Factset Research Systems Inc (FDS) — Q4 2024 Earnings Call Transcript

Thank you, and good morning, everyone. Welcome to FactSet's fourth fiscal quarter 2024 earnings call. Before we begin, the slides we reference during this presentation can be found through the webcast on the Investor Relations section of our website. A replay of today's call will be available 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 2, 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, reconciliations to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today. During this call, unless otherwise noted, relative performance matrix reflects changes compared to the respective 2023 period. Joining me today on the call are Phil Snow, Chief Executive Officer; Helen Shan, Chief Financial Officer; and Goran Skoko, Chief Revenue Officer. I will now turn the discussion over to Phil.

Thank you, Kate, and good morning, everyone. I'm pleased to share our fourth quarter and full year fiscal 2024 results. We ended fiscal 2024 with organic ASV plus Professional Services growth of $104 million or 4.8%, which is just above the midpoint of our guidance range provided in June. Annual revenue increased to $2.2 billion, adjusted operating margin to 37.8% and adjusted EPS to $16.45 or 12.3% growth, all above the high end of our most recent guidance. Amidst the ongoing backdrop of macro uncertainty, we continue to see evidence of the green shoots we observed last quarter. These positive trends paired with our solid execution resulted in sales momentum on large deals as we closed out the year. While we remain cautious, I'm encouraged by the reacceleration of our new business and growth to end the fiscal year. Turning now to our financial results. In the fourth quarter, we added $54 million of ASV, which was in line with what we delivered in Q4 last year. This was driven by several large multiyear renewals and seven-figure competitive displacements across multiple firm types. For our organic ASV performance by region, in the Americas, we had 6% growth, strength from strategic wins in wealth and momentum from long-term renewals on the sell-side were offset by softness on the buy-side. In the EMEA region, growth decelerated to 2%. Gains from wealth were offset by headwinds to retention on the buy-side across the region, as market conditions continue to constrain the budgets of our mid to large-sized asset manager clients. In particular, one-third of the deceleration in the quarter was the result of a cancellation by one large buy-side client. In the Asia Pacific region, we delivered growth of 7%. Wins across wealth with our analytics product suite and data solutions were offset by higher erosion from banking and asset management clients. Now looking at trends by firm types. Wealth management was the largest contributor to our ASV growth in fiscal 2024. Even with one-time loss earlier in the year of a client in-sourcing one of our services. In the fourth quarter, we experienced strong demand, and organic ASV growth accelerated to 12% for the year led by multiple large enterprise deals in the long-term renewal. These large wins in the fourth quarter build on our competitive displacement of an incumbent at a marquee wirehouse client in the first quarter. In the fourth quarter, we secured a win against the same competitor in the Canadian market, where we now hold significant share with three of the region's top five wealth managers. Another notable advisor desktop win in Q4 was a significant displacement of a competitor where we are replacing a high number of high-end terminals at a leading private bank. In total, we added over 23,000 advisor desktops in fiscal 2024, representing over 30% growth in seat count to bring our total wealth users to north of 100,000. Our wealth workstation has proven to be a differentiator with clients seeking firm-wide enterprise deployments that improve productivity of their advisors. And we believe that FactSet is well positioned to continue our momentum in competitive displacements. As we broaden our offering for wealth managers, we are seeing early success in adjacent workflows. In the fourth quarter, we captured our first enterprise deal in the wealth middle office for performance and managed services. We also achieved a significant milestone in the first sale of our conversational API. This large deal powers a leading private wealth client through programmatic access to FactSet Mercury, our GenAI-powered knowledge agent. In dealmakers, organic ASV growth was 4%. While headwinds impacted this segment earlier in the year, we observed a reacceleration in Q4. This growth was driven by gains from a seven-figure competitive win in banking to displace our main competitor in this space and several multi-year contract renewals and a modest uptick in seasonal hiring. Conversations with our clients indicate a cautious optimism for more normalized hiring in banking in the months to come. On the institutional buy-side, we faced a backdrop of tighter budgets and vendor consolidation that led to an organic ASV growth rate of 3%. These headwinds persisted throughout the year and were most pronounced for asset managers where higher erosion and the large asset manager cancellation put pressure on retention. While ongoing fee compression continues to be a challenge for the