FactSet(FDS) - 2024 Q3 - Quarterly Results

Executive Summary Third Quarter Fiscal 2024 Highlights FactSet achieved strong Q3 FY2024 results with GAAP revenue up 4.3% and organic ASV plus professional services up 5.0%, driven by improved operating margins and diluted EPS, despite a slight reduction in FY2024 ASV growth guidance Key Financial Highlights for Q3 FY2024 | Metric | Q3 FY2024 Value | YoY Change | | :------------------------------------ | :-------------- | :--------- | | GAAP Revenues | $552.7 million | +4.3% | | Organic ASV + Professional Services | $2,220.4 million| +5.0% | | GAAP Operating Margin | 36.6% | +420 bps | | Adjusted Operating Margin | 39.4% | +340 bps | | GAAP Diluted EPS | $4.09 | +18.2% | | Adjusted Diluted EPS | $4.37 | +15.3% | - GAAP and organic revenue growth were primarily driven by institutional asset managers, asset owners, partners, and corporate clients[4] - Operating margin improvement was mainly due to reduced bonus accruals, a one-time payroll tax adjustment, and increased capitalized gains[4] CEO and CFO Commentary CEO Phil Snow expressed optimism about platform and generative AI investments, while CFO Linda Huber noted continued shareholder value creation through EPS and adjusted operating margin growth despite reduced FY2024 organic ASV plus professional services guidance - CEO Phil Snow emphasized continued investment in the platform and leveraging generative AI to accelerate client efficiency and reduce their total cost of ownership[4] - CFO Linda Huber stated the company continues to create shareholder value through increased EPS and adjusted operating margin, offsetting softer revenue growth[7] - The FY2024 organic ASV plus professional services growth guidance was updated to $85 million to $120 million (midpoint 4.8%), down from the previous $110 million to $150 million guidance[7] Financial Performance Revenues and Annual Subscription Value (ASV) FactSet's Q3 FY2024 revenue grew 4.3% (4.5% organic) to $552.7 million, with organic ASV plus professional services reaching $2.2204 billion, up 5.0%, primarily driven by buy-side clients Q3 FY2024 Revenue Performance | Metric | Q3 FY2024 Value | YoY Change | | :-------------- | :-------------- | :--------- | | GAAP Revenues | $552.7 million | +4.3% | | Organic Revenues| $553.4 million | +4.5% | ASV plus Professional Services | Metric | May 31, 2024 | May 31, 2023 | YoY Change | | :------------------------------------ | :-------------- | :-------------- | :--------- | | ASV plus Professional Services | $2,219.2 million| $2,120.1 million| +4.7% | | Organic ASV plus Professional Services| $2,220.4 million| $2,114.8 million| +5.0% | Overall Revenue and ASV Growth Organic ASV plus professional services increased by $11.7 million over the past three months, reaching $2.2204 billion with a 5.0% year-over-year growth - Organic ASV plus professional services increased by $11.7 million over the past three months[4][8] Organic ASV plus Professional Services Growth | Metric | Value | Growth Rate | | :------------------------------------ | :-------------- | :---------- | | Organic ASV plus Professional Services| $2,220.4 million| +5.0% YoY | Segment Revenues and ASV All geographic regions (Americas, EMEA, Asia Pacific) achieved positive organic ASV and revenue growth, with the Americas leading at 5.7% organic ASV and 5.5% organic revenue growth Segment Organic ASV and Revenue Growth (Q3 FY2024) | Region | Organic ASV Growth | Organic Revenue Growth | | :------------ | :----------------- | :--------------------- | | Americas | +5.7% | +5.5% | | EMEA | +4.4% | +2.4% | | Asia Pacific | +6.1% | +3.0% | - Segment ASV excludes professional services, which totaled $17.2 million as of May 31, 2024[12] ASV by Client Type In Q3 FY2024, buy-side clients accounted for 82% of organic ASV with 5.3% growth, while sell-side clients represented 18% with 3.7% growth Organic ASV Growth Rate by Client Type (Q3 FY2024) | Client Type | % of Organic ASV | Growth Rate | | :---------- | :--------------- | :---------- | | Buy-side | 82% | +5.3% | | Sell-side | 18% | +3.7% | - Buy-side clients include institutional asset managers, wealth managers, asset