Factset Research Systems Inc (FDS) — Q2 2023 Earnings Call Transcript

Thank you and good morning, everyone. Welcome to our second fiscal quarter 2023 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast and are currently available on the Investor Relations section of our website. A replay of today's call will be available via phone and on our website. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question plus one follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on slide two, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our Forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer; and Linda Huber, Chief Financial Officer. We will also be joined by Helen Shan, Chief Revenue Officer for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Thank you, Kendra, and good morning, everyone. Thanks for joining us today. I'm pleased to share our second quarter and first half results. Our Organic ASV plus professional services growth year-over-year accelerated to 9.1%, driven by a healthy expansion among existing clients and the successful execution by our sales team of our price increase in the Americas. We saw several large wins this quarter outpacing last year and allowing us to capture more of the addressable market. Our second fiscal quarter performance resulted in adjusted diluted EPS of $3.80 and an adjusted operating margin of 37%, exceeding our guidance and situating us well for the remainder of the fiscal year. Growth this quarter was the strongest amongst banking, asset owners, and wealth management clients, aided by larger wins across each of these client types. Acceleration was broad-based with double-digit ASV growth from our banking, corporate, private equity, and venture capital clients, and our investments in Content & Technology supported retention and expansion. We saw our core workstation drive follow-on opportunities for feeds and digital platforms, with wealth and increased transactional revenue and demand for content from asset owners. In the first half, our end markets remained largely supportive. However, we are not immune to market volatility. As interest rates rise and macroeconomic conditions remain uncertain, we're beginning to see a more challenging environment for our clients. This includes reductions in AUM, constrained budgets, and headcount rightsizing after increased pandemic hiring. We're also monitoring the recent instability across the banking sector, which accounts for 17% of our ASV. In this regard, there are several key factors to keep in mind. First, FactSet is not materially exposed to commercial banking. Second, no one single client represents more than 3% of our ASV. And finally, our multi-year enterprise contracts have protections that include seat minimums and longer cancellation notification windows. Given the evolving market dynamics, particularly in banking, we feel it is prudent to take a conservative view on the second half of the fiscal year. As such, we expect continued ASV growth, but with modest deceleration in the second half. We are therefore updating our guidance for fiscal 2023 to reflect organic ASV growth of $145 million to $175 million, inclusive of CUSIP Global Services, which becomes an organic part of our business in the third quarter. At the midpoint, this is a $15 million reduction in core business ASV growth. We expect two-thirds of this reduction to come from the challenging conditions facing the banking sector and the remaining one-third is expected to come from lengthening sales cycles and constrained budgets for other firm types. This reduction in ASV will be offset by the addition of $10 million of ASV growth from CGS. Together, these changes represent 8% growth at the midpoint in line with our medium-term outlook. To preserve EPS, we will continue to drive disciplined expense management. As a result, we expect adjusted operating margin of 34% to 35%, as previously communicated. We maintain a long-term view of our business and are steadfast in our commitment to investing for growth, and we will speak more about CGS and guidance later in the call. The demand for data and technology is increasing, and we are a proven trusted partner for our clients for their digital transformations. In the second fiscal quarter, we remained focused on building the leading open content and analytics platform, and several large deals reinforced our conviction regarding this strategy. First, within Research & Advisory, we were selected as the primary market data provider for BMO's Wealth Management division. This was a key contributor to almost 9% workstation growth year-over-year. Our ongoing investments in our digital platform and content refinery