Factset Research Systems Inc (FDS) — Q1 2024 Earnings Call Transcript

Thank you and good morning everyone. Welcome to our first fiscal quarter 2024 earnings call. Before we begin, the slides we referenced during this presentation can be found through the webcast on the investor relations section of our website and are currently available on 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. The 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 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 discussion of risk factors that could cause actual results to differ materially from those forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations 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, and Kristi Karnovsky, Chief Product Officer for the Q&A portion of today's call. I will now turn the discussion over to Phil Snow.

Thank you, Ali, and good morning everyone. Thanks for joining us today. In the first quarter, we grew organic ASV plus professional services by 7.1% year-over-year, delivering adjusted diluted EPS of $4.12 and an adjusted operating margin of 37.6%. This quarter we closed two marquee deals that serve as proof points for our long-term strategy even as macro conditions remain challenging. The first was a large wealth win at a major U.S. firm where we displaced a competitor, resulting in an increase of more than 17,000 new user accounts. The second deal was a significant trading win at one of the largest U.S. asset managers, highlighting the strength of our open platform and portfolio lifecycle solutions. We ended this quarter with almost 8,000 clients and 24 net new logos, with ASV retention remaining greater than 95% and client retention at 90%. Nevertheless, since our last earnings call in September, sales cycles have continued to lengthen, challenging our near-term forecast. Client budgets remain restricted due to lower deal-making volume, layoffs, and geopolitical uncertainty. While the recent Federal Reserve commentary may be positive for the macro environment, we are revising our fiscal 2024 top-line guidance to reflect ASP growth of $110 million to $150 million or 6% growth at the midpoint. We will also be implementing a cost reduction program in Q2 of FY '24, supporting our investments in multi-year initiatives such as deep sector and real-time while accelerating our AI strategic investments. We expect to review variable costs and personnel-related costs with a goal of delivering an adjusted operating margin within our original guidance range of 36.3% to 36.7%. Linda will elaborate more on this later in the call. Turning now to our performance by region. Growth this quarter was driven mainly by the large wealth win in the Americas, as well as solid demand for data solutions, offsetting weaker results in other parts of the business. Americas ASV growth accelerated 88 basis points over the prior quarter to 7.9%. Outside of wealth, lower net hiring in banking and asset managers led to softer demand for workstations compared with a year ago. In EMEA, organic ASV growth decelerated to 5.4%, mainly due to a slowdown in our core buyside markets in the U.K. and France. Our clients are experiencing reduced revenues and margin pressures, which led to delays in planned projects and slower sales cycles. Higher demand for data solutions partially offset these headwinds. In Asia Pacific, we delivered organic ASV growth of 8% driven by solid gains with asset owners, partially offset by seasonal banking layoffs. From a firm type perspective, wealth accelerated the most compared with last quarter due to the marquee deal I mentioned earlier. While pipeline visibility remains limited, several conversations at C-suite level point to a continued opportunity to displace wealth competitors. For deal makers, we added new logos in private equity and corporates, but not at the rate we saw last year. Churn and lower seasonal hiring led to erosion in banking. On the institutional buyer side, cost-cutting and headcount reductions at institutional asset managers caused a deceleration in workstation sales. For asset owners and hedge funds, elongated sales cycles further dampened results. Finally, new business in the sales of data solutions drove growth with partners across regions. Overall, tension was flat in the first quarter, with the positive effects of the fiscal 2023 price increase partially offset by higher cancels and erosion. Over FactSet's 45-year history, new product releases have driven our strong market position. Last week, we added to this list with the beta release of FactSet Mercury, our new conversational AI interface. FactSet Mercury is a large language model-based knowledge agent that uses natural language to request company information and provide supporting context. Users can ask for any chart using natural language, which is then prepared and delivered into Microsoft Office. FactSet Mercury is part of FactSet Explorer, a product preview program we are working on with our leading banking clients and will soon offer it to institutional buyside and wealth clients. Also, last quarter, we released AI-enhanced transcript highlights and news summaries, which received positive reviews from our users. These are just the first of many workflows leveraging generative AI to improve our clients' efficiency. Along with these AI initiatives, work continues on deep sector and real-time, the wealth workstation, and the portfolio lifecycle. Each of these multi-year investments is driving growth, including last quarter's big wins in banking and asset management. Finally, the private credit market is growing fast and is almost the size of the leveraged loan market. It is well served by both our data solutions and our middle office analytics. For example, Cobalt can be used for private credit fund portfolio monitoring. We can also extend our fixed-income capabilities to private credit risk assessment, benchmarking, and performance monitoring. In summary, I remain confident in our strategy and the health of our business, and I am optimistic about the opportunities ahead of us. Demand for our high-value products remains strong, demonstrated by our marquee wins this quarter and increased interest from global firms consolidating to FactSet’s open platform. I'll now turn it over to Linda to discuss our first quarter performance in more detail.

