Q3 2023 Factset Research Systems Inc Earnings Call

Okay.

Good day, and thank you for standing by.

Welcome to the Factset research third quarter fiscal year 2023 earnings call.

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I'd now like to hand, the conference over to your Speaker today Kendra Brown Senior Vice President of Investor Relations. Please.

Please go ahead.

Thank you and good morning, everyone welcome to Factset third fiscal quarter 2023 earnings call before we begin the slides we will reference during the presentation can be accessed via the webcast on the Investor Relations section of our website at Factset Dot Com and it is currently available on our website a REIT.

Play up todays 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 and one follow up.

Before we discuss our results I encourage all listeners to review the legal notice on slide two which explains the risk of forward looking statements and the use of non-GAAP financial measures. Additionally, please refer to our forms 10-K, and 10-Q for a discussion of risk factors that could cause actual results could differ materially from these forward looking statements our slide presentation.

And discussions on this call will include certain non-GAAP financial measures for such measures reconciliations to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today.

Joining me today are Phil Snow, Chief Executive Officer, and Linda Huber Chief Financial Officer, We will also be joined by Helen Shan Chief revenue Officer for the Q&A portion of today's call I will now turn the discussion over to Phil Snow.

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

I'm pleased to share our third quarter results, our organic a S V plus professional services grew 8% year over year. This was driven by double digit ASP growth in analytics, where we saw strength with asset managers asset owners and hedge funds and the successful execution of our international price increase.

These gains were offset by headwinds to workstation growth among wealth banking and corporate clients a deceleration in expansion among partners.

Our investments in content and technology have strengthened our competitive position, allowing us to navigate market volatility successfully in the third quarter. We saw broad based growth across all firm types with double digit ASP growth from our wealth management banking hedge fund corporate and private equity and venture capital clients.

The analytics and trading we saw continued strength in the middle office as our suite of portfolio reporting fixed income performance in risk solutions accelerated growth year over year.

Content and technology solutions also had double digit ASP growth with demand for company data and data management solutions driving ASB this quarter and in research and advisory we see continued opportunities to capture additional desktops and banking wealth workflow driven capabilities also contributed to growth with our research.

Management solutions suite accelerating year over year.

We ended the quarter with adjusted diluted EPS of $3 79.

And an adjusted operating margin of 36% as we enter our fourth quarter. We are focused on operational efficiencies and disciplined expense management to support margin expansion grow EPS and provide capital to invest in our strategic priorities as part of this effort. We are working to reduce the run rate of our expense base by about 3% same.

Things will come primarily from right sizing our workforce, which we expect also will decrease by about 3% and further reducing our real estate costs.

As discussed last quarter, we are seeing a modest deceleration in ASP growth and while the markets have remained largely resilient amid macroeconomic turbulence. Our clients do remain cautious clients have also been executing their own downturn playbooks, resulting in delayed decisions and restricted spending. We also see continued staffing adjustments with.

On both the buy and sell side, reducing head counts, often targeting mid and senior level professionals and while we have a stronger pipeline than last year with a good mix of deals that should drive expansion of new business client decision, making is taking longer.

We're also monitoring developments in the banking sector early sentiment is mixed on fiscal 2024 class sizes and while some clients are slowing hiring others are adding junior bankers in preparation for a market upturn overall, our top 200 clients, including many of the leading global investment banks make up two thirds of our book.

And the vast majority of these clients have multiyear contracts, including minimums and 90 day cancellation windows given these points and are high ASP retention rate, which is consistently greater than 95%. We believe we have effective downside protection.

We are confident in our strategy and ability to execute unlike our clients. We are ensuring that we are well positioned as the market stabilize and the capital market cycle times, we have a long term view of our business and are committed to investing for growth and becoming a more efficient organization.

As part of this approach starting September 1st we are reorganizing by firm tied to better align our operations with those of our clients.

Analytics and trading will become our buy side organization, focusing on asset managers asset owners and hedge fund workflows.

Research and advisory will become dealmakers in wealth, focusing on banking and sell side research wealth management, corporate and private equity and venture capital workflows and finally, we are combining our content and content and technology solutions groups to create one data solutions organization. This will create end to end management of our data.

From collection on acquisition to client delivery.

We will provide more details on our progress and the performance of our firm types as we refined our structure over fiscal 2024.

Technology is rapidly evolving as an early adopter of cloud technology, we digitally transformed our platform and created flexible workflow centric solutions now with a focus on generative AI, our open platform and connected content will strengthen our partnership with our clients while generative AI is not new.

Factset has been using AI and machine language in our products for many years and the recent advances in large language models or llm's present, new opportunities.

Our strategy is to build a generative AI foundation and capabilities empowering our workforce to transformer and user experience rapidly.

We are investing in generative AI technology to drive next generation workflow solutions. We will also continue to invest in the scaling of our content refinery. We've committed additional resources to L. O M initiatives as part of our investment process and Factset is are excited about these investments as we equip all product and engineering teams to use general.

<unk> AI in their development work.

Our early work in generative AI is focused on improving client support automating content collection and transforming our products with improved search and co pilot solutions here are a few examples.

During a recent hackathon almost one third of Factset is project used LOI EMS to solve business problems or to improve the client experience.

<unk> worked on enhancing banker efficiency pitch automation and discover ability using a modernized connected data.

Earlier this month, we use chat GPT to produce call Street earnings call transcripts summaries, reducing summation time by more than 90%.

This process is currently available for all S&P 500 companies and we plan to dramatically expand coverage later this fiscal year.

We are also testing AI powered agent assist tools that understand factset proprietary codes. This use cases compelling questions about factset coding comprise half of our daily client call volume and finally, we see significant opportunities to accelerate content automation using generative AI, we have several promising.

That's underway to extract information that has previously been difficult territory.

Our differentiator remains our content, including our real time and deep sector data for which we have also increased investment.

Factset has an incredibly strong mode of 40 years of proprietary content and data cleanly source auditable and stitched together with our concordance and symbology. It is not easily replicable and is incredibly valuable to factset and our clients.

Turning to our performance we saw continued acceleration across all our regions Americas organic ASP growth accelerated year over year to 8% growing through wins with premier asset managers and asset owners.

These gains were partially offset by workstation headwinds with wealth banking and corporate clients.

EMEA was the biggest contributor to growth this quarter with organic ASB growth accelerating to seven 4%.

Growth was strongest in banking given improved retention with banking clients and improve retention and new business with hedge funds higher retention was also a key driver in the region as the ASP uplift from our price increase offset increased erosion.

In contrast expansion slowed as cost pressures created higher budget scrutiny lengthening the sales cycle.

Finally, Asia Pacific delivered organic ASP growth of 10, 5% performance was driven by wealth management hedge funds and private equity and venture capital clients with improved retention and ASP uplift from higher realized price increases.

Australia was the strongest contributor to growth with wins among asset managers and asset owners, however sector consolidation and net negative seasonal banking hiring contributed to a small deceleration. We also saw acceleration in Japan, and India, driven by banking with a positive increase in workstation purchases for seasonal highest.

In summary, we continue to execute well in challenging markets as we head into the close of our fiscal year. Our pipeline remains solid and we are unwavering regarding execution excellence and cost discipline as we combine relentless client focus with exciting new technologies I am confident in our ability to drive growth.

I'll now turn it over to Linda to take you through the specifics of our third quarter.

Thank you, Phil and Hello to everyone as you've seen from our press release. This morning, we delivered solid operating results in the third quarter with continued growth core organic ASD GAAP revenue and adjusted diluted EPS year over year I'll now share some additional details on our third quarter performance as Ken noted.

A reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release.

We grew organic ASP plus professional services by 8% year over year, while we are seeing lower expansion and higher erosion due to the macroeconomic environment. Our performance reflects excellent execution by our sales team.

