Factset Research Systems Inc (FDS) — Q4 2023 Earnings Call Transcript

Thank you, and good morning, everyone. Welcome to FactSet's fourth fiscal quarter 2023 earnings call. Before we begin, the slides we will reference during this presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com and are currently available on our website. A replay of today's call will also be available on our website and via phone. After our prepared remarks, we will open the call to questions from investors. This call is scheduled to last for one hour. To be fair to everyone, please limit yourself to one question. You may re-enter the queue for additional follow-up questions, which we will take if time permits. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risk 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 of 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 fourth quarter and full year results. We ended fiscal 2023 with organic ASV plus professional services growth of 7%, and we delivered annual revenue of $2.1 billion and adjusted EPS of $14.55. In 2023, we grew our business on the strength of our enterprise offerings that drove large strategic wins across several workflows. We expanded our presence with existing clients, while adding new logos and new users, both on and off platform. On the buy side, our industry-leading analytics and middle office solutions drove a significant performance deal, as asset managers and asset owners rely on FactSet to serve more of the portfolio lifecycle. Additionally, a large real-time deployment at an institutional asset manager underscored growing demand for cloud-native market data services. On the sell side, deep sector drove a key banking deal in the fourth quarter and continues to be a deciding factor in renewals, situating us well to increase market share in banking. Our strategy to deliver the leading open content and analytics platform continues to resonate and drive growth. But the pace of change is accelerating. While we have been innovating with machine learning and AI for a long time, the recent advances in generative AI have made it possible for us to step up our development. In the second half of 2023, we began moving significant resources to GenAI in anticipation of directing further investment to this area in fiscal 2024, putting it among our top initiatives. FactSet's content refinery provides us with a real competitive advantage. We have one of the most extensive suites of proprietary and third-party data in the industry, and we continue to invest in new categories of data to further power the workflows of our clients. On top of our content refinery, we are reimagining the FactSet user experience and actively exploring innovative solutions. For example, a conversational user interface that allows bankers to ask questions, discover and source information, and initiate tasks. Generative AI will also help us evolve our productivity suite, further deepening our competitive moat. Second, on the buy side, we are enhancing our portfolio manager bot to answer questions in conversation with asset managers. Thirdly, in the front office, we are harnessing generative AI to create code in FactSet's programmatic environment, reducing the need to know Python. This will make the power of that programmatic environment available to more users. For wealth managers, we are developing solutions to drive the next best action and to create portfolio summaries for proposal generation and client engagement, and we are establishing GenAI-ready data bundles, allowing clients to augment their own large language models, or LLMs, with our connected auditable data. We also see significant opportunity for cost savings as a result of GenAI projects targeting our efficiency. In fiscal 2023, we began to pilot AI coding initiatives to improve the productivity of our technologists. We also started using our agent assist bot to help with client queries and we are accelerating the collection of unstructured data across our content refinery with our recent acquisition of idaciti, giving us industry-leading expertise. As we enter fiscal 2024, we will build on our strategic investments in content, generative AI, and technology to drive growth and forge deeper client relationships. On the buy side, we intend to use our leading portfolio analytics and middle office solutions to grow our front office market share. We expect our new portfolio manager workstation and open programmatic environment to drive growth. We also see opportunities for FactSet to provide some targeted managed services based on our years of experience. On the sell side, we believe that deep sector and private markets offerings will drive workstation wins across banking, corporate, and private equity and venture capital clients. We see an opportunity to capture additional seats in underpenetrated areas with solutions for senior bankers and investor relations professionals, and we expect increased adoption of Cobalt, an anchor product for private equity and venture capital funds. In wealth, we anticipate capturing more market share as we focus on portfolio management, proposal generation, and intelligent prospecting to expand our addressable market. Our open and flexible platform will power business development and reporting solutions to connect advisors with clients seeking new sources of insight. Finally, we expect the demand for our off-platform solutions to continue to drive growth across firm types. Turning now to our fourth quarter results. Growth was driven by Analytics & Trading and CTS, with improved expansion across most firm types. Asset owners continue to have momentum with new logos, transactional revenue from Portware and data feeds. While macro uncertainty continues to contribute to elongated sales cycles and slower decision-making across all firm types, our sales team successfully executed on several large wins and renewals as we ended the fiscal year. And looking across our regions, organic ASV growth in the Americas was 7%. Performance was driven by asset owners and CTS wins among partners and hedge funds. This was offset by weakness among asset and wealth management clients where retention remained under pressure and expansion was lower. As expected, we also saw lower seasonal banking hiring, which was a common theme across all regions. In EMEA, our organic ASV growth was close to 8%. We saw growth in asset owners, driven by analytics, middle office solutions. Wealth growth was also driven by Wealth Workstation and Advisor Dashboard wins. Gains were partially offset by softer expansion in banking and asset management. Finally, Asia Pacific delivered organic ASV growth of 8%, driven by strong growth in Japan, where we saw an increase in large deals, analytic wins, and strength in channel partners. However, muted expansion in Australia and India from fewer asset management wins and lower seasonal hire in banking were headwinds to growth. Turning now to our workflow solutions. Analytics & Trading organic ASV grew by 9%. Growth among asset owners accelerated the most, driven by middle office solutions, workstations, and feeds. CTS, which is now part of Data Solutions, grew fastest, with organic ASV growth slightly over 9%. Performance was driven by channel partners and asset management clients, although partially offset by lower professional services and decreased retention in banking. Our data management solutions, company data, and real-time offering were the major contributors to growth. CGS also contributed to performance with healthy expansion and new business. Among asset managers, workstation erosion was offset by analytics and CTS wins, coupled with a higher price increase. Research & Advisory grew organic ASV by 5%. In banking, workstation and deep sector wins were offset by increased erosion. Private equity and venture capital clients continued their track record of double-digit growth despite market headwinds that offset improved pricing realization. For corporates, reduced client budgets were an obstacle. Looking ahead, we are focused on diversifying our solutions for our corporate clients. And finally, in wealth, we saw strong execution on several renewals in the face of clients' cost-cutting exercises. As discussed last quarter, we have reorganized our business by firm type to better align our operations with those of our clients. As of September 1, Analytics & Trading has become our institutional buy side organization, focusing on asset managers, asset owners, and hedge fund workflows. Also, as of September 1, Research & Advisory has become our dealmakers and wealth organization, focusing on banking and sell side research, wealth management, corporate and private equity and venture capital workflows. And we've combined our Content and Content & Technology Solutions groups to create one Data Solutions organization. Going forward, we will also be aligning our partnerships in CUSIP Global Services organizations for the purposes of discussing ASV, as they are both key parts of our growth strategy. You can find ASV and ASV growth rates from the perspective of our realignment in the appendix of today's presentation. As we look ahead to fiscal 2024, we expect the year will be a tale of two halves. Unlike previous years, where clients had higher budgets to spend before the calendar year-end, we expect continued caution for the rest of 2023. Starting in the new calendar year, we expect an improved operating environment to drive a strong second half. As such, we are guiding to organic ASV growth of 7% for fiscal 2024. Linda will provide more detail on guidance shortly. Looking forward, we have started seeing green shoots of market recovery, particularly in new business. New logos in the fourth quarter showed an improvement over the reduced deal volumes seen earlier in the fiscal year. We expect this trend to continue as the new business pipeline and potential ASV for wealth management, private equity and venture capital clients and partners are all outpacing the pipeline at the same time last year. As client sentiment improves and markets stabilize, we believe we are in a great position. Our new structure, best-in-class solutions, and content sets us apart as the partner of choice for our clients. I'll now turn it over to Linda to take you through the specifics of our fourth quarter and full year performance.