also resulted in wins across banking. The most notable was a seven-figure deal for a global bank sell-side research department, which included workstations and data feeds. Across the sell-side, we are meeting the needs of flexible integrated solutions, including feeds, APIs, CRM integrations, and banker productivity tools. In Content & Technology solutions, we won a major real-time deal to provide our market data-as-a-service offering to a premier asset management client. This solution will replace its legacy on-premise infrastructure. Our ability to augment enterprise platform deployments with consistent data is accelerating growth and expanding our share of wallet for Content & Technology solutions. Finally, within Analytics & Trading, investment in our portfolio lifecycle suite has increased cross-sell opportunities with active asset managers and asset owners. Within the middle office, growth accelerated in our core analytics offering, which includes Portfolio Analytics, Quantitative Solutions, Fixed income, and Reporting. We also see increased buy-side demand for outsourced performance and risk solutions, consistent with the trend toward investment firms outsourcing middle office functions. Our open platform and enterprise solutions have positioned us well to capitalize on this with several other opportunities in our pipeline. As we celebrate the first anniversary of the acquisition of CUSIP Global Services, I'd like to congratulate the team on a job well done. CGS has exceeded expectations with ASV growth of 8% since the acquisition. CGS's Core Securities Identification capabilities align well with FactSet's data management strategy. And with the integration now complete, we are focused on growth across asset classes, geographies, and capabilities. We are working on expanding into loan data and private companies. For more than 50 years, CGS has provided mission-critical solutions to the front, middle, and back-office. This work continues, and in close partnership with The American Bankers Association, we will continue to innovate. Turning to performance across our regions. Organic ASV growth in the Americas accelerated year-over-year to 9.3%, driven by strength in Analytics & Trading and Content & Technology solutions and the execution of our price increase. Our Americas price increase delivered $30.7 million in ASV, up $10.6 million from last year. In addition, the region benefited from improved expansion with banking, wealth management, and asset management clients. We also had strong sales of middle office solutions. While new business decelerated overall for the quarter, we saw strength in new logos from asset owners. In Asia-Pacific, we delivered Organic ASV growth of 10.8%; performance was driven by research with improved expansion and retention in banking. Expansion also improved among asset managers and asset owners, although this was partially offset by client cancellations. Given the recent changes in COVID policy across Asia, we are starting to see improvement in the pipeline; however, we expect a light effect as the market normalizes. Finally, in EMEA, Organic ASV growth accelerated to 8.1%. Acceleration was driven by Analytics & Trading, where we saw an improvement in expansion and retention among asset owners. Improved retention among private equity and venture capital firms and hedge funds also contributed to growth. However, we also experienced headwinds as the major markets in the region remain under cost pressure, and the United Kingdom begins to see an adverse impact from Brexit. In summary, I'm pleased with our first half performance. We're confident in our ability to meet our medium-term outlook despite marketing conditions, and as we head into the second half, we have a solid pipeline, driven by our open platform, connected content, and market-leading workflow solutions. And with more than 40 years of growth, FactSet has a proven history of successfully navigating market volatility. Our greatest asset is our people, and I'd like to wrap up by recognizing their diligence and commitment to our strategic priorities. We were honored to be named one of Glassdoor's Best Places to Work in 2023, and I want to thank all FactSetters for helping create the culture that made this award possible. At FactSet, we're committed to growth for our clients, employees, investors, and communities. We recently published our fiscal year 2022 sustainability report themes commitment to action. The report highlights the progress we have made in turning our commitments into action. And I encourage you all to take a look. I'll now turn it over to Linda to discuss our second fiscal quarter performance in more detail.