owners, hedge funds, partners, and corporate clients[9] - Sell-side firms include broker-dealers, banks and consulting firms, and private equity and venture capital firms[9] Profitability and Earnings FactSet demonstrated strong Q3 FY2024 profitability with GAAP operating income up 17.7% and adjusted operating margin improving 340 bps to 39.4%, driven by double-digit net income and diluted EPS growth Q3 FY2024 Profitability Overview | Metric | Q3 FY2024 Value | YoY Change | | :---------------------- | :-------------- | :--------- | | Operating Income | $202.5 million | +17.7% | | Adjusted Operating Income| $218.0 million | +14.2% | | Operating Margin | 36.6% | +420 bps | | Adjusted Operating Margin| 39.4% | +340 bps | | Net Income | $158.1 million | +17.4% | | Adjusted Net Income | $168.8 million | +14.3% | | Diluted EPS | $4.09 | +18.2% | | Adjusted Diluted EPS | $4.37 | +15.3% | Operating Income and Margin GAAP operating income grew 17.7% to $202.5 million, and adjusted operating income increased 14.2% to $218.0 million, with margins expanding due to reduced bonus accruals, payroll tax adjustments, and increased capitalized gains - GAAP operating margin increased to 36.6% (up 420 bps year-over-year), and adjusted operating margin improved to 39.4% (up 340 bps year-over-year)[4][12] - Margin expansion was primarily attributed to reduced bonus accruals, a one-time payroll tax adjustment, and increased capitalized gains[4] Net Income and Earnings Per Share (EPS) GAAP net income grew 17.4% to $158.1 million, and adjusted net income increased 14.3% to $168.8 million, with diluted EPS rising due to higher revenue, margin expansion, and reduced share count - GAAP diluted EPS increased 18.2% to $4.09, and adjusted diluted EPS grew 15.3% to $4.37[4][12] - EPS growth was attributed to higher revenue, margin expansion, and a reduced share count, partially offset by increased income tax provision for GAAP EPS[4] Adjusted EBITDA Adjusted EBITDA for Q3 FY2024 increased 16.9% to $239.9 million from $205.3 million in the prior year, primarily due to higher operating income Adjusted EBITDA Performance | Metric | Q3 FY2024 Value | Q3 FY2023 Value | YoY Change | | :-------------- | :-------------- | :-------------- | :--------- | | Adjusted EBITDA | $239.9 million | $205.3 million | +16.9% | - The increase in adjusted EBITDA was due to improved operating income[4] Cash Flow and Capital Allocation FactSet reported strong operating cash flow of $238.2 million, leading to a 12.6% increase in free cash flow to $216.9 million, while continuing capital allocation through $59.8 million in share repurchases and a 6% dividend increase Q3 FY2024 Cash Flow Performance | Metric | Q3 FY2024 Value | Q3 FY2023 Value | YoY Change | | :------------------------------------ | :-------------- | :-------------- | :--------- | | Net Cash Provided by Operating Activities| $238.2 million | $218.6 million | +9.0% | | Free Cash Flow | $216.9 million | $192.6 million | +12.6% | Cash Flow from Operating Activities and Free Cash Flow Net cash provided by operating activities increased to $238.2 million, driven by higher revenue, improved collections, and timing-related reductions in accounts payable and accrued expenses, resulting in a 12.6% rise in quarterly free cash flow to $216.9 million - Net cash provided by operating activities was primarily due to increased revenue, improved collection rates, and timing-related reductions in payments for accounts payable and accrued expenses[15] - Quarterly free cash flow increased 12.6% to $216.9 million[15][42] Share Repurchase Program FactSet repurchased 135,150 shares of common stock for $59.8 million at an average price of $442.12 per share in Q3 FY2024, with $128.1 million remaining under the program as of May 31, 2024 - FactSet repurchased 135,150 shares for $59.8 million at an average price of $442.12 per share[14] - As of May 31, 2024, $128.1 million remained available for share repurchases under the program[14] Dividends The company paid a quarterly dividend of $1.04 per share (totaling $39.6 million) on June 20, 2024, a 6% increase from the prior quarter, marking its 25th consecutive year of dividend increases