Thanks, Phil, and hello to everyone. As you've seen from our press release this morning, we delivered Q4 organic ASV plus professional services growth of $145 million. With 43 consecutive years of top-line growth, FactSet has a proven history of stability during market volatility, which is clearly demonstrated in our performance. I'll now share additional details on our fourth quarter and full year performance. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. The 7% growth rate for organic ASV plus professional services was in line with our most recent guidance for the year. Our sales team executed well, building on a strong first half and a higher price increase across a larger client base. However, during the second half of the fiscal year, the team had to deal with increased erosion, softer expansion, and a slight decrease in new business. Turning to revenue. Our full year revenue of $2.1 billion was also within our guidance range of $2.08 billion to $2.1 billion. To help offset the weaker top-line, we carefully and thoughtfully trimmed our headcount, which helped to expand our adjusted operating margin by 230 basis points to 36.2%. This increase exceeded the top end of our guidance range of 36% and our previous medium-term outlook goal of 36% by the end of FY '25. Finally, both GAAP and adjusted EPS were impacted by a one-time charge of $6.8 million and an approximately $20 million provision for confirmed and expected unrealizable tax assets. This higher tax rate provision had a $0.68 negative impact on fiscal '23 adjusted EPS, resulting in an adjusted EPS growth of 8.3% to $14.55. Without this one-time adjustment, adjusted EPS would have been approximately $15.25, or 13.6% growth. I'll provide more detail during the tax discussion later in the call. Turning now to our fourth quarter results. As Phil noted, we grew organic ASV plus professional services by 7% year-over-year, as higher price increases offset erosion and new business began to pick up. We also continue to improve pricing discipline, which is driving stronger price realization. For the quarter, GAAP revenue increased 7% to $536 million. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange movements, increased 7% to $535 million, driven primarily by Analytics & Trading. For our geographic segments, organic revenue grew by 6% in the Americas, 9% in EMEA, and 10% in Asia Pacific. Growth was primarily driven by Analytics & Trading and Research & Advisory in the Americas and Asia Pacific, and by Content & Technology Solutions and Analytics & Trading in EMEA. GAAP operating expenses increased 14% year-over-year to $419 million, driven by higher facilities impairment expense and restructuring costs. Compared to the previous year, GAAP operating margin decreased by 460 basis points to 22%, primarily due to those non-recurring charges and higher technology costs, partially offset by lower third-party content costs and lower FX impact. Excluding both non-recurring costs, GAAP operating margin was about 800 basis points higher than the prior year. On an adjusted basis, operating expenses grew 4%, driven primarily by technology expense, which increased 26% year-over-year. This was mainly due to higher amortization of internal-use software, increased third-party software costs, and accelerated cloud spend as part of our hybrid cloud strategy. We also invested in our content refinery expansion and other strategic areas, such as generative AI. We have continued to invest in technology to drive growth, with technology costs now representing 9% of revenue, consistent with our medium-term outlook of these costs being 8.5% to 9.5% of revenue. People expense grew 3% year-over-year, primarily due to increased salaries for existing employees. As a percentage of revenue, our people expense was 168 basis points lower than the prior year, driven by a lower bonus accrual, partially offset by higher salary expenses. We ended fiscal 2023 with a bonus pool of $105 million and with 67% of our employees operating in our Centers of Excellence. Adjusted operating expense growth was partially offset by a reduction in our third-party content costs, which decreased 4%. Our team continues to do a stellar job proactively managing and negotiating contracts. As a percentage of revenue, growth in third-party content costs was 57 basis points lower year-over-year. Finally, our efforts to right-size our real estate footprint resulted in a 7% decrease in facility expense year-over-year. As a percentage of revenue, this was 50 basis points lower than the previous year. Overall, adjusted operating margin improved by 210 basis points to 33.6%. 