Factset Research Systems Inc (FDS) — Q3 2021 Earnings Call Transcript

Thank you, Rima, and hello, everyone. Thanks for joining us today. I'm pleased to share our third quarter results, headlined by strong top-line growth. This has allowed us to increase our organic ASV plus professional services guidance for this fiscal year. Building on last quarter's momentum, we grew organic ASV plus professional services by 5.8% this quarter. The investments made in both content and technology over the past 7 quarters have strengthened our product portfolio. As a result, demand for our solutions is increasing, further supported by our clients' own digital transformation needs. Our growth this quarter was strongest with wealth managers, banking clients, and asset owners. The acceleration in ASV reflects solid execution from the sales team, who increased wallet share with existing accounts and further improved client retention. Our strategy to build the industry's leading open content and analytics platform continues to make an impact in the market. We remain on track with our multiyear investment plan. We continue to build out our content offering with specific focus on deep sector, private markets, ESG, and data for wealth managers. Growth in workstations this quarter was driven by deep sector and private markets data, especially with banks and corporate clients. The expansion of our StreetAccount coverage in Canada and Asia, as well as more fund data collection, has generated greater demand from wealth managers. Clients are using our data management solutions, which include entity mapping and data concordance services to manage their own content. These offerings are key differentiators, often sought by asset management clients. Our migration to the cloud is progressing as planned, giving us the opportunity to build new products that support ASV growth. One example is the Advisor Dashboard, which is being well received by wealth managers as evidenced by new wins and solid pipeline. Clients are seeking personalized tools like the Advisor Dashboard that can surface insights, increase efficiency and help users identify the next best action. In addition, we provide greater flexibility to clients by further opening up our platform. Our broad API offerings allow clients to leverage core and alternative data sets, tap into our robust portfolio analytics engine, build digital portals, and gain access to proprietary signals. We are seeing strong demand for our analytics APIs as well as fundamental company data APIs for CTS. We are also seeing more data sales through cloud-based platforms, such as Snowflake, and having success with CRM integrations. This growth in our digital solutions can be attributed to our technology investments. Looking at our regions, I am pleased to say that our ASV growth rate increased in the Americas and EMEA across the majority of our business lines. The Americas’ growth rate increased to 6% with strength across CTS, research, and analytics. Acceleration was driven primarily by strong workstation sales to our banking clients and overall demand for premium and core data feeds. We've benefited from an increase in hiring at middle market and bulge bracket banks due to robust M&A and equity capital markets. EMEA's growth rate accelerated to 5%, improving over the past 2 quarters. We experienced stronger results in research and analytics, reflected in part by higher retention of our asset management and wealth funds. In addition, we captured greater international price increases as clients continue to affirm the value of our solutions. Asia Pac's growth remained at 9%, driven largely by research and analytics. Results include strong cross-sales to asset management firms as well as increases to global banks who are hiring more to accommodate increased capital markets activity. The region also benefited from higher price increases. In summary, we enter the end of fiscal '21 with good momentum and have good visibility into our fourth quarter. We have a strong pipeline weighted most heavily towards institutional asset managers, broker-dealers, and wealth managers, and are increasing our organic ASV guidance to $85 million to $95 million for this fiscal year. Overall, we are encouraged by market trends. Clients are showing more willingness to spend against the backdrop of anticipated economic recovery. Decisions on more complex deals that have been delayed are now beginning to be reconsidered as clients look to execute on their own digital transformations. We see increased demand for enterprise-wide technology upgrades and data management as CIOs and CTOs look to future-proof their technology stacks. This gives us conviction in the long-term benefit of our multiyear investment plan and our path to higher growth. This month marks FactSet's 25th year as a public company. I'm proud to reflect on our team's strong performance, the culture of continuous innovation we have fostered, and the significant value to shareholders we have created over the years. We will continue to push ourselves to create smarter, more adaptive and more personalized solutions that make us the trusted enterprise partner for clients. I'll now turn it over to Helen, who, as many of you know, has taken over the leadership of our sales organization as Chief Revenue Officer, while continuing to serve as our CFO. She will take you through the quarter in more detail.

