Q4 2023 Factset Research Systems Inc Earnings Call

As we enter fiscal 2024, we will build on our strategic investments in content generative AI and technology to drive growth and forge deeper client relationships.

On the buy side, we intend to use our leading portfolio analytics and middle office solutions to grow our front office market share.

We expect our new portfolio manager workstation and open programmatic environment to drive growth. We also see opportunities for Factset to provide some targeted managed services.

Based on our years of experience.

On the sell side, we believe that deep sector and private markets offerings will drive workstation wins across banking corporate and private equity and venture capital clients.

We see an opportunity to capture additional seats and underpenetrated areas with solutions with senior bankers and Investor Relations professionals, and we expect the increased adoption of cobalt and anchor product for private equity and venture capital firms and wealth, we anticipate capturing more market share as we focus on portfolio management proposal <unk>.

Our Asian, and intelligent prospecting to expand our addressable market.

Our open and flexible platform will power, our business development and reporting solutions to connect advisers with clients seeking new sources of insight. Finally, we expect the demand for our off platform solutions to continue to drive growth across both types.

Turning now to our fourth quarter results growth was driven by analytics and trading in Cts with improved expansion across most firm types asset owners continue to have momentum with new logos transactional revenue from <unk> and data feeds.

While macro uncertainty continued to contribute to elongated sales cycles and slower decision, making across all firm types. Our sales team successfully executed on several large wins and renewals as we ended the fiscal year.

And looking across our regions organic ASP growth in the Americas was 7% performance was driven by asset owners and Cts wins among partners and hedge funds. This was offset by weakness among asset and wealth management clients were retention remained under pressure and expansion was lower.

As expected, we also saw lower seasonal banking hiring which was a common theme across all regions.

In EMEA, our organic <unk> growth was close to 8% we saw growth in asset owners driven by analytics Middle office solutions wealth.

Wealth growth was also driven by wealth workstation and advice a dashboard wins gains were partially offset by softer expansion in banking and asset management.

Finally, Asia Pacific delivered organic ASP growth of 8% driven by strong growth in Japan, where we saw an increase in large deals analytic wins and strengthen channel partners. However.

However, muted expansion in Australia in India from fewer asset management wins, and lower seasonal hiring banking were headwinds to growth.

Turning now to our workflow solutions analytics and trading organic ASB grew by 9% growth among asset owners accelerated the most driven by middle office solutions workstations and feeds.

Cts, which is now part of data solutions grew fastest with organic <unk> growth slightly over 9% performance was driven by channel partners and asset management clients, although partially offset by lower professional services and decreased retention in banking, our data management solutions company data in real time offering with a major contributors to <unk>.

<unk>.

Cts also contributed to performance with healthy expansion and new business.

Among asset managers.

Station erosion was offset by analytics and Cts wins, coupled with a higher price increase.

Research and advisory grew organic ASB, if by 5% and banking workstation and deep sector wins were offset by increased erosion.

Private equity and venture capital clients continue that track record of double digit growth despite market headwinds that offset improved pricing realization for corporates reduced client budgets were an obstacle.

Looking ahead, we are focused on diversifying our solutions for our corporate clients and finally in wealth. We saw strong execution on several renewals in the face of clients' cost cutting exercises.

As discussed last quarter, we have reorganized our business by some type to better align our operations with those of our clients.

As of September 1st analytics, and trading has become our institutional buy side organization, focusing on asset managers asset owners and hedge fund workflows.

Also as of September 1st Research and advisory has become our dealmakers in wealth organization, focusing on banking and sell side research wealth management, corporate and private equity and venture capital workflows.

And we've combined our content and content and technology solutions groups to create one data solutions organization.

Going forward, we will also be aligning our partnerships and CUSIP global services organizations for the purposes of discussing ASB is they are both key parts of our growth strategy.

You can find ASB and ASB growth rates from the perspective of our realignments in the appendix of today's presentation.

As we look ahead to fiscal 2024, we expect the year will be a tale of two halves. Unlike previous years, where clients had higher budgets to spend before the calendar year and we expect continued caution for the rest of 2023, starting in the new calendar year, we expect an improved operating environment to drive a strong second.

Half as such we are guiding to organic <unk> growth of 7% for fiscal 2020 for Linda will provide more detail on guidance shortly.

Looking forward, we have started seeing green shoots of market recovery, particularly in new business, new logos in the fourth quarter I showed an improvement over the reduced deal volumes seen earlier in the fiscal year. We expect this trend to continue as the new business pipeline and potential a S V for wealth management private equity and venture capital clients and partners.