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 services was about 75 basis points lower than last year on a GAAP basis and 85 basis points lower on an adjusted basis, largely due to personnel costs, expenses related to CGS, and technology costs. And SG&A as a percentage of revenue was 385 basis points lower year-over-year on a GAAP basis and about 125 basis points lower on an adjusted basis, primarily due to decreases in professional services, partially offset by increased personnel costs. Facilities impairments as a percentage of revenue were around 440 basis points higher year-over-year on a GAAP basis. Turning now to tax. Our tax rate for the quarter was 39.9%, compared to last year's rate of 10.3%. This increase was due to several factors. First, we had higher pre-tax income, which increases the overall tax rate, as credits related to R&D and foreign earned income are less impactful. We also saw a diminishing benefit from tax incentives in our Centers of Excellence. Finally, the finalization of prior-year returns came into play. Our fourth quarter results include an out-of-period adjustment related to an ongoing review and analysis of certain tax positions, resulting in a one-time charge of $6.8 million and a $20 million provision. We believe this $20 million provision represents the maximum remaining amount of net unrealizable tax assets. Upon completion of our review and prior to filing our Annual Report on Form 10-K, we plan to take a one-time charge with respect to this provision to reflect the confirmed actual amount of net unrealizable tax assets. The final amount of this charge is not expected to differ significantly from the current $20 million provision. At this time, we've concluded that this adjustment is not material to the current period financial statements. The adjustment relates to the accounting of tax balance sheet accounts, including deferred tax assets and liabilities. All local, federal, and foreign taxes payable have been paid in a timely manner, subject to normal audits of open years. The increase in tax provision was partially offset by higher benefits from stock option exercises and refunds from amended returns. Looking ahead, we expect that higher pre-tax income will increase our overall tax rate. In addition, our foreign tax rate is expected to be higher due to the increase in the UK statutory rate. We've taken strategic measures intended to offset our overall rate and are guiding to a 17% to 18% effective tax rate for fiscal '24. GAAP EPS decreased 37.5% to $1.68 this quarter versus $2.69 in the prior year, driven by non-recurring charges and the higher tax provision, which had a $0.68 impact. On an adjusted basis, EPS decreased 6.4% to $2.93. Adjusted EBITDA increased to $172 million, up 8.6% year-over-year, due to higher income tax add-backs and impairment charges, partially offset by lower net income. And finally, free cash flow, which we define as cash generated from operations less capital spending, was $156 million for the quarter, an increase of 15% over the same period last year. This was primarily driven by the timing of income tax payments, partially offset by higher capital expenditures. For the fourth quarter, ASV retention remained greater than 95% and client retention was 91%, which speaks to the stickiness of our solutions. We ended the quarter with almost 8,000 clients with 383 new logos added year-over-year. And user count increased by about 10,000, primarily within banking, corporate and private equity and venture capital firms. For the quarter, we repurchased 264,400 shares for $109.6 million at an average price of $414.63. At the end of fiscal '23, we had $4.5 million available for share repurchase. As a result, our Board authorized a new share repurchase program of up to $300 million, which became effective on September 1. We intend to continue our share repurchases in FY '24 with a target to repurchase $250 million spread ratably throughout the year. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. Combining our dividends and share repurchases, we returned $315.3 million to our shareholders over the last 12 months. As a reminder, we also increased our dividend by 10% in the third quarter, marking the 24 consecutive year of dividend increases. And finally, turning to our guidance for fiscal 2024, as Phil discussed earlier, we expect a weaker first half of fiscal '24 and a stronger second half, driven by improved client sentiment. As client budgets reset at the turn of the calendar year. We expect to execute on our existing pipeline. Given these expectations, we are guiding to incremental organic ASV plus professional services of $130 million to $175 million, reflecting 7% growth at the midpoint. And with respect to modeling income and expenses for the year, please note that for the full year, we expect interest expense to be $60 million to $65 million and capital expenditures are expected to be in the range of $90 million to $95 million. We expect adjusted operating margin of 36.3% to 36.7%. At the midpoint, this provides 30 basis points of continued margin expansion. While we have already met our adjusted operating margin medium-term outlook of 36%, we are committed to balancing continued sustainable margin expansion with investments to drive top-line growth. Finally, adjusted EPS is expected to range from $15.65 to $16.15, which represents 9% growth at the midpoint. In closing, we are encouraged by the opportunities before us. In 2024, we anticipate that our investments in generative AI, connected refined content and digital solutions will drive expanded market share and increased retention. We are equipping our teams to harness the rapid pace of innovation to remain the partner of choice for our clients. We're now ready for your questions.