Thank you, Phil, and hello to everyone on the call. As you've seen from our press release this morning, we're pleased to report continued high single-digit organic ASV growth and double-digit growth of revenue and adjusted EPS year-over-year. I will now share additional details on our second quarter performance. Consistent with our definition of organic revenues in ASV, we will exclude any revenue in ASV associated with CUSIP Global Services when reporting organic metrics. Given the first anniversary of the CGS acquisition on March 1st, 2023, CGS will be included in the organic results of FactSet as a component of our CTS business starting in the third fiscal quarter of 2023. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew organic ASV plus professional services by 9.1% year-over-year and acceleration over the last quarter and a solid finish for our first half. Our performance reflects the strength of our recurring sales model and disciplined execution by our sales team as our clients look to technology and data to drive alpha. We saw improved retention and expansion among existing clients. Price realization also continues to improve as we executed a higher price increase over a larger client base. GAAP revenue increased by 19.5% to $515 million for the second quarter. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange, increased 8.9% to $470 million. Growth was driven primarily by CGS and our Analytics & Trading and Content & Technology solutions. For our geographic segments, on an organic basis, revenue growth for the Americas was 8.2%, benefiting from increases in Content & Technology solutions and Analytics & Trading. EMEA revenue also grew at 8.2%, primarily due to growth in Analytics & Trading. And finally, Asia Pacific revenue growth increased 15.3% due to increases in Research & Advisory and Content & Technology solutions. GAAP operating expenses grew 12.4% in the second quarter to $346 million. And I'll now detail the drivers based on our primary cost buckets. First, people, our expenses grew by 10% year-over-year in the second quarter, primarily due to increased salary and bonus expenses for existing employees. As a percentage of revenue, this was 350 basis points lower year-over-year, driven by slower salary growth as a percentage of revenue, higher labor capitalization, and FX benefit. We saw headcount increase by 10.3% year-over-year, with two-thirds of these new positions located in our Centers of Excellence. And as a reminder, more than 66% of our employees are located in our Centers of Excellence. Next, facilities expenses decreased by 7% year-over-year due to our reduced real estate footprint, lapping of the previous year's impairment charge of $10 million, and FX benefit. As a percentage of revenue, this was 360 basis points lower year-over-year. As we continue our intense focus on cost management, we expect to take another real estate charge of approximately $15 million to $20 million later this fiscal year. Moving on, technology expenses increased by 27%, driven by increased cloud spend, third-party software costs, and higher amortization of internal use software. As a percentage of revenue, growth was 50 basis points higher year-over-year due to higher capitalization of internal use software. As we explained during last year's Investor Day, we anticipate technology costs being 8.5% to 9% of revenue over the medium term. Technology expenses will likely continue to increase as we invest for growth. And finally, third-party content costs increased by 5% year-over-year. Our team is doing an excellent job of controlling third-party data costs despite inflationary pressure. As a percentage of revenue, growth in third-party content costs was 70 basis points lower year-over-year. And now turning to the margin front. Our GAAP operating margin increased by 430 basis points to 32.9% compared to the previous year. Our adjusted operating margin improved by 330 basis points to 37%. Margin expansion resulted from higher revenue, lower personnel costs as a percentage of revenue, the lapping of the prior year's impairment charge, and lower content and facilities costs. These savings were slightly offset by higher technology costs and expenses related to CGS. As a percentage of revenue, our impairment expense was 230 basis points lower than last year's on a GAAP basis. You'll find an expense walk from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percentage of revenue, our cost of sales was 50 basis points higher than last year's on a GAAP basis, largely as a result of increased amortization of intangible assets expenses related to CGS and technology costs. This was partially offset by lower personnel costs as a percentage of revenue. On an adjusted basis, it was 180 basis points lower due to lower personnel costs as a percentage of revenue, partially offset by expenses related to CGS and higher technology costs. And finally, on a GAAP basis, SG&A was 245 basis points lower year-over-year as a percentage of revenue and 150 basis points lower on an adjusted basis. This was primarily due to decreases in facilities expense and professional services. This