<unk> are all outpacing the pipeline at the same time last year.

As client sentiment improves then market stabilized. We believe we are in a great position, our new structure best in class solutions and content sets us apart as the partner of choice for our clients' I'll now turn it over to Linda to take you through the specifics of our fourth quarter and full year performance.

Thanks, Phil and Hello to everyone as you've seen from our press release. This morning, we delivered Q4 organic ASD plus professional services growth of $145 million with 43 consecutive years of top line growth Factset has a proven history of stability during market volatility, which is clearly demonstrated in our pro.

<unk> I'll now share.

Additional details on our fourth quarter and full year performance as Kindred noted a reconciliation of our adjusted metrics to comparable GAAP figures is in.

Included at the end of our press release.

The 7% growth rate for organic ASC plus professional services was in line with our most recent guidance for the year, our sales team executed well building on our strong first half and a higher price increase across the larger client base. However, during the second half of the fiscal year. The team had to deal with increased erosion softer expansion.

And a slight decrease in new business.

Turning to revenue our full year revenue was $2 $1 billion was also within our guidance range of $2 8 billion to $2 $1 billion.

To help offset the weaker topline, we carefully and thoughtfully trimmed our head count which helped to expand our adjusted operating margin by 230 basis points to 36, 2%.

This increase exceeded the top end of our guidance range of 36% and our previous medium term outlook of 36% by the end of FY 'twenty five finally, both GAAP and adjusted EPS were impacted by a onetime charge of $6 $8 million and then approximately $20 million provision for confirmed unexpected.

Realizable tax assets this higher tax rate provision had a 68% negative impact on fiscal 'twenty three of adjusted EPS.

Elting in adjusted EPS growth of eight 3% to $14 55.

Without this one time adjustment adjusted EPS would have been approximately $15.25 or.

Or 13, 6% growth I'll provide more detail during the tax discussion later in the call.

Turning now to our fourth quarter results as still noted we grew organic <unk> plus professional services by 7% year over year as higher price increases offset erosion and new business began to pick up. We also continue to improve pricing discipline, which is driving stronger price realization.

For the quarter GAAP revenue increased 7% to $536 million organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange movements increased 7% to $535 million, driven primarily by analytics and trading.

For our geographic segments organic revenue grew by 6% in the Americas, 9% in EMEA and 10% in Asia Pacific growth was primarily driven by analytics and trading and research and advisory in the Americas, and Asia Pacific and by content and technology solutions and analytics and trading in EMEA.

GAAP operating expenses increased 14% year over year to $419 million, driven by higher facilities impairment expense and restructuring costs compared to the previous year GAAP operating margin decreased by 460 basis points to 22%, primarily due to those nonrecurring charges and higher technology.

That's partially offset by lower third party content costs and lower FX impact excluding both nonrecurring costs GAAP operating margin was about 800 basis points higher than the prior year.

On an adjusted basis operating expenses grew 4% driven primarily by technology expense, which increased 26% year over year. This was mainly due to higher amortization of internal use software increased third party software cost and accelerated cloud spend as part of our hybrid cloud strategy. We also invested in our content.

Refinery expansion in other strategic areas, such as gender grants AI.

We have continued to invest in technology to drive growth with technology costs, now representing 9% of revenue consistent with our medium term outlook of these costs being eight 5% to nine 5% of revenue.

People expense grew 3% year over year, primarily due to increased salaries for existing employees as a percentage of revenue. Our people expense was 168 basis points lower than the prior year driven by a lower bonus accrual partially offset by higher salary expenses. We ended fiscal 2023 with a bonus pool of 105 million.

And with 67% of our employees operating in our centers of excellence.

Adjusted operating expense growth was partially offset by reduction in our third party content costs, which decreased 4%. Our team continues to do a stellar job proactively managing and negotiating contracts as a percentage of revenue growth and third party content costs was 57 basis points lower year over year.

Finally, our efforts to rightsize, our real estate footprint resulted in a 7% decrease in facility expense year over year as a percentage of revenue. This was 50 basis points lower than the previous year.

Overall, adjusted operating margin improved by 210 basis points to 33, 6% you'll.

You'll find an expense block from revenue to adjusted operating income in the appendix of todays earnings presentation.

As a percentage of revenue our cost of services was about 75 basis points lower than last year on a GAAP basis, and 85 basis points lower on an adjusted basis, largely due to personnel costs expenses related to CGS and technology costs and SG&A as a percentage of revenue was 385 based.