Thanks, Phil, and hello to everyone. As you've seen from our press release this morning, Q1 organic ASV and revenue growth exceeded 7%. I will now share additional details on our fiscal first quarter performance. As Ali noted, a reconciliation of our adjusted metrics compared to GAAP is included at the end of our press release. First, a few observations on macro conditions. Last Wednesday, the Federal Reserve decided to hold rates constant and signaled three quarter-point rate cuts next year. Inflation has eased, but remains higher than the Fed's 2% target. Equities rallied on the news as rates fell across the yield curve. While this news was helpful, it will take time for capital markets and deal activity to pick up. As Phil mentioned, we expect that market recovery will come later than we anticipated in our September fiscal year 2024 guidance. For the quarter, GAAP revenue increased 7% to $542 million. Organic revenue, which excludes any impact from acquisitions and dispositions over the last 12 months and foreign exchange movements, increased 7% to $541 million due to higher wealth sales and increased sales of data. For our geographic segments, organic revenues grew by 8% in the Americas, almost 6% in EMEA, and 8% in Asia Pacific. Turning now to expenses, GAAP operating expenses increased 6% year-over-year to $353 million, driven by higher employee expense, technology costs, and royalties. Compared to the previous year, GAAP operating margin increased by approximately 80 basis points to 35%, due to a decrease in professional fees, personnel and facilities costs, partially offset by higher technology-related expenses. On an adjusted basis, operating expenses grew 9%, primarily driven by technology expense, which increased 28% year-over-year. We've continued to invest in technology to drive growth, with technology costs now representing about 9% of revenue consistent with our medium-term outlook. Employee expense grew 8% year-over-year, primarily due to increased salaries for existing employees. Third-party data content costs increased 12%, due to lapping a one-time accrual release in the first quarter of fiscal 2023, as well as higher variable fee expenses. Our continued efforts to right-size our real estate footprint resulted in a 1% decrease in year-over-year facilities expenses. Looking at margin, adjusted operating margin decreased by 70 basis points to 37.6%, driven by the previously mentioned higher technology expenses, partially offset by lower facilities, professional services, and T&E expenses. As always, you'll find an expense walk from revenue to adjusted operating income in the appendix of today's earnings presentation. As a percent of revenue, our cost of services was about 140 basis points higher than last year on a GAAP basis and about 220 basis points higher on an adjusted basis, largely due to technology and personnel costs. SG&A as a percentage of revenue was 230 basis points lower year-over-year on a GAAP basis and about 150 basis points lower on an adjusted basis due to decreases in professional fees, facilities expenses, and personnel expenses. Turning now to tax, our tax rate for the quarter was 15.2%, compared to last year's rate of 13.4%. This increase was primarily due to lower benefits related to stock option exercises and restricted stock vesting. The remainder of the increase was due to higher pre-tax income and a higher foreign tax rate, partially