was partially offset by an increase in travel and expenses as our teams resumed essential travels. Turning now to tax. Our tax rate for the quarter was 16.1%, a 6.2% increase compared to last year's rate of 9.9%. The higher Q2 tax rate is due to higher pre-tax income and lower stock option exercise. Going forward, it's important to note that we expect more volatility in our tax rate. One driver will be foreign tax. In April, the UK statutory rate will increase from 19% to 25%, increasing FactSet's foreign effective tax rate and reducing the tax benefit of foreign income. Stock option exercise will also fluctuate with our stock price generally, resulting in lower tax rates when the stock price is higher and higher tax rates when the price is lower. Also, as we finalize our tax returns for prior years, we have the potential for one-time charges, which could also be helpful. Even with this variability and a higher tax rate for the second quarter, we expect to end fiscal 2023 with an effective tax rate of 13.5% to 14.5%. GAAP EPS increased 19% to $3.38 this quarter versus $2.84 in the prior year. Adjusted diluted EPS grew 16.2% to $3.80. Both EPS figures were driven by higher revenue and margin expansion, partially offset by increased interest expense and the higher tax rate. Also of note, Q2 EBITDA increased to $200 million, up 45.4% year-over-year due to higher operating income. And finally, free cash flow, which we define as cash generated from operations less capital spending was $147 million for the quarter, an increase of 34% over the same period last year. This was due to higher net income, partially offset by increased capitalization costs from internal use software. We would note that strong free cash flow continues to be an attractive feature of FactSet's business model. Our ASV retention for the second quarter remained greater than 95%. We grew our total number of clients by 558 compared to the prior year, driven by corporate and wealth clients and channel partners. Our client retention remains at 92% year-over-year, demonstrating excellent execution by our sales and client support teams. Moving on to our balance sheet, during the second quarter, we completed another $125 million prepayment of the three-year term loan for the CGS acquisition. This was our fourth prepayment since the start of the loan. This brought our gross leverage ratio down to 2.4 times from 3.9 times level when we initially financed the CGS acquisition. This is well within our 2.5 times to 2 times gross leverage target and appropriate for our investment-grade rating. Given that we are within our target range, we will slow the pace of repayment of the remaining $500 million outstanding balance of the term loan, which matures in 2025. Also, given our reduced leverage levels, we intend to resume share repurchases for the remainder of fiscal 2023. We currently have $181.3 million available for share repurchase under the company's existing authorization. We plan to allocate this amount equally in the third and fourth fiscal quarters. While bringing our repurchases back to previous levels will take time, we're focused on returning capital to shareholders. We will provide updates on our share repurchase program in the coming months. As Phil stated earlier, given our reduced core ASV outlook and the inclusion of CUSIP Global Services as part of our organic results, we are updating our guidance for fiscal 2023. We expect organic ASV growth of $145 million to $175 million, which is a $15 million reduction in core ASV growth at the midpoint. The decline is offset by the $10 million addition of CUSIP and remains within our medium-term outlook of 8% to 9% organic ASV growth. Given the headwinds to ASV and lag timing of ASV in the first fiscal quarter, we expect revenue for fiscal 2023 to be in the range of $2.08 billion to $2.1 billion. At the midpoint, revenue growth is expected to be about 13%, a deceleration of 95 basis points from our previously issued guidance. Despite a slightly softer top line, we are confident that our disciplined expense management will allow us to protect margins and preserve EPS. Consistent with our downturn playbook, areas of focus include ongoing real estate rightsizing, rationalization of third-party content costs, and limiting hiring to essential positions. Based on forecasted performance, we also expect our year-end bonus pool to be in the range of $100 million to $105 million, roughly $10 million less than last year, which will provide an additional margin benefit. As a result of these measures, we are maintaining adjusted margin guidance of 34% to 35%, consistent with our Investor Day commitment of 50 basis points to 75 basis points of adjusted margin expansion on average per year. And finally, given the strength of our adjusted operating margin and revenue growth, we expect adjusted EPS of $14.50 to $14.90 for fiscal 2023 as previously communicated. Despite the uncertain environment, we remain confident regarding long-term growth. We have a diverse pipeline and are seeing higher retention, better expansion, improved price realization, and increased demand for our products.

