FactSet(FDS) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Detailed financial statements, notes, and management's analysis of FactSet's performance and financial position ITEM 1. FINANCIAL STATEMENTS Presents FactSet's unaudited consolidated financial statements, including income, balance sheets, cash flows, and equity changes, with detailed notes on performance Consolidated Statements of Income Presents FactSet's consolidated statements of income for the three and six months ended February 28, 2022 and 2021 Consolidated Statements of Income Summary | Metric | Three Months Ended Feb 28, 2022 (in thousands) | Three Months Ended Feb 28, 2021 (in thousands) | Six Months Ended Feb 28, 2022 (in thousands) | Six Months Ended Feb 28, 2021 (in thousands) | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Revenues | $431,119 | $391,788 | $855,844 | $779,993 | | Operating income | $123,348 | $116,133 | $246,009 | $237,163 | | Net income | $109,938 | $96,643 | $217,585 | $197,849 | | Basic EPS | $2.91 | $2.55 | $5.77 | $5.21 | | Diluted EPS | $2.84 | $2.50 | $5.63 | $5.12 | Consolidated Statements of Comprehensive Income Consolidated statements of comprehensive income for periods ended February 28, 2022 and 2021 Consolidated Statements of Comprehensive Income Summary | Metric | Three Months Ended Feb 28, 2022 (in thousands) | Three Months Ended Feb 28, 2021 (in thousands) | Six Months Ended Feb 28, 2022 (in thousands) | Six Months Ended Feb 28, 2021 (in thousands) | | :--------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income | $109,938 | $96,643 | $217,585 | $197,849 | | Net unrealized gain on cash flow hedges | $4,805 | $1,303 | $4,810 | $1,187 | | Foreign currency translation adjustment (losses) gains | $(2,983) | $9,277 | $(21,696) | $9,610 | | Other comprehensive income (loss) | $1,822 | $10,580 | $(16,886) | $10,797 | | Comprehensive income | $111,760 | $107,223 | $200,699 | $208,646 | Consolidated Balance Sheets Presents FactSet's consolidated balance sheets as of February 28, 2022 and August 31, 2021 Consolidated Balance Sheets Summary | Metric | February 28, 2022 (in thousands) | August 31, 2021 (in thousands) | | :-------------------------------- | :---------------- | :-------------- | | ASSETS | | | | Cash and cash equivalents | $773,012 | $681,865 | | Total current assets | $1,090,659 | $933,578 | | Goodwill | $786,172 | $754,205 | | TOTAL ASSETS | $2,374,157 | $2,224,940 | | LIABILITIES | | | | Total current liabilities | $293,238 | $315,705 | | Long-term debt | $574,625 | $574,535 | | TOTAL LIABILITIES | $1,158,176 | $1,208,587 | | STOCKHOLDERS' EQUITY | | |\ | TOTAL STOCKHOLDERS' EQUITY | $1,215,981 | $1,016,353 | Consolidated Statements of Cash Flows Presents FactSet's consolidated statements of cash flows for the six months ended February 28, 2022 and 2021 Consolidated Statements of Cash Flows Summary | Metric | Six Months Ended Feb 28, 2022 (in thousands) | Six Months Ended Feb 28, 2021 (in thousands) | | :----------------------------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $194,952 | $229,936 | | Net cash used in investing activities | $(70,814) | $(69,748) | | Net cash used by financing activities | $(26,417) | $(146,659) | | Effect of exchange rate changes on cash and cash equivalents | $(6,574) | $3,550 | | Net increase in cash and cash equivalents | $91,147 | $17,079 | | Cash and cash equivalents at end of period | $773,012 | $602,684 | Consolidated Statements of Changes in Stockholders' Equity Presents FactSet's consolidated statements of changes in stockholders' equity for the six months ended February 28, 2022 Consolidated Statements of Changes in Stockholders' Equity Summary | Metric (in thousands) | Balance as of Aug 31, 2021 | Net Income | Other Comprehensive Income | Common Stock Issued for Employee Stock Plans | Vesting of Restricted Stock | Repurchases of Common Stock | Stock-based Compensation | Dividends Declared | Balance as of Feb 28, 2022 | | :-------------------------------- | :------------------------- | :--------- | :------------------------- | :------------------------------------------- | :-------------------------- | :-------------------------- | :----------------------- | :----------------- | :------------------------- | | Common