offset by foreign tax credits. Turning now to EPS, GAAP EPS increased 9.1% to $3.84 this quarter versus $3.52 in the prior year, driven by higher revenue and margin expansion, partially offset by a higher tax rate. On an adjusted basis, EPS increased 3.3% to $4.12, driven by revenue growth, partially offset by margin compression and a higher tax rate. EBITDA increased $219 million, up 9.3% year-over-year due to higher net income and higher income tax add-backs. Finally, free cash flow, which we define as cash generated from operations less capital spending, was $139 million for the quarter, an increase of 56% over the same period last year. This was driven by significantly higher net cash from operating activities, which was nearly $50 million greater year-over-year due to higher cash collections. Turning to share repurchases for the quarter, we repurchased 135,950 shares for $59.9 million at an average price of $440.67. We intend to continue our share repurchases during fiscal 2024 with a target of $250 million of purchases spread ratably throughout the year. We remained disciplined in our buyback program and committed to returning long-term value to our shareholders. Combining our dividends and share repurchases, we returned $378.6 million to our shareholders over the last 12 months. As a reminder, we also increased our dividend by 10% to $0.98 per share in the third quarter of fiscal 2023. Finally, turning to our revised guidance for fiscal 2024, as Phil mentioned earlier, we expect that the market recovery will happen later in the year than anticipated when we first gave guidance for fiscal 2024. Given this revised view, we are guiding to incremental organic ASV plus professional services growth of $110 million to $150 million, reflecting 6% growth at the midpoint, down from our original 7% growth guidance. Given the headwinds in ASV and the lag timing of ASV in the first half of the fiscal year, we are lowering our expected revenue range to $2.2 billion to $2.21 billion. At the midpoint, revenue growth is also expected to be approximately 6%, a deceleration of about 75 basis points from our previously issued guidance. We've reduced our GAAP operating margin guidance to 32.5% to 33%, which is down from 33.1% to 33.5%. However, it should be noted that we have not changed our adjusted operating margin guidance 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. It is also worth noting that our effective tax rate guidance has been reduced by 50 basis points to 16.5% to 17.5%. Finally, adjusted EPS is expected to range from $15.60 to $16, which represents 7.8% growth at the midpoint and a $0.10 reduction from guidance at the midpoint. As Phil mentioned, we continue to execute disciplined expense management to support strategic investment to grow our top line. Accordingly, we expect to take a $10 million to $15 million charge in the second quarter of fiscal 2024. Focus areas for expense reduction include both variable and personnel-related costs. Despite the uncertain environment, we remain confident in our long-term growth. We have a diverse pipeline and are seeing improved price realization and increased interest in our products. In addition, our enterprise contracts and diverse end markets provide us with downside protection in an uncertain market. As a result, we are confident that we are positioned well for the future. We are now ready for your questions.

