Q3 2022 Factset Research Systems Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to Factset third fiscal quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press. The Star then the one key on your touched on.
Telephone.
Please be advised that today's conference is being recorded.
If you recall operators. Its anytime you May press Star then zero I would now like to hand, the conference over to your speaker host.
Kinda Brown head of Investor Relations.
Thank you and good morning, everyone welcome to Factset third 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 Dot 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 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 four.
Or it 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.
Thank you Kendra and Hello, everyone. Thanks for joining us today I'm pleased to share our strong third quarter results as we delivered another exceptional quarter with double digit E. S fee growth as we enter our fiscal fourth quarter of 2022, we are building on our momentum and are well positioned for the year and given this outlook we are <unk>.
<unk> to the high end of our previously discussed financial ranges, except for the tax rate, which will be at the low end of the range Linda will speak more about this in a moment.
Our organic a S V plus professional services growth accelerated to 10% in the third quarter with strength across all workflow solutions and regions growth was primarily driven by analytics with success globally from asset managers and asset owners as well as large partnership wins and increased demand from wealth management firm.
<unk>.
Our sales and client facing teams continue to outperform increasing the pace of our topline progress we saw acceleration in year over year growth from all client types, reflecting our success in building the leading open content and analytics platform. We once again saw the continuation of double digit growth in banking.
<unk> wealth hedge funds corporate clients partners, and private equity and venture capital funds.
Stronger retention and accelerated expansion drove demand for our content and digital solutions for existing clients and for new business growth was driven by a workstation with solid performance in the Americas, and EMEA and continued small and medium wins across all regions.
Adjusted EPS increased 38% from the prior year period, given our ESP growth and disciplined expense management, our third quarter. Adjusted operating margin also expanded 500 basis points year over year to 36.6%.
About two thirds of this margin expansion came from the addition of CUSIP Global services or C. G. S. While the remaining one third came from our core business. Our fourth quarter pipeline continues to look strong providing a tailwind for the remainder of fiscal 2022.
Our third quarter performance is the result of intense focus on the strategic initiatives, we showcased at Investor day scaling our content refinery delivering next generation workflow solutions and enhancing the client experience with an open platform and hyper personalization. These key differentiators drive topline growth in there.
Enable us to capture more of the addressable market.
Okay.
<unk> open platform powers, the portfolio lifecycle with market, leading solutions, our portfolio analytics and trading products for the front and Middle office drive broad based growth on the buy side ongoing investment in the front office is paying dividends as the momentum and acceleration of our front office capabilities continues to grow these multi asset class port.
Folio analytics continued to see healthy client demand.
So a differentiating by site attribution and risk capabilities.
Our content refinery is driving growth in content and technology solutions or Cts, our off platform business. As you may recall from Investor Day. This business delivers proprietary and third party content to clients in several ways, including data feeds a P eyes or increasingly the cloud.
Factset suite of off platform solutions offers our clients the flexibility to decide where and how they will consume that data and our ability to Concord of connect data is a real differentiator.
As clients increasingly want to consume data programmatically, we're expanding our robust suite of data management and workflow solutions.
CUSIP Global services a C. T S business components is a great example of this expansion I'm pleased with the performance of the C. G. S team its integration with Factset has gone very well together our teams are working to expand the business focusing on private companies ESG digital assets and issuance trends these opportunities a promise.
Saying, but several will take time. So it's still early days Linda will discuss cgs's performance in more detail later in the call.
In the current volatile market, our investments in content and workflow solutions put us in a resilient position all clients clearly recognize the value of our diverse product portfolio and we are committed to increasing the pace of these investments for the next few years, we will continue to invest in our content refinery building on our offerings and ESG.
Deep sector of real time, private markets and wealth and as we discussed at Investor Day, our investments drive client demand and will be a driver of growth in the years to come.
Looking across our regions, we saw broad based acceleration across all our markets. The Americas continues to be the biggest contributor to growth with organic a S V growth accelerating to 10, 1%.
This was driven by research and advisory with the workstation driving new business, especially among corporates expansion was driven largely by wins at wealth clients.
In EMEA a S V growth accelerated to eight 3% workstation sales drove growth with asset managers and banks. We saw increased a S V capture in the region due to the international price increase better price realization and workstation expansion.
New business also contributed to growth driven by increased workstation sales within wealth firms.
Asia Pacific's performance remained strong with a S V growth at 14.3% driven by demand from asset managers and asset owners, we saw higher retention and expansion among existing clients across many countries, both cts and analytics contributed to growth with higher expansion with asset owners.
And asset managers, respectively.
In summary, I'm very pleased with our third quarter performance, we continue to invest in our business and platform, which is paying off giving us good momentum as we head into the fourth quarter. Looking ahead, we are confident in our strategy and ability to navigate volatile markets. We remain committed to the medium term outlook, we shared at Investor day of 8%.
<unk>, 9% ASP growth, 11% to 13% EPS growth and 35% to 36% adjusted operating margin.
Factset has a proven history of growth and volatile markets a subscription based model provides stability and fosters client retention, we're prepared for potential downturn scenarios with specific levers to reduce our spending if necessary even as we continued to invest in our business, which Linda will discuss in more detail.