Shares | 41,163,192 | | | 303,709 | 18,360 | | | | 41,485,261 | | Common Stock Par Value | $412 | | | $3 | $— | | | | $415 | | Additional Paid-in Capital | $1,048,305 | | | $56,924 | | | $25,937 | | $1,131,166 | | Treasury Shares | 3,547,773 | | | 260 | 7,162 | 46,200 | | | 3,601,395 | | Treasury Stock Amount | $(905,917) | | | $(128) | $(3,130) | $(18,639) | | | $(927,814) | | Retained Earnings | $912,515 | $217,585 | | | | | | $(62,038) | $1,068,062 | | Accumulated Other Comprehensive Loss | $(38,962) | | $(16,886) | | | | | | $(55,848) | | Total Stockholders' Equity | $1,016,353 | $217,585 | $(16,886) | $56,799 | $(3,130) | $(18,639) | $25,937 | $(62,038) | $1,215,981 | Note 1. Description of Business Describes FactSet's global financial data and analytics business, its revenue sources, and operating segments - FactSet Research Systems Inc. is a global financial data and analytics company with an open and flexible digital platform, focusing on driving the investment community[28] - Revenues are primarily derived from subscriptions to products and services such as workstations, portfolio analytics, and market data[30] - The company operates through three reportable segments (Americas, EMEA, Asia Pacific) and delivers insights via three workflows: Research & Advisory Solutions, Analytics & Trading Solutions, and Content & Technology Solutions (CTS)[32] Note 2. Basis of Presentation Outlines the basis of presentation for unaudited interim financial statements and management's estimates - The unaudited Consolidated Financial Statements are prepared in accordance with GAAP for interim financial information and SEC instructions, and should be read in conjunction with the annual Form 10-K[33] - Management makes significant estimates and assumptions in preparing financial statements, which may affect reported amounts of assets, liabilities, revenues, and expenses[35] Note 3. Recent Accounting Pronouncements Details recent accounting pronouncements adopted and their immaterial impact on financial statements - FactSet adopted ASU 2019-12 (Income Tax Simplification) and early adopted ASU 2021-08 (Business Combinations) in fiscal 2022, with no material impact on its Consolidated Financial Statements[38][39] - ASU 2020-04 (Reference Rate Reform) will not impact financial statements due to the transition from LIBOR to SOFR-based debt agreements[40] Note 4. Revenue Recognition Explains FactSet's subscription-based revenue recognition policy and segment-wise revenue breakdown - Revenues are primarily derived from subscription-based services providing access to a hosted proprietary data and analytics platform, recognized over time as clients simultaneously receive and consume benefits[42][44] Note 4. Revenue Recognition Summary | Segment | Three Months Ended Feb 28, 2022 (in thousands) | Three Months Ended Feb 28, 2021 (in thousands) | Six Months Ended Feb 28, 2022 (in thousands) | Six Months Ended Feb 28, 2021 (in thousands) | | :----------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Americas | $273,659 | $247,991 | $540,572 | $492,327 | | EMEA | $114,591 | $105,493 | $229,594 | $211,270 | | Asia Pacific | $42,869 | $38,304 | $85,678 | $76,396 | | Total | $431,119 | $391,788 | $855,844 | $779,993 | Note 5. Fair Value Measures Describes FactSet's fair value measurements, categorized into a three-level hierarchy, and impairment charges - Fair value measurements are categorized into a three-level hierarchy: Level 1 for corporate money market funds, Level 2 for mutual funds and derivative instruments, and Level 3 for assets with unobservable inputs[49][50][51] Note 5. Fair Value Measures Summary | Assets (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Total (in thousands) | | :--------------------------------- | :-------- | :-------- | :-------- | | Corporate money market funds | $167,562 | $— | $167,562 | | Mutual funds | $— | $34,984 | $34,984 | | Derivative instruments | $— | $4,592 | $4,592 | | Total assets | $167,562 | $39,576 | $207,138 | | Liabilities (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Total (in