on a split-adjusted basis - A quarterly dividend of $1.04 per share was paid, representing a 6% increase from the prior quarter[15] - This marks the company's 25th consecutive year of increasing its dividend on a split-adjusted basis[15] Operational Highlights and Strategic Initiatives Client and User Metrics Client count increased by 9 to 8,029, driven by wealth management, corporate, and partners, while user count grew by 1,662 to 208,140, primarily in wealth management, with annual ASV retention exceeding 95% and client retention at 90% Client and User Metrics (Q3 FY2024) | Metric | Value | Change (past 3 months) | | :---------------------- | :-------- | :--------------------- | | Client Count | 8,029 | +9 | | User Count | 208,140 | +1,662 | | Annual ASV Retention | >95% | N/A | | Annual Client Retention | 90% | N/A | - Client growth was driven by wealth management, corporate, and partners, while user growth was primarily in wealth management, covering all firm types except banking[15] Employee Count As of May 31, 2024, FactSet's employee count grew 1.6% to 12,262 over the past twelve months, primarily in content teams, with approximately 68% of employees located in its Centers of Excellence - As of May 31, 2024, the employee count was 12,262, representing a 1.6% increase over the past twelve months, primarily within content teams[15] - FactSet's Centers of Excellence account for approximately 68% of the company's total employee base[15] Product Innovation and Strategic Investments FactSet launched two generative AI-powered solutions, Transcript Assistant and Portfolio Commentary, and made a $12.5 million strategic investment in Aidentified, Inc., an AI-driven client development and relationship intelligence platform for financial professionals - Launched Transcript Assistant, a GenAI-powered conversational chatbot for earnings call transcript research[15] - Introduced the Portfolio Commentary solution, powered by Large Language Models (LLMs), significantly reducing the challenging, time-consuming, and meticulous process of writing attribution summaries[15] - Made a $12.5 million investment in Aidentified, Inc., a leading AI-driven client development and relationship intelligence platform for financial services professionals[15] Fiscal 2024 Business Outlook Updated Guidance The company updated its FY2024 guidance, lowering organic ASV plus professional services growth and GAAP revenue expectations, but raising GAAP and adjusted operating margin, and GAAP and adjusted diluted EPS forecasts, with the effective tax rate guidance unchanged Updated FY2024 Guidance | Metric | New Guidance Range (FY2024) | Previous Guidance Range (FY2024) | Change | | :------------------------------------ | :-------------------------- | :------------------------------- | :-------- | | Organic ASV + Professional Services Growth| $85-$120 million (4-5.5%) | $110-$150 million | Reduced | | GAAP Revenues | $2,180-$2,190 million | $2,200-$2,210 million | Reduced | | GAAP Operating Margin | 33.7%-34.0% | 32.5%-33.0% | Increased | | Adjusted Operating Margin | 37.0%-37.5% | 36.3%-36.7% | Increased | | Annual Effective Tax Rate | 16.5%-17.5% | 16.5%-17.5% | Unchanged | | GAAP Diluted EPS | $14.55-$14.95 | $13.95-$14.35 | Increased | | Adjusted Diluted EPS | $16.00-$16.40 | $15.60-$16.00 | Increased | - The updated guidance reflects a reduction in revenue growth expectations but an improvement in profitability metrics[7][16][24] Non-GAAP Financial Measures About Non-GAAP Financial Measures FactSet utilizes adjusted financial measures for internal and external reporting to help investors understand performance using management's tools and facilitate comparisons with historical results, though these metrics are not intended to replace GAAP outcomes - FactSet uses adjusted financial measures to present performance to shareholders and for internal evaluation, believing these metrics help investors view company performance using the same tools management uses to measure progress toward goals[23][34] - The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP[23] Reconciliation of GAAP to Adjusted Financial Measures This schedule details adjustments