<unk> realization continues to improve with our international price increase, adding 17 million NASD this quarter up $4 $5 million from last year internationally, 7% more clients are subject to the annual price increase than in the prior year fiscal year to date, our 2023 price increase has yielded 18.

Millions of dollars more ASD than last year GAAP revenue increased by eight 4% to $530 million for the third quarter organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange movements increased eight 5% to $530 million.

Growth was primarily driven by analytics and trading in content and technology solutions.

For our geographic segments on an organic basis revenue growth for the Americas was 9% benefiting from increases in content and technology solutions and analytics and trading and they have revenue grew at seven 5%, primarily driven by content and technology solutions and analytics and trading and finally Asia Pacific.

Revenue growth came in at seven 9% due to increases in research and advisory and content and technology solutions.

While GAAP operating expenses decreased eight 6% year over year to $358 million adjusted operating expenses grew nine 4%. The drivers were as follows first people are cost rose, 10% year over year in the third quarter, primarily due to increased salaries for existing employees.

As a percentage of revenue this was 68 basis points higher year over year, driven by higher salary growth as a percentage of revenue, partially offset by higher labor capitalization and lower bonus expense.

For fiscal 2023, we still expect the bonus pool to be in the range of $100 million to $105 million head count increased by 12, 9% year over year with most new positions in our centers of excellence overall, 65% of our employees are located in our centers of excellence.

Next facilities expense remain relatively flat increasing by only one 6% year over year as more employees return to in office work, our continuing efforts to right size, our real estate footprint, mostly offset this increase as a percentage of revenue facilities expense was 24 basis points lower year over year.

Moving on technology expenses increased by 22, 5% driven by third party software costs and higher amortization of internal use software, partially offset by lower cloud related expenses and lower depreciation as a percentage of revenue growth was 90 basis points higher year over year.

In partnership with our Chief Technology Officer, Kate step, we've realized increased capitalization to improve time tracking and other efforts technology costs currently equals seven 8% of our revenue and will likely continue to increase as we invest for growth as part of our medium term outlook, we anticipate technology costs being eight five to <unk>.

Nine 5% of revenue.

And finally, our team continues to do an excellent job of controlling third party content costs with expenses, increasing by only one 9% year over year. Despite the inflationary environment as a percentage of revenue growth and third party content costs was 31 basis points lower year over year.

Given the pressure on our top line. It is imperative that we focus on cost management using our downturn playbook, we took proactive steps to control our expenses protect margins and preserve EPS. We're now going to further identify areas, where we can reduce costs as part of the efforts still spoke about earlier, we plan to take it.

Approximately $45 million restructuring charge in the fourth quarter.

This charge includes approximately $15 million to $20 million for continued real estate right sizing as discussed in last quarter's call compared to the previous year, our third fiscal quarter GAAP operating margin increased by 1260 basis points to 32, 5%, mainly driven by the prior year's $49 million.

Impairment charge and expenses related to the acquisition of CGS.

Excluding both nonrecurring transactions GAAP operating margin was around 30 basis points higher than the prior year adjusted operating margin decreased by 60 basis points to 36%. This was largely driven by higher personnel costs and technology expenses, partially offset by lower third party content costs and lower.

<unk> expense.

You will find an expense walk from revenue to adjusted operating income in the appendix of todays earnings presentation as.

As a percentage of revenue our cost of sales was seven basis points higher than last year on a GAAP basis, and 283 basis points higher on an adjusted basis, largely due to personnel costs expenses related to CGS and technology costs as.

As a percentage of revenue our impairment expense was 994 basis points lower than last year on a GAAP basis as we lap the prior year's impairment charge.

On a GAAP basis, SG&A was 269 basis points lower year over year as a percentage of revenue and 46 basis points lower on an adjusted basis, primarily due to decreases in professional services, partially offset by increased personnel costs.

Turning now to tax our tax rate for the quarter was 16, 9% compared to last year's rate of 12, 2% or higher tax rate is primarily due to lower stock option exercises.

Current expectation is that we will end fiscal 2023, with an effective tax rate of 14% to 15%.

We continue to experience variability, which includes increases in foreign tax rates, we are researching strategies to help reduce the overall rate.

GAAP EPS increased 79, 3% to $3.46 this quarter versus $1 93 in the prior year driven by the lapping of the prior year's nonrecurring items, partially offset by a higher effective tax rate adjusted diluted EPS grew 1% to $3 79.

Merrily due to revenue growth offset by a higher effective tax rate and lower operating margin.

Adjusted EBITDA increased to $205 million up 15, 6% year over year due to higher operating income and finally free cash flow, which we defined as cash generated from operations less capital spending was $193 million for the quarter, an increase of 9% over the same period last year. This was primarily.

Driven by cash generated from working capital changes and the timing of income tax payments.

Our ASP retention for the third quarter remained greater than 95%. We grew our total number of clients by 451 compared to the prior year, driven by corporate and wealth clients and partners with client retention of 92% year over year, our sales and client support teams are to be commended for continuing to.

Cute well despite market conditions.

We remain committed to returning long term value to shareholders.

As previously discussed we resumed share repurchases in the third quarter, we repurchased 165 950 shares for a total of $67 $1 million at an average share price of $404 and 29.

Under our current plan, which we anticipate completing in the fourth quarter $114 $2 million was available for share repurchases as of May 31, 2023, and Additionally, this week our board of directors approved a new share repurchase authorization plan of $300 million that will take effect.

On September one.

For the last 12 months, combining our dividends and share repurchases, we've returned $202 $1 million to our shareholders and recently increased our dividend by 10%.

This marks the 24th consecutive year of dividend increases.

And finally, our guidance for fiscal 2023, while there are signs that the macro environment will start to recover over the next few months the markets remain uncertain.

Last quarter, we updated our guidance to reflect organic ASC growth of $145 million to $175 million.

Slight deceleration from the guidance provided at the beginning of the fiscal year. This range reflects ASP growth of $135 million to $165 million from the core business and $10 million in ASP growth from CUSIP Global services. We also updated our revenue guidance from $2 8 billion to $2 1 billion.

Which was a slight deceleration from the previous guidance as discussed earlier, we are reaffirming our guidance for those metrics, but at the lower end of the ranges.

For GAAP operating margin, we expect our onetime restructuring charges to decrease our guidance range to 29% to 30% a 50 basis point decrease from the previous guidance.

GAAP diluted EPS is expected to be in the range of $12 24.

The $12 65.

For adjusted metrics, we expect our financial discipline and cost management focus to drive an adjusted operating margin of 35% to 36%.

This represents a 100 basis point increase from the previously communicated guidance range and meet our 2022 Investor day outlook. Two years ahead of our 2025 target.

Finally, we are increasing the range of adjusted diluted EPS by <unk> 25 cents at the midpoint to $14 75 to.

To $15 15 for fiscal 2023 and.

In closing we are encouraged by our performance this quarter and our ability to execute on our solid pipeline as we finish the fiscal year.

We are confident in our ability to balance macro headwinds with margin expansion and expense management to continue investing in our people and products as the pace of innovation accelerates, our deep content moat and open digital platform will strengthen our partnership with our clients and allow us to capture additional market share we are committed to sustainable growth and.

I did about the opportunities before us.

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

Thank you.

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Please standby, while we compile the Q&A roster.

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

Good morning, this is brendan on for Manav.

Just first off wanted to ask on <unk>.

ASP guidance.

Obviously, you're a high end is still there, but youre talking about it closer to the lower end is it higher and still possible in there did you leave it that way because there is a couple of couple of deals in the pipeline you are not sure if you're in a closed so best not to count on on that or can you walk through the logic of.