thousands) | | Derivative instruments | $— | $2,110 | $2,110 | | Total liabilities | $— | $2,110 | $2,110 | - Incurred impairment charges of $9.7 million (three months) and $13.4 million (six months) related to lease ROU assets and property due to vacating office space, classified as Level 3[57] Note 6. Derivative Instruments Details FactSet's use of foreign currency forward contracts and interest rate swaps to manage market risks - FactSet uses foreign currency forward contracts to manage foreign exchange rate exposures (British Pound Sterling, Euro, Indian Rupee, Philippine Peso) and an interest rate swap to hedge variable interest rates on debt[60][62][65] Note 6. Derivative Instruments Summary | Instrument | Gross Notional Value (in thousands) | | :------------------------------- | :---------------------------------- | | Foreign currency forward contracts | $99,609 |\ | Interest rate swap agreement | $287,500 |\ | Total cash flow hedges | $387,109 | - The 2020 Swap Agreement was terminated on March 1, 2022, resulting in a one-time benefit of $3.5 million to be recognized in Q3 fiscal 2022. A new 2022 Swap Agreement ($800.0 million notional) was entered into to hedge floating SOFR rate debt[73][74] Note 7. Acquisitions Summarizes FactSet's recent acquisitions, including Cobalt Software, Truvalue Labs, and CUSIP Global Services - Acquired Cobalt Software, Inc. for $50.0 million (net of cash) on October 12, 2021, expanding private markets offering and recognizing $43.6 million in goodwill[80][82] - Acquired Truvalue Labs, Inc. for $41.9 million (net of cash) on November 2, 2020, enhancing ESG data offerings with AI technology and recognizing $30.1 million in goodwill[83][85] - Completed the acquisition of CUSIP Global Services (CGS) for $1.925 billion in cash on March 1, 2022, financed by senior notes and a new credit agreement[79][159] Note 8. Goodwill Explains FactSet's goodwill accounting policy, annual impairment testing, and segment-wise goodwill allocation - Goodwill is not amortized and is tested annually for impairment at the reporting unit level (segments)[86] Note 8. Goodwill Summary | Segment | Balance at Aug 31, 2021 (in thousands) | Acquisitions (in thousands) | Foreign currency translations (in thousands) | Balance at Feb 28, 2022 (in thousands) | | :------------- | :------------------------------------- | :-------------------------- | :------------------------------------------- | :------------------------------------- | | Americas | $430,088 | $43,769 | $— | $473,857 | | EMEA | $321,150 | $428 | $(12,101) | $309,477 | | Asia Pacific | $2,967 | $— | $(129) | $2,838 | | Total | $754,205 | $44,197 | $(12,230) | $786,172 | Note 9. Income Taxes Details FactSet's income tax provision, effective tax rate, and factors influencing tax rate fluctuations Note 9. Income Taxes Summary | Metric | Three Months Ended Feb 28, 2022 (in thousands) | Three Months Ended Feb 28, 2021 (in thousands) | Six Months Ended Feb 28, 2022 (in thousands) | Six Months Ended Feb 28, 2021 (in thousands) | | :----------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Income before income taxes | $121,956 | $114,666 | $241,886 | $234,898 | | Provision for income taxes | $12,018 | $18,023 | $24,301 | $37,049 | | Effective tax rate | 9.9% | 15.7% | 10.0% | 15.8% | - The effective tax rate is lower than the U.S. corporate rate, mainly due to R&D tax credits, a foreign derived intangible income (FDII) deduction, and windfall tax benefits from employee stock option exercises[89] - The provision for income taxes decreased by 33.3% for the three months and 34.4% for the six months ended February 28, 2022, compared to the prior year, primarily due to a lower effective tax rate and higher windfall tax benefits[90][91][264] Note 10. Leases Outlines FactSet's lease accounting, right-of-use assets, lease liabilities, and related impairment charges - As of February 28, 2022, FactSet recognized $206.2 million of Lease right-of-use assets, net, and $264.3 million of combined Current and Long-term lease liabilities[94] - Incurred impairment charges of $5.8 million (three months) and $7.2 million (six months) related to lease ROU assets