Q1 2025 FactSet Research Systems Inc Earnings Call - Q&A
Good day, and thank you for standing by what does it affect <unk> first quarter 2025 earnings conference call.
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Speaker Change: I would now like to hand, the conference over to your speaker today, yet he interim head of Investor Relations.
Thank you and good morning, everyone welcome to talk to that first fiscal quarter 2025 earnings call.
Speaker Change: Before we begin the slides to be referenced during this presentation can be found through the webcast on the Investor Relations section of our website at Factset dotcom.
Speaker Change: A replay of today's call will be available on our website.
Speaker Change: After our prepared remarks, we will open the call to questions from investors. The call is scheduled to last for one hour it'd be fair to everyone. Please limit yourself to one question you may reenter the queue for additional follow up questions, which we will take if type of bets.
Before we discuss our results I encourage all listeners to review the legal slip noticed like you, which explains the risks of forward looking statements and the use of non-GAAP financial measures. Additionally.
Speaker Change: Additionally, please refer to our forms 10-K, and thank you for a discussion of risk factors that could cause actual results differ materially from these forward looking statements.
Speaker Change: 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.
Speaker Change: During this call unless otherwise noted relative performance metrics reflect changes as compared to the respective fiscal 2024 period.
Speaker Change: Also please note that beginning in this first quarter of fiscal 2025 backs that we'll be reporting organic ESP, rather than organic ESP plus professional services focused on the recurring nature of our revenues.
Speaker Change: Joining me today are Phil Snow, Chief Executive Officer, Helen Shan, Chief Financial Officer, and Gordon skilled co Chief revenue Officer.
Speaker Change: I will now turn the discussion over to Phil.
Phil Snow: Thank you yet and good morning, everyone I'm pleased to share our first quarter results, we're off to a good start in our fiscal 2025 with solid operating performance growing organic a S. B four 5% year over year, delivering adjusted operating margin of 37, 6% and achieving adjusted diluted EPS of $4 30.
Phil Snow: While a backdrop of macro uncertainty and cost pressures faced by clients continues to possess we saw momentum building during the first quarter, we remain cautious, but I'm encouraged by the constructive dialogue, we are having with clients and the trends we are seeing in the pipeline.
Phil Snow: As a reminder, the ASB we added in the first quarter is seasonally the lowest of the year.
Phil Snow: Given the timing of large deals. It is also important to look at the half and full year performance as more holistic measure of our progress.
Phil Snow: System with our prior guidance, we expect a S V growth in fiscal 2025 will be second half weighted.
Phil Snow: Before turning to our financial results I want to thank those of you that joined our Investor day last month and for the positive feedback we received for those that missed it we discussed factset strategy, It's a supercharged financial intelligence and help clients as their trusted data and technology partner by delivering efficiency and innovation to their end to end workflows.
Phil Snow: This strategic direction builds on our market leading franchises across the firm types, we serve and it's underpinned by our technology evolution investment priorities and product roadmap.
Phil Snow: So much to do but we are confident in our ability to execute and achieve the medium term targets. We shared with you at Investor day demand for our solutions remained steady with a S V retention over 95% and client retention at 91% during the first quarter. We grew our client base to almost 8250 and now.
Phil Snow: Continued expansion within wealth drove our user count to over 218000.
Phil Snow: Turning now to our organic a S V performance by region in the Americas, We grew 5% as we lap.
Phil Snow: Wealth went in Q1 last year.
Phil Snow: New business accelerated in the quarter across well hedge funds and asset owners.
Phil Snow: And improve retention across the asset managers was overshadowed by softness in areas, where clients are re prioritizing budgets.
In EMEA, we experienced 4% growth driven by wins in partnerships and asset owners with additional contribution from P. E. B C hedge funds and overall improve retention in the region.
Phil Snow: And in Asia Pacific, we maintained 7% growth.
Phil Snow: Improved seasonal hiring and banking relative to last year was a driver, particularly among global bulge bracket banks.
Data solution wins with partners were offset by lower retention with asset manager clients for.
For my phone type perspective, our results were mixed after a very strong Q4 to close the year wealth organic a S. V growth was more subdued in the first quarter seat count continues to increase at a strong clip sequentially, adding over 2000 users driven by marquee accounts.
Phil Snow: We also continue to add smaller wealth management clients this quarter.
Phil Snow: It's difficult to control the timing of when large deals closed, but we remain confident the deceleration this quarter is temporary.
Phil Snow: And within wealth, we continue to see a healthy pipeline of seven figure opportunities with potential to upsell existing clients and expanding solution set giving us conviction that growth will reaccelerate over the next several quarters.
Phil Snow: And dealmakers that growth was in line with last quarter banking seasonal hiring continues to normalize but remains a drag to growth.
As discussed at Investor Day, we expect several new products will add to the acceleration of our banking business in the second half of the year, most notably our journey I powered pitch creator offering is already seeing traction in our client conversations with two wins in Q1 ahead of a formal launch in early calendar 2025.
Phil Snow: Outside of banking, we saw continued acceleration in P. E. B C to double digit growth led by several competitive displacements and strengthened cobalt a modern portfolio monitoring tool.
Phil Snow: Adding to corporates, we closed the acquisition of O N in early November to expand in facts its ability to address the integrated workflow needs of IR professionals with an integrated modern solution.
Phil Snow: We have a strong pipeline and have already seen increased inbound interest from Investor relations users since the acquisition was announced.
Phil Snow: But the institutional buy side, we maintained growth consistent with last quarter. The highlight for the quarter as a landmark seven figure performance solutions win where we beat our competitor in displays key incumbents at a global outsource CIO provider seeking to overhaul that technology stack and solutions across the portfolio lifecycle.
Phil Snow: This wide ranging enterprise deal includes a portfolio analytics and multi asset class capabilities and performance reporting solutions. This win also underscores factset its ability to effectively partner with clients using our managed services offering.
Phil Snow: To deliver workflow efficiencies and an improved operating model.