Thank you, Phil, and hello, everyone. As you've seen from our press release this morning, we are pleased to report an acceleration in our top-line, both in terms of revenue and organic ASV plus professional services. Our quarterly results also reflect increased year-over-year spending in people and technology, in line with our investment plan as well as anticipated higher ASV performance. We believe the progress made in our own digital transformation is enhancing our ability to help clients do the same. I will now share more details on our third quarter performance and provide an update to our annual outlook. We grew organic ASV plus professional services by 5.8%, reflecting in part the client demand for our solutions driven by their own digital transformation needs. In addition, our ability to realize higher pricing is a direct reflection of the value our products provide to clients. To that point, in line with the $14 million captured last quarter with the Americas price increase, we added $8 million from our international price increase this quarter. Our investments in content and technology have further strengthened our product offerings with clients as reflected in both higher levels of client retention and cross-selling. Focused execution from our sales team in delivering key workflow solutions also accelerated our growth. All of these factors underpin our results year-to-date. For the quarter, GAAP revenue increased by 7% to $400 million. Organic revenue, which excludes any impact from foreign exchange, acquisitions, and deferred revenue amortization, increased 6% to $397 million. Growth was driven primarily by our analytics and CTS solutions, which have been the drivers of ASV in prior quarters. As a reminder, ASV represents the next 12 months of revenue, so there is a lag between the recording of ASV and the realization of revenue. For our geographic segments, organic revenue growth for the Americas grew to 6%, EMEA grew to 5%, and Asia Pacific to 11%. All regions primarily benefited from increases in our analytics and CTS solutions. GAAP operating expenses grew 12% in the third quarter to $282 million, impacted by higher cost of services. Compared to the previous year, our GAAP operating margin decreased by 300 basis points to 29.5%, and our adjusted operating margin decreased by 390 basis points to 31.6%. As a percentage of revenue, our cost of services was 570 basis points higher than last year on a GAAP basis and 560 basis points higher on an adjusted basis. This increase is driven by higher compensation and technology costs. Compensation growth is comprised of higher salary expenses for existing employees, new hires to support our multiyear investment plan, and higher bonus accrual in line with stronger-than-anticipated ASV performance. This higher technology spend relates to our planned migration to the public cloud. We have been experiencing higher cloud usage and costs due to increased client trials, enterprise hosting, and new product development. We anticipate this level of elevated expenses to continue as clients adopt our digital solutions. SG&A expenses, when expressed as a percentage of revenue, improved year-over-year by 270 basis points on a GAAP basis and 170 basis points on an adjusted basis. The primary drivers include reduced facilities expenses, lower spend due to office closures, and a decrease in professional fees, offset in part by higher compensation costs reflecting the same factors as noted in the cost of services. Moving on, our tax rate for the quarter was 12% compared to last year's rate of 15%, primarily due to lower operating income this quarter and a tax benefit related to finalizing prior year's tax returns. GAAP EPS was almost flat to last year at $2.62 this quarter versus $2.63 in the prior year. Adjusted diluted EPS decreased 5% to $2.72. Both EPS figures were largely driven by higher operating expenses, partially offset by higher revenue. A reconciliation of our adjustments to GAAP EPS is included at the end of our press release. Free cash flow, which we define as cash generated from operations less capital spending, was $122 million for the quarter, a decrease of 13% over the same period last year. This decrease is primarily due to higher capital expenditure from higher investment in internal software and the timing of certain tax items. For the third quarter, our ASV retention continued to be above 95%, and our client retention improved to 91%, which speaks both to the mission criticality of our solutions and the solid efforts and focused execution of our sales teams. We grew our total number of clients by 7% compared to the prior year to over 6,100 clients, largely due to the addition of more wealth and corporate clients, including private equity and venture capital firms. Our user count grew 11% year-over-year and crossed a total of 155,000, primarily driven by wealth and corporate users. For the third quarter, we repurchased over 178,000 shares of our common stock for a total of $58 million at an average share price of $323. We also increased our quarterly dividend by 6.5% to $0.82 per share, marking the 22nd consecutive year that we have increased our dividend. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. The impact of our multiyear investment plan is reflected in our results. The demand for our strong content offerings, digital solutions and open platform is accelerating growth. Given our strong performance this quarter and our confidence that we will execute successfully on a healthy pipeline as we close out the fiscal year, we are increasing our full year organic ASV plus professional services guidance range to $85 million to $95 million. We are also reaffirming the other metrics in our annual outlook. Given its timing and nature, an increase in ASV in the fourth quarter will not materially change revenue in fiscal year '21, but would result in a higher bonus accrual. The related expense would impact our margins by an incremental 60 basis points to 75 basis points. We believe that we will remain within our stated annual guidance ranges. In closing, from the vantage point of now overseeing FactSet's sales and marketing organization, I can attest to the diligent focus and efforts we have made this year, helping clients leverage our offerings, building a stronger and broader pipeline, and converting opportunities to sales. I have confidence in our ability to continue to execute on all these fronts and grow our market share as we finish the year. And with that, we are now ready for your questions. I'll turn it back to the operator.