Hi, good morning. Thank you. I guess I just wanted to ask for a little bit more clarity on the updated outlook. Can you just talk about whether deals are falling out of the pipeline? Are deal sizes getting smaller? Is there any pressure on the pricing side? Or do you feel like this is all just kind of getting pushed to the right while your customers try to navigate the macro environment? Thank you.

Hey Seth, thanks, it's Phil. I'm going to say a few words and then I'm sure Helen has more detail. So I think clearly we had a good Q1. We had a great win there on the wealth side. Q2 looks to be a little bit weaker than we originally anticipated. It's always hard to predict when market sentiment is going to turn around. We’re still very optimistic about Q4, and as usual, we have a tail of two halves. So I think we have the product, the strategy, the competitive positioning to really do well, but we are facing some headwinds in the market just in terms of clients and their budgets, obviously looking very closely with their own headcount.

Yes, and maybe I can add a little bit to that. Thanks for the question. As Phil just said, I do think that the continued demand for our middle office offerings and data and middle office services has really been strong, and similarly for data feeds. Right now, the total cost of ownership has been the differentiator for us, but there are external events impacting budgets and timing and hiring. So what changed from 90 days ago? Let me try to break that down a bit for you. I'd look at around 40 basis points coming from the impact from pricing pressures and lower price realization. We're seeing some impact from higher erosion, about 30-some basis points, and then 25 basis points coming from what we view as delayed decisions and spend. We're seeing more of that coming into the fourth quarter, making it a bit tougher to gauge exactly when that will come to fruition. We have not seen a lot of fallout. So that helps us think about the strength of our business, but not the timing of it. If you think about the reduction by firm type, about half of it will come from deal makers, primarily banking. We see weaker net hires, but it's very difficult to tell until we get into the second half, as you know, for seasonal hiring. From the buy side, that's about 25% of our total. We're seeing higher erosion due to cost rationalization and also delayed decisions. There are good opportunities in the six-plus-figure deals, but those take longer to materialize. And lastly, on wealth, we had strong wins this quarter but are observing a slowdown in advisor hiring and losses on smaller firms. We still see a path to hit the higher end of our revised range, with factors such as higher conviction on improvements in capital markets, leading to more investments that are already in flight going back into technology, along with increased investment banking flow driving higher seasonal hiring. We've also got several large competitive opportunities in our pipeline, all in the six and seven-figure deal range. Hopefully, that gives you a sense of what drives the delta between our guidance.

That's great color. Thank you. I appreciate it.

Welcome.

Thank you. I was hoping you could talk a little bit about the price increase that you're implementing for the upcoming calendar year. I know Helen you just mentioned some difficulties in passing through price, but what is the sort of list price increase and what are your expectations for how that flows through?

Yes, sure. Thank you, Toni. You're right. The Americas is done on January 1, and then internationally, we’ll see that come through in April. Interestingly, the actual rate cards we have not increased. What we do is an annual price increase based on our contracts. And quite frankly, until now, we've seen everything go through pretty well. Clients are not pushing back on the price increase per se; they understand it given our improvements and enhancements. The issue we face is that clients are using this opportunity to review their lists, leading to some erosion as a result. Also, from a price realization perspective, we are seeing some downshifts, needing to approve deals at a lower price realization, about a point lower than we saw in Q4, for example. And that's driving some of that delta. We expect to continue being competitive, especially on new deals, but the annual price increase so far has been received in line with what we've observed in the past.

Terrific, thank you.

Thank you.

Yes, hey guys. Maybe a little bit too short-term focus here, but talking about the second quarter a little more in detail, you said that was the biggest change in your outlook. Last year, I think you added $54 million in the quarter organically and I think $31 of that was pricing. Are you basically saying pricing should be fairly consistent, but then you may actually have negatives elsewhere? How would you think about the second quarter specifically?

Alex, hi. It’s Helen. Thanks for your question and thanks for the specifics. So yes, last year we had a very strong Q2, and so this year, while we've not changed our rate card, the annual price increase is a little lower than last year. So that is part of the reason, so you're spot on there. The other is that we anticipate a couple of material headwinds, one being the impact of the Credit Suisse acquisition by UBS and the downsizing that will occur. Now we might be a bit conservative there, but that’s going to have a significant impact on our growth year-over-year. So regarding Q2, we expect to see a much weaker growth rate.

All right, thanks for the color.

Yes, hi, good morning. Thank you. I wanted to follow up on the cost savings that you mentioned. So maybe, Linda, can you talk a little bit more about the timing of those savings and how we should think about that as we go through the year? And maybe in general, how do you think about your flexibility regarding EPS and your level of investments and priorities?