The way you kind of.

To frame the guidance update.

Sure. This is Helen Thanks for your question I'm happy to kind of give you. Some further color on that.

Each one was solid for us, but we'd already seen end markets begin to soften which is why we reduced the guidance last call of.

Of the 15 million two thirds coming from banking as we said in a third coming from delayed decisions or reduced spend over the last 90 days. This past quarter. We've seen those trends continue and first in banking for example, middle market firms, which had been doing quite a bit of hiring picking up from other universal banks. They were letting folks go.

We saw that begin to slow down and we did see some universal banks have some larger reduction as well now given our 90 day notice period client decisions that were made in Q1 of the calendar year or early spring get reflected more in this quarter, which is why youre seeing some of that net reduction and it gives us some greater visibility and we also saw.

Erosion pick up on the buy side as well with clients looking for cost reduction, but the positive piece of it is Linda indicated earlier, we're still above 95% ASP retention and we're seeing that diversification of spend in banking for example, as we sold more in analytics and fees as many of the firms. They are looking to do more technology in an off.

That form solution. So that's positive.

The second is timing client reviews are taking longer with more authorization on spend we saw more deals moved from Q3 into Q4, but also into FY early FY 'twenty four.

The reason really is is a budget constraints clients want to pursue even cost saving projects, but they don't have all the I T resources, they need or some of that requires a initial upfront spend to accommodate so for us many of the opportunities that we see in the pipeline are open, but we can see and expect some of that to be delayed.

Good bye.

But a clear trend is that clients are looking for more help in taking on some of their noncore activities and thats going to provide momentum for us both in managed services as well as data management solutions and then the last is is reduced spending and some reduced hiring and in Q3. We had the same number of six figure expansion and new logo wins in the previous year.

But the average size was a little bit less 4% lower and so and that expansion that we've seen in the past from hiring has slowed down as well and the same pieces are impacting on new business as well, but the positive sign is that we're not losing out on the opportunities.

The number of deals falling out is the same as in previous years, and we've had great strength in the Middle office solutions with performance and risk. So we're just trying to give our best thinking at this point, we've got confidence in all of the client interactions and value discussions, but we want to be realistic as it relates to market timing and ability to monetize so it's about timing.

As opposed to our phase <unk> and the pipeline itself.

Great. Thank you and then just thanks for all the detail a quick follow up and Linda on the margin obviously last year was it cost a bit by surprise the Q3 to Q4.

Yeah.

Decline could you just help us with.

Yes, the guidance, but just help us with how you're thinking about that sequentially.

It looks like the midpoint would be almost not quite 500 bps, but but almost which is what it was last year. So can you help us think about that.

Yeah, Brendan happy to give you some further color on that so I'm, obviously, given the the topline situation, we had to focus a little bit harder on costs and we've had very good support from the organization to work on this so you're right sequentially the.

The margin will be considerably higher than it was before and our guidance of 35% to 36%. Adjusted is what we had said would be the exit rate for 2025. So we're well ahead of schedule.

In terms of what we're doing there are really two concepts here. One is we're looking to take a charge in the fourth quarter to reduce our run rate going into 2024, and then we've also taken some actions to reduce expenses already in 'twenty. Three so let me talk about what we've done in 2023 first so the first thing that we did with <unk>.

Pulled back and pretty much almost slowed and then stopped hiring as we came through the second quarter, so that reduced the pace of salary a ramp and we kind of expect that over the course of the year that'll give us $15 million back on third party content, we've done really well withheld costs there very nicely.

That's come in about $10 million lower than we had expected.

The technology team has done its part with increased capitalization quite a bit as you've seen.

And that has flattered the salary line and it's shown up a bit more in the tech line, but still the tech team has managed to save about $7 million and then the facilities charges. We took last year have come through a bit stronger than we had expected. So that saved about that we'll save about $5 million. So all that comes up to.

37 $38 million that by the end of this year.

We will be able to save and then to position ourselves for next year, we talked about a charge, we're going to take in the fourth quarter.

These decisions are very very difficult to make and we've spent a lot of time thinking about them and trying to make sure that we're doing the right thing at the right time. So we're expecting as we said, we'll be taking a charge of about $45 million.

Please give us kind of $5 million of variability on either end of that because we're not done yet.

We're expecting that we'll bring the workforce down by about 3% or less real estate will provide another $15 million to $20 million as we talked about before we will also look.

We'll look to do a few other things, which will be helpful. So a total of about a $45 million charge, which will help the run rate as we go into 'twenty four to get everything right sized again. These are very difficult decisions and we really appreciate the support of the entire organization.

To try to get the cost basis, correct as we deal with the air pocket situation and the topline. So hope that Brendan is helpful to you.

Thank you.

Thank you.

Our next question comes from the line of George Tong with Goldman Sachs. Your line is now open.

Hi, Thanks, Good morning, I wanted to follow up on the margin question based on your updated full year guide for margins physical <unk> margins are tracking to a contract year over year to approximately 30% can you talk about the reasons behind the year over year margin contraction.

Yeah, George I think your I think your light by about close to 200 basis points I think we're going to be closer to something more like in the 32 range for the fourth quarter. This is the result of we do have a more people and higher salary run rate costs than we did at this time last.

Here, we also have a $12 nine increased 12, 9% increase in the number of employees that we have though two thirds of those are in lower cost locations.

So it's basically that it's the increase in both our employee primarily salary run rate costs and technology costs.

But again, we've taken some pretty dramatic actions here to bring the annual adjusted operating margin up 100 bps to 35 to 36, the fourth quarter is traditionally our heaviest expense quarter as you know and we're expecting our bonus expense there will be somewhere around another $25 million.

It's been pretty consistent over the first three quarters of this year. So as you know the margin I'm.

I'm sorry, the bonus adjust depending on how our performance goes so we expect it to be flattish this year as opposed to last year, where we had a big uptick in the bonus accrual in the fourth quarter.

So I hope that that helps you and you know.

I think we have made it clear we are pretty intense focus on expense control.

Got it that's helpful. And then your you mentioned that.

75% to 36.

Pull forward of what.

What was originally targeted to be $20 25.

Fiscal 2025 margins have you provided an updated outlook for what EBITDA margins could be in fiscal 2025, and what would be a reasonable piece of annual margin expansion over the next two years.

George It's an excellent question and one that we're spending considerable time on ourselves.

I don't think I want to jump to 2025, when we haven't even finalized plans yet for 2024 or even given guidance on 2024, so let's.

Let's say that we had we had spoken about on average 50 to 75 basis points of margin expansion. We've worked hard we moved faster we get a lot of comments on these calls about what we're doing with the margin and I think we've proved that we're we're working pretty effectively on it. So let's see how we go we will have made very good progress this year and.

If you have them you know if you're willing to be a bit patient with us we'll talk some more about this as we go into 2024 guidance next in our next quarter earnings call. So a bit of patience and we'll see where we get to.

Great. Thanks very much.

Thank you.

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

Yeah, Hey, good morning, everyone.

Two questions on ASP I'll do them one by one the first one is a little bit more near term.

Can you just.

When it comes to the fourth quarter and the outlook. There was a question before but when you think about the guidance here.

If I assume the low end can you actually just.

Tell me what that means for the fourth quarter whats implied there were a lot of restated numbers I think you did 84 million in organic.

So far this year, so that would imply I think 61 million by my math, but not sure. If that's the right number and if that's if that is the right number it's a slight reduction from last year, but given this environment and slowdown in hiring classes. It seems like it could be worse. So just maybe put that in for Q implied in the context of the environment.

Hi, Alex it's Alan I'll take a shot at your question here are you may be including please keep in mind that CUSIP is included in our numbers. So I can't quite tied to what you've just said that might be a good question for for Kendra later on but I'll just talk about perhaps the Q4 pipeline overall, if that can be helpful to you.

