahead.

Good morning, and thank you for taking my questions Linda sorry to go back to kill ship, but I recall from the last presentation fly these spaces generates about $175 million and I think you just mentioned do you expect that revenue to be $159 million.

I'm just wondering what what drove the delta.

And how should we think about growth for this business going forward. Thank you.

Sure I mean, I think the difference there is the $159 million is the annual subscription volume for the business.

The 175 that you mentioned is the annual revenue that comes from the business. So these are two slightly different things.

For the half year on the revenue I mentioned that 80 million comes from subscription revenue and $10 million basically for the half year comes from new CUSIP that are assigned so I think it's that difference that you should think about and the growth rate that we've talked.

About is $5 million on a S D which.

Which is incremental so the growth rate we've talked about.

S being in the mid two.

High single digits similar to Factset core growth.

And again as we get more experience with this we'll be able to talk a little bit.

More in detail about what we're expecting about that growth rate right. Now, we're just starting to look at new business opportunities with CUSIP and we need to spend some more time on that think about it get those those implemented very carefully and then see where we go so hope that explains a little bit more clearly.

Got it that's very helpful. Thank you Linda and then on another topic could.

Could you please talk about weather Factset, it's interested in.

Things like the crypto data display business and I think at least one one of your competitors have started to provide a more quick to data on the desktop I'm just wondering what effect that has any interest in this area and have you heard of any demand from your clients in these products. Thank you.

You know and it's felt yes. It was certainly a interests we're actually taking a very close look at that now as part of our <unk>.

Annual strategic refresh so we've got a group looking at that and you know at a minimum I think you would expect to kind of be able to see.

You know some quotes on the system and of course, we're beginning to see a crypto show up in all our client portfolios or some of the client portfolios that are on our system. So just making that work within the analytics suite would be important and then beyond that you know I believe there's some good opportunity, but we will have.

Probably a little bit more to talk about that I would say probably closer to the end of this fiscal year, when we get through our strategic planning process.

Got it so not a ton of them.

And yet from our clients, but we anticipate it's going to become more of a topic for sure.

Got it thank you.

Yeah.

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

Great. Thank you Linda I'm, just curious to hear your thoughts on this after six months at the company maybe you could just tell US where you think the biggest opportunities are from you from your seat which have a wall impressions. So far given your 20 plus years.

Industry experience here, but where do you see and so forth you could share with us.

Thanks, Craig it's been a great six months at Factset, we've been able to do some pretty terrific things on a on the balance sheet and frankly, you know I was hopeful when I joined that we'd be able to find a strong cash flowing acquisition to get rated and be able to access the public markets. So we're ready for when interest rates move.

So I think we've accomplished that really really well on the product side, it's pretty exciting to see how the clients are reacting to the investments that we're making I think deep sector, where we're basically building out incredibly deep and broad information, starting with financial services and now moving on to different industry groups.

Energy and health care.

With some beta clients on in that area, that's that's pretty great stuff and a better product I think than anyone else in the industry can offer.

Theres some housekeeping things we have to do here you heard me talk a little bit about making sure. The price realization comes through and that we have good discipline on pricing I think we're making some great strides on that Craig.

Tensions very high the products are very sticky and the client obsession really allows us to continue.

Continuing to have a lot of loyalty from the clients, even when some of the junior bankers move onto other firms. They still want to use factset, which is which is really really great. So I think we're in a really good trajectory, we're looking forward to providing some more guidance.

On Investor day growing the top line. This is first and foremost and we're making progress and some margin expansion of course will be something we're looking to and we'll have more to say again on that on Investor day and for right now no share repurchase, but we hope to get back to it once we get our leverage levels back down to where we were so lots to do but.

I'm all good so far.

That's great and my final question, if I could.

You guys talked an awful lot about the non traditional areas of your of your clients private.

Private equity venture capital wealth hedge fund corporations, and so forth and settle all of those were growing north of 10% here. If you add those that whole group of clients up right now I'm curious what rough percentage of your overall revenue does that represent right now.