I just had one question, and that is, it sounds like the end markets of your clients are pretty positive compared to what they were in the prior few years. And so I was just curious on what you are seeing on the competitive side. Is it budget of the clients increasing because of that, is competition increasing? Just some overall dynamics there would be helpful.

Thank you for the question, Manav. I'm excited to share that we have seen significant progress in our top-line performance, which I credit to the investments we've made in content and technology over the past couple of years. We're experiencing a notable increase in the research segment of our business. The digital transformation and our platform's openness are enabling clients to derive value from FactSet in innovative ways. The APIs are contributing to the momentum in both CTS and are now also showing strength in our analytics business. I believe we are gaining market share in the wealth sector, where I think our competitors are well-known. In the desktop business and analytics, we are facing a mix of different competitors. Overall, I am optimistic about our top-line results and our position against competitors in the market. We can all observe a return to normalcy in our operations, and the underlying market trends are definitely looking positive.

I guess then just related to that, maybe can you just talk about your current pipeline and compare it to maybe the prior couple of years?

Sure. Yes, we've got confidence in Q4. We've booked more ASV at this time than we had last year. We have a stronger weighted pipeline, so there's a higher confidence in the pipeline and a lot more bigger deals. And it's well distributed amongst all the different business lines.

So the expense in the third quarter was a bit more than expected. And I think, Helen, you called out a couple of things like salary, bonus, and technology. But for the technology, could you please add a bit more color on, for lack of a better term, how much of that will be like one-time or nonrecurring in nature?

Yes. Sure. Happy to talk about that. Thanks for your question. When we think about the higher cost and technology, I would say, in part, it's really driven also by higher cloud-related costs. The drivers of the cloud costs include the migration of our existing data and applications, which is always planned; client-related activities, such as hosting and trials; and then new product development as we're doing new products, which is going directly to the cloud. We monitor these pretty closely, but we're learning along the way. The cloud allows us to monitor our usage better. I would say most of the higher costs are really related to client activity and new product development. I think that reflects the faster adoption, probably a bit faster than we had planned. So it's in line with clients who also need to make their own digital transformation. We would expect all of this to give us an indication really linked to future ASV growth as opposed to this year specifically. But I would say, if we think about the higher cost on the cloud side, a portion of it is just related to future top-line growth.

Got it. That's very helpful. Now, I want to return to Truvalue Labs and the Sustainable Development Goals for monitoring. I understand the monitor is free, but could you discuss how you plan to monetize these data sets? Will it be through data feeds or other products?