Yes, hi, Faiza. Yes, we are considering what it means to have at the midpoint a $15 million reduction in revenue. We would like to offset that, and it is our intention to hold the adjusted operating margin at about 36.5% midpoint. That means we need to adjust our expenses. We've talked about taking a charge which we will have more details on in the second quarter earnings call. So we’re targeting about $30 million in cost cuts, looking at around $10 million in cuts in variable costs and personnel costs. We are looking at T&E cuts of about $1 million to $2 million, with professional services cuts expected to be $3 million to $4 million. So that's about $5 million total in variable costs. Additionally, our bonus pool will likely decrease a bit, maybe about $5 million. We also discussed a $10 million to $15 million charge that would focus more on personnel and headcount reductions, though we haven’t finalized any decisions on that yet. Our expenses will have to come back into line with revenues. We’re seeing technology costs rise due to ongoing investments, but third-party data costs will remain flat to down year-over-year, and real estate costs are stabilized. Thus, we are reviewing our headcount and costs strategically. We expect our operating expenses to jump to about $350 million for the second quarter before flattening out for the rest of the year, with our margins potentially decreasing as we move forward, reflecting the seasonal pattern we typically see at FactSet. I hope this gives you a clearer picture.

Thank you, Linda. That's very helpful.

Thank you. I just want to follow up on the macro discussion. Usually when you have cost pressures and budget pressures, there's a lot of talk around vendor consolidation. Are you seeing any opportunities in terms of winning business from the lower end or potential M&A opportunities?

Oh yes, hey Manav, thanks for the question, it's Phil. We definitely see opportunity. During these periods of market uncertainty, it’s a great opportunity for FactSet to work with our clients, who typically want to do more with us and trust us. This is becoming an increasingly sophisticated conversation as our product suite expands. I've heard a couple of very encouraging situations in the past few weeks, indicating a top-down push at larger clients for cost savings, which is promising. While some firms are still providing users with choices, we remain an anchor partner based on our strategy and our open platform. Our investments in generative AI and our approach there resonate well.

Maybe I can add a little bit to what Phil just said. Clients are undergoing right-sizing exercises. Most clients have flat budgets. However, they seek more sophisticated tools and reporting. Yet, they lack sufficient people, funding, or their current technology cannot scale. That’s why we are well positioned. Our open platform approach enables piecemeal replacements instead of entire workflow replacements, which also plays to our advantage.

Hi, Thank you for taking my question. Can you talk about how you are thinking first-half versus second-half and the drivers between the two parts of the year? In prior earnings, you noted the expected recovery in the back half. Has that timing changed?

Yes. Heather, it's Linda. I actually listened to an interview with Brian Moynihan on my way up this morning. The timing of the turn is uncertain, and prediction is difficult. Originally, we thought it might come sooner. Events like the one that occurred on October 7 have made the macro situation more complicated. Sentiment worsened, and we were approaching the calendar year-end, leading to tighter budgets. There was a positive surprise from Chairman Powell last week, resulting in a swift market turnaround. However, the hiring for our clients tends to lag behind events like this. We have seen different activity levels, and while some firms report increased activity, actual capital market recovery timing is hard to determine. We're optimistic for a turn, but it's difficult to assess timing. We believe the Fed's recent actions signal that it is coming, just slower than originally anticipated.

Thank you, I appreciate the color.

Hi, good morning. Thank you for taking my question. Linda, specifically for you, you talked about cost-cutting. But can you discuss the efficiency gains that may come from AI? A lot of AI seems to target clients but what about internal AI efficiency? Also, regarding the Centers of Excellence, are they reaching peak capacity or can they continue leveraging their potential?

Yes, Shlomo, I'll let Phil elaborate on how far we can go with the Centers of Excellence. We indeed have good representation there, and it's working well. While we are considering AI-driven efficiencies, we're focused on client applications first. Improving efficiency for engineers and support functions is significant, and we'll discuss that more in the future. Also, I appreciate your note about our improved free cash flow and cash collection warm-ups.

Yes, thanks, Shlomo. There are three buckets of cost opportunity internally for generative AI. One is engineering: we have a lot of engineers, and we've successfully piloted GitHub Copilot in several groups, with broader deployment planned. We're witnessing improved efficiency in coding time. On the content and collection side, we've been automating content collection over time. I had meetings in India recently, where teams showcased how they could improve efficiency in collecting data. Finally, on the sales front, we have a copilot aiding our help desk, which is particularly effective since about half of help desk requests involve coding. The challenge is whether we will allow the efficiency gains to flow through to our margins or reinvest in product development. Major impacts may not be seen until FY '25, though we expect some recognition later this fiscal year. Regarding the Centers of Excellence, we're evaluating our staff and location strategy, learning from COVID-19 that we have more options available. Overall, I'm optimistic about driving efficiency and top-line growth via our product capabilities.