Hi, good morning, and thanks for taking the question. I wanted to ask for a little bit more color on the wealth business, if you could. I saw the ASP was really strong, up 9%. But then I thought I heard in your comments some comments about some client cost cutting. So, I'm just trying to understand really what the message is there. And if you could just give any more detail on larger accounts versus smaller and the broader competitive environment? Thank you.

Sure. Hey, Seth, it's Phil. I'll start, and I'm sure Helen has some additional comments. So, we're very bullish on the wealth space. As we've talked about before, we think there's a lot of opportunity and a lot of addressable market for us. We've been very successful with our core FactSet offering for advisors. We've layered on Advisor Dashboard. And we believe the bigger opportunity moving forward is to get into some adjacent workflows in the wealth space that traditionally we haven't served. So, we view it as a good opportunity. I'll start with that. I would say across most firm types this year we did see more pressure. Wealth was not excluded from that. So, I think we grew wealth probably close to 13% last year and maybe 9% this year. So, we still grew well. We didn't get as many new logos as we had. I don't think there was as much new firm creation in this environment. And we may not have had one of those mega deals that we might have had in previous years. But overall, we feel good about the space. And Helen, do you want to add on to that?

Yeah. No, thank you for that. Phil is exactly right. I mean, we do have a pretty healthy pipeline, and it is a mix. We have some very large opportunities with full deployments and then we've got smaller ones, which may be more seat-driven. If you compare it to 2022, where there was a lot more hiring going on, that's a bit of the difference. And as noted, we didn't have a mega deal this year per se, but there's a lot of opportunity in the pipeline that supports that. So, we feel very strongly about wealth. And quite frankly, if you look at where a lot of the clients are focused on, they're all focused on their wealth businesses also.

Okay. And do you feel like you're gaining share there? Is that still the opportunity as well?

Yeah, absolutely. We feel like we're gaining market share, yeah. Most of the wins are displacements of other competitors, yeah.

Perfect. Okay. Thank you very much.