Yeah, that's not something we've traditionally broken out Craig will give some more thought to that but.

The question.

Okay. Thanks, guys.

Welcome. Thank you.

Thank you. Our next question comes from Kevin Mcveigh of Credit Suisse. Your line is open.

Great. Thanks, so much hey, Phil I may have misheard you on the call, but I thought you talked about a lot of the outsized growth coming from the buy side.

But when I look at the supplement and reschedule its actually pretty interesting because it looks like the a S V growth if I'm reading it right.

The sell sides outpacing.

The buy side am I right on that or is it was at current quarter, maybe revenue versus a S V or just any thoughts because it seems like the E. S. P. A.

The sell side has started to come on pretty strong.

Yeah. So I think we saw a little bit of a downturn on the sell side growth this quarter.

And we saw more strength from the buyer side. There are a lot of different client types and the buy side. So I was talking about institutional asset management in particular, which is the biggest piece of that for sure in.

And the piece that is.

As you know is not growing in double digits, but I'm very encouraged by the strength that we saw within our largest client type and the one that we've spent a lot of focus on in terms of the portfolio lifecycle, but in terms of the the attribution to those numbers I think if you ever call later with a with Kendra I think she could probably get into that in a little bit more detail for you.

Great Great and then just can we talk about the partnership with Aladdin because it seems pretty interesting in terms of integrating port where until Aladdin and you know as a template for something that continues or.

What are the economics like how does that work in terms of the partnership with Aladdin and can use edits template for you know like state Street, so on and so forth.

Sure Yeah. Thanks for the question. So we do have a you know as part of our buy side a number we do have a pretty big business with partners and this would be a good example of that and there are lots of instances in our industry. As you know we're you know we would sit alongside.

Aladdin and lots of other firms in our space.

So we have a good relationship with them and we're going to coexist at a lot of clients. So if they want to use our execution management system. You know, we want to provide that choice in the industry.

We are definitely talking to lots of firms about this type of partnership and another example is what we've done with Snowflake and Amazon for example, but this is really I think.

A very good example of how all the work that we've done to invest.

Invest in our technology and open up the platform and become more plug and play in the ecosystem. So I'm very excited about the partnership and some of the other conversations we're having and I just think it just gives us more more channels to monetize the value that we're creating at the company.

It totally does in terms of like what's the revenue recognition on it just so we get a sense of how it kind of sits sits within factset.

Yeah, we won't I mean, we so whenever we do these partnerships, there's a whole different a variety of different ways that both firms will.

Benefit from this but we're not going to talk about the specific economics of any given deal that but I think both both sides are excited about it and it certainly gives more choice in the client base.

Thank you.

Awesome.

Thank you. Our next question comes from George Tong of Goldman Sachs. Please go ahead.

Hi, Thanks. Good morning, you mentioned that the pricing is stepping up this.

This year can you discuss how much you expect pricing to contribute to full year growth and how pricing increases compare with input cost increases that you're seeing.

Hey, George it's Phil So I think we are.

It was in the script, but we increased pricing.

Pricing from 3% to 4% this year within the Americas in Q2, I would expect something similar.

You know for the EMEA and Asia Pac regions, which hits in Q3. So we did see a bit of an uplift in Q2, I think it was $6 million to $7 million from price above and beyond what we did last year.

And as Linda mentioned earlier, we're getting better price realization through just how we sell normally so we don't capture all of that typically because we will have other contracts that are out there, but that's typically what's in the majority of the smaller and medium sized deals. So we do have a lot of pricing power I think we've been pretty conservative with our clients, we want to build that.

Long term relationship and continue to cross sell.

So a little bit of an uplift from from this year and I think the ratio would be similar to what you might've seen in prior years between Q2 and Q3.

Yeah, and George Linda Nice to hear from you.