Hi, good morning. Thanks for taking my question. I wanted to ask about the M&A opportunity set and your appetite there. With the market being a bit choppier, are you seeing more reasonability in multiples for potential acquisitions?

Yes, thank you. There are three key areas of M&A interest: wealth technology, private markets, and portfolio lifecycle enhancements. We look at other interesting content assets, and yes, your instincts are correct—the market is beginning to present opportunities. Sponsors are starting to bring assets to market to show returns to clients. The determination of whether multiples are decreasing remains to be seen, but we’re in a better position than six months ago after successfully executing the CUSIP acquisition and bringing our leverage down as promised. We remain active in reviewing opportunities. Regarding AI, the real winners will be those who own the data. We're well-positioned as we have a wealth of data that we collect ourselves, partnered with significant third-party data sources. This not only enhances our service but attracts clients who trust us with their data. We're actively evaluating what's available in the market.

Very helpful. Thank you.

Hi, thanks. Good morning. You talked about restructuring to eliminate variable and personnel-related costs. Can you elaborate on which parts of the business this is affecting and how these actions are geographically spread out?

Yes, George, it's Linda. We're not going to disclose information about headcount reductions by firm type as decisions are not finalized yet. We're assessing investments toward higher value, emerging opportunities while also looking closely at products that may not have fulfilled our expectations. Headcount evaluations are focused on onshore locations. These decisions will be approached cautiously, ensuring they align with our strategic goals. Our aim is to achieve cost-cutting of $10 million to $15 million thoughtfully, with senior management giving this careful consideration.

Got it. Thanks for the color.

Great. Thank you. I was hoping you could give a little more clarity on the workflow breakdown in the quarter year-over-year by client type, dealmakers, partners, wealth, and institutional buy-side? Also, could you provide insights on expected growth for the second half compared to the first?

We can't provide exact figures, but banking was affected the most, as noted in our press release. There were weaker hiring and higher churn in the banking sector than last year. In the asset management realm, results declined moderately, and we did notice reduced penetration in the front office. The overall growth rates for asset management, asset owners, and hedge funds remained stable. Wealth grew significantly due to the large deal we closed in Q1, while smaller divisions like private equity and venture capital did see new logos added, albeit not at last year's rate. So this helps clarify the overall turnover.

That’s perfect. Thank you.

Thanks for taking my question. On wealth, you've mentioned an acceleration of growth in FY '24. With a large win this quarter, can you tell us more about the key drivers and strategy behind this growth? I understand you're also expanding into workflows outside of the Advisory Dashboard. Could you provide an update on that?

Hi, Kelsey, it's Helen. Thanks for your question. When we think about wealth, we had a strong win this quarter helping us a lot. Wealth clients aim to modernize their platforms. We've seen sizable firms initiating modernization, and mid-sized firms are now joining in. We've seen significant successes with major clients including Merrill, Royal Bank of Canada, Raymond James, and Bank of Montreal, with our latest win reflecting a high total contract value and displacing a long-time competitor. We are committed to building long-term relationships since our contract averages over five years. Wealth clients desire improved digital technology, and we offer options that enhance efficiency—for instance, widgets provide quick implementation without the need for extensive development costs. This translates to expanded opportunities beyond our wealth platform into data solutions and CRM systems, allowing clients to focus on boosting their top line.

Hi, thanks for having me on. You mentioned good user growth but a slowdown in client growth that seems driven by those two key deals. Is this a shift in sales strategy towards larger enterprise deals? Should we expect ASP growth to be lumpier and more volatile as a result? Also, can you provide specifics on the impact from Credit Suisse in your ASP this year?