Phil Snow: Within asset management, we continue to see erosion pressure as clients scrutinize their budgets and pursue vendor consolidation, particularly with small and mid sized firms where it is more difficult to reach scale deficiencies. Our recently announced partnership with J P. Morgan Securities services seeks to address this total cost of ownership chat.
Phil Snow: By coupling Factset performance reporting and portfolio analytics solutions with accounting and investment book of records through J P. Morgan's fusion data management platform.
Phil Snow: But partnerships with CGS growth was solid improved retention and an increase in larger wins with partners contributed to accelerating growth.
Phil Snow: <unk> continues to perform well buoyed by the strong issuance market and content expansion as we execute against the strategy. We outlined at Investor day clients are increasingly viewing factset as an innovation partner that can help them gain greater insights drive lower cost of operations and elevate productivity. So they can have folk.
On high value work, we are leveraging our industry, leading data and technology to responsibly harness the power of Gen AI to bring more speed accuracy and efficiency to our clients.
Phil Snow: Building on the AI Blueprint, we announced last year, we recently unveiled our intelligent platform initiative, which integrates conversational AI at the platform level to enable next generation such intelligence. This latest innovation in a series of new product developments Leverages Factset Mercury.
Phil Snow: Our conversational knowledge engine separate.
Phil Snow: Revised actionable and Auditable insights across our extensive content refinery of structured and unstructured data assets, we hear loud and clear from our clients that they are not interested in marketing hype and promises of the future. They are demanding practical workhorse solutions to boost productivity unlock efficiencies in <unk>.
Phil Snow: Somebody is daily workflows.
Phil Snow: We will be launching new workflow solutions throughout the year.
Phil Snow: That will add to our rapidly evolving journey I capabilities and product set.
Phil Snow: In summary, I'm pleased with the start to this year.
Phil Snow: It's worth reiterating that similar to last year, we expect growth to be weighted towards the back half of the year as we head into the start of calendar 'twenty 25, I'm encouraged by early signs of momentum picking up as clients reset budgets and what many are anticipating as an improved macro backdrop, that's putting confidence that the operating environment may.
Phil Snow: Improved as we progressed through the year.
Phil Snow: Examples of Green shoots this quarter include greater client engagement in banking strength and data solution sales to hedge funds and greater pace of competitive displacements and P. E V. C to name a few we have a robust pipeline great.
Phil Snow: Greater visibility on some larger opportunities and many new innovative products that resonate with clients.
Phil Snow: I'm confident in our path forward as such we are reaffirming our fiscal 2025 guidance I will now turn it over to Helen to discuss our first quarter performance in more detail.
Helen Shan: Thank you, Phil and Hello to everyone on the call. It is great to be back with you all again.
Helen Shan: As you've seen from our press release. This morning, we began our fiscal 'twenty 25, with solid operating performance and an uncertain a constructive market environment cute.
Helen Shan: Q1, organic assay increased $3 4 million or four 5% growth in a quarter that is seasonally our lowest also a reminder, that starting this quarter. We are no longer reporting professional services in our a S fate in order to better reflect the recurring nature of our revenues on this new basis of reporting the.
Helen Shan: S V for the prior year as provided in this morning's press release.
For the quarter GAAP revenue increased four 9% to 569 million organic revenue, which excludes any impact from both acquisitions or dispositions over the past 12 months and foreign exchange movements increased four 7% to $568 million driven by sales to wealth for.
Helen Shan: <unk> asset owners and institutional asset managers.
Helen Shan: For our geographic segments organic revenue grew by 5% in the Americas, 3% in EMEA, and 6% and Asia Pacific.
Helen Shan: Turning now to expense GAAP operating expenses increased six 8% year over year to $377 million driven by the amortization of intangible assets compensation related expenses and professional fees. This capture a certain one time nonrecurring items, including acquisition related costs.
Helen Shan: On an adjusted basis operating expense grew four 9% at the same rate as revenue.
Helen Shan: Technology spend was the primary expense driver, which increased 18% year over year, largely due to higher amortization of internal use software and our continued investment in generative AI as outlined at Investor Day, we are committed to investing in products and technology to maintain our market leadership needed to do.
Helen Shan: Five sustained and future growth for the quarter technology costs were just under 10% of revenue compared to 9% last year.
Helen Shan: Employee expenses increased approximately 2% versus the prior year as we held our head count largely flat.
Helen Shan: People related costs remain our largest expense category at 39% of revenue down 130 basis points year over year.
Helen Shan: We continue to exercise operational discipline to self fund investments in our strategic priorities to a more efficient operations and increased productivity.
Helen Shan: Third party content costs increased 4% year over year and remained less than 5% of revenue.
Helen Shan: Real estate and related facilities expense decreased 4% year over year. These expenses are now less than 3% of revenue approximately 30 basis points lower compared to the prior year for a more detailed walk from revenue to adjusted operating income. Please refer to the appendix in today's earnings presentation.
Helen Shan: Compared to the previous Q1, GAAP operating margin decreased by approximately 120 basis points to 33.6% largely due to one time items on an adjusted basis operating margin was flat year over year at 37, 6%.
Helen Shan: In the quarter, our cost of services as a percentage of revenue was lower year over year by approximately 90 basis points on a GAAP basis, and just under 70 basis points on an adjusted basis, primarily due to lower compensation expense, partially offset by increased intangible asset amortization.
Helen Shan: SG&A as a percentage of revenue was approximately 210 basis points higher year over year on a GAAP basis, primarily due to people expense and an increase in professional fees on an adjusted basis SG&A was 70 basis points higher than prior year.
Helen Shan: Turning now to taxes, our effective tax rate in Q1 was 16.5%. This was an increase compared to the 15.2% tax rate in the first quarter of last year, primarily due to the revaluation of a foreign deferred tax asset associated with a tax rate change.
Helen Shan: Our GAAP diluted EPS increased one 3% to $3.89 this quarter versus $3.84 in the prior year period, driven by higher revenue offset by margin compression and a higher tax rate given.