associated with vacating certain leased office space[98] Note 10. Leases Summary | Metric | February 28, 2022 | | :-------------------------------------- | :---------------- | | Weighted average remaining lease term (in years) | 8.9 | | Weighted average discount rate (IBR) | 4.3% | Note 11. Debt Details FactSet's debt structure, including credit facilities, senior notes, and recent refinancing activities Note 11. Debt Summary | Metric | February 28, 2022 (in thousands) | August 31, 2021 (in thousands) | | :-------------------------------------- | :---------------- | :-------------- | | 2019 Revolving Credit Facility | $575,000 | $575,000 | | 2019 Revolving Credit Facility debt issuance costs | $(375) | $(465) | | Long-term debt | $574,625 | $574,535 | - As of February 28, 2022, $575.0 million was outstanding under the 2019 Revolving Credit Facility, with $175.0 million available to be withdrawn[102] - The 2019 Credit Agreement was repaid in full and terminated on March 1, 2022. Concurrently, FactSet entered into a new 2022 Credit Agreement and issued $1.0 billion in Senior Notes[107][108][110] Note 12. Commitments and Contingencies Describes FactSet's purchase commitments, legal proceedings, tax matters, and data supplier dependencies - Total purchase commitments with suppliers and vendors were $191.9 million as of August 31, 2021, with an additional $10 million software subscription agreement entered in Q2 fiscal 2022[112][302] - Management believes the ultimate outcome of legal proceedings and tax matters, including sales tax inquiries from Massachusetts, will not have a material adverse effect on the company's financial position, results of operations, or cash flows[116][120] - FactSet is not dependent on any individual third-party data supplier, with only two suppliers each representing more than 10% of total data costs[125] Note 13. Stockholders' Equity Details FactSet's common shares, share repurchase program, dividends, and accumulated other comprehensive loss Note 13. Stockholders' Equity Summary | Metric (in thousands) | February 28, 2022 | February 28, 2021 | | :-------------------- | :---------------- | :---------------- | | Common shares outstanding | 37,884 | 37,845 | - The share repurchase program was suspended from Q2 fiscal 2022 through at least H2 fiscal 2023 to prioritize debt repayment. Repurchased 46,200 shares for $18.6 million during the six months ended February 28, 2022[129][130] - Quarterly dividends of $0.82 per share were declared for Q1 and Q2 fiscal 2022. Accumulated other comprehensive loss increased to $(55.8) million, primarily due to foreign currency translation adjustment losses[134][135] Note 14. Earnings Per Share Presents FactSet's basic and diluted earnings per share calculations and excluded performance awards Note 14. Earnings Per Share Summary | Metric | Three Months Ended Feb 28, 2022 (in thousands) | Three Months Ended Feb 28, 2021 (in thousands) | Six Months Ended Feb 28, 2022 (in thousands) | Six Months Ended Feb 28, 2021 (in thousands) | | :------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income | $109,938 | $96,643 | $217,585 | $197,849 | | Basic income per share | $2.91 | $2.55 | $5.77 | $5.21 | | Diluted income per share | $2.84 | $2.50 | $5.63 | $5.12 | - For the six months ended February 28, 2022, 95,865 performance-based awards were excluded from the calculation of diluted EPS[138] Note 15. Stock-Based Compensation Details FactSet's stock-based compensation expense, unrecognized expense, and granted equity awards - Total stock-based compensation expense was $15.5 million for the three months and $25.9 million for the six months ended February 28, 2022, an increase from the prior year periods[139] - As of February 28, 2022, $129.3 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.2 years[139] - During the six months ended February 28, 2022, FactSet granted 302,493 employee stock options (weighted average exercise price $434.70) and 90,442 restricted stock awards (RSUs and PSUs)[140][146] Note 16. Segment Information Provides financial information by FactSet's three reportable geographic segments: Americas, EMEA, and Asia Pacific - FactSet manages