Thank you. Linda and Phil, I was hoping you'd just help with the '24 guidance a bit, particularly your comment that you assume that budgets improve in the second half. Let's just say they don't improve, I guess, how much of the impact is that that you've assumed in guidance? And if you could just clarify within the 6% to 8%, the confidence level and what the pricing assumption is?

We feel good about the 6% to 8% growth, which is why we have shared that expectation. If we break it down by firm type, we anticipate achieving a similar level of growth on the buy side as we did this year. As you know, we are evolving into more of a solutions provider for our clients. Despite the pressure on headcount that we experienced on the buy side, we believe there are still significant opportunities to gain market share. We expect slower growth in banking and there are some developments in the pipeline that Helen may address. However, we do not foresee significant hiring in banking as part of our strategy. Regarding wealth, we anticipate some acceleration in that area. For the partners segment of our business, which we are now highlighting separately, we expect a more favorable environment, especially since this past year was not particularly successful for us in that segment. Helen, would you like to provide further insights on the pipeline?

Yes, you had a question about pricing. We are making good progress in capturing the value that our clients receive from our solutions. In 2023, we improved our price realization across our workstation packages by over 100 basis points through renewals and new sales. We continue to see positive results in that area. Our annual price increase occurs in January for the Americas and in April for regions outside the Americas, with a contractual base of higher CPI at 3%. With inflation moderating and an expanding portfolio, we expect the impact of price increases to be less than in 2023, but it will still positively contribute. We will provide more details on this when we reach Q2 and Q3, as we have done previously.

Thank you so much. In your prepared remarks, you mentioned that the adjusted operating margin guidance for '24 is already ahead of where you thought you'd be in 2025. I'm not going to ask you about your 2025 numbers. But maybe just longer term, how do you get that margin expansion going forward? What kind of levers can you pull?

Hi, Jeff, it's Linda. We have made significant progress and we are quite proud of it. Looking ahead, we believe our workforce will be a key contributor to our success. For fiscal year 2024, we anticipate growth in that area to be around 3% to 4%; real estate growth is expected at about 3%; and third-party data growth should also be around 3% to 4%. While these numbers are modest, we feel we've made excellent progress. In technology, the situation is different. As a technology company, we are pushing hard for AI advancements. We have mentioned a 24% increase in the technology budget for fiscal year 2024, largely due to higher amortization for our own software, increased purchases of third-party data, and crucially, rising cloud expenses as we prepare for more usage of GenAI. I believe that in the future, we will see the technology line beginning to stabilize as we reach peak amortization, and then we will see a decline in that area. Nevertheless, we are maintaining great control over three of the cost items, and in technology, we need to keep investing. Hope that clarifies things for you.

Hey, good morning. Thanks for taking my question. So, CTS, including CUSIP, grew by 9%. I was wondering what the growth rate would look like for the original CTS business and CGS. And then I think when you acquired the asset, you were guiding for a mid-to-high single digit growth for CUSIP. Is that pretty much still the goal going forward? Thanks.

Sure. The Content & Technology Solutions business, which is now part of Data Solutions, grew by nearly 11% year-over-year. While that's a slight decrease compared to last year, it's still very comparable. Overall, this has been a solid year for CTS, highlighting the value of our data and the diverse ways we provide it to the market. The CUSIP Global Services business experienced a growth rate slightly below that of the firm in terms of ASV. You should have a good understanding of the size of that business based on the data we've shared previously, allowing you to connect the dots regarding your inquiries.

Yes. Hi, good morning, everyone. Just coming back to the guidance for a second. You talked about these, like, two halves. So, maybe you can be a little bit more specific around maybe like the near-term trajectory here. I know it's early in this current quarter, but maybe what are you seeing? How are the pipelines shaping up? And then, maybe more specifically, clearly, some of these banks have delayed hiring. So, I'm just wondering, if we assume that some of these hires that didn't come in the 4Q maybe now come in the second quarter, is there a dollar amount that you feel like slipped in the fourth quarter that could come? So, just trying to figure out some of the swing factors maybe in the near-term here.