Helen Shan: Given these same factors adjusted EPS increased by 25.
Or six 1% to $4.37.
Helen Shan: EBITDA increased 5% to $230 million compared to the same period last year, driven by higher net income and higher AD back items, and finally free cash flow, which we define as cash generated from operations less capital spending decreased 56% year over year to $60 million.
Helen Shan: In Q1, this was largely due to the resolution of a sales tax dispute timing of vendor payments and higher capital expenditures during the quarter.
Helen Shan: As we discussed at our Investor Day, we remain disciplined in our approach to capital allocation and are committed to returning capital to shareholders through a combination of stock buybacks and dividends.
Helen Shan: In the quarter, we repurchased more than 104000 shares for approximately 49 million.
Helen Shan: Average share price of $467 at the end of the quarter, we had $251 million of capacity remaining under the 300 million share repurchase authorization approved by our board of directors back in September.
Today, we paid a quarterly dividend of a dollar and four cents per share to holders of record as of November 29th 'twenty 'twenty four.
Helen Shan: Also in the first quarter, we reduced our term loan principal by another 62 and a half million dollars.
Helen Shan: Lowering our gross leverage ratio to one and a half times, we expect the term loan to be repaid in full by the end of Q2, our capital allocation remains consistent with our commitment to maintain investment grade metrics.
Helen Shan: And finally as you heard from Phil we are reaffirming our previously issued guidance.
While there are still some variability around client budgets, we've observed encouraging signs with increased engagement and a growing willingness to make purchasing decisions and the final weeks of Q1, we experienced positive momentum, which we are determined to maintain in order to achieve our full year objectives.
Helen Shan: We are actively taking steps in pricing and packaging to enhance our competitiveness against incumbent providers such as with hedge funds N. P V C firms.
Helen Shan: These actions have resulted in higher new business and with multiple pilots currently being tested we are looking to replicate the success across the various firm types in different markets globally are.
Helen Shan: <unk> pipeline is healthy and we continue to witness promising demand for our new generic products and enterprise solutions setting the stage for this year to be another story of two distinct paths.
Helen Shan: In conclusion, we remain confident in facts its ability to deliver sustainable long term shareholder value by harnessing the power of our data and technology investments, we are poised to enhance our clients' financial insight and workflows significantly.
Speaker Change: And with that we are now ready for your questions operator.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: I ask that you. Please limit yourself to one question. Please stand by we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Alex Kramm with UBS. Your line is now open.
Speaker Change: Yes, Hey, good morning, everyone I'm, sorry to be so short term focus here, but obviously you're talking about the two halves, but I feel like both Phil and Helen you. Both of you talked about green shoots and and optimism to the second quarter. So if I look at the <unk>, probably a little bit softer than what you saw last.
Speaker Change: Yeah, maybe something slipped a little bit.
Speaker Change: I also think there's a chunkier deal coming into the second quarter. So shouldnt, we be positioned for acceleration in ASD growth already in the second quarter or how should we be thinking about the cadence from here. Thanks.
Speaker Change: Thanks, Alex I appreciate the question. So yeah, let me talk a bit more about the momentum that we just talked about in the in the script and so it's not all just Q2, but let me talk about the rest of the year. So we are very encouraged by the momentum we're seeing.
In any given year, we're going to have a number of big rocks that are out there there could be new rfps are renewals and and I would say in a balanced I'm very happy with how that's landed so far in <unk>.
Speaker Change: Terms of Q1, the big deal we did in some of the visibility we see moving out are more in a cross firm types. Our wealth is just continuing to look very strong out of our top 10 deals.
Speaker Change: <unk> for the year wealth makes up about half of those and I talked about the seven figure deals. So that is a very.
Speaker Change: In our well performing part of our business with a lot of opportunity I would say that we're also seeing as Helen mentioned increased momentum in private equity venture capital, we're seeing really good momentum in the hedge fund some of that is driven just by data that that consumer and then within corporates you.
Speaker Change: You know we did the acquisition of O and that's always been a good part of our business, but all of those end markets look poised to grow potentially at 10% of this year. So we're very excited about though.
Speaker Change: Thinking about banking, it's still a bit more uncertain instead of going into the year. What the you know what the hiring is going to look like.
Speaker Change: But where we're having really good renewal conversations in the middle market.
Speaker Change: And the feedback that we're getting from our clients around the pitch create a product which is the productivity tool.
Speaker Change: On top of our current suite that using AI is getting really exceptional feedback relative to what people are seeing from our competitors and that's playing a big part honestly.
Speaker Change: Some of the renewals that we're doing so.
Speaker Change: Just sort of wanted one angle, maybe what I'll do is I'll ask Gordon now to talk a little bit more about some of the sales activity and how that compares to last year.
So I think we've certainly seen improve.
Speaker Change: The improvement in the pipeline and activity as we have gone through the quarter, Phil alluded to walk the last six weeks, particularly being very productive for us.
Speaker Change: You know what.
Speaker Change: To illustrate the increasing activity I think our trials have gone up 23% in Americas and 30% in Europe.
Speaker Change: And Rfps do see a 30% increase year over year in Q1 of this year versus last year. So I think that's where the optimism for the remainder of the year.
Now comes in for US and you know, we're quite optimistic about their activity and their client interaction.
Speaker Change: Today.
Alex Kramm: Yeah, I'll just end with this one Alex which is I think.
Alex Kramm: We've already talked about this but the CPI increase that we'll be able to capture this year is lower than last year as inflation has come down.
Alex Kramm: But I have seen really good walk from gone and the sales team on closing.
Alex Kramm: That difference in terms of what we would get in on the buyer side, even though that's outside of hedge funds, even though that.
Alex Kramm: Piece of our business that's under the most cost pressure.
Alex Kramm: That team has done an amazing job of beginning to build up a stronger pipeline as we enter the second half so.
Alex Kramm: We're we're optimistic and are all signs so far are you now.
Alex Kramm: <unk> green compared to how we were feeling.
Alex Kramm: Maybe three or six months ago.