So when we think about the pipeline as I mentioned before it's it's it's a pretty solid pipeline I'm equally weighted across our three workflow solutions. So in analytics research as well as Cts most of the pipelines in Americas, and Cts and so at this point, given our or a notification period, we have a pretty good visibility.

To cancel so we've taken that into account. So the rest is up to execution you know our sales force as mentioned by Linda is doing a great job in trying to be diligent in working with clients to close the transaction. So the variables right now on timing on decisions the mix of larger transactions, which tend to take more time, I mean, nearly 70% of our pipeline is in.

Six or seven figures and.

And bank of England remains unclear because we are seeing both increased and decreased hiring classes across the larger bank. So the quality of the pipeline and we have ample coverage to meet our ASP range, but there are defense dependencies on external factors that make this outcome a little bit more difficult than maybe in previous years to predict so that's why.

We.

Give a sense of the range of where we stand at this point.

Okay.

Alright, I'll follow up on the on the exact number for the for the for Q implied later then.

In terms of my second question. This is maybe a little bit of a early look into 2020 four but let me put it in context, a little bit if I go back to the.

The investment phase so basically before you I.

I think 2017 to 19 or so.

The ASP growth in average was something around 5% and I would say when I go and look at that environment. It was a fine environment not great and then obviously went into great environment in the last couple of years, but now I think we're seeing layoffs were seeing even on the buy side staff reduction so I would say the environment, we're entering here.

<unk> is markedly worse than what we saw prior to your investment. So again, if I put it in the context of the 5% or so growth that you did in that period like is that a good starting point to think about what's what's about to hit here or or how would you describe the outlook I guess, a little bit more quantitatively.

Okay.

Hey, Alex it's Phil Thanks for the question. So we're.

We're really optimistic about the future I mean, obviously, there's been a series of things that have happened that have.

Cause clients to slow down their decision, making and sort of think.

More.

About their businesses during this period, but we're hoping that with the debt ceiling now.

Now getting resolved that we're sort of at the bottom of that uncertainty and we've done so much to evolve our products over the last few years that we feel we have a completely different mix coming out of this.

First of all the opening up of the platform.

That is providing a significant impact to our business and our ability to interact with our clients co develop with them help them with their own digital transformations and now with this sort of once in a decade event with generative AI really catching hold we feel like we're in pole position to take advantage of that so that's one thing.

And then the investment that we made in deep sector and private markets, which we're still in the early days of we believe that's going to help us significantly on the sell side, even if the head count numbers are down is going to really help us with retention and expansion.

And these investments are also going to allow us to do more in corporate private equity.

Other firm types. So overall, we're very optimistic we feel like we made the right bets there.

And with this new wave of technology, we feel like we're in an even better place to to disrupt the market.

Okay fair enough well that's been the big driver for us as well, so I think where we're really a different company than we were pre back in 2017, well visit is a has been a huge driver of growth for us and all the investments that we've made as mentioned by a buy sell so I do.

Alex I think were fundamentally much broader much more diversified than we were back then.

Yeah.

Alright, Thanks again Helen.

Thank you.

Our next question comes from the line of Heather <unk> with Bank of America. Your line is now open.

Hi, Thank you I wanted to ask a couple of questions.

On the margin side.

The first question is and I know someone asked previously kind of asked about how youre thinking about margins going forward, but I'm curious in terms of some.

Some of the pull back on costs, how much of that is is permanent.

How much do you think comes back at it.

Sales and ASP start to Reaccelerate, and then and then I have a follow up.

Heather I think that's a that's a difficult question for us to think about or for us to answer right now maybe if we ask you to stay tuned as we go into FY 'twenty four.

And so that would be important I think the statement that is important here is we are committed to margin expansion doing that at a reasonable pace with the appropriate balance ring fencing the investments that we're making in the company. That's very very important to us. So I think we will continue to keep a very folk.

Die on the margin.

Keep the cost at an appropriate level and we have the wind at our backs with some of the things going on with large language models, which should help with efficiency and our content collection. So.

Think we will look to honor that 50 to 75 basis points of margin expansion on average over the next few years.

But not every single year will look the same and maybe I'll ask Phil if he has anything else you'd like to add.

I just I think we have a long term view of our business. So through all of this we want the top line is very important to us.

A year or so ago, we talked about maintaining a high single digit growth rate over the next few years. So there's certainly that we keep that in mind I think along with what Linda has been talking about about sustainable margin expansion. So we feel we can chew and chew gum and walk at the same time.

Particularly with all of the advancements we've made in technology.

That's really helpful and then as a follow up.

And it's interesting to hear about how you're thinking about investing in AI and.

And you just mentioned that there's some efficiencies you think you can get from there.

I'm curious, especially with that all being very new AR, how should we think in terms of investment versus saving and I realize it's early days, but are there any plans to kind of ramp investment spend around that so you can realize the longer term benefit do you think you can kind of realize both I'm just.

Just how that dynamic work.

Yeah, let let me spend quite a bit of time on this so it's a it's an excellent question. So the first thing I want to do to frame.

For everybody listening is that Factset is probably one of less than five companies on the planet that has the decades of data that's important to this industry a stitch together in a clean way. So that is so important and I would argue that the value of what even what was called commodity.

This data before has gone up so we have that that is a moat that we will continue to build on and I talked earlier about the merging of our data.

We created data solutions out of two groups at Factset, but that is something thats. So valuable to factset content refinery, we've done a lot already to re architect our data hub and how we collect data, but this is going to supercharge those efforts essentially that is at the foundation something that's critically important.

Factset is also masterful at stitching data together, so you're going to have to have welcomed coated data quality data.

You're going to have to have the trust of the clients. In this market you don't want to you don't want to have products that are creating hallucinations or things that aren't true right for our clients. So factset has all of those components and we're going to be focused on three things first of all the product we want to create that wild factor for our clients and the ability to come in and essentially surf.

Santa thing or ask questions and a lot of the examples of that are out there today in the market. We've been doing those fears you can already go into factset into our search bar and type in sort of basic questions and get those answers back very accurately we're focused on the next level of that so that's important and we have a lot of people are thinking about that content collection.

Which Linda just mentioned this is something that we've been doing for decades, we've gotten more and more efficient or added over the years and we continue to invest in that so this could actually provide a great opportunity for more efficiency, but it could also create an opportunity to put more even more data in the platform. So that is something we have to consider.

Carefully and the third bucket is really the support of our clients I mentioned in my opening comments that about 50% of the Helpdesk questions. We get are around Factset SQL language or F. D. S codes, which I'm sure. Many of you are using and have you now.

Using the models that you use to build factset. Another other things. So these are three areas of significant impact are the whole company has rallied around this it's one of those things that really just gets everyone motivated. So it was a little less about like how many millions of dollars are we going to set aside to invest and this is how do we get the whole company.

About this and making sure that this is part of the fabric of what they do every day. So we're so we're so energized by this and we feel there's a massive opportunity for us moving forward in both the product side and potentially the efficiency side.

Great. Thanks for your help.

Yep you're welcome.

Thank you.

Our next question comes from the line of Stephanie more with Jefferies. Your line is now open.

Hi, Good morning. This is hans on for Stephanie could.

Could you just update us on the pipeline in the wealth channel and could you give us an update or an idea of the mix of the customer size in the pipeline.

Is it mostly kind of large contracts that you could potentially win there or are there sort of a lot of smaller wealth advisers that can move the needle for you.

Hi, it's Alan I'll take that thanks for that question you know many of the wealth firms right now are looking to modernize their platforms. We've seen that most recently with RBC.