its business through three reportable geographic segments: Americas, EMEA, and Asia Pacific, with the CEO functioning as the Chief Operating Decision Maker (CODM)[153][154] Note 16. Segment Information Summary | Segment | Revenues (in thousands) - 3 Months Ended Feb 28, 2022 | Operating Income (in thousands) - 3 Months Ended Feb 28, 2022 | Capital Expenditures (in thousands) - 3 Months Ended Feb 28, 2022 | | :------------- | :---------------------------------------------------- | :------------------------------------------------------------ | :---------------------------------------------------------------- | | Americas | $273,659 | $48,903 | $10,346 | | EMEA | $114,591 | $45,944 | $252 | | Asia Pacific | $42,869 | $28,501 | $1,365 | | Total | $431,119 | $123,348 | $11,963 | Note 16. Segment Information Summary | Segment Assets | February 28, 2022 (in thousands) | August 31, 2021 (in thousands) | | :---------------------------- | :---------------- | :-------------- | | Americas | $1,468,121 | $1,144,693 | | EMEA | $659,961 | $842,652 | | Asia Pacific | $246,075 | $237,595 | | Total assets | $2,374,157 | $2,224,940 | Note 17. Subsequent Event Details the post-period acquisition of CUSIP Global Services, its financing, and related debt agreements - On March 1, 2022, FactSet completed the acquisition of CUSIP Global Services (CGS) for $1.925 billion in cash[159] - The CGS acquisition was financed by the issuance of $1.0 billion in Senior Notes (2027 and 2032 Notes) and borrowings under a new 2022 Credit Agreement ($1.0 billion Term Facility and $250.0 million Revolving Facility)[162][165][166] - Concurrently, the 2019 Credit Agreement and 2020 Swap Agreement were terminated, and a new 2022 Swap Agreement ($800.0 million notional) was entered into to hedge the floating SOFR rate debt[172][173] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's analysis of financial condition, operations, and liquidity, covering strategy, performance, and key impacts Executive Overview Summarizes FactSet's strategic focus, key financial performance metrics, and significant recent events - FactSet's strategy focuses on building a leading open content and analytics platform by growing its digital platform, delivering execution excellence, and fostering a growth mindset[184][185][186] Executive Overview Summary | Metric (in millions) | Q2 FY22 | YoY Change | | :------------------------------------------------- | :----------- | :--------- | | Revenues | $431.1 | 10.0% | | Organic ASV plus Professional Services (Feb 28, 2022) | $1,743.9 | 9.4% | | Operating income | $123.3 | 6.2% | | Diluted EPS | $2.84 | 13.6% | | Operating margin | 28.6% | -100 bps | - The company completed the acquisition of CUSIP Global Services (CGS) on March 1, 2022, and is discontinuing all commercial operations in Russia due to the Ukraine/Russia conflict, which is not material to consolidated financial results[193][202] Annual Subscription Value ("ASV") Details FactSet's organic ASV growth across segments and workflow solutions, driven by client sales and price Annual Subscription Value ("ASV") Summary | Metric | As of Feb 28, 2022 (in millions) | YoY Growth Rate | | :--------------------------------------------- | :------------------------------- | :-------------- | | Organic ASV plus Professional Services | $1,743.9 | 9.4% | | Americas Organic ASV | $1,079.3 | 9.6% | | EMEA Organic ASV | $459.6 | 7.8% | | Asia Pacific Organic ASV | $180.9 | 14.3% | | Buy-side Organic ASV growth | | 8.8% | | Sell-side Organic ASV growth | | 12.9% | - The increase in Organic ASV was largely attributed to existing clients, new client sales, and price increases across all geographic segments and workflow solutions (Research & Advisory, Analytics & Trading, and CTS)[208][209][213] Client and User Additions Reports FactSet's client and user growth, driven by various client types, and high client retention rates Client and User Additions Summary | Metric | As of Feb 28, 2022 | As of Feb 28, 2021 | Change | | :---------- | :----------------- | :----------------- | :-------- | | Clients | 7,172 | 6,103 | 17.5% | | Users | 171,341 | 153,355 | 11.7% | - The increase in client