Yes. Owen, yes. Absolutely, we'll continue to sell the data feeds and APIs that Truvalue Labs had developed before the acquisition. We've been doing hard work to get all of that integrated into the broader FactSet suite, so that the Truvalue Labs data and analytics can be available throughout FactSet. That's a big piece of the strategy.

I wanted to ask about the 8% sell-side growth in the quarter. Was there anything particular to call out there? Was it more a couple of client wins? Or was it more broad-based? And you mentioned the more willingness to spend by clients, so that seems positive. So just wanted to hear about your visibility into the new hiring class as well at the banks.

Sure. So yes, it is broad-based, Toni. I think we've seen the benefits of hiring this far into our fiscal year. A lot of that is driven by the investment that we've made in content and the core platform to support the extra workstations. There are still a few large banks that we don't have perfect visibility yet on their hiring classes, and those are going to come in the next month or two, but we feel optimistic about that, just given the trends that we see in the market. A couple of other things I'd point out for the sell-side. One is we're beginning to monetize feeds and analytics in the sell-side which previously we've not done much of. So that is supporting some of the growth. In terms of new logos, we're positive this quarter for the sell-side firms, whereas Q3 of last year, we were negative. We've seen good relative performance in terms of new logos for the sell-side.

That's great. And now that you're seeing things sort of normalize a little bit, can you just give us an update on if you've changed your thinking at all on the transformation targets in terms of either magnitude or timing? Just any sort of extra color from those targets that you had previously laid out before COVID?

So you mean the 3-year targets that we laid out? I think, as we said last quarter or maybe a couple of quarters in a row, we're not going to revisit those right now. But when we get to Q4, we'll be able to give you some guidance like we do every year for fiscal year '22.

I wanted to follow up on the strong sell-side ASV growth a little bit further. Specifically, curious how much you would attribute that acceleration to the deep sector rollouts and maybe what's a reasonable expectation for the timing of new deep sector rollouts going forward? Or anything else you can share on areas of focus there.

I would definitely attribute some of it to that. We had one significant win related to deep sector. We're on track with that program. The team did a tremendous job of laying out over a 3-year period a number of sectors that we would be developing. We're on track with that program, so 7 quarters in, we feel really good about the momentum there. We've done a lot of hard work to partner with a lot of firms to bring their data and integrate it into FactSet, which is something we always do really well. For other data sets, we're going out and collecting it ourselves. Overall, we're really thrilled with that program, the team has done an amazing job, and it's beginning to have a real impact for us on the sell-side, but it's not just the sell-side. We will be able to monetize this data within the corporate space, within the buy-side as well.

Got it. Makes sense. And then for my follow-up, I know you touched on it here and there in your answers to other questions. But just maybe broadly speaking, if you could update us on the selling environment right now. You've talked in past quarters about lengthening of the sales cycles and analytics, some longer implementation cycles. So any changes there over the past couple of months as things have kind of picked up momentum or anything to call out there on a relative basis?

We're beginning to see some real positive signs there for analytics. So I think if you look at that space for our competitors as well, it was an area that slowed down for many firms. But we've had a good quarter for analytics, and the pipeline looks really strong. They've got a really good suite there of things we've been working on. The core PA product is actually doing well. We're adding new logos and seats for that. I mentioned APIs already. We have a new quant research environment that we are releasing, which has gotten tremendous feedback from the market. Our front office solutions are beginning to show some green shoots as well. So analytics is definitely stabilizing. Clients are willing to now revisit a lot of these decisions for some of these longer sales cycle deals. Obviously, clients are beginning to open up, we are as well as a firm. I think the sales team is itching to get back out there.

It's actually Ryan Gunning filling in for Hamzah today. First, could you just talk about how you're thinking about your pricing model today and whether you believe enterprise-wide versus seat-based is better and how your model currently works?