Points lower year over year on a GAAP basis, and about 125 basis points lower on an adjusted basis, primarily due to decreases in professional services, partially offset by increased personnel costs.

Facilities impairments as a percentage of revenue were around 440 basis points higher year over year on a GAAP basis.

Turning now to tax our tax rate for the quarter was 39, 9% compared to last year's rate of 10, 3%.

This increase was due to several factors first we had higher pre tax income, which increases the overall tax rate as credits related to R&D and foreign earned income are less impactful. We also saw a diminishing benefit from tax incentives and our centers of excellence Phi.

Finally, the Finalization of prior year returns came into play.

Our fourth quarter results include an out of period adjustment related to an ongoing review and analysis of certain tax positions, resulting in a onetime charge of $6 $8 million and $20 million provision. We believe this $20 million provision represents the maximum remaining amount of net unrealized tax assets upon.

<unk> of our review and prior to filing our annual report on Form 10-K, we plan to take a onetime charge with respect to this provision to reflect the confirmed actual amount of net unrealized tax assets. The final amount of this charge is not expected to differ significantly from the current $20 million provision.

At this time, we've concluded that this adjustment is not material to the current period financial statements.

The adjustment relates to the accounting of tax balance sheet accounts, including deferred tax assets and liabilities all local federal and foreign taxes payable had been paid in a timely manner subject to normal audits of up in years.

The increase in tax provision was partially offset by higher benefits from stock option exercises and refunds from amended returns.

Looking ahead, we expect that higher pre tax income will increase our overall tax rate. In addition, our foreign tax rate is expected to be higher due to the increase in the U K statutory rate.

We've taken strategic measures intended to offset our overall rate we are guiding to a 17% to 18% effective tax rate for fiscal 'twenty four.

GAAP EPS decreased 37, 5% to $1.68 this quarter versus $2 69 in the prior year, driven by nonrecurring charges and the higher tax provision, which had a 68% impact on an adjusted basis EPS decreased six 4% to $2 93.

Adjusted EBITDA increased to $172 million up eight 6% year over year due to higher income tax add backs and impairment charges, partially offset by lower net income and finally free cash flow, which we defined as cash generated from operations less capital spending was $156 million for the.

The quarter, an increase of 15% over the same period last year. This was primarily driven by the timing of income tax payments, partially offset by higher capital expenditures.

For the fourth quarter, ASP retention remained greater than 95% and client retention was 91%, which speaks to the stickiness of our solutions. We ended the quarter with almost 8000 clients with 383, new logos added year over year and user count increased by about 10000, primarily within banking corporate and private <unk>.

Equity and venture capital firms.

For the quarter, we repurchased 264400 shares for $109 $6 million at an average price of $414 63 at the end of fiscal 'twenty, three we had $4 $5 million available for share repurchase as a result, our board authorized a new share repurchase program of up to $300 million.

Which became effective on September one.

We intend to continue our share repurchases in FY 'twenty, four with a target to repurchase $250 million spread ratably throughout the year, we remain disciplined in our buyback program and committed to returning long term value to our shareholders, combining our dividends and share repurchases, we've returned $315 $3 million to our shareholders.

Over the last 12 months as a reminder, we also increased our dividend by 10% in the third quarter, marking the 24th consecutive year of dividend increases.

And finally, turning to our guidance for fiscal 2024.

Bill discussed earlier, we expect a weaker first half of fiscal 'twenty, four and a stronger second half driven by improved client sentiment as client budgets reset at the turn of the calendar year, we expect to execute on our existing pipeline. Given these expectations. We are guiding to incremental organic <unk> plus professional services of 100.

$30 million to $175 million, reflecting 7% growth at the midpoint.

And with respect to modeling income and expenses for the year. Please note that for the full year, we expect interest expense to be 60% to $65 million and capital expenditures are expected to be in the range of $90 million to $95 million we.

We expect adjusted operating margin of 36, 3% to 36, 7% at the midpoint. This provides 30 basis points of continued margin expansion, while we have already met our adjusted operating margin medium term outlook of 36%. We are committed to balancing continued sustainable margin expansion with investments.

To drive topline growth finally, adjusted EPS is expected to range from $15 65 to $16 15, which represents 9% growth at the midpoint in closing we are encouraged by the opportunities before us in 2024, we anticipate that our investments in generative AI.

Connected refined content and digital solutions will drive expanded market share and increased retention. We are equipping our teams to harnessed the rapid pace of innovation to remain the partner of choice for our clients.

We're now ready for your questions operator.