made to reconcile GAAP operating income, net income, and diluted EPS to their non-GAAP counterparts, primarily including intangible asset amortization, business acquisition/integration costs, restructuring/severance, and income tax items - Organic revenue excludes revenue from acquisitions and dispositions completed within the past twelve months and the current year impact of foreign currency movements[24][35] - Adjusted operating income and margin, adjusted net income, and adjusted diluted EPS exclude acquisition-related intangible asset amortization and non-recurring items[24] - EBITDA and Adjusted EBITDA represent earnings before interest expense, provision for income taxes, and depreciation and amortization, with Adjusted EBITDA further excluding non-recurring non-cash expenses[24][25] - Free cash flow is reported as non-GAAP free cash flow by subtracting purchases of property, equipment, leasehold improvements, and capitalized internal-use software from net cash provided by operating activities[26] Company Information About FactSet FactSet is a global financial digital platform and enterprise solutions provider serving over 8,000 clients and 208,000 individual users across buy-side, sell-side, wealth management, private equity, and corporate sectors, focusing on sustainable growth through financial data, analytics, and open technology - FactSet is a global financial digital platform and enterprise solutions provider[27] - It serves over 8,000 clients and 208,000 individual users globally across various financial sectors including buy-side, sell-side, wealth management, private equity, and corporate clients[27] - The company provides financial data, analytics, and open technology, committed to sustainable growth[27] Investor Relations and Media Contacts Contact information for FactSet's Investor Relations (Ali van Nes) and Media Relations (Megan Kovach) is provided for inquiries - Investor Relations contact: Ali van Nes (+1.203.810.2273, investor_relations@factset.com, avannes@factset.com)[28] - Media contact: Megan Kovach (+1.512.736.2795, megan.kovach@factset.com)[28] Consolidated Financial Statements (Unaudited) Consolidated Statements of Income The consolidated statements of income show Q3 FY2024 revenue of $552.7 million, up from $529.8 million in Q3 FY2023, with net income at $158.1 million and diluted EPS at $4.09 Consolidated Statements of Income (Q3 FY2024 vs Q3 FY2023, in thousands) | Metric | Three Months Ended May 31, 2024 | Three Months Ended May 31, 2023 | | :-------------------------- | :------------------------------ | :------------------------------ | | Revenues | $552,708 | $529,811 | | Operating income | $202,459 | $171,959 | | Net income | $158,135 | $134,663 | | Diluted earnings per common share | $4.09 | $3.46 | Consolidated Balance Sheets As of May 31, 2024, FactSet reported total assets of $4.0397 billion, up from $3.9629 billion on August 31, 2023, with total liabilities decreasing to $2.1493 billion and total stockholders' equity increasing to $1.8904 billion Consolidated Balance Sheets (May 31, 2024 vs August 31, 2023, in thousands) | Metric | May 31, 2024 | August 31, 2023 | | :-------------------------- | :-------------- | :-------------- | | Total Assets | $4,039,701 | $3,962,922 | | Total Liabilities | $2,149,297 | $2,342,992 | | Total Stockholders' Equity | $1,890,404 | $1,619,930 | Consolidated Statements of Cash Flows For the nine months ended May 31, 2024, net cash provided by operating activities increased to $537.2 million, net cash used in investing activities was $104.7 million, and net cash used in financing activities was $402.9 million, with cash and cash equivalents at period-end totaling $453.1 million Consolidated Statements of Cash Flows (Nine Months Ended May 31, 2024 vs 2023, in thousands) | Metric | Nine Months Ended May 31, 2024 | Nine Months Ended May 31, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities| $537,177 | $489,903 | | Net cash used in investing activities | $(104,658) | $(72,310) | | Net cash used in financing activities | $(402,908) | $(437,357) | | Cash and cash equivalents at end of period| $453,144 | $486,627 | Supplementary Schedules