Speaker Change: Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open.
Shlomo Rosenbaum: Hi hate to use my one question on it.
Shlomo Rosenbaum: Kind of housekeeping thing, Helen, but I'm going to do it anyway can you explain the total company ASB growth of four 5%.
Shlomo Rosenbaum: But the components were each lower than that like by cited four three and sell side. Three five is there some kind of calculation adjustment that's being need.
Shlomo Rosenbaum: To those items.
Speaker Change: We'll get you the four and a half.
Speaker Change: Yeah, no and thank you for that and you understand why that might be a little bit confusing. So in the past. We've always included all of C. G. As in the E. S. P calculations at both licensing and issuance.
Speaker Change: But we did not include in the buy side and sell side calculations. The C. G S issuance crouse.
Speaker Change: Because it doesn't quite fit into into that but this quarter as you I'm sure have noticed that there's been quite a lot of issuance and as a result, <unk> issuance really helped drive some of the organic asset growth rate. This quarter. It contributed about 25 basis points.
Speaker Change: To get us to the four 5% so that's why you're seeing that disconnect.
Speaker Change: We're at four three cell site 45, but C. G. S added another 25 basis points attached triangle wise.
Speaker Change: Thank you.
Speaker Change: Question comes from the line of Kelsey Xu with Autonomous your line is now open.
Speaker Change: Hi, Good morning, Thanks for taking my question. It sounds like managed services could be a key growth driver for <unk> going forward I was just wondering.
Speaker Change: Do you have any updated thoughts on total capital market.
Speaker Change: Who the key competitors are in this space and just generally your strategy.
Speaker Change: That markets. Thanks.
Speaker Change: Thanks, Kelcey I'll start and then I'll ask Gordon to weigh in as well so yes, we've seen some great.
Speaker Change: Momentum in work there from the team.
We closed a good deal in Q1 for an outsource CIO provider that will include a quite a bit of managed services here.
Speaker Change: And there are some deals that we announced last year that did as well and I think you probably saw the press release, where we have entered into a partnership with J P. Morgan.
Speaker Change: To do some work for them. So that's that they were managed services associated with that as well, even though that deal with what's been going on for a little while now so we do see a good opportunity here and it is really linked to our product suite. So in many cases.
Speaker Change: These services are being applied to our technology and the fact that we've opened up the platform, particularly for the analytics suite. That's traditionally serve the buy side.
Speaker Change: And that's the performance solution that we have is I think best in class and that is now being leveraged pretty heavily by assemblies.
Speaker Change: These firms so I'll stop there and maybe Gordon you could add a little bit more color as to what else you see in terms of opportunity.
Gordon Skilled: Yeah. So.
Gordon Skilled: I think couple of things in terms of competition is still hubs.
Phil Snow: Phil said I think the managed services for us a little bit different than you know you would.
Gordon Skilled: Good.
Gordon Skilled: For managed services providers and it's really the highly skilled talent the rehab that can help clients with their performance reporting.
Gordon Skilled: Are we in a risk reporting type activities.
Gordon Skilled: Is that is what we are providing to their clients and augmenting their internal capabilities and the process is particularly effective in.
Gordon Skilled: The environment of the clients of course sensitive and we can help them in their oh.
Gordon Skilled: In their total cost of ownership, but providing managed services and allowing them to focus on the higher value activities. So we were excited about the progress over the last.
Gordon Skilled: Five six quarters since we launched managed services and we think that there is considerable upside there.
Gordon Skilled: I don't have the market size, because quite frankly, there is no direct competition to it.
Speaker Change: Comment on that since this is a relatively newer.
Speaker Change: Our service that we're offering that was performance and now risking reporting and what we're tracking are they attach rates and theyre quite good so back to Phil's comments.
Speaker Change: Already been with clients in the Middle office and what we're seeing is that they're turning to us to help them, especially to gain more scale.
Speaker Change: Thank you.
Our next question comes from the line of Faiza <unk> with Deutsche Bank. Your line is now open.
Speaker Change: Yes, hi, thank you.
Speaker Change: So I wanted to ask about you mentioned that youre getting exceptional feedback.
Speaker Change: On sort of some of the journey I products than what folks are seeing from your competitors.
Speaker Change: So curious if you could give us a bit more color around that is that across the board are there any specific products, where you're maybe getting more traction and maybe if you can dimensionalize that for us like is there a way to.
Speaker Change: Think about potential.
Speaker Change: Contribution from <unk> this year or is it incremental to the guide.
Speaker Change: Just a bit more color that would be helpful. Yes, sure I'd be happy to Faiza. Thanks, So on our last call I think Helen.
Speaker Change: Stated that we continue to expect or were expecting 30 to 50 bps of growth in FY 'twenty five from.
Speaker Change: From the monetization of <unk>. So that is included to some degree in the guidance that we gave you.
Speaker Change: But it's obviously a wildcard in.
Speaker Change: We could potentially do better than that we certainly we didn't have a huge number as a goal for Q1.
Speaker Change: Well have some more of it as sort of weighted to Q2 Q3 and Q4 from what we have seen a very encouraging sign so we monetize six or seven things already one was the conversational AI that we spoke about last year, which is the.
Speaker Change: Clients ability to essentially take that Factset mercury experience that you have.
Speaker Change: You had a factset workstation and plug it into your own environment. So that was a wealth use case.
Speaker Change: Monetize last year.
Speaker Change: The banking products are getting great feedback. So we have something called a pitch creator, which further automates the pitch creation process in the whole kinds of news out there right now about <unk>.
Speaker Change: How really tough it is for junior bankers, the number of hours that putting in and the.
Speaker Change: The strain that they're under and thus for things like our tombstone creator will really help.
Speaker Change: With productivity so.
Speaker Change: That will be officially released in the coming months, but it's already played a key part.
Speaker Change: In a few renewals so great feedback there.
Speaker Change: We also have.
Speaker Change: I think it's shown some ability to monetize AI from the from our data. So in two ways. So we now have we had to close when we sold data specifically for somebody that was building a gen II product.