Yes, I can't speak to specific sizes, but we are increasingly targeting larger deals, and I am encouraged by our wins in both wealth and institutional buy-side trading. Revenue from these wins often takes time to materialize. The implementation processes can delay revenue recognition. However, I am optimistic about the price growth landscape as we are consistently searching for substantial contracts. FactSet's model ensures we can still expect stable revenue patterns as we return to normal capabilities, with our track record of small wins and steady growth continuing to support our performance.

Thanks so much. I wanted to revisit the AI discussion. You’ve recently launched FactSet Mercury; can you provide more insights on its functionality and the plans for its future?

Sure. Hi, Jeffrey, this is Kristi. We're enthusiastic about FactSet Mercury. It’s part of our complete AI blueprint aimed at responsible AI use to add value for clients. The first pillar is mile-wide discoverability. Mercury serves as our user interface, enhancing user access to all FactSet content and functions. The intent is to create a more personalized and insight-driven user experience. A notable feature is its ability to provide auditability of data presented, ensuring users can trust the information they receive. Extensive user research has validated that delivering reliable data in context will significantly improve user efficiency. Mercury’s first rollout targets junior bankers, but we plan to broaden access to other client types and workflows.

All right, thanks. That's really helpful.

Good morning, Thank you for taking my question. Could you talk about the demand and timing of monetizing Mercury or other AI products? How does it assist in contract negotiations? Have you factored this into your ASV growth guidance for 2024?

Thank you for the question, Owen. Mercury signifies a natural evolution within our user offerings, with some conversational aspects integrated into our workstation packages. We anticipate that this will enhance user value and efficiency. In terms of deeper workflow automation for investment banking and portfolio commentary for buy-side, we are refining our commercial models. Significant improvements in workflow efficiency will result from this automation, creating substantial client value. We will share more insights as we progress and advance in the FactSet Explorer beta program. This ensures we can assess our offerings properly once we’ve established the correct models.

And to add to Kristi's insights, monetization remains under discussion. The enhancements we're implementing contribute to client retention and are fostering engagement with potential new clients. However, these developments are not included in this year's guidance yet.

Got it. Thanks a lot.

Welcome.

Thanks for taking my question. Regarding the six to seven-figure deals in the pipeline, are the closings dependent on clients opening budgets? Also, would you expect those client budgets to improve in calendar year '24?

Yes, you're right. As discussed earlier, we thought that recovery would improve more quickly into the second half of the year. However, expectations for client budgets are conservative, largely trending flat. They're being asked to accomplish more with limited resources. For those six to seven-figure deals, the approvals can hinge on clients receiving additional budgets. The sentiment around fiscal year '24 indicates a potential for additional investments in technology and GenAI, so we're positioned to benefit from this environment.

That’s very helpful color. Thanks.

Welcome.

Hi, Linda, just a big picture question. It seems like you're attributing some changes in your outlook to the delayed market recovery. With sentiment improving, why does your outlook not mirror this positivity?

It's a fair question. We provided guidance before the unfortunate events of October 7, which intensified macro challenges. Events have influenced sentiment and client behavior. As we approach year-end, clients tight on budgets are now tightening further. Recent news from the Fed influenced market sentiment, but projections for client hiring and spending tend to lag shifts in market conditions. We had optimistically anticipated improvement sooner but are exercising caution based on Credit Suisse developments, market conditions, and general client spending behavior. I understand the concerns about any disconnect, but we're optimistic moving forward.

Yes, I echo Linda's sentiments. Sales cycles take time, particularly in enterprise solutions. We are excited about all opportunities and are working diligently with clients to navigate these challenging times. We're pleased about investments in AI and continuing relationships with clients as we enhance our product offerings. We're poised for good performance once market conditions stabilize. Thank you for your questions today, and we look forward to our next updates. Operator, that concludes today's call.