Ultimately our open platform constant refinery and personalized workflow solutions will continue to set us apart.
Underpinning all our efforts is our incredible team our culture is a key differentiator in this competitive environment and we're committed to attracting retaining and developing top talent like many of you know our leadership team has increased our in person interactions. It's been great to meet with clients again have visitors in our offices and engage with Factset a space.
To face we provide flexibility for our employees with a hybrid work model, which has been very well received and I'm proud of the work our team does every day to deliver on our goals and constantly improve our products.
I will now turn it over to Linda to take you through the specifics of our Q3 performance.
Thank you, Phil and Hello to everyone on the call as you've seen from my press release. This morning. We are pleased to report continued acceleration in our topline with double digit growth year over year in revenues organic Asti and adjusted diluted EPS.
Now I'll share some more details on our third quarter performance consistent with our definition of organic revenues and ASD, we will exclude any revenue NASD associated with C. G. S. When reporting organic related metrics for the 12 months. Following the acquisition date, we will however provide some specifics on C. G. S. So you can track it to.
Initial performance as part of Factset is.
As Ken previously noted a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release.
We grew third quarter organic ASD plus professional services at 10% year over year. This acceleration reflects disciplined execution of our sales pipeline and pricing plans.
In addition investments in content and workstation functionality continues to support both retention and better price realization for example, our third quarter International price increase contributed $10 million of Nance deep an increase of $3 million or 30% from last year.
Third quarter GAAP revenue increased by 22% from the prior year period to $489 million organic revenue, which excludes any impact from foreign exchange acquisitions. During the last 12 months and deferred revenue amortization increased 10% to 442 million over the prior year period.
Growth was driven by a research and advisory and analytics solutions as well as by the acquisition of CUSIP Global services, all regions saw robust growth benefiting from the acceleration in all three workflow solutions for our geographic segments organic revenue growth over the prior year period for the Americas was 7%.
And they're at 13% and Asia Pacific at 24%.
Turning now to expenses GAAP operating expenses grew 39% year over year to $392 million impacted by several charges incurred during the period.
First as previously discussed we have been resizing, our real estate footprint to match our hybrid work model. This quarter, we recognized $49 million in impairment charges. While we will continue to evaluate our real estate needs. This initiative is largely complete we do not anticipate similar lease size real estate impairment charges and the <unk>.
Quarters to come.
Also in the third quarter, we incurred $12 million in one time acquisition costs related to the CGS acquisition. In addition, we recognized $13 million in acquisition related intangible asset amortization during the quarter going forward. This intangible asset amortization will be a recurring charge.
Given these charges our GAAP operating margin decreased by 956 basis points to 19, 9% compared to the prior period.
Adjusted operating margin increased by 500 basis points to 36, 6% compared to the prior year exceeding our guidance on this measure driven by lower compensation expenses, lower tech and content costs and lower facilities expenses as.
As a percentage of revenue our cost of sales was 582 basis points lower than last year on a GAAP basis, and 792 basis points lower on an adjusted basis. This decrease was primarily due to lower employee compensation and lower technology and content related expenses.
Including our ongoing shift to the public cloud when expressed as a percentage of revenue SG&A was 536 basis points higher year over year on a GAAP basis.
292 basis points higher on an adjusted basis. The primary drivers of the increase include CGS acquisition costs increased employee compensation expense and higher bonus accrual.
Moving on to tax our tax rate for the quarter was 12, 2% compared to last year's rate of 11, 9%.
This was primarily due to lower projected levels of income before income taxes, and a tax provision reduction related to the lower rate compared with the three months ended may 31, 2021.
GAAP EPS decreased 26% to $1 93, this quarter versus $2.62 in the prior year, primarily due to real estate impairment charges acquisition expenses and higher interest expenses, partially offset by higher revenues adjusted diluted EPS grew 38, 2% from the prior year to three.
Dollars and 76 cents, largely driven by revenue growth margin expansion and a lower tax rate adjusted.
Adjusted EBITDA increased to $173 million up 30% year over year, and finally free cash flow, which we define as cash generated from operations less capital spending was $177 million for the quarter, an increase of 45% over the same period last year the key driver for our.
Our increased cash flow is the acquisition of C. G S, which has performed well since closing on March 1st.
Speaking of the CGS acquisition, we are now 100 days in and CGS is tracking ahead of plan on all fronts. It's financial performance was robust in Q3 with both sales and margins exceeding expectations as we discussed on our second quarter earnings call. We're on track to realize $5 million and nasty.
In fiscal 2022 from C. G. S. It is a resilient business with steady topline and good cash flow even in a potential market downturn, while C. G. S's issuance fees are more sensitive to market activity. These fees make up only 15% of C. G. S. This revenue.
Punctual integration of the C. G S operation is well along and we now expect to exit our transition services agreement ahead of schedule.
Our ASD retention for the third quarter remained greater than 95%. We grew the total number of clients by 19% compared to the prior year driven by the addition of more corporate and wealth clients user count increased by more than 2000 since last quarter. Thanks to an increase in research and advisory users.