Reconciliation of Revenues to Organic Revenues The reconciliation shows Q3 FY2024 GAAP revenue of $552.7 million, which, after adjusting for $0.1 million in acquisition revenue and $0.8 million in currency impact, resulted in organic revenue of $553.4 million, representing a 4.5% growth rate Reconciliation of Revenues to Organic Revenues (Q3 FY2024, in thousands) | Metric | Q3 FY2024 Value | Q3 FY2023 Value | Change | | :---------------- | :-------------- | :-------------- | :----- | | Revenues | $552,708 | $529,811 | 4.3% | | Acquisition revenues| $(119) | — | | | Currency impact | $843 | — | | | Organic revenues | $553,432 | $529,811 | 4.5% | Reconciliation of Operating Income, Net Income, and EPS to Adjusted Measures This schedule details adjustments made to reconcile GAAP operating income, net income, and diluted EPS to their non-GAAP counterparts, primarily including intangible asset amortization, business acquisition/integration costs, restructuring/severance, and income tax items Reconciliation of Operating Income to Adjusted Operating Income (Q3 FY2024, in thousands) | Metric | Q3 FY2024 Value | Q3 FY2023 Value | % Change | | :---------------------------- | :-------------- | :-------------- | :------- | | Operating income | $202,459 | $171,959 | 17.7% | | Intangible asset amortization | $16,674 | $17,655 | | | Business acquisition / integration costs | $423 | — | | | Restructuring / severance | $(1,596) | $1,318 | | | Adjusted operating income | $217,960 | $190,932 | 14.2% | Reconciliation of Net Income to Adjusted Net Income (Q3 FY2024, in thousands) | Metric | Q3 FY2024 Value | Q3 FY2023 Value | % Change | | :---------------------------- | :-------------- | :-------------- | :------- | | Net income | $158,135 | $134,663 | 17.4% | | Intangible asset amortization | $11,466 | $14,406 | | | Business acquisition / integration costs | $291 | — | | | Restructuring / severance | $(1,096) | $1,075 | | | Income tax items | — | $(2,477) | | | Adjusted net income | $168,796 | $147,667 | 14.3% | Reconciliation of Diluted EPS to Adjusted Diluted EPS (Q3 FY2024, in dollars) | Metric | Q3 FY2024 Value | Q3 FY2023 Value | % Change | | :---------------------------- | :-------------- | :-------------- | :------- | | Diluted EPS | $4.09 | $3.46 | 18.2% | | Intangible asset amortization | $0.30 | $0.36 | | | Business acquisition / integration costs | $0.01 | — | | | Restructuring / severance | $(0.03) | $0.03 | | | Income tax items | — | $(0.06) | | | Adjusted Diluted EPS | $4.37 | $3.79 | 15.3% | Free Cash Flow Reconciliation The free cash flow reconciliation shows Q3 FY2024 net cash provided by operating activities of $238.2 million, which, after subtracting $21.3 million for property, equipment, leasehold improvements, and capitalized internal-use software, resulted in free cash flow of $216.9 million, a 12.6% year-over-year increase Free Cash Flow Reconciliation (Q3 FY2024, in thousands) | Metric | Q3 FY2024 Value | Q3 FY2023 Value | Change | | :------------------------------------ | :-------------- | :-------------- | :----- | | Net Cash Provided for Operating Activities| $238,235 | $218,589 | | | Less: purchases of property, equipment, leasehold improvements and capitalized internal-use software | $(21,339) | $(26,005) | | | Free Cash Flow | $216,896 | $192,584 | 12.6% | Historical ASV by Client Type This schedule provides historical organic ASV percentages and growth rates by client type (buy-side and sell-side) across multiple quarters, excluding professional services and issuer fees, showing buy-side clients consistently represent the majority of ASV, with growth rates for both client types slowing over the past year Organic ASV by Client Type (Q3 FY2024 vs Q3 FY2023) | Metric | Q3'24 | Q3'23 | | :-------------------------- | :------ | :------ | | % of ASV from buy-side clients | 82.3% | 82.1% | | % of ASV from sell-side clients | 17.7% | 17.9% | | ASV Growth rate from buy-side clients | 5.3% | 7.3% | | ASV Growth rate from sell-side clients | 3.7% | 12.3% | - Buy-side clients consistently account for over 80% of ASV[45] - Both buy-side and sell-side ASV growth rates have slowed compared to the prior year[45]