[noise] of Montreal, Rockefeller, Raymond James and so to that end, we've really helped develop our our brand in the wealth space and then the open and flexible technology solutions is really separating us from the competition.

Especially as it relates to advisor dashboard and the other fact that components that really lock into a client CRM or other platforms.

As a result, we're having a lot of robust efficiency conversations with both existing and and our prospects and so the pipeline is quite strong and in fact I would say it is high as we've seen in recent years.

But this goes back to the same dynamics that we talked about before that especially on larger deals the ability for a client to make a decision to execute is taking more time than and senior attention. We've got several large ones are great opportunities, but they need to have the capacity on their end to execute and so as I mentioned, we feel very very good about that.

But that.

That may take a bit of time so to your question around the rest of the of the book and the sizes you know Theres really a mix you've got lots of small ones coming through last year I would tell you that we had a lot more new logos and wealth, especially as they're hiring more teams. This year that's been a lot softer. So we've seen some net pullback there, but we remain.

Very positive.

On our ability to continue to gain share in the wealth space and it really is.

Both on the large deal front, but as well as on the smaller transactions and we continue to grow at high single digits and low double digit levels.

Got it that's helpful.

Could you maybe parse out in terms of how much is coming from price cross sell and new logo wins is it still kind of roughly one third between those three buckets or is there maybe any one of those kind of driving growth here.

Sure. It's it's very much still a similar I would say for new logos are it is a little bit less than we've had in the past we've usually talked about two thirds coming from existing one third coming from from from you I would say, it's a little bit lower because of the market. Our price increase this year has been a terrific driver. So that's a bit of a bigger piece.

Of our existing.

And and we've had great acceptance in terms of the clients understand that new value that we've added over the course of the year and and we've not had much pushback as it relates to our ability to capture capture that amount.

Got it that's helpful. Thank you.

Thank you.

Our next question comes from the line of Toni Kaplan with Morgan Stanley . Your line is now open.

Thanks, so much.

Wanted to go back to the topic of data.

So I guess, there's two questions that I wanted to ask so so you mentioned the value of the data going up in and we've definitely I appreciate that as well I guess, one do you see that potentially impacting the cost of the data that you're getting going forward.

And two.

Wanted to also understand maybe some additional color on initiatives in terms of creating the proprietary data.

Just what what are you getting that is not from public filings.

Anything like that would be super helpful. Thank you.

Sure I think Linda mentioned earlier, we do get quite a bit of data from third parties, but we've done a good job of managing that.

And as we move forward I think given the tools that we have totally I think there's more that we might be able to do that where we're self reliant on that so maybe sources that historically, we relied on third parties for that.

We didn't have the capacity to get or just one focused on.

It presents that opportunity, so theres going to be a balance there for sure but I think.

We collect so much of the data ourselves.

There's a ton of value in that that we feel like there's a good balance and because of our platform. Our third parties are going to continue to need to pipe that data through platforms like factset, where clients want a consolidated well integrated approach, where they get the analytics and support on top of it that they expect so that balance for us I feel very.

Good about I think will net net will be positive on that one.

In terms of data that we get from nonpublic source ore from <unk>.

<unk> that are more difficult to collect from.

There's a lot of stuff that's easy to collect like the SEC filings, obviously, but theres a lot of stuff that you can get from local municipalities that sen badly formatted what documents or PDF files or other places.

That stuff is available it's just historically been very manual and very difficult for companies to collect at scale. So those are the types of things that we can now scraped together in.

In a much easier way that a lot of that.

You could attribute to sort of deep sector type data so that would be a good example for me is just continuing to go deeper in the current industries that we're looking at for deep sector, and more and making sure more importantly that all of those data points.

Pitch together, so it's one thing to collect the data, but the other thing is how do you tie it together so that analysts like yourself.

Can can make sense out of the data and you have to spend less time on lining that up yourself.

Super helpful.

And I know that it's a little bit earlier start talking about price increases for next year, but I did want to just ask you know you've been working a lot on price optimization.

And bundling and and you know our strategy around that you know just trying to understand that if we go into.

A period, where it's just more challenging than it has been you know I guess.

How do you see price playing out and sort of a worse environment are you able to still you know optimize price well because of the strategies you have in place or you know there's potentially you know next year if things stay like they are now is.

Is pricing a little bit less of a driver in that type of environment.

Sure I'll take that one.

And it's a timely one given what are the U K just decided this morning as well so yes, you're right with with inflation.

Inflation coming down that kept that that would impact our ability to raise.

Our prices next year, but we are continuing to to have that higher price realization from packaging from from bundling.

We are selling very much from a firm type perspective, which allows us to really bring a much more fulsome solution to the client. So the average size of what we're trying to aim for Tony is also a larger per transaction and that'll be one of the things that we look at from a K P. I perspective, I will say for existing clients. Even this quarter, we continue to improve.

Through our price realization nearly 120 basis points now on new business, we've seen that come down and its not surprising.

As you think about the environment that we're in an envelope more competitive situations. So we're being smart about that we might we might drop a bit in terms of the pricing for new business, but then we try to lock in for longer contracts. So that's the push and pull on that but it's still a little bit early to talk about 'twenty, four and we'll see where things are.

Land you know later on in the fall.

Thanks, so much.

Thank you.

Our next question comes from the line of Kevin Mcveigh with Credit Suisse AG. Your line is now open.

Great. Thanks, so much hey, I don't know if this would be Linda fill but.

Linda I know you mentioned, some green shoots potentially forming can you maybe help us reconcile that to the 3% head count reduction.

Is that a function of just more.

More efficiencies or you know just reallocation.

I wanted to start there if possible.

Yeah, I'll take a start and then Phil may have some more to say about this so I think we have to adjust the business for the top line that we have now Kevin and I think there's a sort of a lagged effect here on some of the divisions that banks made earlier in the year. So it's possible you know that this is a.

The the darkest point here before the Dawn, we don't know we hope that that's the case.

So we need to rightsize, the employee base and make sure that we're putting the right resources against the right products for example.

We're being very careful in how we're you know selectively pruning the employee base less than 3%.

Is a reasonable change, but not one that should have a huge impact on how we run the business.

<unk> heard from some of the heads of the global banks that are they are seeing some green shoots that capital markets activity is picking up that M&A activity is picking up so it's hard to keep the capital market's down for more than a year at a time.

We will be looking forward to FY 'twenty, four and seeing what's what's going on there, but it's possible that we've come through the most difficult time as we said in the prepared remarks, we're seeing a different situations from different companies. Some are preparing for what may be an upturn next year others are still in consolidation mode. So people are.

Sort of all over the place and we're managing our business prudently to make sure that we're dealing well with now and we're very ready for what comes next maybe still might want to add to that maybe I'll just add to some thoughts on the core buy side business of Factset. So I know at the end of our press release it shows our growth rates for biocide in sell side in it.

So as the buy side are going data down I think 80 bps. So a part of that really just has to do with the fact that we've now included CUSIP in those numbers. So I think you can attribute about 75% of that change to just CUSIP being included which is a mid single digit grower.

But when you know when we report the buy side. It includes at least today institutional asset management asset owners hedge funds as well as partners corporates wealth and private not private equity that's in the sell side.

But the I a M hedge fund an asset owner.

Firm types, all did better this Q3 than last Q3, so despite this environment.

We're doing really well with the buy side.

And the Middle office solutions that we have in analytics are best in class now and we feel like all the work we're doing to improve the front office experience on the buy side is going to begin to pay off pretty soon so we feel really good about that so despite this environment.

When you look at our use accounted went up this quarter.

It didn't go up as much as last Q3, but every firm type that we have we had an increase in users. So we do feel like we're sort of through the worst of it.