Year over year user count grew by 12% our client retention remains at 92% year over year, reflecting the strength of our subscription revenue model.
Turning now to our balance sheet on March 1st we issued our inaugural investment grade Senior notes. These notes comprised $500 million of 2.9% five year senior notes and $500 million of 3.45 10 year senior notes at the same time, we entered into a new credit agreement updating our term Andrew.
Solving credit facilities, we're pleased that our fixed rate senior notes are well priced given recently increasing interest rates.
In addition, as you may recall, we've hedged 80% of our total debt from floating rate exposure for 24 months largely protecting protecting us against rising interest rates.
And as we have said before we're proud of our investment grade ratings in the third quarter. We made a planned prepayment of $125 million on our term loan, bringing our gross leverage ratio down to three five times from the initial 3.9 times level. When we acquired C. G. S. We expect to make three more payments of 120.
$5 million in each of the next three quarters, enabling us to reach our gross leverage target of two to two and a half times in the second half of fiscal 'twenty 'twenty three.
During this time, while we may continue minor share repurchases to offset the dilutive impact of stock option grants, we do not intend to resume our share repurchase program until at least mid twenty's twenty-three.
Lastly, we'd like to remind investors that we increased our regular quarterly dividend in the third quarter for the 23rd consecutive year of dividend increases the increase was 8.5% for our per share dividend of <unk> 89 cents.
Next I'd like to discuss planning for our downturn playbook scenario first off it's important to note that factset remains committed to topline growth supported by our investment plans.
We would expect to maintain these investment plans, even under a downside scenario and still mentioned historically factset has fared well in volatile markets as our subscription business model provides stability even in challenging times with more than 40 years of consecutive revenue growth, we've successfully navigated several down cycles.
We significantly outperformed the S&P 500 on revenue operating income and EPS in 2007, 2008 and 2009 in fact in 2008 and 2009 tax at EPS was positive while S&P 500, EPS was double digit negative.
That said it sound financial practice to be prepared for all scenarios.
As part of this planning, we've identified 2% to 3% of our $1.2 billion in operating expenses were $24 million to $36 million that we could potentially reduce to maintain margins in the event of a severe downturn.
First we experienced lower ASD, our bonus pool would adjust accordingly per our pre established performance targets, providing the largest share of expense reductions lower asked me would also proportionately reduce variable third party data and content costs Lastly, we could potentially reduce T&D expenses through virtual.
Engagement. This is planning exercise, we will undertake quarterly in order to rebalance resources given prevailing market conditions to confirm this exercise is just scenario planning.
As we look to end our fiscal year on August 31st Factset is on track for a strong finish.
Given our performance this quarter and robust pipeline, we reaffirm our previously communicated guidance for fiscal 2022 we expect growth at the upper end of the previously provided ranges for most of the metrics in our annual outlook. The exception would be the effective tax rate, which is expected to fall at the lower end of the previously communicated range.
As a reminder, C. G. S is not included in or our organic ASD guidance. However, as we discussed earlier in the call. We expect CGS to contribute approximately $5 million in ASD and fiscal 2022 all in all we are encouraged by the demand for our content and workflow solutions our investments.
To drive growth in our digital platform. Our sales team continues to provide excellent execution and we're continuing to improve our price realization. Although there is uncertainty in the macro environment, we believe our diverse product portfolio and stable financial position will serve us well for the longer term.
With that we're now ready to take your questions operator.
Thank you, ladies and gentlemen, if you like to ask a question at this time you will need to press. The Star then the one key on you touched on the telephone.
And as a reminder to be fair to everyone. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
Now first question coming from the line of Manav Patnaik with Barclays. Your line is open.
Yes. Thank you good morning.
My first question is just around the guidance I mean, given the numbers and the momentum thus far it sounds like you should be able to very comfortably.
That's the high end David beat the guidance. So just curious as to you know.
Why perhaps you didn't.
Change or read those numbers are you starting to see any feedback from your clients, perhaps just given the macro slowdowns at excellent teaching them and not just from just looking some commentary there.
Hey, Manav. Thanks for the question, it's Phil So I'll kick off here and I'm sure Linda will have a few additional comments so yeah in terms of the fourth quarter pipeline.
No we're definitely confident in the range that.
You know, we guided to in the last quarter.
The high end of that range. So it's a very high quality pipeline I would say in terms of.
What's in there you know we're seeing very good strength on the buy side.
In analytics has had a very good few quarters in a row here. So we're seeing good strength and visibility on the buy side with banking, obviously, there was a very good.
Uplift last year from sell side hiring we were anticipating good sell side hiring maybe not as high as last year, but certainly I think more positive versus previous years. So in terms of the top line.
That's what we see going out at least today.
I'll I'll allow Linda here to kind of get into a little bit more of the the other the other pieces of guidance. So yeah, Hi Manav.
We feel really good about where we are the swing factor here is really the tax rate as we go into the fourth quarter.
We've got a couple of discrete items that may swing either way so.
In fact, we may end up doing better as we get through the end of the fourth quarter, but.
Given the market conditions right now and the way the market is bouncing around I think it's prudent.
To be confident but not cocky and so we thought that this was what's the best way to go but thank you for pointing that out.