count was mainly due to growth in corporate and wealth management clients, while user growth was driven by banking, private equity, venture capital, asset managers, corporate, and wealth management clients[216][217] - Annual client retention was greater than 95% of ASV and approximately 92% as a percentage of clients for the period ended February 28, 2022, showing an improvement in client retention[219] Employee Headcount Provides FactSet's total employee headcount and its distribution across geographic segments Employee Headcount Summary | Metric | As of Feb 28, 2022 | As of Feb 28, 2021 | Change | | :------------------ | :----------------- | :----------------- | :----- | | Total Headcount | 10,784 | 10,660 | 1.2% | | Asia Pacific Growth | | | 5.2% | | Americas Change | | | -9.0% | | EMEA Change | | | -0.1% | - Of the total employee headcount, 7,147 were located in Asia Pacific, 2,265 in the Americas, and 1,372 in EMEA as of February 28, 2022[220] Results of Operations Revenues Analyzes FactSet's revenue growth, driven by organic growth, acquisitions, and foreign currency fluctuations Revenues Summary | Metric (in thousands) | Three Months Ended Feb 28, 2022 | % Change | Six Months Ended Feb 28, 2022 | % Change | | :-------------------- | :------------------------------ | :------- | :---------------------------- | :------- | | Revenues | $431,119 | 10.0% | $855,844 | 9.7% | | Organic revenues | $430,763 | 9.9% | $853,900 | 9.4% | - Revenue growth was primarily driven by increased sales to existing clients, new client sales, and price increases across all geographic segments (Americas, EMEA, Asia Pacific) and workflow solutions (Research & Advisory, Analytics & Trading, CTS)[224][226][236][237] - For the three months, revenue growth was composed of 9.9% organic growth, 50 basis points from deferred revenues fair value adjustments and acquisition-related revenues, partially offset by a 40 basis point decrease from foreign currency fluctuations[225] Operating Expenses Analyzes FactSet's operating expenses, including cost of services and SG&A, and factors influencing changes Operating Expenses Summary | Metric (in thousands) | Three Months Ended Feb 28, 2022 | % Change | Six Months Ended Feb 28, 2022 | % Change | | :---------------------------------------- | :------------------------------ | :------- | :---------------------------- | :------- | | Cost of services | $199,395 | 2.0% | $406,544 | 6.0% | | Selling, general and administrative (SG&A) | $108,376 | 35.2% | $203,291 | 27.7% | | Total operating expenses | $307,771 | 11.7% | $609,835 | 12.3% | - Cost of services as a percentage of revenues decreased by 370 basis points (3 months) and 170 basis points (6 months), primarily due to revenue growth outpacing employee compensation expense and a shift in headcount to lower-cost locations[240][243] - SG&A expenses as a percentage of revenues increased by 470 basis points (3 months) and 330 basis points (6 months), mainly due to impairment charges from vacating office space ($9.7 million impact for 3 months) and higher professional fees related to the CGS acquisition[245][247] Operating Income and Operating Margin Analyzes FactSet's operating income and margin, highlighting impacts from impairment charges and acquisition costs Operating Income and Operating Margin Summary | Metric (in thousands) | Three Months Ended Feb 28, 2022 | % Change | Six Months Ended Feb 28, 2022 | % Change | | :-------------------- | :------------------------------ | :------- | :---------------------------- | :------- | | Operating income | $123,348 | 6.2% | $246,009 | 3.7% | | Operating margin | 28.6% | -100 bps | 28.7% | -170 bps | - Operating margin decreased primarily due to impairment charges related to vacating leased office space, professional fees for the CGS acquisition, and increased employee compensation, partially offset by revenue growth[251][253] - Foreign currency exchange rate fluctuations, net of hedge activity, decreased operating income by $1.2 million for the three months and $5.4 million for the six months ended February 28, 2022[248][252] Income Taxes, Net Income and Diluted Earnings per Share Analyzes FactSet's income