industry, FactSet is among the few players that clients can choose to partner with to help consolidate spend and lower total cost of operations. For partnerships and CGS, organic ASV growth was 6%. Softness from partnerships was offset by continued strong performance from CGS. In the fourth quarter, new business and renewal expansions added to growth while a lack of large deals and a significant cancellation were headwinds. As we transition to fiscal 2025, we continue to execute against the strategic multiyear investment plan we outlined last quarter. There are three main pillars driving our focus. First, the continued data expansion to finish what we started. Over the past several years, we have executed the largest content expansion in FactSet's history, including deep sector, private markets and real-time. These initiatives have added to the growing universe of proprietary connected data on our platform, which increasingly differentiates FactSet from our competition. Additionally, these data investments are not only helping us win on renewals, but also driving our success in many of our competitive displacements. The focus of our targeted investments in the upcoming year will be on bringing these offerings to maturity. Secondly, embed FactSet deeper into client workflows. Across each of the firm types we serve, there is continued runway for us to streamline and simplify our clients' workflows. For the institutional buy side, we are prioritizing investment in the front office where there is substantial opportunity to leverage our strongholds in portfolio performance, analytics and risk to deliver differentiated value. With over 5.5 million institutional portfolios representing nearly $30 trillion of AUM flowing through our middle-office systems each night, FactSet is in a privileged position to connect this holdings data with the portfolio workflows of front-office users. In wealth management, we aim to capture further market share by building on FactSet's growing presence on adviser desktops to expand into adjacent workflows such as prospecting and digital reporting. And finally, for dealmakers, we continue to accelerate engagement with our banking clients to bring next-generation automation their research, financial modeling and pitch creation workflows. In addition to optimizing workflows boost productivity for junior bankers among whom FactSet has a strong and loyal following, we are also investing to expand on our technology-driven differentiation for senior professionals. The third pillar is accelerating innovation through generative AI. A fundamental element of our strategy is executing on our AI road map. Since announcing FactSet Mercury and our AI Blueprint late last year, we have focused on integrating generative AI directly into our clients' workflows and enhancing their overall FactSet experience. There are early signs that FactSet's differentiated open ecosystem approach to GenAI is resonating, and our investments in this area are already paying off. Earlier this year, we launched multiple new GenAI-powered solutions, including portfolio commentary, transcript assistance and conversational API powered by Mercury. And we are seeing meaningful usage of each by clients, which is starting to drive incremental ASV and improve retention. I look forward to sharing more on our GenAI progress at our recently announced Investor Day on November 14, including a number of exciting new AI products available in beta release through FactSet Explorer, our product preview program, which has now expanded to over 50 clients across banking, buy side and wealth. In addition to our own efforts, we are enabling third-party developers and technologists to build their own proprietary workflows on top of FactSet's data and technology. Through our AI partner program and GenAI data packages, we are providing programmatic access to our curated content and incubating an ecosystem of fintech firms who need data to fuel their solutions. In summary, I'm pleased with how our team closed out the year in a challenging market environment. In the face of industry headwinds, FactSet continues to be a trusted partner that clients can depend on to reduce their total cost of ownership. With our open platform, flexible approach, and history of innovation, we see tremendous opportunity in helping clients modernize away from incumbent processes to get out of legacy technology and data debt. We are well placed to meet this demand with our broad enterprise offering across data, workflow solutions, and services. We are guiding to organic ASV growth of 5% at the midpoint for the upcoming fiscal year, balancing a more muted outlook in the first half of the year with improvement in the second half. We're encouraged by the nascent market recovery and our solid execution this past quarter. This is positive momentum to build on, and I'm excited about our opportunity ahead. Over our 40-plus year history, FactSet has delivered a consistent track record of sustainable long-term growth. We remain committed to expense discipline and deploying capital responsibly to balance the trade-off between reinvesting to accelerate growth and expanding margins. I will now turn it over to Helen to discuss our fourth quarter and full year performance in more detail and take you through our fiscal 2025 guidance.