Got it and just in terms of.
Pipeline like maybe more on the product side.
I think last recession 90 pointed out you guys go through it but I think you were a smaller.
Smaller company a lot more share et cetera. We had can you just talk about you know the the product pipeline and how that might help you do the same thing in the event, we do go through a slow down.
Sure Yeah happy to do that and.
Yeah I mean, we've lived through these are many of our sales leaders and specialty sales leaders have been through these types of cycles. So we're very experienced there.
Really good news is we have more product and waste to help clients than ever before.
So it's a very good story to go into a client and really talk to them about you know what it is they're facing on what problems, we can solve for them.
And.
You know that sometimes it's to our benefit because it really brings people to the table, sometimes a little bit sooner than they might have traditionally done that so you know I would probably put this into three cap all three categories Manav. The first is the portfolio of lifecycle for the buy side is really getting some good traction here of the analytics team has had significant acceleration.
Over the last year, and we're seeing strength come through.
In risk.
Our quant products. So are you know, we'd now have programmatic access to the platform and that's been very well received.
Our trading products have done very well as well and when those increased volatility in the markets that certainly helpful. And that's just bolstered by like the excellent performance of the performance and reporting parts of that business. So analytics is firing on all cylinders.
And because we're a more open platform now when we plug it in more places it really just puts us in a great position on the buy side.
And I think that open.
Theme is important as well so not just for the biocide, but for all kinds of clients. We're finding ways that we can integrate with CRM for example, and other pieces of our clients' workflows. So I recently had a bunch of visits with with clients and it feels a little different frankly than two years ago, there really understanding our story now in <unk>.
The differentiators that we bring to the table and it's very exciting to be in those conversations with you know with CTO and CIO of <unk>. Some of our largest clients and then just the workstation you know I think we've got a kind of a renaissance in the workstation, that's how I like to think about it.
We really have good momentum here and we're growing our business across a lot of different font type. So it's very broad based and lastly, you know the investments that we've made in content are really paying off deep sector has already paid off but we're getting but beginning to see private markets and ESG come through and we're also investing in real time so that.
So many weapons that we have now for our salespeople to go out there and help our clients and what I'm encouraged by it's across every business line, we have and it's across every region and it's across every phone type. So you know, we're very well distributed here in terms of our opportunity I think.
Better prepared than ever for any sort of downturn in the market.
Got it thank you very much bill.
Sure you're welcome.
And our next question coming from the line of Toni Kaplan with Morgan Stanley . Your line is open.
Thanks, so much.
Just continuing on down.
Downturn theme I'm, hoping you could remind us how professional services.
Downturns and now you have the non subscription part of.
CUSIP it's.
Under 15% of that business could you just remind us what what's in there and and how discretionary I guess that is and that's my first question. Thank you.
Sharp Tony Yeah. So it is a small piece of Factset and most of the professional services that we offer a really to implement our analytics suite, which as I. Just mentioned is having very good momentum here. So you know we didn't really have a big professional services team during the last downturn, which.
It was I think a little over 10 years ago, but I anticipate that you know where we will have the people we need to implement these products.
I wouldn't imagine that that's a headwind for us at all Linda I don't know if you've got any additional to.
To follow up on your question on CUSIP Tony.
The 15% of revenues that comes from the assignment of new CUSIP numbers for new Securities you're correct about that that is not recurring revenue the other 85% of CUSIP revenues.
Are in fact recurring so if we do have a bit of a slowdown in capital markets activity, We may see.
Slight trending down at that 15% of CUSIP revenues, but I'm not sure that you're going to notice that overall in the total mix of the company and we would expect that that would.
Just be if capital markets do.
Do you take a downturn so again that piece is pretty minor as well.
Yeah makes sense I wanted to ask on the.
Expense side show Linda you mentioned no real estate opportunities are largely done.
I know you were looking into third party data costs for savings as well.
Is that ahead of us or is that complete and just overall, how how shall we think about normalized operating margins just post.
Real estate savings head count savings all of that thanks.
Sure on real estate, you're correct, Tony where we're pretty much through this.
We've reduced our real estate footprint overall by something close to 40%, which works really well with our hybrid model.
We had said at Investor day savings that come off of that are going to take some time to materialize.
As we have to still consider.
The leases that are that we have so we're looking at $10 million to $14 million of re investable funds over three years, so perhaps not quite as much as you would think.
On the margin front, we're incredibly happy with the margin progress that we've made 500 basis points is lot two thirds of that comes from CUSIP. The other third from the base business. So it's important to note the base Mrs business.
<unk> is doing well also.
On the second bucket of.
Personnel costs.
We noticed that we came out about where we had expected this quarter salaries or a little bit lighter because it has been challenging to fill all of the open positions that we have but our bonus accrual is higher because we've done well. So we did $31 million of bonus accrual in the third quarter.
In the first and second quarter, we were at about 21 and $22 million.
So we're running $75 million through three quarters, and you should expect that the fourth quarter would probably be an average of those three so 25 $26 million. So we're looking at what we expect to be potentially even a $100 million bonus pool. This year.