Thank you.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again, please stand by we compile the Q&A roster.

Our first question comes from the line of Seth Weber with Wells Fargo. Your line is now open.

Oh, Hi, good morning, and thanks for taking the question wanted to ask for a little bit more color on the wealth business if you could.

The ASP was really strong up 9%.

But then I thought I heard in your comments some some comments about.

So client cost cutting so I'm just trying to.

Understand really what the message is there.

And if you could just give any more detail on larger accounts versus smaller.

The broader competitive environment. Thank you.

Sure Hey, Seth it's Bill I'll start and I'm sure Helen has some additional comments. So we're very bullish on the wealth space as we've talked about before we think theres a lot of opportunity and a lot of addressable market for us we've been very successful with our core factset offering for advisers that we've layered on adviser.

<unk> Board and we believe the bigger opportunity moving forward is to get into some adjacent workflows in the wealth space that traditionally we haven't served so we view it as a good opportunity I'll start with that I would say across most phone types. This year, we did see more pressure.

<unk> was not excluded from that so I think we grew wealth, probably close to 13% last year and maybe 9%. This year. So it's still grew well.

We didn't get as many new logos as we had I don't think there was this new as much new firm creation in this environment.

We may not have had one of those mega deals that we might have had in previous years, but overall, we feel good about the space and Helen do you want to add onto that yeah. No. Thank you for that.

Phil is exactly right I mean, we do have a pretty healthy pipeline and it is a mix we have some very large opportunities with full deployments and then we've got smaller ones, which may be more seats, driven if you compare it to 2022, where there was a lot more hiring going on that.

That's a bit of a difference and as noted we didn't have a mega deal this year per se, but theres a lot of opportunity in the pipeline that supports that so we feel we feel very strongly about wealth and quite frankly, if you look at where a lot of the.

Clients are focused on the al focused on their wealth businesses also.

Okay.

Do you feel like you're gaining share there.

Is that still the opportunity as well.

Absolutely we feel like we're gaining market share yeah. Most of the wins are displacements of other of other competitors.

Perfect. Okay. Thank you very much.

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

Thank you.

Linda and Taylor I was hoping you could just help with the 24 guidance, particularly a comment that he assumed that budgets improve in the second half, let's just say they don't improve I guess.

Much of the impact is that that you've assumed in guidance and if you could just clarify you know within the six to eight.

The confidence level and what the pricing assumption is.

Yes, we feel we feel good about the six to eight Manav. That's why we put it out there I think if we break it down by firm type, we anticipate doing about the same level of growth on the buy side as we did this year and as you know we've been evolving into more of a solutions provider for our clients. So despite.

Head count pressure, which we certainly did see on the buyer side, we still think there's a great opportunity to take market share. We are anticipating slower growth within banking. There are some things in the pipeline that I think helen might be able to speak to but we're not we're not anticipating a blockbuster hiring here in banking as part of our algorithm are we.

Just spoke about well so we're definitely anticipating some acceleration on the wealth side.

And then in the and the partners are part of our business, which we're now separating out a bit we're expecting a more constructive environment. There. We actually had that there wasn't a great year for us in that part of the business are not talking about CGS CUSIP I'm talking about the.

The rest of the partners' business, so how long do you want to.

Just some more commentary on the pipeline. Yeah. You you made a manav hi, you had a question around pricing.

I mean, we continue to have that making good progress on capturing the value that our clients are receiving for our solutions in 'twenty three we actually improved our price realization across our workstation packages by over 100 basis points to the renewals and our new sales so.

We will continue to resonate well there and as you know our annual price increase takes.

<unk> takes place in January for Americas, and April four outside of the Americas with contractual base of higher of CPI or 3%, so with inflation moderating in a larger book, we would expect some impact from price increases to be less than 23, but still a healthy contributor. So we'll report more on out on that when we.

Get to Q2 and Q3 as we've done in the past.

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

Okay.

Thanks, So much in your prepared remarks, you mentioned that the adjusted operating margin guidance for 'twenty. Four is already ahead of where you thought you'd be in 2025, I'm not going to ask you about your 2025 numbers, but maybe just longer term how do you get that margin expansion going forward, what kind of levers can you pull.

Yeah, Hi, Jeff It's Linda.

We have made very good progress and we're quite proud of that as we move forward.

We feel that.

Our our workforce our people is a big potential contributor to this so as we said for FY 'twenty four we think the growth in that bucket will be about a 3% to 4% real estate, probably 3% and a third party growth data growth of about 3% to 4%.