Hi, this is Helen Shan. I'll take that question. So the end markets did begin to soften a bit at the beginning of the calendar year and obviously more volatile in the last few weeks. And as we said, two-thirds comes, we think, from banking and the third from the other types. And so we did plan for lower growth in banking after such strong years of growth post-pandemic. And actually, the first quarter continued to be strong, but we did see some greater erosion in Q2 in part due to layoffs. And so that kind of got us to our number there of that two-thirds. PVC, we've not seen that. In fact, we've continued to see double-digit growth there. And so we don't feel that, that's going to be as big a factor. And it is, as you noted, somewhat relatively small. But for us, we'll have a lot to say more when we can see what happens in the hiring classes in the fourth quarter. So that's really the driver of the banking piece. The rest comes from really just changes in client behaviour that we're seeing as Linda and Phil talked about earlier.

Good morning. This is Brendan filling in for Manav. I want to ask about the ASV. Given everything occurring, it’s not entirely unexpected. I appreciate the details you provided regarding its sources. You mentioned that two-thirds of it is from banking. I would have anticipated that some might come from venture capital as well. Could you clarify where you expect that impact to be? If venture capital is just a minor part of ASV, it might not be significant. However, if you could provide some quantification on that, it would be appreciated.

Brendan, it's Linda. And we appreciate your optimism on the margin front. A couple of things going on. We see ASV growth slowing primarily because we're now, excuse me, lapping the CUSIP acquisition. So growth, which had been as strong as 19.5%, will now come down toward 8%. And we see expense growth continuing at about 11% in the back half of the year. So those two things will combine to give us some margin compression. In the first half, we've had adjusted operating margin of about 37.6% and we do like our guidance of 34% to 35%. So if you do the math, you can see that adjusted operating margin will be closer to the zip code of 32% as we get to the back half of the year, we think. But we do hope that continued expense management will help us. The biggest piece that we're looking at here, as we said in the script, is potentially reducing our real estate footprint by another $15 million to $20 million as we get closer to the end of the year. Now that given the length of the leases that we have, provides another, call it, $3 million to $4 million back into the P&L for next year. And in total, last year, we did $62 million of real estate rightsizing. So with this, we'll be approaching $80 million in real estate rightsizing. So we think we've handled that quite well. Otherwise, we just keep our eyes on our downturn playbook. And we're managing all of this pretty closely. So hope that helps.

Yeah. Hey, good morning, everyone. Just quickly on the pricing, $30.7 million, clearly a nice increase from last year. But if I look at this correctly and I just look at your U.S. ASV, I think that works out to roughly 2.5%. I think you've been talking about the rec rate at 6%. So just wondering, I know you don't get it on all of your book of business, but just talk about maybe if you saw a little bit more incremental pushback than you expected or how pricing discussions had gone relative to expectations and how we should be thinking about the European increase, which should be coming in the next quarter?

We've made significant progress in capturing value through our tailored packages and improved pricing. We achieved a $31 million increase in ASV in the Americas, which is $10 million more than last year and accounts for a fifth of our total ASV growth. This increase is attributed to higher rates and our success in acquiring more clients, with 60% of our book in America captured, which is up by 6.4%. However, a large portion of our revenue is from long-term contracts that have negotiated increases, which we do not include in the annual price hikes for recently renewed clients or new clients in Q1. Additionally, since our fiscal year ends in December, clients are still operating on last year’s rate increase in the first quarter, which means you're effectively seeing three quarters of this year’s adjustments. Our sales team has done an excellent job helping clients recognize the value of our investments and manage price increases. We did not experience more pushback this year compared to previous years, and that has not been an issue for us.

Sure. So, Alex, it's Phil. I won't discuss the specific size of any individual client, but you can assume that FactSet has a strong presence within large global banks. It's not only the investment banking teams but also on the asset management side, and there are wealth users as well. We have a well-distributed portfolio across these firms. One reason we're being more cautious in the second half is that we anticipate a lot of banking ASV in Q4 due to hiring by these banks. We're uncertain about how this will unfold, whether there will be further consolidation. However, we typically perform well during these times. FactSet is highly trusted and sticky; we're committed to supporting our clients. Our portfolio is more diversified than it was ten years ago. Generally, when people leave these firms, they often end up somewhere else, and if they value FactSet, they will request it again, which is beneficial. While it's challenging to predict, we've managed this well in the past and believe we are well-prepared to handle any increased uncertainty moving forward.

Hi, Thanks. Good morning. Your ASV guidance plans for slower growth from the banking category. Can you describe what you're seeing with the sales cycles there and the broader pipeline? How much of the guidance reduction reflects what you've already seen versus conservatism around what you expect to see?

It's a bit of both. This quarter has been strong with over 9% growth, but we're also noticing some increased erosion. We are factoring this in. Banking represents a significant part of our Q4, so there's a level of caution because we currently lack visibility. However, based on our expectations for hiring, that influences a substantial portion of our outlook. Regarding the rest of our business, we're experiencing longer sales cycles to close deals. The positive aspect is that many opportunities are still in the commercial negotiation phase, meaning they're progressing but taking more time. This indicates that the quality of our pipeline remains solid, but due to timing, it may take longer to generate revenue.