So that is heftier than than what we've done in previous years, so bonus pool upside kind of offset the.
Salary line running a little bit light on third party data costs. This is a tricky one we are in inflationary times.
We've worked quite hard on this and we will continue with our procurement group to negotiate effectively I think we would see this line moving up sort of three ish percent, maybe a little bit more. This one we're going to have to watch and we'll have more information for you.
But we have.
Look to beef up the procurement activity to make sure that we've got that right and technologies come in about where we had expected we expect technology costs will move up though as we said great success with the cloud with our clients which has resulted.
It resulted in greater cost for greater utilization and we're building more of our own software. So amortization continues to to move up as a trend, but basically you know we've we've handled the.
<unk> expenses for CUSIP those have come through.
And the trends are looking looking pretty good are you.
You had seen the margin guidance over the longer term the margin goals are.
A 35% to 36% adjusted and we feel like we're making very good progress on that so I hope that is a fulsome answer to all your questions Tony.
Thanks for all the color. Thanks.
Mhm.
And our next question coming from the line of Ashish.
With RBC capital markets. Your line is open.
Thanks for taking my question. So my first question I wanted to focus on the comment around that large partnership.
Then that was highlighted up strength of sale as well as.
The expansion and wins at wealth clients I was wondering if you could provide further color on those or both of those just the pipeline for the partnership as well as a pipeline for wealth management.
Absolutely. Thanks Ashish.
Yeah, we have a very strong partnerships business and as our platform has become more open and we have more to offer from all content refinery. It gives us a good opportunity to to distribute you know what we have on the shelves through different ways. So we did have a very nice deal in Europe that was driven by a lot of our core contents. So that was.
A big contributor to Europe's growth in Cts as growth this.
This quarter.
And on the wealth side, it's a very well distributed so I think quarter after quarter, you see the new logos and the increase in our workstations.
Wealth, usually on the leaderboard there if not at the top of it.
And there's just a steady pipeline of larger deals you know.
That we're just systematically knocking all way through so it's hard to sort of scrape a ton of these over in any given year just how long those contracts are in a bigger decision that is for some of those firms but.
But I have every confidence in the world and our wealth team, they're doing exceptionally well.
We're really killing it within the space that we're focused on and we do think there's a greater opportunity.
In wealth to capture more of the.
The wealth advisors workflow as we look forward.
That's great color and Linda thanks for providing that detailed color around incentive comps and details that arent realistic saving but just wanted to drill down further on the guidance piece, if I look at the implied fourth quarter guidance.
That implies a significant moderation of margins.
In the fourth quarter and so I was wondering is there any particular puts and takes that we need to be cognizant of Oh.
For the fourth quarter or is that just as you mentioned earlier, just conservatism baked into given the economic environment.
Well I think it would be fair to say Ashish that way, we are being conservative given the economic environment that that is fair.
Couple of things to think about if we are able to hire more heavily in the fourth quarter.
You may see some increase in the salary line.
That would be something to keep an eye on and again, the accrual will be a bit higher in the fourth quarter for the bonus pool, which is an important thing as well given that the company is performing really well.
The guidance again turns on what happens with the tax line and again, we've got a couple of discrete items that we're keeping an eye on and it is possible that we may.
Find ourselves with higher EPS, but we're going to going to have to watch that and we're going to have to see so hope that is helpful to you.
That's great color, Linda and pets conductor and congrats on such a strong result, thank you. Thank you.
Our next question coming from the line of Alex Kramm with UBS. Your line is open.
Yes, Hey, Hello, everyone.
Just want to come back to the pipeline comments that you made earlier and then I guess the unchanged guide for he is the.
So I think you mentioned earlier.
Yes, maybe the sell side is a little bit softer, but obviously, you're still pointing towards a pretty big step down year over year in the fourth quarter. So my question here is.
Is there something about seasonality that has changed I think I've had some discussions with you guys that maybe you changed it well I think he has changed some of the sales incentive structure a little bit. So just wondering if that is perhaps pulled forward. Some sales into earlier quarters, and then you're actually trying to smooth out the seasonality a little bit.
Maybe you could just talk about this a little bit not so we're not surprised that maybe the quarters that just a little bit different than they were historically thanks.
Yeah. Thanks, Alex Yeah. So I think there is something to the second part of your question. There. So I did you know I've had conversations with Helen thank.
Thank you know a hell lot of Linda really teamed up to make sure that we have incentives there for the salespeople earlier in the year and obviously, if we can get the a S. V. N. Early it means good things right for our for all the other financial metrics. So we're certainly trying to do that and not have all our chips you know on the river basically on the last quarter of the.
The year end.
And you know this is going to be a strong fourth quarter for us, particularly I think if you compare it to years prior to last year, we did get a very strong uplift in Q4 towards you know within the last month of.
Of last year, and it's a little hard to predict whether or not that's going to happen again and a lot of that did come from banking. So we see strength in banking, but it's hard to say that we're going to get the same effect that we had last year. So that's how I would characterize.
Both parts of your question.
Great. Thank you and then second quick one here.
This may be a little bit in the weeds, but one of your large competitors Bloomberg to name them.
I think theres a change are happening on July 1st.