Sure. Ryan, I'll take that question. This is Helen. I think we have a pretty good mix. We do both in some cases, seat-based; in other cases, usage-based. On our larger deals, larger clients where you would see more perhaps an enterprise pricing model, we do that, but we do that via bands. So therefore, if the users go up or down within the band, the pricing is the same; then if they go to the next tier, it goes up. I would say for our largest clients, that's how many of them are set up. Again, it's a blend of usage in some cases, but in other cases, users. We've seen good growth. We can tell from the pricing increases that we've had, our annual price increase, again, for international is up. We've been able to capture more of that value that the clients have put into our product. We would continue to see our mix there be sustainable.

Got it. That's very helpful. And then I guess, switching gears, can you give us an update on how you're thinking about larger scale M&A? Obviously, we've seen a good bit of deals in the info services space more recently, but any update there?

Sure. I'll take that one. As it relates to larger deals, and we don't comment on that, as you know, as we've talked about, our focus has been on content and technology. We look to where we think we've got the best use of perhaps gaps that we can help fill in. We always look at buy versus build versus partner. In terms of acquisitions, we've just completed a small one called Cabot Investment Technologies, which provides a platform for more behavior-based analysis targeting asset managers and asset owners. So while it's small, it really fits into our strategy as it relates to the front office, and as it relates to helping, as Phil talked about in his opening remarks, making that next best decision. We're going to be very disciplined in how we're approaching the potential acquisitions out there, even though we are looking at all of them as they come through.

I have a couple of questions regarding margins. Helen, at the end of your remarks, you mentioned a range of 60 to 75 basis points for the fourth quarter. Is that figure related to what we observed in the third quarter, or how do you view that 60 to 75 basis points?

Right. So the way I think about it is really 60 to 75 for the year. So in this particular quarter, because once we had greater visibility, Alex, into where we anticipate for the year, then we had to both true-up the first half as well as increase for Q3. What I wanted to give was, what is that impact for the entire year, we would say it's somewhere between 60 basis points to 75 basis points depending on where we end up. And that is based not only on top-line but also on margins.

Okay. So it should be reflected in the run rate, if I heard you correctly now because you've started to true up?

Right.

Okay. Additionally, I have a quick follow-up. You mentioned the cloud and the associated costs. It seems like this spending is aimed at growth, but I also understood there might be some duplicate costs as you transition to the cloud. Can you clarify if there are still duplicate costs today? If there are, how significant are they and when should we expect them to decrease? Will those savings be reinvested or do you anticipate them contributing to the bottom line if there are savings?

Yes, sure. Happy to answer that. I would say a portion of it is part of our investment plan. You're absolutely right, it is the duplication that's happening because we cannot get out of our on-premise data center costs at this point. We believe that it will drop off as we complete our total migration, which we think will happen toward the end of FY '22 or the end of our third year. At that point, we'll make the decision around whether or not any portion of that gets reinvested, but that is part of the savings that we would have expected going forward as well.

Phil, you talked about kind of demand for open content and analytics fueling growth as your clients are pursuing digital transformations. Is there any way to frame what the potential market for that can be as it relates to FactSet? Can it shift the organic growth 100 basis points? Or just is there a way to tighten that comment up, particularly around the digital solutions, the current and how you see that playing out over time?

Yes, I believe we are operating in a significant market, estimated at over $30 billion, where FactSet is involved. The movement towards clients creating more customized workflows using open technology stacks is evident. This reflects an evolution in how clients access content and analytics. We are confident that our strategy of providing these modular solutions enables clients to differentiate themselves from competitors. We are engaged in discussions with our clients about this approach. The workstation will remain relevant in the market; however, the firms that succeed will be those able to integrate seamlessly into clients' workflows across various sectors, be it buy-side, sell-side, or wealth management.

That's helpful. And then just anything to call out, it seems like the ASV retention was around 95%, but you saw some nice improvement on the client retention. Any dynamics to call out there around retention, client relative to ASV overall?

I just think it speaks to the strength of our product, the investment we've made, and how well the sales team has been executing. We're interacting more and more with our clients, and the virtual environment in some way has increased the number of interactions we have with them. I think it just really speaks to the product and the fact that clients like working with us.