Speaker Change: And then as we've spoken about previously we have our AI partner program, where we'll work with small technology provide us to empower them to their workflows.
Speaker Change: Portfolio commentary, which.
Speaker Change: We've had out there for a while now we got our first commitment to that which will show up after Q1.
Speaker Change: So the good news is we're proving that we've got product and to monetize on the question now is sort of building up and we have a very solid pipeline by the way. So now as we get into January one.
Speaker Change: Monetizing visa's scale, which is the exciting part of it so overall it still.
Speaker Change: A very exciting thing for us as a company at the type of stuff, we love to build we certainly see great potential of course.
Speaker Change: There's lots of news out in the market about firms may be not monetizing this as quickly as they thought or is it real we believe vehemently that Israel.
Speaker Change: It may take some firm types of longer than others to get comfortable bringing these solutions onboard, but we're ready and we're already seeing the demand.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Ashish.
Speaker Change: <unk> with RBC. Your line is now open.
Alright, Thanks for taking my question in the prepared remarks that was aircrafts to softness in avs clients any bank I think budgets.
Speaker Change: Wondering if you could provide some color on that shrink, but also as you as we get into calendar year 'twenty five.
Speaker Change: Any commentary on how those budgets are shaping up for your customers. Thanks.
Speaker Change: Okay.
ashish: Ashish I didn't.
ashish: That came across a little muted for me. So are you asking about.
Speaker Change: Just overall across all thumbs site sort of have the budget discussions are going.
Speaker Change: Yes, yes definitely thank you.
Speaker Change: Gordon do you want to address that please.
Sure.
Speaker Change: I think the.
Speaker Change: I see a big change in terms of the.
The budgets early signs or.
Speaker Change: And if the budget current budgets will remain flat through the clients will continue to focus on.
Speaker Change: On cost for the foreseeable for the foreseeable future.
Speaker Change: We are encouraged in terms of clients continued engagement in terms of their.
Speaker Change: In a true transformation of technology and in terms of implementation of new tools and new content that can really help them across there.
Speaker Change: Investment process. So we're quite encouraged by the outlook by all of the activity and like I said in a number of trials in Rfps has increased significantly which rich I think you know.
Speaker Change: It gives us.
Speaker Change: Reason for optimism and more productive client conversations for the rest of the year.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Scott Wurtzel with Wolfe Research. Your line is now open.
Speaker Change: Hey, guys. Thanks for taking my question just a quick housekeeping one just on the <unk> acquisition and how we should think about the contribution from that to total revenue for this year would be helpful. Thank you.
Speaker Change: Thanks for your question I'll take that one Scott so it's not going to have a material impact in terms of the acquired.
Speaker Change: Revenues themselves. So broadly speaking if it's if it's small we don't call. It out so it's not going to have a material impact on the top line, but it will help all corporates business overall.
Speaker Change: And just to add to that.
It's early days, but the acquisition case, we had and what we expected to deliver between now and the end of August of fiscal years.
Speaker Change: Either on or above what we thought it was going to be.
Speaker Change: Thank you. Our next question comes from the line of Jeffrey Silber with BMO capital markets. Your line is now open.
Jeffrey Silber: Thank you so much I wanted to shift gears talk about margins a bit if I remember correctly, you are guiding to margins for 2025 to be somewhat slightly down.
Speaker Change: They were flattish in the first quarter.
Is that something that we should expect to continue should we expect to continue or expect to see some margin compression in the back half of the year and if so what are the reasons for that.
Speaker Change: Yeah.
Speaker Change: Yes, thanks for thanks for that question so.
Speaker Change: This quarter, we saw some good favorability.
Speaker Change: Comparing to year over year with lower people costs.
Speaker Change: Recall, we did take some actions during the year sell in comparison.
Speaker Change: That came through.
Speaker Change: Timing of some third party credits that also came in that was favorable and then have questions have productivity overall, but as we reaffirmed our guidance. We do expect a ramp up on expenses starting in the second quarter, we've had a little bit of a slow start and investments that we've talked about in our last call.
Speaker Change: It takes some time to hire some people costs, we think will be higher in Q2.
Speaker Change: And then keep in mind last year. We also had a comparison with our adjustment to our bonus accruals. So theres going to be some of that comparison, we do expect tech costs to go up as well as we're really ramping up on infrastructure spend and cloud related expenses. So I would look at the H one margin to be closer to the mid <unk>.
Speaker Change: Many of our guidance range.
Speaker Change: Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.
Toni Kaplan: Thanks, So much I wanted to look at the wealth part again, because I think you mentioned that you were lapping a big wealth win in the quarter, but specifically called out maybe a deceleration because of timing around large deals, but a good pipeline.
Toni Kaplan: I was hoping to talk about like are you seeing even more elongated decision, making in wealth or are you seeing any changes in the competitive environment are people being particularly aggressive I know, it's always been sort of a competitive market, but just wanted to get.
Toni Kaplan: More color there thanks.
Speaker Change: Great. Thanks, Al I mean, I'll start and then I'm sure Gordon has a lot to say about this so yes, I mean it was a we had a very large deal in last Q1, so I wouldn't read anything more into my comments other than we didn't have something of that size in Q1 or enough singles and doubles.
To sort of match that.
Speaker Change: As I spoke about already Tony I think we see that snapping back here pretty quickly.
Speaker Change: And we see continued momentum in this space.
Speaker Change: Uh huh.
Different levels of wealth shops at the very largest shops as it takes.
Speaker Change: Long time for these decisions will be made and then you go through the implementation, but I would not see that we're seeing.
Speaker Change: Massive change there honestly in terms of timing or so answer correct.
Speaker Change: I think bill covered as well.
It's really just we didn't have a.
Speaker Change: Similar size this quarter, we're very confident that well appropriate accelerate for the for the rest of the year. We couldn't we mentioned that we saw an uptick in new business in wealth management, we saw seat growth.
Speaker Change: But we will.