So all of those are pretty modest numbers and we feel like we've made really good progress.

On technology, it's a different story, we are a technology company.

We're driving harder for AI and so we had talked about a 24% increase in the technology budget for FY 'twenty four.

A lot of that is the increase in amortization for third party for our own software.

<unk> increased our third party data purchases and most importantly increases in cloud expense as we have some facilities now on Prem and we're getting ready for.

Increased usage for Gen AI.

So what I think will happen in the future is youll see the technology line start to flatten out as we get a two peak amortization and then things start to move down in that regard, but again really really great.

Control over three of the cost items and then in technology. We just have to continue to invest so hope.

Hope that helps you out.

Thank you. Our next question comes from the line of Kelsey Xu with Autonomous your line is now open.

Hey, good morning, Thanks for taking my question, so Cts, including CUSIP grew by 9% I was wondering what the growth rate would look like for the original Cts and.

In Cts and then I think when you acquired the asset that you're guiding for mid to high single digit growth for <unk> is that pretty much still the goal going forward. Thanks.

Yeah, Hey, Kelcey as Phil Snow, Yes, I'm happy to provide those numbers. So the Cts business the content and technology solutions business, which is now part of data solutions.

That grew at close to 11% on a year over year basis, which actually if you compare it to last year.

A little bit lower but almost the same so I would characterize this year as being a very good year for Cts and really speaks to the value of our data and the myriad of ways in which we deliver it to the market.

The CUSIP global services business or CGS.

Peru, a little on from an <unk> standpoint grew slightly under.

The growth rate of the firm. So I think you probably have a pretty good idea of the size of that business based on data we've given in the past. So I think you should be able to triangulate everything that you just asked me pretty well.

Thank you.

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

Yes, Hey, good morning, everyone, just coming back to the guidance for a second you talked about these two halves. So maybe you can be a little bit more specific.

Maybe like the near term trajectory here I know it's early in this current quarter Budd, but maybe what are you seeing how the pipeline shaping up.

And then maybe more specifically.

Clearly some of these banks have delayed hiring so I'm just wondering if we assume that some of these hires that didn't come in the <unk>, maybe now come in the second quarter is there a dollar amount that you feel like slipped in the fourth quarter that could come. So just just trying to figure out some of the swing factors, maybe even in the near term here.

Hey, Alex it's Helen Yeah, I'm happy to try to answer that question. So thank you.

You're right what we're early in the year and and but we have greater visibility of course in our first half. So I'll talk I'll talk to that specifically.

We are expecting current marketing conditions in the first half, but I'm going to go buy firm type here. So when you talk about buy side, we actually finished the year quite strong with both asset owners and hedge funds. So the three things that we see right now in the pipeline is one we're continuing to gain traction in the middle office, So building off of.

Some of the great wins, we had in the asset servicing space, we would expect that to continue.

Second we're seeing strong demand in the data feeds business. So both the company data as well as our data management solutions.

Really leveraging the strength of our concordance for content for clients. We had two significant wins one in real time, one in tick data both displacing competitors and as a result, we are getting inbound.

Discussions around that so that's also filling up our pipeline.

And then third as Phil mentioned earlier, the strength and offerings. We have in the front office are also gaining traction part of our journey AI.

Enhancements will be supporting that and so we expect to be able to get greater market share in that space and we actually think that will help on the retention front as well.

On the banking you're absolutely right we are seeing.

We're gonna have a challenging H, one comparison, Alex because the banking workforce reductions really didn't impact us until our second half because they came through more in the early spring time frame.

And we also expect most of the impact potentially from any.

Reductions from credit Suisse to happen more in the early calendar year as well so that's going to impact your each one results there've been some positives in the capital markets activity, but we're not building our recoveries in the first half so to your point.

We do think that there will be a potential uplift in the second half, but but not in the first half we actually did fine in EM and banking overall, because we had two huge wins one in equity research and bulge bracket in the other and in a large investment bank.

And then wealth I already spoke to we have more activity our land and expand strategy is working pretty well, we're finding when we're there.

We're building on both feed and our CRM solution. So we would expect to see continued cost rationalization, but the pipeline looks decent as we are.

<unk> are a new year.

Thank you.

Our next question comes from the line of face at Hawaii with Deutsche Bank. Your line is now open.

Yes, hi, Thank you good morning.

I wanted to ask about the journey I saw you mentioned a number of new products that you were working on them and so I'm wondering how you're thinking about the timing of commercialization of these products and do you view this as a new product to revenue opportunity or should we think about it more.