Hi, good morning and thank you for addressing my questions. Phil, you mentioned that CGS ASV has experienced an 8% growth since its acquisition, which seems to be on the higher side of its historical revenue growth. Could you discuss the potential for maintaining this high single-digit growth rate and provide more details on the advancements regarding new opportunities, specifically with private company data?

Yeah, thanks for the question. Yeah, we feel confident. You know, we've had this asset for a year now, so we're still getting to know it. It's a very steady, consistent business. We're executing exceptionally well. We've got a great sales team. Almost all of the employees that came over during the acquisition are still with us and very happy. And I think some of, you know, the growth can just be attributed to good execution, frankly, in terms of the contracts. And as new issuance comes out, you know, it is getting into issuing CUSIPS for new asset classes isn't a very quick process, right? There's a lot of parties you have to bring to the table and get on board to do that. So we're making good progress there on the two areas that I mentioned, particularly the loan entity IDs. So it's a consistent business. You know, I think you should see steady performance from it. But again, we're just getting to know this asset really well now that we've had it for a year. Thank you for your follow-up question. There are no gaps concerning the product we plan to market, and we are performing well with the advisor workstation. Some of the reasons for our success include the ease of use of the interface, its speed, FactSet's exceptional analytics capabilities, and the integration of portfolios. The advisor dashboard we've added for some clients effectively suggests the next best actions for advisors, which has been very well received. Our open and flexible technology, along with the interface, allows firms to integrate various feeds and components into different areas of their business. We're experiencing consistent double-digit growth, which has been steady for approximately seven or eight consecutive quarters. There is still significant room for growth, and we recognize several potential adjacencies that FactSet could explore. We are actively considering these opportunities, both for acquisition and development, and will seize any prospects that arise.

Yes. Hi. Good morning. Thanks. Phil, I wanted to ask about investments because it looks like the pace of investments is going to accelerate, which is typically the case seasonally. But I'm curious if, you know, given the recent volatility, if you're thinking around the types of areas that you're investing in has evolved at all?

Sure. Thanks, Faiza. I mean, it's a little bit early to comment on exactly what we'll be doing. This is the time of year that we look at our strategy and consider, you know, what we might want to think about for next year in terms of any changes. Many of the initiatives that we set out to execute on a few years ago, these are long initiatives. So we continue to execute well on our deep sector and private markets offerings. We're doing well in real time. I mentioned a very nice deal that we captured in Q2 as a result of that investment, and we've actually tilted more investment towards that this year. We just see so much opportunity in that space. You know, one thing I can sort of highlight or I'd like to highlight is, you know, FactSet has great content analytics and we're also a technology company, and we've done so much work to invest in our platform with our hybrid cloud strategy partnerships. We've developed our API program. All of that is really beginning to bear fruit. And we do believe that the technology piece of what we do is going to help us more in the future. And you actually see that in CTS. So CTS had a very good quarter, grew in double-digits accelerated. And if you look at what CTS is providing to the market as Content & Technology solutions, but this quarter it really tilted towards the technology part, which is exciting, you know, sitting down with our clients, helping them manage data, helping them in other ways. So that's a bit of the evolution there, if that's helpful to you and maybe gives you a bit of a hint of sort of where we're headed into next year.

Sure, Faiza. The first priority for FactSet regarding capital allocation is to reinvest in our robust and rapidly expanding businesses, as Phil just mentioned. Our investment pool remains largely the same as last year. We've monitored our investments, and they have performed well. We will continue focusing on what is working effectively for us and may explore a few new opportunities. Investment is our primary concern. Following that, we maintain our dividend, which has been stable and has grown steadily over the years. We are approaching a time to consider the future of the dividend. Regarding share repurchase, we have $181.3 million authorized for this purpose, and our plan is to distribute that amount evenly over the remaining months of the year, utilizing a 10b5-1 grid repurchase program. We are excited about resuming share repurchase activities. This likely addresses our capital allocation strategy. We view this as a return to our previous practices. Concerning loan repayment, we had been repaying $125 million quarterly but may reduce that to about half that amount. Overall, these actions should help return capital to shareholders in a manner consistent with FactSet's historical approach. We are looking forward to restarting share repurchase. Although it may not significantly impact the average share count for 2023, it will be beneficial as we move into 2024.