Speaker Change: We continue to successfully displace competitors, we see geographic expansion. This year, we're particularly focused on Switzerland and UK is.
Speaker Change: Growth.
Speaker Change: Both markets.
Speaker Change: And you know we continue to penetrate additional workflows. So we're very confident about the walls.
Speaker Change: Continuing to do very well for us and I think Joe already mentioned that we're expecting double digit growth this year.
Speaker Change: Thank you. Our next question comes from the line of Owen Lau with Oppenheimer. Your line is now open.
Speaker Change: Good morning. Thank you for taking my question I think I heard that.
Speaker Change: You had the seven figure a landmark win away from our key incumbents.
What were the key reasons, whether we do we have more competitive pricing strategy, our products and do you expect more wins like that in the coming quarters. Thanks.
Speaker Change: Well chat about this one a little bit and then as usual.
And so yes this was.
Speaker Change: And outsourced CIO and of course, there's a limited number of those globally.
Speaker Change: So it was a complicated deal there were many aspects too.
Speaker Change: What we were doing for them and.
Speaker Change: I think it really just comes down to the quality of our technology our analyst.
Speaker Change: Our analytics solutions and our approach to partnership and in fact, Helen you spent a lot of time I think nurturing this deal and getting it over the line. So what would you add to that yeah. No I think I think that's right.
Speaker Change: And our ability to partner with a big piece of this.
Yeah.
Speaker Change: As Phil mentioned this also on the managed services aspect, which they wanted so I think there are a number of things that we really brought to the table here the connectivity that they are there and the flexibility of our open platform. So they were able to bring partners to bear so those would be the ones that that helped US and has continued to help us I think as we go forward.
Speaker Change: Our multi asset class capabilities also.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.
Speaker Change: Helen I think you made some remarks around just the pricing packaging versus competition I was hoping you could just elaborate on that just in the context of it sounds like your gross pipelines, obviously really strong but what exactly are you.
Speaker Change: Tweaking I supposed to make the conversion is better.
Speaker Change: Yes sure. Thanks for that question so.
Speaker Change: Clearly, it's a competitive environment.
Speaker Change: All along we've been investing to improve our products have a point to for example, our new business, where that's where you typically see the most price pressure.
Speaker Change: And as usually driven in part because it to move somewhat off of.
Speaker Change: The displacement switching costs and so what we've done.
Speaker Change: It had a very proactive approach, where we've targeted specific types are.
Speaker Change: Affirms what we've changed our pricing structure and the result of that because of the strength of our product which has improved in certain cases like in the private markets. The result is having higher volume we have seen lower price realizations. So we are being a bit more aggressive there and overall that has resulted in increased as V and then.
Speaker Change: Particularly we are seeing this in the Americas and EMEA, So that's where our.
Speaker Change: Our package packaging and pricing is being used as a competitive tool.
And along with enterprise as well, we've been able to leverage some of our enterprise solutions with our especially during renewals and that has been very very effective also.
Speaker Change: Thank you. Our next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.
Andrew Nicholas: Hi, Good morning, I. Appreciate you taking the question I wanted to ask.
Andrew Nicholas: Your appetite for M&A.
Andrew Nicholas: The latest and greatest there.
Andrew Nicholas: And Relatedly does your conviction in the monetization of your AI investments.
Speaker Change: Change that appetite at all or does it inform it.
Speaker Change: Types of assets that are most attractive to you.
In terms of inorganic action. Thank you.
Speaker Change: Yes that is.
An interesting question. So we have we have a high appetite for M&A.
Speaker Change: Yes, I think we're in a better position to do more now and there's a couple of gaps in our product suite across some sites that if we can find the right assets.
Speaker Change: We'd be excited to execute on.
Speaker Change: Most of the things we've been looking at though Andrew or not AI related although if we always look for somebody that has a good technology stack modern like we don't have to do a ton of repair work so that always plays into it.
Speaker Change: And very often folks who have already done some work in that area.
Speaker Change: I believe we've invested enough so far in our AI.
Speaker Change: Sweet to make a real impact.
Speaker Change: By empowering like so many of our employees I think that was the track two.
Speaker Change: We've gotten to where we are so far.
Speaker Change: Yes, let me Echo the thoughts no I think that's it that's exactly right.
We mentioned, we've got a strong balance sheet.
Speaker Change: Ability for increased leverage and we've also been very deliberate in how we've been allocating our capital we will spend more on Capex. This year for example to help do the internal builds but it gives us still ample room to be able to use inorganic as part of our growth.
Speaker Change: AG.
Speaker Change: Thank you. Our next question comes from the line of surrender thin with Jefferies. LLC. Your line is now open.
Speaker Change: Thank you.
Speaker Change: I guess I'd like to touch base on the monetization of some of your AI products over the past year.
Speaker Change: Can you maybe talk about the value proposition from the perspective of the client.
Speaker Change: And what you're seeing in terms of maybe the uplift to your revenues.
And where the offset is from the perspective of our clients in terms of the savings or the efficiencies that they are seeing because.
Speaker Change: One of the things that we found is that a lot of churn AI solutions tend to be quite expensive.
Speaker Change: And it's quite easy to.
Speaker Change: Use a lot of your what I would call your credits tokens are or your AI budget.
Speaker Change: Especially given that.
Speaker Change: The earlier commentary around.
Speaker Change: Clients don't really see.
The material improvement in their overall budgets.
Speaker Change: Yes.
Speaker Change: Let me kick it off here I think there's a lot to talk about so we're and we're definitely looking to get adoption right and just proof that we are adding value to clients.
Speaker Change: And then thanks Kevin.
Speaker Change: I would like to what you said about <unk> and just thinking about how do you best monetize this in.
Speaker Change: Clients feel like they're getting value not exposing themselves to biggs.
Speaker Change: Big spikes in expense so.
Speaker Change: A lot of singles and doubles here, there's some deals that are in the tens of thousands of some that are in the hundreds of thousands.
Speaker Change: But we're not going out right now and selling multimillion dollar.
Speaker Change: AI solutions so.