As you know something that's going to help improve retention and relatedly. It seems like there's a number of smaller new companies that are out there that are introducing Jenny I products that folks seem to be willing to pay for it.

How should we think about your approach to M&A to enhance your position within journey II products.

Great. Yeah. Thanks, Faiza I was I was hoping someone would ask about this.

So I have a lot to say here.

We're all in on Jan AI and AI.

The thing that they're all probably stress first for everyone is the value of data.

And we believe strongly that the winners in this environment are going to be the ones that have the broadest suite of data and the most well connected data the most trusted data and the data that can be sourced linked back to where the answers came from.

And that's what Factset has always been about and really at the foundation of what we're building here.

So to answer your question a little bit more we believe it's going to be a combination of things. So we are working on a lot of <unk>.

Pilots and I would anticipate that some of those will be coming to market. This year I do believe that it's going to radically improve the experience of most factset users that are using the workstation.

And as you pointed out really.

Help increase retention and maybe drive new desktops right at the clients we serve.

But we also think there's going to be an opportunity for.

New products are.

One of those really is just off platform essentially so, but we're thinking carefully about this.

But there are lots of ways for us to take all of the valuable data we have bundle it up with some gen AI capabilities and deliver it to clients. So we're going to create a great.

Experience for clients on our platform, whether we're able to search converse with Factset go mile deep for that particular workflow, but we also recognize that some of the larger firms out there are going to want to build some of their own environments. So as we've always been we plan to be a pretty neutral here in the ecosystem.

And provide the best of both worlds, but it's still early days, we're still thinking about this very carefully but we're very excited about the potential opportunity for us.

Okay.

It's Linda.

We've had an effort to go out to talk to many clients early on in this process.

25 of them, so maybe filling telling you might want to speak a little bit more about that.

With that thanks for the prompt and DSO and using Gen any callouts there.

Yes, So we've had 25 to 30 under knees tables needs under table meetings with our clients. We've seen a lot of enthusiasm from all firm types and a lot of that has to do with our capabilities. The data the technology and our relationships with clients, but theres a desire out there to co develop some thing.

So you know what.

We're working very closely with some large banks theres opportunities there for Banca automation I think everyone's always felt that although the processes that are out there haven't evolved much over the years, but I think this is the time they will on that.

<unk> side I mentioned in my earlier comments, there is an opportunity to radically improve.

The life of a portfolio manager of our research analyst, that's having to sift through so much information and on the wealth management side, we talked earlier about.

Their workflows right. So can we can we get into proposal generation can we get into AR augmented prospecting for our clients. These are all great opportunities. So we're very encouraged and we're moving very quickly.

Thank you.

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

Alright, thanks, good morning.

At the midpoint of your guidance for <unk>, plus professional services organic growth of 7% for next year that guide is essentially unchanged from growth that you saw this year for fiscal 'twenty, three and you mentioned that the first half of the fiscal year, we will see some pressure followed by improvement in the second half of the year does that suggest that you expect.

<unk>, they get worse compared to this quarter before they get better such that you land at that 7% growth at the midpoint next year, and you talked about which areas of the business youre assuming undergoes the most inflection over the course of next year.

Hi, George it's Alan I'll I'll take that.

So I would I would not necessarily say it gets worse I think what I mentioned in particular on banking as the comparison H one over H one.

So last year a lot of the hiring that was very very strong continued on and some of you may you probably recall how strong we were in <unk> and in our first half of last year. So in comparison the impact from the changes in workforce reduction will impact this.

Current fiscal 'twenty four H one so when we talk about a stronger H. Two we are assuming that there is not a inflection I won't say necessarily of a pickup in banking back to 'twenty two levels, but overall.

Hiring and budgets being more open and that's why we're talking about the fact that we had this fiscal year end of August their calendar year challenge. Our clients are generally starting to then make open up decisions and what will be our H two and that's what we're referring to.

Thank you.

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

Hi, Good morning, Thanks for taking my question I wanted to circle back to the Gen AI topic, but focus maybe more on the cost side.

It does sound like Linda that there is an increase in the technology budget to account for some of these investments are there any cost savings coming from Gen AI, maybe operationally within the.

The SG&A line or just some of the organizational infrastructure you have that you expect to come from these investments and is that something that that would be embedded in 'twenty four or is that a $25 26 type.

Benefit if it's there thank you.

Maybe I'll start and then I'm sure Linda will add some additional comments. So we've been looking at how we work ourselves and thinking about how can we be more efficient ourselves internally.