Great. Thank you. My first question, if you go a little bit deeper, if you would please, on the sales cycle that you're seeing on your buy-side clients, both you know the asset managers, hedge funds, but also love to hear a little bit on the venture capital and private equity firms out there, how that sales cycle is tracking for you?

Hi, Craig. I'll take that one. Yeah, I think when we interestingly as opposed to specifically on the firm types, but as we're taking a look at sort of the size of firms, that's where we're seeing a little bit of a difference with regard to sales cycles. So what I mean by that is many of our larger clients are really going through their digital transformation. And because they've already spent probably 12 to 24 months investing and planning, our ability to continue with them, you know, when we think about deals that are taking longer, it's not in necessarily the largest of deals. It's actually more in the mid-size. So, as a result, we feel some downside protection on that. But, you know, things will take a little bit longer. We can tell from the deals and how long they're taking and moving from one quarter to the next, not very, very long. But as we said, the trend is coming that way. And so we're just keeping an eye on it.

Hey, Craig, I'll share a few thoughts and then I'm sure Helen will add some insights. For the second half, I want to emphasize the strength we’re seeing in Analytics and CTS. Both have had excellent quarters, and the pipeline for these areas looks promising. We consider these our enterprise solutions, and we notice a strong demand from our clients across various firm types. The cautiousness is coming from our research sector, mainly related to seating, particularly in banking. That's part of our thinking. As I noted in my opening remarks, we attribute about two-thirds of the adjustments made to banking and the remaining third to fund types. Helen, would you like to add anything?

Thank you for taking my question. I wanted to focus on the two strong areas, Content and Analytics, which are primarily related to the buy side, making up over 87% of your business. In this environment, it seems the buy side has remained quite resilient. My question is about the pipeline. How does the current pipeline compare to three months ago? Are you seeing an increase in deals being added to the pipeline? Is it more about deals being moved from the fourth quarter to fiscal year '24, rather than the ability to close them?

Hey, Ashish. It's Phil. I'll start. We're observing strong pipelines for both Analytics and CTS, which aligns with the ongoing trends we've witnessed from buyers over the past few years. These firms are undergoing transformations and prefer to work with fewer partners. They are seeking anchor partners like FactSet that can provide most of what they need in terms of technology and content, aiming to simplify their partnerships. There's also a notable shift toward outsourcing, with asset services increasingly supporting asset management clients. We estimate that we're engaged with about 70% of asset services at various stages, having established solid partnerships over the past year or two. FactSet's advanced middle office solutions, including risk performance reporting and multi-asset class capabilities, are now available to the buy side directly or through partners like asset services. We're also seeing robust demand from asset owners, which accelerated this quarter for similar reasons. Helen noted that our open technology is effectively serving wealth clients, and the same applies to asset managers. There are numerous ways we can support them. On the CTS side, real-time data experienced a very strong quarter, highlighted by a key deal. We see significant opportunities in what we refer to as market data-as-a-service, which FactSet is now delivering through the cloud. For clients who previously relied heavily on on-prem solutions for real-time data, we are providing a next-generation solution that we find very exciting. That’s a key point I wanted to highlight regarding CTS.

Thanks so much. Phil, you mentioned during the call that CTS is leaning more towards technology rather than content. Could you clarify that? What is the current breakdown between content and technology in CTS, and is there a significant difference in their growth? Also, is this related to the Snowflake partnerships and Helen's comments on technology adoption, or does it relate to the increased sophistication of the clients we're working with?

Yes, Kevin, most of this content is about technology and how we deliver it in new ways. Ten years ago, we would have sent you a flat file that required a lot of manual work. Now, we offer delivery through APIs, Snowflake, and various partners while also introducing additional services. One of these services is concordance-as-a-service, which helps customers who have data but don’t want to manage the mapping themselves—something we excel at. We see opportunities like that. Moving forward, particularly in real-time, I view this as a technological advancement. We’ve transitioned this technology to the cloud, which I believe will significantly drive growth for CTS.