Speaker Change: The value proposition really is saving clients' time, so the portfolio commentary solution.
Speaker Change: It gets you an excellent order deferral commentary on how you did versus the benchmark in a minute I'll last versus how it however, long it would take somebody to write that the.
Speaker Change: The pitch creative product, we've already talked about its just saving tens of hours of a junior analysts times in terms of arranging you know logos on spreadsheets or running their models or a building that templates or that chart. So that's how we're approaching it is really just brute force efficiency in this.
Speaker Change: As an idea generation aspect to this which is important but we think the low hanging fruit of the efficiency gains so Gordon or Helen I don't know if you want to add.
I think bill your coverage as well.
Speaker Change: It is really gains and the efficiency you can just imagine the month in process and on the asset management side and portfolio managers, having to deliberate their commentary in time, that's certainly where appropriate help them or clients are finding value.
Speaker Change: In terms of the cost itself I think we've done a lot to optimize.
On our side to make sure. It does it cost to announce run away and then we spoke about.
Speaker Change: Sure.
Speaker Change: Marvell here, which is basically subscription plus consumption consumption based.
Speaker Change: Clients will have lots of visibility into but.
Speaker Change: Productivity on the client side is really the value that we are.
Speaker Change: We are offering and then for those that build their own solutions, we're really enhancing their time to market.
Speaker Change: Capabilities.
Speaker Change: Thank you. Our next question comes from the line of Craig Huber with Huber Research Partners LLC. Your line is now open.
Craig Huber: Great. Thank you.
Speaker Change: Can you talk about pricing if you would for this.
Speaker Change: Fiscal year, you talked about that it won't be as probably as strong as last year. What are you expecting for realized pricing this fiscal year versus last year and it's just interesting you're talking about you're expecting overall revenues to accelerate in the second half of the year, obviously against it sounds like it's not quite as beneficial in the prices have been quantified, especially code this year versus last.
Thank you.
Speaker Change: Hey, Craig it's Alan Thanks for thanks for that question so yes.
Speaker Change: As Phil noted.
Speaker Change: Reising is based off the highway of CPI, 3%, CPI being where it's at.
Speaker Change: It does put a bit of a lower or a headwind on that front, but yes. The stronger pipeline helps right now we're still seeing the price realization essentially.
Speaker Change: Overall quite flat.
Speaker Change: To the last year, so we're not necessarily seeing an uplift, but we're not seeing a degradation either now the only place where I noted earlier, where that might be the cases, where we're doing in new business and in some renewals, but what we're seeing is while the price realization against a rate card might be a little bit lower we're actually seeing more.
Speaker Change: In terms of volume so that sort of P times Q concept. Please note that we've also increased our rate card. So the price utilization percentage gets a little bit harder to completely track, but overall the value that was able to provide we are we've been able to capture it pretty firmly again year over year.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of David <unk> with Evercore ISI. Your line is now open.
Speaker Change: Hey, good morning.
Speaker Change: I had a question just on the client retention it was good to see that.
Ben: It's Ben.
Ben: Round, 90% for the past year that ticked up a little bit to 91%.
Ben: This quarter.
Speaker Change: Yes, historically, we've seen that.
Speaker Change: One retention has moved up you've also seen ASB accelerate that wasn't the case this quarter.
Speaker Change: Is that just the pricing dynamic or maybe you could unpack what was driving that increase in retention and why we're not seeing that translate.
Speaker Change: Two a reacceleration and ASB this quarter.
Speaker Change: So just a couple of things that we're seeing.
Speaker Change: Obviously, we spoke quite a bit about our focus on improving retention during the Investor day, I think we're putting.
Speaker Change: Processes procedures in place to help our.
Speaker Change: Client facing organization to focus on retention.
Speaker Change: We are encouraged by the improvement in.
Speaker Change: In client retention, there's certainly sure.
Speaker Change: Client cancels just core.
Speaker Change: Client class cancels this quarter then.
Speaker Change: Than previously, which accelerated our retention rate.
Speaker Change: I think is a good sign.
Speaker Change: Sign of what's to come.
Speaker Change: All of the retention efforts, we're putting in place are currently reflected I would say in specific areas we saw improvement in.
Our retention in investment management in Americas in particular post or for our workstation.
Speaker Change: <unk> solution.
Speaker Change: Everything that we are focusing on currently.
Speaker Change: We expect.
Speaker Change: Further results as we move as we go along but.
Speaker Change: I think not immediate but we do expect that retention will continue to improve over the coming quarters.
Speaker Change: Yes, maybe I can add a little bit to what corn was just saying given the number of clients that we have we see a fair amount of churn.
David and that at the bottom so that 1% change while we like to obviously stay higher client retention. The number that is more impactful it will be the assay.
Speaker Change: Retention, which is continues to be above 95%.
Speaker Change: But just to make that that pie, if theres a lot of churn happening it might make the numbers move a point, but it's a it's probably more rounding than a strong indicator.
Speaker Change: Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Your line is now open.
Jason Haas: Hey, good morning, and thanks for taking my question I'm trying to reconcile a couple of comments that you've made so it's good to hear that you are seeing some more optimism on client engagement and better pipeline, but I think you also said that you are expecting your customers' budgets to remain flat and still be pretty cost focus. So I wasn't sure if that implies that you are.
Jason Haas: We're seeing potential for more share gains or are you seeing a situation where clients are spending more time shopping.
Jason Haas: And maybe just following up on a budget point. Thank you.
Jason Haas: That we've had pretty good equity market performance.
Jason Haas: As Jeremy and expectation for M&A activity pick up why don't you think clients will increase their budget, what's holding them back at this point.
Jason Haas: Thanks.
Speaker Change: So a couple of things in there may be.
Speaker Change: Maybe my comment was a little bit too pessimistic about.
Speaker Change: Brian start increasing their budgets I think certainly the improved M&A.
Speaker Change: Activity and even improvement in banking fees.
Speaker Change: Things that we spoke about correlation of our sell side revenues.