Hi Alex, it's Helen. I'm glad to try to answer your question. You're right that we are early in the year, but we have better visibility for our first half. Specifically, we expect to see current market conditions in this timeframe, and I will categorize this by firm type. Regarding the buy side, we ended the year on a strong note with both asset owners and hedge funds. Currently, three key elements are shaping our pipeline. First, we continue to gain traction in the middle office, building on our successes in asset servicing. We expect that momentum to carry on. Second, there is strong demand in our data feeds business, particularly for company data and our data management solutions, where we leverage our concordance for client content. We secured two significant wins, one in real-time and one in tech data, both against competitors, which are generating inbound discussions and enriching our pipeline. Third, as Phil mentioned earlier, our robust offerings in the front office are also seeing momentum, and our GenAI enhancements will support that. We're optimistic about increasing our market share in that area, which we believe will aid in client retention as well. Regarding the banking sector, you're correct; we anticipate a challenging comparison for the first half, as the impact of workforce reductions in banking won't affect us until the second half, primarily occurring in early spring. We also expect most of the potential impact from any cuts at Credit Suisse to manifest in the early part of the year, affecting our first half results. While we've seen some positive capital markets activity, we aren't expecting a recovery in the first half. That said, we did well in banking overall, achieving two significant wins: one in equity research with a large firm and another with a big investment bank. In the wealth sector, as I mentioned, we're seeing increased activity, and our land and expand strategy is proving effective. When we're involved, we're enhancing both our data feeds and CRM solutions. We anticipate ongoing cost rationalization, but our pipeline looks promising as we kick off the new year.

Yes. Hi, thank you. Good morning. I wanted to ask about GenAI. Phil, you mentioned a number of new products that you're working on. And so, I'm wondering, how you're thinking about the timing of commercialization of these products? And do you view this as a new product revenue opportunity? Or should we think about it more as something that's going to help improve retention? And relatedly, it seems like there is a number of smaller new companies that are out there that are introducing GenAI products that folks seem to be willing to pay for. How should we think about your approach to M&A to enhance your position within GenAI products?

Great. Yeah, thanks, Faiza. I was hoping someone would ask about this. So, I have a lot to say here. We're all in on GenAI and AI. The thing that I'll probably stress first for everyone is the value of data. We believe strongly that the winners in this environment are going to be the ones that have the broadest suite of data and the most well-connected data, the most trusted data, and the data that can be source-linked back to where the answers came from. And that's what FactSet has always been about and really at the foundation of what we're building here. So, to answer your question a little bit more, we believe it's going to be a combination of things. So, we are working on a lot of pilots, and I would anticipate that some of those will be coming to market this year. I do believe that it's going to radically improve the experience of most FactSet users that are using the workstation and, as you pointed out, really help increase retention and maybe drive new desktops, right, at the clients we serve. But we also think there's going to be an opportunity for new products. One of those really is just off-platform, essentially. So, we're thinking carefully about this. But there are lots of ways for us to take all of the valuable data we have, bundle it up with some GenAI capabilities and deliver it to clients. So, we're going to create a great experience for clients on our platform, where they're able to search, converse with FactSet, go mile deep for their particular workflow. But we also recognize that some of the larger firms out there are going to want to build some of their own environments. So, as we've always been, we plan to be a pretty neutral here in the ecosystem and provide the best of both worlds. But it's still early days. We're still thinking about this very carefully, but we're very excited about the potential opportunity for us.

It's Linda. We've had an effort to go out to talk to many clients early on in this process, about 25 of them. So, maybe Phil and Helen, you might want to speak a little bit more about the clients.

Sure, I'm glad to do that. Thank you for the prompt. We have been using GenAI and have had about 25 to 30 meetings with our clients. There is a lot of enthusiasm from various types of firms, largely due to our capabilities, data, technology, and client relationships. There is a strong interest in co-developing solutions. We are collaborating closely with some large banks to explore opportunities for bank automation. While these processes haven't evolved significantly over the years, I believe the time has come for change. On the buy side, as I mentioned earlier, there is a chance to drastically enhance the experience of portfolio managers and research analysts who have to deal with overwhelming amounts of information. Additionally, on the wealth management side, we discussed other workflows, such as proposal generation and augmented prospecting for clients. These represent excellent opportunities, and we are very encouraged and moving swiftly.

Hi, thanks. Good morning. At the midpoint of your guidance for ASV plus professional services organic growth of 7% for next year, that guide is essentially unchanged from growth that you saw this year for fiscal '23. And you mentioned that the first half of the fiscal year, we'll see some pressure, followed by improvement in the second half of the year. Does that suggest that you expect trends to get worse compared to this quarter before they get better such that you land at that 7% growth at the midpoint next year? And can you talk about which areas of the business you're assuming undergoes the most inflection over the course of next year?