And that is creating a little bit of.
Movement, I guess, if I'm, if I'm characterizing that correctly I think theres some changes to how people can re use Bloomberg remotely, which I think June call that they were very helpful and now they're turning this off and from what I understand a lot of the sell side in particular scrambling to find alternatives to those people who are no longer going to be a.
To get to those short term also just sounds to me like that Factset in particular has been front and center on this and trying to help a lot of the sell side with that and in that dose could actually be some meaningful new users that maybe you didn't have an opportunity to to to get before so.
Again, I know, it's a little bit in the weeds, but just wondering if you've seen that if this could actually be a meaningful.
New kind of competitive win here is that we're seeing in the fourth quarter and and how meaningful that could be thank you.
Well, we always want to be helpful for us.
The case, so I wouldn't expect any I think big tailwind from that this quarter, but obviously, where we're focused on the competitive environment and sometimes it's hand to hand combat sort of one desk at a time, but we do feel that all the investment, we're making particularly in a workstation now for front office professionals is becoming differ.
<unk>, so I'm very optimistic about our long term prospects there Alex.
Alright fair enough I guess I'll wait for another quarter to see what happens. Thanks, alright. Thank you.
And our next question coming from the lineup Hamzah Mazar with Jefferies. Your line is open.
Hey, good morning. Thank you. My first question is just if you could maybe update us on what pricing is trending I think you had said, 3% to 4%, but realization Matt may have been lower I think that was last quarter, but any changes to the pricing model that you're thinking of in this environment I know historically.
You've.
<unk> talked a little bit about simplifying it and you've also referenced sort of value based pricing.
So just any thoughts on pricing would be helpful.
Yeah. Thanks, a couple of things so yeah, we did.
Set out to capture an additional 100 basis points of price pricing. This year and I think we were very successful at that in addition, you know all the work that Helen has done with our product teams to simplify our packages is resulting in us capturing a lot more value through the through you know through through that effort.
Both of those things have been very positive this year.
And clearly we're in an inflationary environment. So we're thinking carefully about the right balance for our clients next year, but we do believe.
Baxter is a sticky tool and we've invested a ton in the product where it's at it there's a lot more value in there than there was even two years ago. So we do feel like we've got good pricing power going into this environment.
Yeah, Hi, Linda.
So 4%.
Across the platform and we've just dealt with our international price increases as you know.
We've kept those consistent internationally and in the U S.
Internationally, we saw $10 million in ASD uplift, a $3 million of that a year over year increase or 30%. So price realization has been extremely important for factset.
And as Phil said disciplines, improving our pricing desk has been very helpful to make sure that we don't overly modify various packages that we're showing to clients and we're really pleased with this effort. We will have to see what inflation looks like for next year and we do feel that the value of the products is allowing.
To provide that value based pricing to clients, but pricing discipline has really been very helpful to us and a real tailwind.
Great. That's very helpful. Thank you and just my follow up I'll turn it over.
Israeli around you know I know you talked about the downturn playbook and gave a good detail on sort of the cost opportunity, but just looking at it from a from a revenue standpoint.
You know I guess, maybe just frame for us has your visibility.
Become better in the portfolio as you've moved sort of more to war workflow business relative to you know historically.
Has there been any change in you know your subscription contracts around cancellation clauses or anything just visibility wise there.
Whether you have more or less visibility versus history, and I think you referenced.
You know some of your customer conversations, but maybe you can just remind us what were some of those conversations have been what youre hearing from customers just in terms of the environment. Thank you.
Sure well I will say you know the pipeline is as very high quality and we have more and more disciplined I think in terms of how we do that consistently globally. So.
But I'm not sure that we can ever at least for now look out more than six months right.
With any huge degree of confidence so that's sort of been consistent in terms of my messaging as you know usually a couple of quarters out.
We can predict with a with a high degree of certainty. We do have a large percentage of our clients, though under multiyear or a S V under multi year contracts. So that that does provide us obviously some visibility there for those clients that are not in the last year of that contract.
Got it thank you.
Sure Yes.
Our next question coming from the line of Andrew Nicholas with William Blair. Your line is open.
Thank you and good morning. The first question I wanted to ask was just kind of on an upside to your own internal expectations.
Obviously, you've raised guidance already this year now youre looking to the top end it looks like there could be some conservatism in that in that number I'm. Just curious what has surprised you positively what is has more momentum than you had expected and any other color on exactly what is driving that.
Well I'm not too surprised I think we've got a very good team here, we've had a consistent strategy over the last three years is just really nice to see it all come through and come through and so many different places.
I'm very encouraged by our workstation growth I think that I think there were a lot of questions probably.
Within the analyst community about whether or not we can continue to capture more desks and and overcome the trend from you know from active to passive.
So it's just it's just very encouraging and rewarding for the whole team to see the results.
So I think that's how I would answer that we're you know we're confident we've got a we've got an engine now that's firing on all cylinders with a lot more coming through so.
Think where we're going into this environment with a lot of confidence in our ability to execute.
And Andrew I think we would also say the addition to the CUSIP business is very helpful to us it's come in a bit stronger than we had even expected you have to keep in mind that this was a little bit of a challenging thing to bring onboard we moved through the acquisition process and looking at CUSIP and sort of an eight week.