We have a lot of engineers at Factset, a lot of people that code that or even client facing so I think it's pretty common knowledge that.

There should be some efficiency here right. So we're piloting a lot of co pilot solutions without technologists to kind of understand what that means a different levels of the organization.

We have you know a large client service and support group here at Factset, We've released a tool to about 400 people that are the frontline support for our clients that assist them and generating answers for clients. So that's in the beginning stages there.

And then of course, we collect tons of data so about half of Factset employees are in the content or data solutions part of our business. So we see a lot of opportunities. There. So we do see significant opportunity of the question is the timing and how much of that we'd like to reinvest right in terms of some of the new products that we're thinking about to drive growth.

Yeah, Andrew it's Linda it's a it's a great point and a great question I think your your view on timing is largely correct. So we're looking for internal efficiencies maybe to start showing up more in FY 'twenty five.

Our initial focus will be will be client facing in keeping with the way we think about everything here at factset.

So what we'll do is look to move some of those tools we're building for our.

Our clients and look to apply those to ourselves but.

But we do think that's probably going to kind of show up in a bigger way in FY 'twenty five.

You've heard the guidance for FY 'twenty for us So I hope that helps.

Thank you. Our next question comes from the line of Ashish <unk> with RBC capital markets. Your line is now open.

Thanks for taking my question just wanted to go back to the the ESP guidance and just better understand the headwinds that tailwind as I understand when we think about some of the headwinds from like the investment banking and CNS as well as increased erosion in pricing normalization.

Thinking that could be in the range of like a two to three points of headwind and obviously you've talked a lot about the new win momentum the share gains.

Just wondering is that enough to offset the headwinds as we get into fiscal 'twenty four.

Hi, Ashish, it's Helen Thank you for that question.

Thank from from our perspective, I don't want to say, we've hit a bottom that that's too strong of a word but when I think about this year and last year I would expect that two things to happen. One is that the erosion reduction will actually be more leveled off.

And I think that's an important thing to sort of keep in mind banking Ism is key but we actually grew the number of seats in banking overall, please keep in mind that part of that isn't just around the clients that we have but the new clients that we've that we win and we have a couple of very good opportunity. So we look at that as part of our when we talk to firm type.

The second is pricing, which in the past I think we've talked about a third a third a third I think from a pricing perspective, it actually added more this year.

From a percent basis than in the past.

We see it continuing to add in 2024, although closer back down to maybe a quarter or less than a third and I think that's probably more of a bit of a headwind that I would look to then necessarily just thinking about them.

About about seats. So that's that's how I would take a look at some of that what's built into our guidance. We have some large deals in there we'll see if those come through they got pushed from 23 to 24.

And and then there will be I'm sure continued focus.

Focus on costs by our clients.

Thank you.

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

Hi, Thank you for taking my question and just another question on a first half versus second half.

Revenue outlook.

You talked about the hiring assumptions when you think about the back half versus the first half on the wealth and buy side I'm curious, what's kind of baked in your outlook.

In terms of.

Customer sentiment and and you talked earlier about.

Formation on the wealth side, whether or not that potentially picks up.

What should we take into account things.

Sure I'll I'll I'll take that thank you for your question so as it relates to the buy side.

I think it's a similar piece what what are more complex deals take longer and right now with the offerings that we have they are they are more complex. So when I talk about delayed decisions, that's where you're seeing a fair number of them as it relates to the analytics business for the buy side.

I would see again more of the pick up on hiring will help us we had erosion in both asset management and wealth. So if we see increased hiring which we would expect in the second half of the year that that's where that's the driver on that front on wealth wealth is an interesting one wealth.

We have as I mentioned, some large deals in the pipe. So we could see that come through but it's a similar situation if that as as the markets recover we would expect to see.

The hiring to pick up again in the second half of the year.

Okay.

Thank you.

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

Hi, Thank you for answering for taking my question.

Main questions I want to ask a little bit if you can go back to the comment about some green shoots that you're seeing and if you can give us a little more specificity of those green shoots that you're seeing kind of macro wise specifically within the clients.

That you have specifically on your pipeline can you just give us a little bit more color on that and then maybe just a housekeeping thing as the additional interest expense from the Destiny acquisition is that the way we should think about that.

Yeah, I'll talk a bit about the green shoots.

The areas that we are seeing some.

Pick up a little bit, which is always a bit of a harbinger for us is on the new business. So in Q4 new business.