On margin expansion, we have seen some of the drivers include the strong topline this quarter, our compensation costs have been a little bit lower particularly on the salary line, which has been down a few million dollars, whereas the bonus line has been up a bit and the equity line has been up a bit the REIT.

For that is still said, while we've moved through this time when it's a bit tougher to hire we've moved a little bit more slowly in terms of the number of people, we've been able to hire and we expect that to grow as we move into the back half of the year.

The bonus line, we've put up about $21 million for bonus for second quarter. It was the same in the first quarter, but we're running strong we're looking at about $85 million for the full bonus line for this year, but if we do continue to to punch above our weight in terms of what our what our guidance is.

Ben we of course have to take that that bonus line up so just keep an eye on that but our.

Our costs for content have been managed pretty well to this point in the year, we've been happy that they've actually come in a little bit lighter than we expected now as others are looking to increase their prices were going to have to manage that very carefully and of course, we look really closely at do we want to building capture our own.

Data or do we want to buy it or rent it from others. So as prices go up we have to think about that a little bit more carefully but for right now under good control.

That's very helpful. Thanks for the color and maybe sticking with the topic of margins.

You talked about some of the puts and takes some accretion from CUSIP investments.

You are making is it possible to provide a bit of a bridge for margins are quantifying some of those puts and takes in terms of basis points impact.

Sure. Let me, let me try to do this compared to where we were at this time last year and the incremental EPS from this quarter last year's 55 cents and the main drivers of that are 27 cents due to revenue increase and 10 cents due to margin.

Increase that's.

That's pretty important we're getting the uplift from the business and from working on the margin the.

The tax rate has helped us to the tune of 19 cents, but again the bulk of that 55 cents thirty-seventh sense of it is coming from the business. So just want to be very clear about that.

At this point George one of my homework assignments is to better tie investments to what's going on with ASD growth and margin don't have great detail on that at this minute, it's something the F. P. N. A teams working on but suffice it to say the evidence is there that the investments are paying off really nicely, we plan to do a better job of ticket.

And tying that though for you.

So point taken.

Got it very helpful. Thank you.

Mhm.

Thank you. Our next question comes from Keith Awesome of Northcoast Research. Your line is open.

Thank you I appreciate it just extending on that previous commentary there in terms of the benefit from lower taxes. This quarter. This year.

How should we think about that going forward or should we expect your effective tax rate to creep back up to prior levels or is this lower tax rate sustainable.

Sure I think Keith you're going to have to go with what we guided toward for the rest of the year ETR of 12, five to 13 and a half now we've got some tricky things in here part of it is what is going to be options exercise tough to know it depends on where the stock price goes.

Part of this also goes to where the bonus calculation goes.

And you see that we're taking some charges in terms of real estate and the acquisition costs, which will bring the right back down.

So please work with childhood half to 13 in half.

One of the things, we're not going to do at Investor Day is give any longer term guidance on the tax rate because.

We don't control the tax rates, it's pretty bouncy, so let's work with 12 and a half to 13 and a half for the rest of the year and just kind of kind of keep it there we're pretty happy with that.

But a it's a tough thing to predict for the longer term hope that's helpful.

It is.

In terms of your customer servicing travel I mean, one of the things that you know FX has always been known for is it's great customer service and that includes getting under the offices of the customers and obviously this has changed during COVID-19 , but as you guys think about the your travel strategy going forward in your customer service is there a pronounced change in your efforts to you or your permission.

And as they are right travel as it was or how are you guys thinking about travel going forward that perhaps the impact it has on the overall business both from a revenue generation as well as expense line.

Yeah, I think well we've learned that we cannot do everything virtually for who all you can see that in terms of our growth.

But that is a big piece of Factset is culture and our clients really appreciate at a high touch service, we give them. So I think we'll see a good balance there I don't expect we'll get back to on a thing like what we used to have from a TNA expense, but I recently, just visited all of our U S offices and spoke to a lot of our new hires. So people are chomping at the bit to get out.