Period, It was a very quick sale process.
And the seller did not occur.
Account for CUSIP as a separate entities there were a lot of.
Accounting allocation things and so on that we weren't exactly sure how all of this would lay out but as we brought it over the integration has gone really really well and.
It has performed even a bit better than we had expected as we noted so very pleased about that its margin edition is helpful to us. It allows us to continue a robust investment program and get some other things done. So we're very pleased with that acquisition, which was financed in an attractive way at a great time.
So all of that is working together now and we're just very happy with how we're firing on all cylinders.
Great. Thank you. That's all helpful. And then maybe for my follow up maybe just a bigger picture question a lot of talk now about kind of a downturn playbook, how the business would perform how would you expect the competitive marketplace to change and it any more challenging time for the end market. You do you think that the share gains that you've seen.
Over the past several years are easier to continue.
Getting or or is it more difficult or just kind of any thoughts on how a more challenging backdrop economically for asset managers and your clients might might impact your ability to win business relative to others in the space. Thank you.
Yes so.
I'll start on the buyer side so.
If their assets are down in that revenues are down of course, they're going to be looking closely at their budgets, but again, it's a good it's a good opportunity to proactively talk to them.
Reeducate them about everything we have bring them to the table and there is this ongoing trend, which has been going on now for a while where.
The larger buy side firms in particular are really looking to consolidate and cut in half the number of content and technology providers. They work with and there's really a very limited number of firms like factset. They can go in and offer a so much across their workflow. So for US. We welcome. This you know I think it's a great opportunity.
The unity for us and we have a long history of working with clients that really trust us and want to partner with us. So.
We will go through these cycles, we've been through them before and I anticipate we'll do very well on a relative basis like we have historically.
Yeah, Andrew we are very focused on what we're able to do for productivity for our clients and anecdotally we've heard some of them say that.
Moving to Factset has provided 20% greater productivity, we're sharpening up or our marketing pitch on that just to make sure that we've got that right and we can bring that to the fore for existing clients and potential clients, but.
The ease of use of our products and the elimination of the need to flip back and forth between screens and so on is.
It's really a very big help and we feel very up to date way to conduct business and to handle the workflows. So productivity is really important and we think we can really be a big driver of that for our clients.
Thanks, so much.
Mhm.
And our next question coming from the line of Craig Huber with Huber Research Partners. Your line is open.
Yes, hi, Thank you I want to focus on that.
The corporate part of your business, but the sell through there and how you're doing it seems like it's doing quite well maybe you could touch on that maybe you could tell us with you but growth rates are there and I'm always curious to hear what the percentage of overall revenue is when we start there.
Sure correct, Yeah, we don't we don't break it out but it is one of our fastest growing client types and like wealth. It's typically on the leaderboard in terms of new logos. So we have a very very strong product for Investor Relations. We also do very well with the M&A or business development groups that our clients and all.
All of the new investments, we're making in content around deep sector private markets. All of this opens up new clients to us and more workflows as well I already mentioned that we're beginning to very effectively get into the CRM workflows of different types of clients. So this is an area that traditionally.
Factset is focused on a lot because they typically want big ones, but with our investments and all of the efficiency now that we have in terms of our sales.
For us it really allows us to do volume I think in a in a way that makes sense for the company. So I have a lot of.
Okay.
Feel very optimistic about what we can do in the corporate space and continue that.
To continue being a growth driver in a more meaningful part of our business overtime.
And then my follow up question. Please talk about the <unk>.
Client retention rates, obviously, you have a 95%.
<unk> rate or set of clients, 92%, it's very very high obviously.
Held up quite well as you allude to pack it away.
Just curious given the macro environment, what is your sort of thought on how that might.
Here in the coming quarters here, given the macro environment.
It's hard to predict but we've seen very very good trends in client retention and I give a lot of credit to Helen and the sales team in terms of how they are organized and how they've really focused on client success and placed a very heavy heavy emphasis on maker.
Making sure that our clients are well served and.
It's if you can retain clients. It really is a very good foundation. So there's a ton of great work that's gone on.
You know I think a store in one of the analyst reports a question about how we're doing are reorganizing by thumb type, where we've done that primarily in the Americas for now, but that's been a very good.
Program.
And we've essentially now segmented the sales force in a way where they really just focus by firm type rather than by geography and that means we understand our clients even better than we did before so there's multiple efforts going on that are going to help with the retention.
Great. Thanks, a lot.
Sure Yeah.
Our next question coming from the line of.
With Deutsche Bank. Your line is open.
Yes, hi, thank you.
Linda I wanted to go back on the four Q margin guide specifically.
Obviously, you had a really good margin quarter at 36, 6% and your fiscal 'twenty. Two guide of 34% implies you know a <unk> margin of around 32, and I know I was listening very carefully when you were answering prior questions and I didn't hear anything.
Specific in terms of what might impact margins in four Q. So I just wanted to give you one more opportunity to tell us that youre being conservative.
Thank you very much faster.
We may have as we said a bit higher expenditures on hiring and also on bonus.