But it does take clients a little bit of time to sort of feel.

Feel that themselves and begin to speed up decision, making again, so I don't think it's going to snap back immediately, but we do feel as we sort of work our way out of this that we feel good about our prospects going into next year.

No that makes a lot of sense and then just Linda as a segue.

You know theres been it.

None of M&A in your sector right, NASDAQ just acquired a danza Deutsche Boerse and the process of acquiring some core.

Really underscores everything that you folks have been bringing to market for a decade now any thoughts as to.

Where are you folks it within that ecosystem and then you had some decent detail on Nextgen workflows and I've never thought of you folks historically as much on the back office.

I guess, maybe any thoughts is M&A as you potentially consider it.

Internally or potentially externally I know, that's probably tough question, but what youre seeing in the market is really endorsing what you folks have been doing for a decade, so just any thoughts around that.

Okay.

Yes, so I mean, obviously you highlighted two of the deals that recently came to market. So I don't I don't I think what NASDAQ is doing that's we don't compete with NASDAQ and I think the business that they acquired we don't we won't really playing that workflow.

But we feel very good about our strategy our consolidated platform our prospects we feel like we have the scale to continue to take market share aggressively Linda.

Linda and her team have done an awesome job of sort of getting CUSIP integrated with the rest of factset and paying down.

Our debt into the range that we committed to so we do feel that we're very well poised here if we wanted to do something.

And to sort of build on Linda's comments, we're beginning to see some activity right. There are some interesting things are beginning to bubble up we're in a position to do them if we want to.

And we've been consistent in saying that the areas that makes sense for factset or wealth private markets. Those are at least a couple we haven't changed our view there. It's just a question of when those assets that we're interested in are becoming available and if we can get them at a price that makes sense for the company, but it is something we're focused on and it's a muscle that.

We've continued to develop.

Any anything you want to add that one.

Just Kevin wanted to point out we levered up in order to do the CUSIP deal to three nine times gross leverage we're back down inside the 2.5, which would be sort of a more normal range for the investment grade ratings that we have from Moody's and Fitch are.

Now we're down to 2.2 times gross leverage we're slowing down on repaying our term loan sort of moving to 60 ish million dollars a quarter of paying back that term loan. So we have room, even within our leverage levels for our current rating and then we have a very good track record with the rating agencies that we took our leverage.

Considerably higher and then we brought it down we committed to doing that and we executed on it. So we feel that we could take that path again, if theres something that you know sell feels is strategically important to us and hits, our hurdles of having appropriate growth rates and appropriate margins. So I'm the finance team.

<unk> job is to be prepared and provide capacity and we think we have that so I think wheel will continue.

Continue to lean forward in our Fox holes, and we will see what happens next.

Yeah.

Thank you.

Thank you.

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

Hi, Thank you very much for taking my questions just from a high level I just want to make sure I'm understanding what happened in bridging the commentary from last quarter or two to this quarter last quarter. The discussion was that small to mid sized clients are slowing decision, making but the larger clients were really kind of on the same path that you guys had.

Expected.

Is what's happening now that your larger clients are also kind of slowing down on their decision, making and then also in the banking clients that seem to be last quarter. You thought that that was something that was very much tied to what you would have seen.

If there would have been contagion from Silicon Valley Bank first Republic, and we didn't really see that but is it a matter of kind of the markets just being choppy. So that the clients are still kind of hard to read in terms of where it's going to net out for hiring I just want to make sure I'm understanding that that's really what's going on behind it.

And then a follow up question about cost takeout.

Thanks.

Helena I will try to get to all those points if I Miss anything please.

So but I.

I think last quarter, while we indicated was that we were seeing.

Slower.

Decision, making across the other firm type so not.

Focusing on smaller amid but just separate from banking. So I think that that that is what we're continuing to see.

As a as this last 90 days so it wasn't based off the size. It was more of an overall other than the banking firm type of we're trying to pull out separately.

If I think about banking overall, I would say that the impact of the layoffs, it's probably a little bit more than we had expected really due to the market you're right. We don't necessarily see the contagion from SBB unnecessarily they were not the huge clients of ours per se.

Now obviously credit Suisse's is one and so I think theres more of the general deal level, which as Linda alluded to if that picks up then we will likely ride with that but until their confidence comes back and we're seeing a more muted hiring now it does depend on some of the firms are actually the same as last year and some firms have come.

Down so that's a little bit why the mix.

A little bit harder to tell so that's the difference that we've seen shlomo since in the last 90 days, we continue to see some pullback on banking and the rest is more as I said, let's call. It 50% of the total 30% is really due to delayed deals and the rest is reduced size and and some additional erosion.

Okay.

And then just.

I'm not used to seeing taxes doing more kind of general reductions in force usually the company at least prior downturns I didn't see that very much can you just talk about little bit where you're taking the costs out I mean, how are you being surgical enough to make sure that you are not impacting the potential to grow the business.

Hey, Shlomo it's Phil Thanks for the question so I'll frame. It for you. This way so we I talked in my opening comments about a bit of a reorganization that we're going through.

And we've you know we've started a bit of that the rest of it will happen.

By September 1st but part of this rationale is really getting better alone better aligned by firm type.

So some products move around within the business lines all of the.

Quota carrying staff moved under Helen now so previously we had our sales specialists for the different product lines in the business lines. So they've now been organized by workflow and then thirdly, we brought together the day the content and C. T. S teams, because we were creating sort of an extra layer on top of the content to deliver.

For it but because we've made so much progress in how we collect the data and send it internally to our engineers that makes sense to make one team. So that's one thing. The second thing is this year during our investment process. We went through the product portfolio and decided to de prioritize some product lines that.

Quickly you know we've been very reluctant to do so it was a bit of a sort of re emphasizing what's important to us and what do we need to do less of and what should we be investing morin and then as we've sort of evolved as a company. We looked at some roles that historically had made sense for us to have but maybe we need less of those now so there's a little less about just pure cost reduction even.

I know, it's obviously important for us to manage the margin and deliver operating income as we described but I thought I'd say it was a combination of those things so I feel very good about this.

And obviously, we've grown our head count significantly in the last year, we've grown our head count by at least 1000 people. So we talked about reducing our workforce by less than 3%. So I think this is just a sort of good good annual managing of the business as we set ourselves up for the next year.

Thank you. It's Linda you had asked a question in your written work and we want to make sure we get all the questions answered.

You had asked about whats going on with other income and the answer to that it's about $3 $3 million on that line. We had some old Cts receivables, which had been written off but that money came through so that shows up in other income just so you are clear as to where that's come from.

And thank you for noting the reduction in five of five days and our days sales outstanding going from 46 to 41. So thanks for that and I think we'll move on.

Thank you.

Yes.

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

Yes. Thank you for taking my question, so going back to AI on both revenue and expense line item.

On the revenue could you. Please talk about how gen AI can potentially impact your revenue model. So it's more like this should add on surface that allows you to better negotiate for pricing or you can separate it separately charge for AI enhanced products and then on the cost side I mean, there's a lot there.

Excitement about the cost saving opportunity.

But could you please give us a sense of how much labor cost you can let's say safe if you have a full AI implementation today. Thank you.

Sure Hey, its Phil thank so and so the way we're thinking about it at least today right as we're just going to significantly.

Improved search capabilities on Factset.

That's sort of one thing that we're focused on.

We think there's other sort of research are that we can produce from the content. We have today that will be valuable to clients.

So we're still evaluating this but my guess is right that we're going to just continue to improve that experience of the factset user.

That's using like some version of a product.

Which will allow us to take more market share from our clients and improve retention. So I think that's how I would think about it for now.

On the cost savings side, yeah, it's easy to sort of put numbers in a spreadsheet and say, okay, well, we'll get rid of half of the type of user, but it's obviously not that not that simple and equation. So.