Hi, George, it's Helen. I'll take that. I wouldn't necessarily say it gets worse. The emphasis I made on banking relates to comparing the first half of this year to the first half of last year. Last year, we experienced very strong hiring that continued. You might remember how robust our performance was in the first half of last year. So, in comparison, the effects of workforce reductions will impact the current fiscal '24 first half. When we discuss a stronger second half, we are assuming there won't necessarily be a return to banking levels from '22, but overall hiring and budgets will be more flexible. That's why we mentioned that, as we approach the fiscal year-end in August, clients typically start making decisions that will influence our second half, and that's what we were referring to.

Hi, good morning. Thanks for taking my question. I wanted to circle back to the GenAI topic, but focus maybe more on the cost side. It does sound like, Linda, that there is an increase in the technology budget to account for some of these investments. Are there any cost savings coming from GenAI maybe operationally within the SG&A line, or just some of the organizational infrastructure you have that you expect to come from these investments? And is that something that would be embedded in '24, or is that a '25, '26 type benefit if it's there? Thank you.

Maybe I'll start and then I'm sure Linda will add some additional comments. So, we've been looking at how we work ourselves and thinking about how can we be more efficient ourselves internally. We have a lot of engineers at FactSet, a lot of people that code that are even client-facing. So, I think it's pretty common knowledge that there should be some efficiency here, right? So, we're piloting a lot of copilot solutions with our technologies to kind of understand what that means at different levels of the organization. We have a large client service and support group here at FactSet. We've released a tool to about 400 people that are the front-line support for our clients that assist them in generating answers for clients. So, that's in the beginning stages there. And then, of course, we collect tons of data. So, about half of FactSet's employees are in the Content or Data Solutions part of our business. So, we see a lot of opportunities there. So, we do see significant opportunity. The question is the timing and how much of that we'd like to reinvest, right, in terms of some of the new products that we're thinking about to drive growth.

Yeah. Andrew, it's Linda. It's a great point and a great question. I think your view on timing is largely correct. So, we're looking for internal efficiencies maybe to start showing up more in FY '25. Our initial focus will be client-facing in keeping with the way we think about everything here at FactSet. So, what we'll do is look to move some of those tools we're building for our clients and look to apply those to ourselves. But we do think that's probably going to show up in a bigger way in FY '25. You've heard the guidance for FY '24. So, hope that helps.

Thanks for taking my question. Just wanted to go back to the ASV guidance and just better understand the headwinds and tailwinds. As I understand, when we think about some of the headwinds from like the investment banking and CAS, as well as increased erosion and pricing normalization, we were thinking that could be in the range of like a 2 points to 3 points of headwind. And obviously, you've talked a lot about the new win momentum, the share gains. Just wondering, is that enough to offset the headwinds as we get into fiscal year '24? Thanks.

Hi, Ashish, it’s Helen. Thank you for your question. From our perspective, I wouldn't say we've reached a bottom, as that feels too definitive. However, when I reflect on this year in comparison to last year, I anticipate two developments. First, the reduction in erosion should stabilize, which is an important consideration. Banking is essential, and we actually increased the number of seats in banking overall. It's important to note that this growth is not solely due to our existing clients but also involves the new clients we've acquired, and we have several promising opportunities. This is part of our discussions regarding firm types. Secondly, concerning pricing, we've previously discussed a distribution of one-third, one-third, one-third. This year, pricing has contributed even more in percentage terms than before, and we expect it to continue contributing in 2024, though likely at around a quarter or less than a third. This could pose more of a challenge than merely focusing on seat counts. This is how I would interpret some of what's included in our guidance. We do have some substantial deals in the pipeline that have shifted from 2023 to 2024, and I believe there will be an ongoing emphasis on cost management from our clients.

Hi, thank you for taking my question. I have another inquiry regarding the revenue outlook for the first half compared to the second half. You mentioned hiring assumptions. When considering the second half versus the first half for the wealth and buy side, I'm interested to know what you anticipate regarding customer sentiment. Additionally, you mentioned earlier the potential for growth on the wealth side. What factors should we consider? Thanks.

Sure, I appreciate your question. Regarding the buy side, the situation is quite similar. Our more complex deals are taking longer to finalize, and currently, our offerings are more intricate. This is contributing to the delayed decisions you're observing in the analytics business for the buy side. I believe that an increase in hiring will positively impact us. We have seen a decline in both asset management and wealth, and we anticipate that the hiring will increase in the second half of the year, which will drive improvements. In terms of wealth management, we do have some large deals in the pipeline. If the markets start to recover, we expect hiring to increase again in the latter half of the year.