We have guided for the full year and keep in mind that that guidance applies to our to the full year and we've done quite well in the third quarter. So we do hope that that continues and you.
I think it is fair to say that where we're trying to be prudent here.
We were pleased with what CUSIP provided to us and.
You know, where we're hopeful that we'll be able to come in ahead of our guidance. So we're going to have to wait and see.
Very much appreciate your.
Appreciation of our having good good work done on the margin this quarter, we're keeping a careful eye on our costs.
And.
As long as the ASB continues and the trend that were seeing were.
We're quite hopeful so we will we will see how the year wraps up.
Great. Thanks, and then just two.
I just wanted to follow up generally on ESG and true value I know there you have a slightly differentiated offering as you provide more of an outside in perspective.
Wanted to see if you could share some color on what type of feedback you received from clients is.
Is the product offering where you'd like it to be or is there more work to be done in terms of integrating the product itself.
But then the fact that whether its workstation or.
Other API then maybe how you see the offering evolving over time.
Sure.
Been about 18 months and I'm very happy with the progress we've made faiza. So yes. It is integrated into the Factset workstation. That's one thing. We've also done a good job of integrating the majority of the T. B L process into the core content platform and we are extending the coverage of ESG from public markets.
A private market and that's been an undertaking that's beginning to have some real success. So our methodology is different we think it's differentiating and good and it requires some education of the clients, but we do have a very good growth rate for that business within Cts.
It's a big piece of our focus as we go into the next three years in terms of where we're going to be investing and how we can really bring I think more clarity to this for our clients in the marketplace.
And Faiza, it's Linda our data collection efforts have really picked up in pace and we've been very very pleased with how that has gone ESG is one of the heaviest areas of investment we've just come through our investment decisions and ESG is where were directing a good chunk of our our investment pool.
So lots to do there pleased with how it's gone.
We've tripled sort of the run rate on ESG coming out of two value labs since with inter.
Integrated the acquisition and please watch the space, where we're quite excited about it.
Great. Thank you.
And our next question coming from the line of slum on Russell with Stifel. Your line is open.
Hi, Thank you for taking my questions.
Phil just a quick question on whats going on with the equity markets in the decline.
All these asset values is this impacting your ability to close deals or swelling any of the sales cycle of the sales cycle or anything like that or are you seeing the clients at this point in time reacting in a way that we would.
Would indicate that maybe things are slowing or is it really just kind of they're taking it and just kind of.
Watching it but not really changing their ammo right tail.
We haven't seen a lot of change Shlomo the one firm type where I would say, we've seen a little bit more of a slowdown is in the hedge funds, which as you know is a smaller piece of our business maybe around 5%.
And that's had a pretty good growth rate over the last year.
Year, or so and we expect we'll still be able to grow the hedge funds, but that's really the only part I think while we seen any sort of.
Real sign that the sort of delays in decision making.
You know, we don't Wanna be naive here. We think you know obviously clients are taking a good look at their budgets going into next year, but for all the reasons, we outlined on the call already I think we're in we're in pole position here to make sure that we're there to help them and continue to invest in growth.
Okay. Thank you and then this one maybe for Linda just a little.
Kind of housekeeping thing was there a materially higher level of our DSO would CUSIP. When it was purchased there was commentary about in the press release about how.
Ability to the collections in both the core business and in CUSIP and if I look at the our DSO, which are both sequentially a little bit in year over year, and then it kind of implies that leave you bought a business that had a lot of outstanding receivables I was just wondering if that's something to think about I'm just trying to think about how to model the free cash flow going forward.
Yeah, Sloma you get a best student Goldstar, because you have a correct observation.
Yes accounts receivable has popped up by quite a bit.
The CUSIP team has done a great job, but a lot of things, but we've got a sharpened their pencils there on the accounts receivable collections.
So we're well aware of that and we will we will make sure that we get to it but your observation is correct. That's one of the types of things when you acquire a business from.
From another firm and you're still working with a technical services agreement.
That we've we've got to do some work on two two.
Get that number down but very good catch sloma. Thank you.
Okay. Thank you very much.
We wanted to just do a few housekeeping.
Details here just to make sure that everyone is.
Modeling correctly and we'd like to just note that you should take a look at the fourth quarter bonus accrual, which should be as we had said sort of on average of the three quarters now that we've made a heavier accrual in the third quarter. So.
26 million 25 million something like that would be helpful. Please also note that we've increased our dividend.
Sometimes that's not always picked up.
And we are going to do some work on our accounts receivable and I think with that we've pretty much taken care of everything in the housekeeping front.
Well. Thank you all for joining us today in closing I want to reiterate how pleased I am with our third quarter performance, we accelerated the topline to double digit growth with strong momentum as we move into the end of the fiscal year and we remain confident in our ability to drive sustainable growth through focused expense management and continued investments in our people products and technology.
With over 40 years of continuous growth Factset has a proven history of navigating volatile market successfully we look forward to speaking with you again next quarter in the meantime, please call Kendra Brown with additional questions. Operator. This ends today's call.
Ladies and gentlemen.
As for today. Thank you for your participation you may now disconnect.
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