tax provision, net income, and diluted EPS, driven by tax rate and operating income Income Taxes, Net Income and Diluted Earnings per Share Summary | Metric (in thousands, except per share data) | Three Months Ended Feb 28, 2022 | % Change | Six Months Ended Feb 28, 2022 | % Change | | :------------------------------------------- | :------------------------------ | :------- | :---------------------------- | :------- | | Provision for income taxes | $12,018 | (33.3)% | $24,301 | (34.4)% | | Net income | $109,938 | 13.8% | $217,585 | 10.0% | | Diluted earnings per common share | $2.84 | 13.6% | $5.63 | 10.0% | - The decrease in income tax provision was mainly due to lower projected income before taxes, a lower effective tax rate (driven by R&D tax credits, FDII deduction), and higher windfall tax benefits from stock-based compensation[266][268] - Net income and diluted EPS increased primarily due to increased operating income and a significant reduction in the provision for income taxes[269][270] Non-GAAP Financial Measures Explains FactSet's use of non-GAAP financial measures for clearer underlying business performance - FactSet uses non-GAAP financial measures, including organic revenue, adjusted operating income, adjusted operating margin, adjusted net income, EBITDA, adjusted EBITDA, and adjusted diluted EPS, to provide a clearer view of underlying business performance[271][272] Non-GAAP Financial Measures Summary | Metric (in thousands, except per share data) | Three Months Ended Feb 28, 2022 | % Change | | :------------------------------------------- | :------------------------------ | :------- | | Organic revenues | $430,763 | 9.9% | | Adjusted operating income | $145,139 | 13.5% | | Adjusted operating margin | 33.7% | +110 bps |\ | Adjusted net income | $126,675 | 20.6% | | Adjusted diluted earnings per common share | $3.27 | 20.2% | Liquidity and Capital Resources Discusses FactSet's liquidity sources, capital allocation, debt financing, and share repurchase program suspension - FactSet's primary liquidity sources are cash flows from operations, existing cash, and credit capacity, used for debt, working capital, capital expenditures, acquisitions, dividends, and share repurchases[280] - The 2019 Credit Agreement was repaid and terminated on March 1, 2022, replaced by a new 2022 Credit Agreement and $1.0 billion in Senior Notes to finance the CGS acquisition[287][288][289] - The share repurchase program was suspended from Q2 fiscal 2022 through at least H2 fiscal 2023 to prioritize debt repayment. Net cash used in financing activities improved by $120.2 million due to lower share repurchases and higher proceeds from employee stock plans[292][309] Liquidity and Capital Resources Summary | Metric (in thousands) | Six Months Ended Feb 28, 2022 | Six Months Ended Feb 28, 2021 | $ Change | % Change | | :----------------------------------------------------- | :---------------------------- | :---------------------------- | :--------- | :------- | | Net cash provided by operating activities | $194,952 | $229,936 | $(34,984) | (15.2)% | | Net cash used in investing activities | $(70,814) | $(69,748) | $(1,066) | 1.5% | | Net cash used by financing activities | $(26,417) | $(146,659) | $120,242 | (82.0)% | | Net increase in cash and cash equivalents | $91,147 | $17,079 | $74,068 | 433.7% | | Free cash flow | $174,406 | $201,178 | $(26,772) | (13.3)% | Off-Balance Sheet Arrangements Confirms FactSet had no material off-balance sheet financing or arrangements with unconsolidated entities - As of February 28, 2022, and August 31, 2021, FactSet had no material off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships[313] Foreign Currency Discusses FactSet's foreign currency exposure, impact on operating income, and hedging strategies - FactSet is exposed to foreign currency fluctuations, primarily from international subsidiaries where 79% of its employee headcount is located[315] - Foreign currency exchange rate fluctuations, net of hedge activity, decreased operating income by $1.2 million for the three months and $5.4 million for the six months ended February 28, 2022[316] - The company uses foreign