Data and technology keeps moving it always has you always need to produce more value than the debit did the previous year. So the question for US is that balance between okay. What are the what are the cost efficiencies, we can gain versus how much of that do we want to reinvest in the product. So we're going to maintain that long term view and I think even if we felt we could take out.

<unk> costs, we believe again that the topline is important and reinvesting that and more functionality and more data as it is a good thing. So we're at the beginning of this is moving very quickly we are moving very quickly.

And as I mentioned in my opening comments, we think that the big buckets of opportunity are within product within content collection and with support but we just we don't know exactly where it's going yet other than we feel really good about our position.

Got it and then on on the deep sector work, Phil you mentioned, a little bit on that.

Give us a.

A little bit more color on the timing to launch more products I know you have some beta products there and then.

That 3% labor.

Reduction impact a pace of just deep set of work or no. Thanks.

Really not deep sector is one of our major product initiatives, it's gotten significant investment over the last few years, it's getting more through this year's investment process.

And you know, we're including it in today in our product. So if you're a factset use it today, you'll just see more and more functionality and more data appear depending on what company you are looking at them what sector that soon we also creating feeds of this so the discrete.

Product sales would be more feeds if you wanted to use that as part of your Quant Our research.

Product, but it is having a nice impact for us, particularly in banking now.

With retention and a lot of these a lot of why you win or lose in banking is these large multi year deals with the bigger banks and we feel that we're in a better position than ever as those come up for renewal.

Okay.

Alright got it thanks.

Thank you welcome.

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

Great. Thank you.

Can you talk a little bit further about the investment firms out there that your clients and talk with the pipeline the tone of business and maybe separate it between the hedge funds that the mid size investment firms in the global investment manager out there.

Much difference between that go alright, I know you touched on this before Arsenal here, a little bit further about the tone of business and the pipelines across the three.

Operator please.

Sure happy to do that.

So when I when we take a look at the investment management firms.

I break them out into a couple of different pieces like you said Theres theres hedge funds, we call. It we in our buy side, we have asset owners as well as investment management firms the larger ones, who have begun and really are committed to their digital transformation are the ones that we have the most success with because they're ready to go.

And they really are working with us.

Whether it's through blueprint blueprinting things that we've done with them or to really help put in some of the solutions for them. So that pipeline has remained strong and so when I talk about the fact that they are clients that are ready to make them move forward, but maybe are constrained either by bandwidth or by initial dollars that that's those are the ones.

Craig that I'm I'm more referring to I think some of the smaller firms if.

If they haven't really started that have gotten to committed to the to that journey. Then those are the ones that are pulling back right now and not necessarily spending where they would have done it last year as it relates to hedge funds, we've actually done quite well with them.

They continue to form new biz, and actually our buyers of our our data and it doesn't even when we're talking about funds. It doesn't even have to be hedge funds that can be for any of the asset managers. If they close a fund and open a new one.

Fund, we are able to capture that as well. So that's really the state of what we're seeing in the markets.

Thank you for that my final question CUSIP, you've heard you say somebody say briefly.

Growing mid single digits is that what is actually grew year over year in the core. We just finished cheering them with sort of your outlook for that business and how is the integration going from your perspective, so far.

So the integration has gone swimmingly well.

We believe that we're going to hit all of all of the metrics that we set out to meet on the numbers side by the end of the year.

Sure.

<unk> is a bit down I think you probably saw that in quarter and this quarter, but if you believe that the markets are going to come back.

Hopefully, we see an upswing there Budd.

All of the commentary we made previously about this business, which we don't break out completely separately none of that has changed.

Great. Thank you.

Youre welcome him too.

Thank you. Our next question comes from the line of John <unk> with Wells Fargo. Your line is now open.

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

Hi, this is the selling so the number I'm trying to get to your 7%, but were up $17 million and price increases, which is four and a half million higher than the previous year and of course. This is on top of the 31 that we captured in Americas and in the last quarter.

Okay.

Okay, and then maybe just on a different note if kind of the environment continues to be a bit sluggish could you just remind us when the different levers are being pulled and really what area. We are in in terms of innings in terms of the downturn playbook.

What those buckets could look like if we would potentially see another year or two of kind of sluggish economic growth and potentially a lower head counts.

Yeah, It's Linda.

We had we had talked about the headlines being we're looking to take approximately a $45 million restructuring charge in the fourth quarter, and where we started with the easier to move buckets, maybe not easier, but the ones that.

We have less implication for the employee base. So we started with real estate, we've taken a total now of a.

Close to when we get down the fourth quarter close to $80 million of real estate are downsizing. So that one has been worked through it pretty well when we talk about third party data and increase in cost of only one 9% in a highly inflationary environment that one has gone very well also and on the technology.

Budget, you know that we're keeping some capabilities on premises, which save $20 million over five years and we've greatly increased.

Capital position through accurate time tracking so we've dealt with the tech budget as well and we continue to do so focusing on third party software.

Purchases and also on cloud usage, which is not for clients to make sure. We've got all that right. So then we get to people and that's where it gets tricky we took the steps of taking hiring just to a central hiring than to hiring freezes and only now are we looking to do.

Somewhat of a reduction in the number of employees that we have but as Phil said, we had increased the head count by 1000 people over the course of the last year. So terming by 3% seems to be a reasonable choice now if situation gets worse, we'll have to think further about this the big buckets.

Our the technology spend.

And the people expense. So we will continue to look at those but I think we've done a pretty good job in pulling back on all our costs. That's why you see margin guidance going up 100 bps. So a lot of good work being done across the organization to make sure.

We are right sized and we have the right resources in the right places hope that helps.

It sounds great color. Thank you.

Mhm.

Thank you. Our next question comes from the line of saves the OE with Deutsche Bank. Your line is now open.

Yes, hi, Thank you. So I know we've covered a lot of ground I just had you know.

A couple of quick clarification question.

One is a follow up on Alex's question regarding the S. V base. If you don't mind, just confirming for us that the base for fiscal 'twenty three for about 145 million increase.

It is 2027 0.4, I think that that would be very helpful for everyone.

Are the base, meaning the total amount of a S. V that we have right now the total amount of asked me that you had at the end of fiscal 'twenty, two that youre going to grow off of by 145 million.

Got it.

Andrew is going to come back to you specifically on that because we want to make sure that we're giving you apples to apples.

Okay.

That's unclear yet in all of your follow up meetings I think can what we'll do.

To that.

Okay.

Okay. Okay sounds good and then just a second.

I guess, just a clarification question.

Might be stating the obvious but what I'm hearing is that given the overall macro environment demand environment.

Yeah, we might we might be below the medium term targets as it relates to the top line or the S V growth, but we expect to make up for it on margin such that we're able to maintain the 11% to 13% EPS growth outlook that.

You had talked about at Investor Day last year is that is that the right way to think about fiscal 'twenty four and if so are there any parameters that you can put around that.

Yeah. Thanks for taking this question.

First while my colleagues are looking for those those numbers make sure we have it right.

It's too early to talk about our 'twenty 'twenty four but we take very seriously the responsibility of right sizing the cost base. So that we can hit our margin targets and thus our EPS targets I think it's pretty important to note that despite these difficult conditions, we've taken up the margin guidance.

For this year, which is a pretty important change for us and you're correct on the margin focus and also the EPS number I'll turn it back over to Helen for any follow up on the top line Yeah. No I just wanted to go back to your question to make sure that I understood. It. So if you are asking about the total ISP for.

FY 'twenty two I think you said 2027 point for that is that is the number I would use.

Okay. So we should expect that number to be up by 145 million to get to the fiscal 'twenty three a S. B.