Hi. Thank you very much for taking my questions. Phil, can you elaborate a little bit on the cancellations you touched on? Is there something in particular? Is it people getting laid off? Is it some firm closures? Maybe you can just expand on that a little bit?

Can you help clarify the question? I'm not sure what cancellations I referred to.

Hi, Shlomo. It's Helen. Yeah, no, we've actually had very good retention. There is erosion that's happening in cases on a bit on the banking side, which is why we are taking our more deliberate approach on thinking about that. But there wasn't anything material this quarter.

Thank you very much. You mentioned the lengthening of the sales cycle, and I wanted to know how this affects not just acquiring new customers but also cross-selling and up-selling. Does this become more challenging in this type of environment? Which product sets do you expect to be the most affected?

Hey, Toni. I'll take a shot at that. I think for cross-selling, it becomes a little bit around client budgets. So we did talk about a longer sales cycle. It would be remiss of us to not also note that clearly folks are tightening their belts. So there is some of that coming into play. That being said, as I mentioned earlier, for our larger clients, many of them had set budgets. They need to continue to invest. So we've not seen some of the major changes on that front. There may be if they need to take something major in terms of change, especially in certain areas right now because of changing from one provider to another. But in terms of add on, especially on feeds, we've seen very good positive momentum there. So I think the pressure will be more along the lines of material, new projects as opposed to expansion.

Typically, our risk offering is provided through our analytics suite, and multi-asset class risk has been our area of growth in recent years. We utilize several risk models from third-party providers that we integrate, along with our own risk analysis work. FactSet provides excellent choices and analytics that integrate well with your portfolios and performance suite. This integration has improved with the acquisition of BISAM and Vermilion, which have been incorporated into the core FactSet platform. We find that when engaging with asset owners or asset managers, risk is a key component of their middle office systems, and we believe we've made significant progress in this area. While this quarter wasn't particularly strong for risk, it remains a consistent performer and is always a key focus along with other initiatives.

Thank you for taking my question. Could you please give us an update on the momentum in Asia Pacific? And I think organic ASV grew at 10.8% off a low base. You talk about recent change in COVID policy there. What do you see the environment there right now? And do you think the growth can accelerate from here going forward?

Thank you for the question. We experienced strong growth in the quarter, which is excellent. Specifically, there was notable demand in the first half in both Australia and Japan. In Australia, we saw improved retention and increased interest from asset owners, particularly super funds that are consolidating and seeking efficiencies. They are dealing with significant complexities in data management, and as Phil mentioned, our capability to help them integrate various data sets has set us apart. For instance, our concordance offering has been instrumental in helping them create an entity master. Japan faces its own challenges but has also seen accelerated growth among asset managers, continuing to achieve double-digit growth in analytics. Meanwhile, Hong Kong is still in a recovery phase, and although we noted last quarter that activity has increased following the relaxation of the zero COVID policy, it is starting from a low base. Overall, we are very pleased to see improvements in the Asia Pacific region.

Hey, Owen. It's Phil. So ESG is a very small piece of FactSet's business. Our strategy here is just to provide the picks and shovels that anyone in the market that wants to can build a view of ESG. You know, we'll provide choice of data that's out there, but we're not in the business of creating ESG ratings or anything like that. So, you know, we'll provide the tools that clients need, but it's not a huge focus for us. And you know what? I don't want to get lost today, right, with all of the volatility of the market is this was FactSet's strongest Q2 ever. We had a very good quarter and we had three deals across different parts of our businesses in the seven figures. We had a fantastic real-time deal, which is new. We captured a large sell-side research deployment, which is very exciting. And then we had the BMO wealth deal that we've been able to be more public about. So all of this really points to the strength of our business, the diversity of it, and I think a reason for us all to be optimistic moving forward. So in closing, thank you all for joining us today. Please note that in conjunction with the first anniversary of our inaugural investment-grade senior notes offering, we will be hosting a conference call for our fixed income investors. Linda and I will give an update on performance and take questions from investors. Details can be found in our press release that we just issued.