Helen, can you talk a little bit more about some of the costs for the client trials? Are those increased people costs, increased technology costs? How does that work? It seems like it's a precursor to future revenue to come. And thought maybe you can discuss that a little bit and then I have a follow-up.

Sure. Happy to do that. I would think the majority of that is more along the technology cost. One of the nice things around the trials and the data exploration, in an odd way, it shortens the sales cycle. So what used to take much more time and involvement with our sales and implementation folks now can be done in a matter of hours versus weeks or months. I would say, in some ways, there's people who help on that front, but the cost driver to your direct question is much more on the technology side.

Okay. So is that related to hosting costs? I'm just trying to understand...

Sorry, I should be clear. Yes, it is more around hosting and cloud costs.

Got it. And then so I'm assuming that those are good things that can lead to future revenue growth. I mean, that's the way that we should be looking at that, just to finish up that question?

Yes, I believe that the increased activity is prompting users to explore various data feeds. We are noticing that even when they consider alternative data on our Open:FactSet platform, they frequently choose to purchase our data feed. So, I would say this contributes positively to our performance.

Got it. There seems to be a reallocation of revenue among the segments in the last year’s quarter. When I review the press release for the Americas compared to EMEA and Asia Pac, the revenue reported for the Americas is significantly higher in the previous year compared to now, while it is lower for the other two regions. Is there a reason for this reallocation, or is there something I might have missed in the discussions over the past couple of quarters?

You're asking about the actual dollars? Please continue with your question.

No, I was just going to say, if you look at the dollars as what was reported in, let's say, Americas last year in the 10-Q, it was like maybe $7.5 million than what's now. And the other ones were higher, and it seems to be a reallocation. Did something also change for the fourth quarter? I'm just trying to figure out for modeling how I should be handling that.

Sure. No. Thanks for that question. Yes, there are some things that were reclassed in part due to where the clients are based. Rima can give you much more detail on that, but that is a reclassification.

Okay. And that's something that's going to be for the fourth quarter as well, that the year-over-year comp is going to be different than what we saw, if you take out the K and you subtract the first 3 quarters from it?

I'm going to say yes, because of the movement of existing clients. But again, if you spend a little time with Rima, she can explain it to you.

I wanted to follow up on the margin question earlier and the impact of higher bonus accruals. The 60 bps to 75 bps of margin impact full year, can you clarify if that's relative to your original margin expectations for fiscal 2021 which would imply you would land in the bottom half of your guidance range? And perhaps discuss if there are any offsetting factors to the upside that might mitigate that impact?

Sure. Thanks for your question. So yes, the impact for the year is higher. The 60 to 75 would have been beyond what we provided in terms of our original plan. There are offsets as we manage both from a people perspective, some of the productivity, and lower professional services fees that we think. We'll see how Q4 ends up, but we had expected a certain level of G&A for Q4, and we'll see where that goes. We do think from a margin perspective, overall, we'll be on the lower end of our range. I think that is a fair way of thinking about it. I would also add what we're seeing come through that likely on the tax rate side will be on the lower end as well. We should take both of those into a bit of consideration.

Got it. Very helpful. And then you're continuing to invest in content and technology. Earlier, I believe you had mentioned plans for the full year of about $25 million, $26 million. Can you talk about your plans over the next 12 months? You had laid out a 3-year investment plan where it's $15 million on average per year. So how is that shaping up? Do you think your 3 investments might be similar, or would it step down from this year's levels?

Yes. As Phil had alluded to earlier, we'll give greater guidance on this later on after Q4. Our focus right now is obviously trying to execute and convert everything for this fiscal year. I will say the way to think about it, our investment plan is in terms of what we provided in the beginning 2 years ago, we're on target for both milestones as well as in general spend. That being said, the cadence, the mix, made the hiring, which was slower in the first year, caught up mainly in the second year, but some of that might bleed into the third year. We'll give more guidance on that when we complete the year and have our call next time.