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

Okay, Okay, and if I can just follow up on that because it does imply that.

We want to grow with an LCD from <unk> for Q sort of accelerates given where you ended three Q.

So I'm curious like is that just timing or is there something else that we didn't talk about on the call that's going to help the acceleration.

I think probably this makes sense for you to follow up with Kendra afterwards, I'm not sure. When you say accelerated if you are asking whether our fourth quarter is larger than our third quarter. The answer is yes, historically, its always been larger AR and AR and it will be.

Larger this time around as well.

Okay sounds good thank you.

Thank you.

Our next question comes from the line of Keith <unk> with Northcoast Research. Your line is now open.

Casey Your line is open please check your mute button.

Yeah.

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

Hi, good. Good morning. Appreciate you taking my question I, just have one because you've covered quite a bit and it's on the content collection side it sounds like that.

One of the major opportunities you've identified in terms of cost savings and one of the maybe operational benefits tied to AI.

Just curious and I apologize if this is too technical of a question I'm not an engineer.

That is what is it about the shift from quote unquote.

Regular AI or our historical AI to generative AI that is making that a more realistic or outsized opportunity is it making kind of the coding that goes into content collection cheaper or more efficient or is it the <unk>.

<unk> ability to maybe understand language better I'm, just trying to understand what.

Has changed over the past six months that makes that a bigger deal today versus versus last year. As an example, especially considering your your company that invested in machine learning and AI for several years as you noted.

Yeah. So I mean, that's a pretty technical questions. So there are the things that you mentioned certainly will have.

We're exploring.

All of the different things that could make it more efficient.

Today, the content collection process is a combination of machine in humans. So we feel for a lot of things just obviously, you're still going to need a human in the loop for good judgment and so on quality assurance.

It's probably a little bit more of the tools themselves evolving to a way where we can get the information in front of the human and a more teed up way, where it makes them just much more efficient. So we used street account as the first.

Ample here, so our street account new service, which many of you use a dozen awesome job than it has historically a pulling together lots of different sources getting it in front of a professional who then puts it in the bullet points, which make it so easy for you to consume.

And you know what took one of these are very skilful people 30 minutes to do previously for an S&P 500 company took them two minutes right.

In this last iteration and that's just like it was the very beginning of trying something a fairly simple. So that's a massive efficiency, we still need that person to look it over make sure that they're adding the added value that they will always add to get there, but that's that's just won a very clear example.

This is a rapidly evolving space and we were just where we're partnering with lots of firms here, we're evaluating lots of different llm's, including open source, but.

But we're very encouraged by the early signs that we've seen on both the content collection side.

As well as the coding side.

Very helpful. Thank you.

Yeah.

Thank you.

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

Yes, thanks for having me on the call.

Generative AI following on from what you just mentioned that.

I guess, we may be at the point, where this starts getting reflected into relative valuations and I shouldn't get lot of it comes through the multiple before the P&L. So it's interesting to hear you. So your comments suggest that factset. We're in pole position to be a beneficiary on this topic or in this area and maybe a challenge to that view would be that generative.

It's primarily benefit.

Proprietary data revenues.

So labor.

Right.

On top of this particularly if regulation stops financial service companies using open source data and models.

Given some peers more tilt towards proprietary data.

Their own pretty labeled datasets, a departure yellow lands full financial markets can you maybe explain a bit more youll comment on why you think you're a pole position in this area. Please.

Sure Neal Thanks, Russell It really has to do with the data that we have on Factset. So we collect a ton of proprietary content ourselves.

We also are a very trusted to integrate third party as well as client data. So it's that.

Amalgamation and that library of all that data, that's well stitched together that investment professionals will need to use and it's the reason they've used platforms like factset over the years. So were in a that's what you need to really get going I think if you're a firm that doesn't have that data already I assure you could start today and maybe more be more valuable than that.

Future, but recreating all of that history for a fundamental analysts to quanta analyst.

If youre looking at client portfolios it doesn't matter that is.

One of the key things that folks are going to need so it's not it's not going to matter. How good your technology is unless you're pointing at a quality data and there have been other instances our industry of people trying to come up with cheaper alternatives of Factset and other providers and I don't think many of those have been successful frankly, so I do think that given the data we have.

Have given the relationships, we have with our clients given all the investment we've made in our platform to sort of be AI first in the open the platform and redo the content refinery all of those things for us and having the relationships and the trust with our clients all of those things add up to me to be a very powerful formula.

That's interesting thanks, Phil.

Maybe just as a quick follow up in terms of.

ASP.

Is there a risk to the medium term ASP guidance and will you be revisiting the medium term guidance I E.

Cool.

About 20000 calls.

Well, if you're talking about the medium term guidance, we gave out at Investor Day I think it was last April yeah, we're obviously going to be taking a close look at FY 'twenty four and we'll give more color on that.

When we speak to you in three months.

Thanks very much.

You're welcome.

Thank you.

Thank you.

Our last question comes from the line of Jeff Silber with BMO capital markets. Your line is now open.

Thanks, So much I know, it's late I'll just ask one.

You talked about the uncertain environment here and I think Linda you said you might be optimistic that there might be darkest before the dawn what are you looking for and what should we be looking for it to get some confidence that the skies are starting to open up a bit.

As Phil I'll start and I'll, let my colleagues here to chime in if they want to you know one of the things of these banking hiring classes that will be very interesting to see I think we've seen a bit of both already but we don't really get a good color on that until we get further into Q4, so if the larger banks decide to.

Higher classes of besides they did previously or larger that is a very good sign to us.

Continuing to look at our Premier clients as Helen mentioned, we've done very well within some of the largest buy side firms for me. That's one of the most important things that we can do.

Some of the slowdown you've seen is just we have less new logos from corporate clients private equity venture capital are those types of firms, but for us just seeing that confidence and engagement from us but from the biggest banks in the biggest buy side firms that that for me is as.

Is most important and we have terrific engagement on both sides now so.

Clients really want to talk to us and the fact that we now have.

Open up the platform, we have a lot to say in terms of data and technology, we're getting a level of engagement that previously we haven't.

<unk> Factset and use us and that's that's something new for us and I think a very good sign of things to come.

I would add that it's Linda.

In the past.

The short period of time, we've come through 500 basis points of rate increases from the fed the banking issues that were happening in March.

Credit contraction, that's resulting from some of those issues and then the self imposed debt ceiling issues that recently cleared. So those are four macro factors that have been very disruptive to the capital markets that have absolutely nothing to do with the health of Factset.

Our basic products and business.

So the capital markets are cyclical and for those of you who are.

Newer to the industry and perhaps earlier in your careers. This sort of capital market slowdown happens every few years and generally when the markets reopen things rebuild very quickly the hiring and firing cycles at banks, Helen and I were talking about just the other day as two former investment bank.

<unk>, they they wax and wane, it's just the way the industry works, so I would caution against overreaction, but I'll turn it over to Helen and see what she has to say up by Echo, what Linda said and I guess one other.

Piece for you to consider it unfortunately.

Our banking book is built on multi year contracts and the bulk of the a S. A which is with the large global banks have minimums, so from a head count perspective.

That specific situation they cancel exposure is less than 3% of our total assay. So to the point that when does making one of the things that we'd be looking at is as hiring picks back up we'll see that pick up as well our focus over the and during these periods of time is on retention, we want to keep what we have and again a high ASP retention I think is.

A real is emblematic of the long relationships, but also the work that we've been doing and so when the hopefully the markets picked back up there's no greater confidence by clients will see that expansion of new pickup as well. So again, we're very comfortable with where we stand today.

Alright, that's very helpful. Thanks, so much.

Thank you.

I'd now like to turn the conference back over to Phil Snow for closing remarks.

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

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

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