Speaker Change: Due to bankruptcies and we do expect that.
Speaker Change: Some of the macro conditions will improve as we go through the year.
Speaker Change: And then the hiring in banking in the fourth quarter fixed fixed place.
Speaker Change: I also think it's really important that our strategy is to make sure to make certain that we can perform well in the.
Speaker Change: Cost constrained or cross sensitive times as much as we can.
Speaker Change: We rely on the market's improving so if you look at the services to provide we spoke about.
Speaker Change: Managed services or helping clients with efficiency gains with al Jimi I tooling I think all of that can help us weather.
Speaker Change: The more difficult market conditions as well so we are focused on performing well regardless of the conditions.
And you know.
The early signs of.
Speaker Change: Our budget, so I do not see significant increase but on the sell side certainly improving it improved M&A activity would indicate that we will see some upward movement in buses there.
Speaker Change: I think to add to what.
Brian: Brian just said.
Even if the budgets are relatively flat and it's still early days here. So we're obviously talking with clients as they end up and out there for calendar year fiscal years, we are seeing a shift more into tech budgets. That's one and we are doing more and having discussions with the Cts so that gen II products what that.
Brian: Helps us do is change from we're speaking with as well on the sale changes along with that and the other point around share market.
Brian: Market share gain I think that's exactly right corner already spoke to the point around having higher rfps and trials that is in some cases clients who are looking now to we think whom their providers are and that puts us in a very favorable spot as we try to win new business.
Thank you. Our next question comes from the line of George Tong with Goldman Sachs. Your line is now open.
Speaker Change: Alright, thanks, good morning.
Speaker Change: As you look across your different client segments on a relative basis can you talk about which you expect to show the most improvement going into the second half of the year, and which May perhaps show lesser improvement in performance.
Speaker Change: Hey, George maybe I'll just go back to.
Speaker Change: Some of my earlier comments so.
Speaker Change: I talked about some of the PVC and hedge funds.
Speaker Change: The smaller parts of Factset, but I think it's showing very strong signs of growth. This year. The wealth space, we've spoken about which is big area and we continue to.
We'll see that do well.
Speaker Change: The two biggest chunks, which have more uncertainty or honestly the banking business.
Speaker Change: And the rest of the sell side of rest of the pie five sorry beyond hedge funds so in banking.
Speaker Change: I think we showed at Investor day.
Speaker Change: Graph that was very popular with many of you which showed how factset ASR.
Speaker Change: <unk> and revenue kind of have a lag to the revenues that the banks generate so if that comes through.
Speaker Change: And there is more hiring more banking activity and greater adoption of our products as they move through the year I'm optimistic about the sell side.
Speaker Change: Again, the piece of our business, which has been under the most pressure for a long time is the buy side, that's leveraged to active management, so that's a little bit more uncertain.
Speaker Change: As I mentioned earlier the team has done a great job of.
Speaker Change: Building the pipeline.
Speaker Change: And closing the gap, we had versus the pipeline last year. So hopefully that helps you in terms of.
Speaker Change: Stack ranking those in your model.
Speaker Change: Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open.
Shlomo Rosenbaum: Hi, Thanks for squeezing me back in.
Shlomo Rosenbaum: I just wanted to ask you a little bit about the pick up you said in the last six weeks that youre seeing it seems to be like a noticeable pick up in terms of decision, making with the clients and.
Shlomo Rosenbaum: Do you think that that has something to do specifically with the fact set.
Speaker Change: Our efforts in the product that is resonating more or do you think that might have to do with just more optimism. After let's say the presidential elections, because last six weeks seems to be a coincidental like right around the presidential elections things seemed to pick up.
Speaker Change: Just in general are you seeing anything in terms of administrative picks that.
Speaker Change: Positive or negative for the industry or for Factset on its own. If you can just address those items. Thank you.
Speaker Change: So Shlomo garner gross orders so I just think in terms of the election on having it behind us.
Speaker Change #100: Obviously the.
Speaker Change #100: The bankers, let me speak similar excited they think it's the environment is going to be good for M&A activity.
Speaker Change #100: And I think just essentially having less regulatory burden on the.
Speaker Change #101: The difference.
Speaker Change #101: Clients out there, obviously frees up time and dollars to do about this stuff, which would help us.
Speaker Change #102: Gordon do you want to maybe address the rest of Sean's question.
Gordon Skilled: Yes, Shlomo I think.
Gordon Skilled: Part of it I would attribute I think we have also put things in place to increase.
Gordon Skilled: Client facing activities and are making sure that.
Gordon Skilled: Increasing the reach out something in <unk>.
Gordon Skilled: Things of that nature.
Gordon Skilled: Optimism in the market.
There are certainly.
Gordon Skilled: I think we certainly see better optimism in the market I see more optimistic.
Gordon Skilled: Salesforce around me.
Gordon Skilled: Every day so.
Gordon Skilled: I think that's all part of it so I think it's a combination of things. We are certainly doing everything we can to improve the pipeline into as much as we can to improve our results for the rest of the rest of the year and the market is trailing a little bit more optimistic.
Gordon Skilled: Than it did three months ago.
Great. Okay, well. Thank you all for such great questions and for joining US today in closing I am pleased with the solid performance, we delivered to start off fiscal 'twenty five while the current market environment remains uncertain.
Gordon Skilled: <unk> by the conversations we're having with our largest clients and look forward to executing on a robust pipeline of opportunities in front of us to accelerate growth year over year.
Gordon Skilled: I am proud of the progress we are making on strategic priorities, we outlined at Investor Day. These efforts are already taking root and give us confidence that factset is well positioned to deliver on our medium term outlook and I want to conclude by thanking all the factset is around the world for their continued great work and efforts happy holidays to everyone. We look forward to speaking with you.
Speaker Change #103: Again next quarter, operator that ends today's call.
Speaker Change #104: Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change #104: Yeah.
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Speaker Change #104: Okay.
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Speaker Change #104: Uh huh.
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Speaker Change #104: Okay.
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Speaker Change #104: Okay.
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