currency forward contracts to mitigate risk, hedging 25% to 50% of exposures in British Pound Sterling, Euro, Indian Rupee, and Philippine Peso[316] Critical Accounting Policies and Estimates Confirms no significant changes in FactSet's critical accounting estimates during the reported period - There were no significant changes in FactSet's critical accounting estimates during the six months ended February 28, 2022[321] New Accounting Pronouncements Refers to Note 3 for details on recent accounting pronouncements and their expected adoption dates - Refer to Note 3, Recent Accounting Pronouncements, for a full description of recent accounting pronouncements and their expected adoption dates[322] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FactSet manages foreign currency and interest rate risks through derivatives, transitioning debt to SOFR with new hedging - FactSet is exposed to foreign currency exchange risk and interest rate risk in the normal course of business[324] - A hypothetical 10% weaker U.S. dollar against all foreign currencies would result in a $41.5 million decrease in operating income over the next 12 months if no hedges were in place[327] - The 2019 Credit Agreement (LIBOR-based) was terminated and replaced by a new 2022 Credit Agreement (SOFR-based), with a new interest rate swap agreement to hedge floating interest rate exposure[333][334] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - FactSet's disclosure controls and procedures were evaluated and deemed effective as of February 28, 2022[336] - No material changes in internal control over financial reporting occurred during the three and six months ended February 28, 2022[337] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Legal proceedings information is incorporated by reference from Note 12, Commitments and Contingencies - Information on legal proceedings is incorporated by reference from Note 12, Commitments and Contingencies[339] ITEM 1A. RISK FACTORS Updated operational and regulatory risks, plus new risks from the CGS acquisition and debt financing - Updated operational risks for non-U.S. operations, including potential impacts from the Ukraine/Russia conflict, and legal/regulatory risks related to MiFID II reforms[342][343][344] - New risks associated with the CGS acquisition include the potential failure to realize anticipated benefits, significant transaction costs, termination or alteration of third-party contracts, and difficulties in attracting and retaining key personnel[345][346][348][350] - New risks related to the company's debt include potential impairment of financial condition, limitations on additional borrowing, dedication of substantial cash flow to debt service, increased vulnerability to economic changes, competitive disadvantage, and exposure to interest rate fluctuations[351][353][354][355][356][358][359] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered equity sales; share repurchases for tax, main program suspended for debt repayment - No unregistered sales of equity securities occurred[361] - Repurchased 675 shares during the three months ended February 28, 2022, primarily to satisfy withholding tax obligations for stock-based awards[362] - The share repurchase program was suspended to prioritize the repayment of debt under the 2022 Credit Agreement[362] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported - No defaults upon senior securities were reported[363] ITEM 4. MINE SAFETY DISCLOSURES Mine Safety Disclosures are not applicable - Mine Safety Disclosures are not applicable[364] ITEM 5. OTHER INFORMATION No other information is reported - No other information is reported[365] ITEM 6. EXHIBITS Lists all exhibits filed with the Form 10-Q, including agreements for notes, credit, and various certifications - Exhibits include underwriting agreements, asset purchase agreements, indentures for senior notes, credit agreements, and certifications (e.g., CEO, CFO)[366][369] SIGNATURES Report signed by EVP, CFO Linda S. Huber and MD, Controller Gregory T. Moskoff - The report is signed by Linda S. Huber (EVP, CFO) and Gregory T. Moskoff (MD, Controller and Chief Accounting Officer)[371]