When you first introduced the accelerated investment, I believe you mentioned that 25% of revenue would benefit in year 2 and around 75% in year 3. Is this still the case, or have you noticed some of it coming in earlier, as it appears to be positively impacting ASV growth?

Thanks for your question. I mean, we do think, in general, that we'll see more of the benefit in the third year as things are built, as Phil talked about a lot of underpinning some of the acceleration is on the technology and cloud-based side. It's a little hard to point to any particular dollar or deal. I think we're still in that general range I've given before that most of it's coming in the third year. Yes, we're really pleased of where we are at this point, given the higher ASV growth thus far.

Helen, I was hoping you can provide a bit of context. It's obviously been 4 quarters in a row now where you guys have benefited from lower facility costs and T&E. How much of that benefiting operating margins this quarter? And how do we think about that going forward as you guys resume back to, I guess, a more normalized world, however that normalized where it’s going to be?

Thank you for the question. When we initially set our guidance, we anticipated that the second half of this year would return to some level of normalcy. We expected an increase, but it did not materialize in Q3. As we look ahead, I believe the savings on a run rate will be in the range of 25 to 50 basis points compared to our FY '19 run rate. We cannot use last year as a reference point. The hybrid model enables us to better manage our facilities footprint and expenses. Our experiences from operating virtually, especially in client interactions and implementations that we can now handle remotely, have significantly enhanced our productivity.

Thank you. I’d like to follow up by congratulating you on your transition to the Chief Revenue Officer role. Do you have any insights regarding your approach to the sales department and marketing strategy in light of this new position?

Yes. Thank you for that. I'm really pleased and honored to be able to take on this role. The nice part is we've got a really talented sales organization and a solid leadership team. From my perspective, the areas that we'll look to accelerate our efforts will be on the solutions that we bring to market from our investment plan: ESG, wealth analytics, private markets. To increase the wallet share in our targeted clients, we've talked a bit about retention earlier, but expansion has been a big driver for us this year, and we're just selling more things to our existing clients. The focus will be more also on the enterprise discussion with senior executives. Our aim is to provide our platform for their own digital transformation. I don't look at major changes as much as to really enhance what we've got going on thus far.

Can you just clarify a little bit further your costs for the May quarter? They look like they're up about $9 million or so as I look at them versus the February quarter. Was there anything of one-time in nature? Just go through that a little bit further how we should think about as we try to think about cost for the August quarter? I can see your guidance for margins, but is there anything one-time in nature to call out that won't repeat like a catch-up for accruals for incentive comp?

Thank you for your question. The largest factor is compensation, specifically the bonus accrual. We had to adjust for the first half of the year. Now that we have better visibility on our performance, we operate on a pay-for-performance basis. If we anticipate higher performance, we will increase our bonus accrual accordingly. This is what you are observing in Q3, which reflects both the adjustment and the increased accrual for the quarter.

Are you able to quantify that for us?

I think as we've said for the year, it's around 60 basis points to 75 basis points for the year. If we had not had the improvement and if we did not add in the bonus accrual, the increase, that would have been 150 basis points for the quarter.

Okay. And then my other question, please, that $10 million to $15 million higher expectation for ASV organic growth for the year. Is there a way for you to break down that within the segments or revenue with the extra $10 million to $15 million might come from as you look at it, please?

Yes, we don't typically break down the segments by quarter. However, we've experienced strong momentum in the research business this year, and I expect research to perform very well. The CTS and feed businesses are doing exceptionally well, especially as we transition to digital, which provides more opportunities to monetize the data. I mentioned that analytics is showing some stabilization. On the wealth side, we have a robust pipeline with some promising deals, and this is quite broad-based.

Thank you all for joining us today. We look forward to speaking with you again next quarter. In the meantime, please call Rima Hyder with additional questions. Operator, that ends today's call.