There some of it's just based on what the clients are comfortable having us in their office, but that's going to continue to be a big piece of what we do as a company.

Yeah, we we had run about $15 million on G&A for the year. The first half of the year. The spending in that is less than $3 million were redirecting a little bit of the T&D spend to some other things we need to do in enterprise solutions to make sure.

We're able to do everything Helen and the sales team needs to do for price realization and usage tracking amongst other things. So we're making very good use of the slightly lighter T&D dollars, but we want to get everyone back to face to face meetings is still said as soon as we can so hopefully.

Hopefully that gives you some some sense of the dimension of the spend as well.

It does I appreciate the color. Thank you.

I assume you're a factset user and we'd be happy to visit one of your life.

We are we are.

Yeah.

Thank you. Our next question comes from Shlomo Rosenbaum of Stifel. Your question. Please.

This is Adam on for Shlomo commentary in the press release.

413th sequential increase in clogs is probably due to the corporate yeah close to 9200 increase in user count with G Research and advisory is implication that the higher user count is largely coming from increased hiring at existing clients.

The increase the the the.

The client the users sorry.

Yes.

Go ahead I was little unclear there on the I couldn't hear you very well, but yet the users. So we had a big uptick in users we had actually a very large wealth deal that closed.

And the users are using the product and its been deployed and we'll recognize the revenue for that I think later in the year.

So it wasn't a driver of the quarter in terms of revenue, but they but they use account youre seeing that came from pretty big wealth deal and some other great wins on the wealth side as well as an uptick in corporate clients.

So that was what was driving the user count number and then on the client count number. It was a nice mixture of corporates are private equity venture capital firms and wealth clients.

Okay.

For the CUSIP contribution.

The impact on the ASP side, and any kind of how much of the guidance range was problem.

P S CUSIP.

And I think we'll talk a little bit more to spell that out at Investor day, Shlomo if that would be okay. With you frankly, we've had to move through all of this pretty quickly.

So we will speak about that a little bit more and give you a good reason to come see us on April 5th if you could.

I wanted to make sure we get a couple of housekeeping matters out of the way here before we close the call just wanted to remind everyone that we typically look at our dividend in the third quarter. So please factor that into your thinking we've talked with the rating agencies about our thoughts on dividend and so all of that.

We'll move along on bad debt, it's ticked up a bit some of that is a result of Russia about $200000 more of it due to a bit slower payment from China about $500000 and it's part of the cycle of when we bill So nothing unusual there, but bad debt is something we're keeping a close eye on here.

As we move through the Russian situation so.

Please think about that a little bit also on the facilities situation as we reduce this cost of the charges that we've taken we're hoping we're going to be able to increase investment availability.

By about $10 million to $14 million over the next three to five years the ideas, we're taking money away from funding.

Large square Footages of real estate, and where to put some of that back in to some of the investments we need to make so a redirection there of our real estate costs.

I think that's that's about it and.

I thought maybe it might be helpful. In closing if a sale could do a little bit of a commercial for our E. S D.

ESG business plays through true value labs, because we haven't received any questions on that.

So yes, so our ESG business is doing well, it's grown about 75% since the acquisition, which I think was in the.

Last the cap, but at the end of COVID-19.

So we're in we're excited about that and we've got some nice products that are in the pipeline that are that are coming to market soon.

So I guess I'll just wrap up here. So thank you all for joining us today in closing I want to reiterate how proud I am of our accomplishments in the second quarter as a company, we accelerated the topline and had a stellar first half with strong momentum that will carry us into the third and fourth quarters, we worked across the organization to close the acquisition of.

C. G S. Our largest acquisition to date financed in part by our investment grade inaugural senior notes offering of $1 billion. Finally, we continued to invest in our greatest asset our people I look forward to seeing many of you on Tuesday April 1st please come to our Investor day in the meantime, please call Kendra Brown with additional questions and we'll speak to you all next quarter.

Operator that ends today's call.

Thank you Sir This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Yes.

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