Hi, thank you for taking my question. Main question is, I wanted to ask a little bit if you can go back to the comment about some green shoots that you're seeing. And if you can give us a little more specificity? Are those green shoots that you're seeing kind of macro-wise specifically within the clients that you have specifically in your pipeline? Can you just give us a little bit more color on that? And then, maybe just a housekeeping thing. Is there additional interest expense from idaciti acquisition? Is that the way we should think about that?

I wanted to highlight some positive signs we are observing. In the fourth quarter, new business showed signs of recovery in transaction numbers, which we view as a good sign. Additionally, while overall transaction volume was lower, the average transaction size remained consistent, indicating that clients appreciate the value we provide. This is encouraging. We also noticed an increase in managed services, particularly with asset servicers, which we believe will continue to be beneficial. Moreover, our data management solutions pipeline is gaining traction and is expected to be a significant contributor moving forward. Overall, these factors signal positive developments for us. For your second question, it would be best to discuss that with Ali and Kendra later.

Thanks so much. I was hoping you could talk about your increase in employee count, was about 5% this quarter year-over-year. Is that sort of a normal increase for you now organically, or is it maybe a little bit light? And should we expect sort of around that level for '24? And maybe you could go into, are you hiring sort of more salespeople or technology or product development? Just trying to understand where the growth areas within the employee base are. Thanks.

Hey, Toni, it's Linda. You're right, headcount growth was actually around 5% for the quarter, you're correct. For the whole year, FY '23, it was 9.2%. For FY '24, we're expecting that we're going to continue to add heads at about that 5% rate. But the mix is very, very heavily leaning toward our Centers of Excellence, maybe up to even 80% of those additional folks in our Centers of Excellence. So, in terms of the people costs, we actually took them down by 3% through what we call our Project Blue. We talked about thoughtfully and carefully trimming a bit on the employee base. And we will be looking to do about 5% in terms of hiring for FY '24, but again, very, very heavily leaning toward the Centers of Excellence. I'll ask Helen to talk about any potential hiring for the sales organization. So, Helen?

Thank you. I'm going to ask our CFO if I can hire more staff. One of the benefits of our efforts this year has been getting closer to the client, enabling us to approach the market by firm type and workflow solutions. This strategy has enhanced our productivity. We are now able to focus on workflows and leverage them across our clients, rather than just discussing different product types. We've received positive feedback from clients regarding this approach. Additionally, concerning our discussions with the top 25 clients, it is encouraging to note that we differentiate ourselves from competitors, including smaller startups, by focusing on how GenAI can benefit their workflows rather than simply discussing products they have yet to develop. We demonstrated how we are already integrating GenAI into our existing products. I believe these aspects will resonate well as we move forward with our current sales team.

I'm going to pile on just for a second here on the talent front. So, we're finding this a great environment for talent. So, our retention has improved significantly. Our realignment has allowed a lot of FactSeters to take on new additional responsibilities. But we've also found this a great environment to find some exceptional technology and product management talent from the industry, which is going to be accretive, we think, moving forward.

Great. Thank you. Linda, question for you. Given your outlook for revenue second half of the year being better than the first half on a year-over-year basis, I'm curious, on the cost side of things, how are you thinking about cost growth on a year-over-year basis? Is it pretty even you're thinking over the course of fiscal '24, or more back-half weighted? Thank you.

Craig, I think we'll look to our usual pattern of seasonality. Generally, the spend builds throughout the year. And as Helen said, we're looking for the back half to be stronger than the first half, so we'd like to sort of match that with our expense growth. So, I think what we want to do is be very careful on expense growth in the first half of the year. I think that's really important that we try to match up revenue growth with our expense growth. So, we're going to be very thoughtful in the first half of the year. The second half of the year, I think as we build into our technology budget and some things with GenAI start to catch, I think you should look for our normal trend, that expense growth would be heavier toward the back half of the year and, particularly, in Q4. So, hope that is helpful in terms of your phasing.

Thank you. Before we wrap up, I want to announce the return of our flagship user conference, FOCUS '24, in Miami next April. We're looking forward to bringing key clients and stakeholders together to network and share ideas on the theme of innovation. Innovation is our focus for the coming year, and I'm very optimistic about our opportunity. And in closing, I really want to thank all FactSeters and our teams for a job well done in fiscal '23. I'd also like to thank Kendra Brown for her excellent work, leading Investor Relations over the past two years. And going forward, she will be heading our Banking and Sell-Side Research business. And as previously announced, Ali van Nes will take over the Investor Relations role. You can contact Ali with any follow-up questions after today's call. Thank you all for joining us today. We look forward to speaking with you again next quarter.