Started to make a bit of a recovery in terms of number of of transactions. So we see that as a positive. The one positive also I would say overall, even for new business is that if I look at the average size of the transaction throughout the year. The volume is lower but the average was pretty much the same and that I think is a testament to.

The value that clients are seeing so we take that as a positive.

The other area is around managed services, which we have seen an uptick there I I've been mentioning asset servicers as something that's a positive but we will continue to see that as as as one and then also as I can see in the pipeline.

What we call data management solutions has also been a driver.

We expect to be a driver for us and that's been picking up as well. So when you look at all those pieces.

I think that that's really where the they are the benefits come in and of course with your second question.

It's probably best to have that with with Allianz Kendra afterwards.

Thank you.

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

Thanks, so much.

Hoping you could talk about your increase in employee count was about 5% this quarter area or is that sort of a normal increase for you know organically or is it maybe a little bit light and.

Should we expect sort of around that level for 24, and maybe you could go into are you hiring more salespeople or technology or product development, just trying to understand where the growth areas within the employee base.

Hey, Tony its Linda Youre right head count growth was actually.

Around 5% for the quarter you're correct.

For the whole year, our FY2023 it was nine 2%.

For FY 'twenty four we're expecting that we're going to continue to add heads at about that 5% rate, but the mix is very very heavily leaning toward our centers of excellence, maybe up to even 80% of those additional folks are in our centers of excellence. So in terms of the people costs, we actually.

It took them down by 3% through what we call our project Blue, we talked about thoughtfully and carefully trimming a bit on the employee base and we will be looking to do about 5% in terms of hiring for.

For FY 'twenty, four but again, a very very heavily leaning towards the centers of excellence I'll ask Helen to talk about.

Any potential hiring for the sales organization so Helen.

Thank you I'm going to ask our CFO , if I can do more hiring.

No I think one of the benefits of what we've done this year, which is really to become closer to the client is to have ourselves go to market by firm type and also by workflow solutions and that gives us is the ability to to actually become more productive.

So our ability now is not covering different types of firm types and talking about things from a product perspective, but rather knowing the workflow and being able to leverage that across clients and we've actually gotten some very good feedback from clients on that that piece and maybe I'll just add back to a point that.

And then they made around Gen AI in Oklahoma, and our client discussions with the larger.

The top 25, what comments, we got back which I thought was very encouraging as one which differentiates us from some of our competitors in some of these smaller upstarts that the way we talk to them about how January I can help them was about their workflow not about a product not about some.

Something that they have yet to build and then we were able to show them, how we're already incorporating it into the.

The the products we have today, so I think both of those resonate well and that's going to help as we go to market with the current sales force that we have.

One just for a second here on the talent front. So we're finding this a great environment for talent. So our retention has improved significantly our realignment has allowed a lot of factset is to take on new additional responsibilities, but we've also found this a great environment to find it.

Some exceptional technology and product management talent from the industry, which is going to be accretive we think moving forward.

Thank you.

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

Oh, great. Thank you Linda question for you I'm, giving you guys outlook for revenue second half of the year being better than the first half of the year over year basis I'm curious on the cost side of things. How are you thinking about cost growth on a year over year basis is pretty even your thinking over the course of fiscal 'twenty four or more back half weighted.

Craig I think we will look to our usual pattern of seasonality.

Generally the spend builds throughout the year and as Helen said, we're looking for the back half to be stronger than the first half so we'd like to sort of match that with our expense growth.

So I think what we want to do is be very careful on expense growth in the first half of the year I think that's really important that we try to match up revenue growth with our expense growth. So really very thoughtful the first half of the year. The second half of the year I think as we built into our technology budget and some things with the with Gen.

I start to catch I think you should look for our normal trend that expense growth would be heavier towards the back half of the year, particularly in Q4. So hope that is helpful. In terms of you're facing.

Thank you I would now like to turn the conference back over to Phil Snow for closing remarks.

Yeah.

Thank you before we wrap up I want to announce the return of our flagship user conference focused 24 in Miami next April we're looking forward to bringing key clients and stakeholders together to network and share ideas on the theme of innovation innovation is our focus for the coming year and I'm very optimistic about our opportunity and in closing I really want to.

Thank all Factset does and our teams for a job well done in fiscal 'twenty. Three I'd also like to thank tender Brown for her excellent work, leading investor relations over the past two years and going forward. She will be heading a banking and sell side research business and as previously announced Alley, Vanessa will take over the Investor Relations role you can contact alley.

With any follow up questions. After today's call. Thank you all for joining US today, we look forward to speaking with you again next quarter operator that ends today's call.

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

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