Thank you, Phil, and hello to everyone. As highlighted in this morning's press release, the fourth quarter proved to be our highest in terms of ASV growth. In the fourth quarter, we added $53.5 million of organic ASV, in line with last year's results, bringing our annual total to $104.4 million, slightly above our June guidance midpoint. This result is a 4.8% year-over-year increase in organic ASV plus professional services. In fiscal 2024, we grew revenue 5.7% on an organic basis, extending our record to 44 consecutive years of top line growth and showcasing our resilience during periods of market volatility. We improved adjusted margins and EPS, exceeding the top end of our most recent guidance, though GAAP margins and EPS were affected by a one-time item, which I will address later. First, our quarterly results. As we noted at the beginning of the call, reconciliation of our adjusted metrics to comparable GAAP figures is at the end of our press release. GAAP revenues increased 5% to $562 million, driven by sales in wealth, banking, asset managers, and asset owners. Organic revenues, excluding foreign exchange movements and any acquisitions and dispositions over the past 12 months, increased 5% to $563 million. For our geographic segments, organic revenues grew by 6% in the Americas, 3% in EMEA, and 6% in Asia-Pacific. For the fourth quarter, GAAP operating expenses increased 3% year-over-year to $434 million with lower compensation expenses primarily offset by a one-time $54 million charge related to a Massachusetts sales tax dispute, which we have disclosed in previous filings. We do not anticipate taking additional material charges regarding this matter. On an adjusted basis, operating expenses grew 1%. Looking at each of our four major cost categories in turn, technology costs, our main expense driver, increased 20% year-over-year in the fourth quarter, mainly due to higher amortization of internal use software and increased investment in generative AI. For the year, technology cost was about 9% of revenue. Conversely, employee expense decreased by 7% year-over-year in the fourth quarter, driven by lower compensation expenses due to earlier cost reduction efforts and a lower bonus accrual. For the year, our people expense was 39% of revenue, down 300 basis points from the prior year. We ended the year with a bonus pool of $86 million, 13% lower than last year. And as a reminder, 69% of our employees are located in our centers of excellence. Third-party content costs rose by 15% year-over-year in the quarter due to changes in the timing of variable fees and remained at 5% of revenues. Real estate and related expenses decreased 9% year-over-year in the quarter due to office space optimization. For the year, these expenses declined to 3% of revenues, 50 basis points lower than the prior year. Our deliberate expense management is positioning FactSet for future growth by allowing us to self-fund additional investments in technology and strategic initiatives in fiscal year 2025. As compared to the previous year, Q4 GAAP operating margin increased by approximately 110 basis points to 22.7% from reduced employee compensation costs and revenue growth, offset partly by a Massachusetts sales tax charge. Adjusted operating margin improved by 240 basis points to 35.8% from lower bonus accrual and salaries, partially offset by higher technology costs. A detailed expense walk from revenue to adjusted operating income is in the appendix of today's earnings presentation. Cost of services, as a percentage of revenue, declined 330 basis points year-over-year on a GAAP basis, primarily due to lower compensation expense, partially offset by increased intangible amortization. Adjusted cost of services was lower by approximately 40 basis points. In the fourth quarter, SG&A as a percentage of revenue was 620 basis points higher year-over-year on a GAAP basis, primarily due to a $54 million Massachusetts sales tax charge. Adjusted SG&A was approximately 200 basis points lower, primarily due to lower compensation expense. Turning to taxes. Our effective tax rate for the fourth quarter was 23.6%, down from approximately 39% in the fourth quarter of fiscal 2023. This decrease was primarily due to the inclusion of a prior year tax adjustment. Our GAAP EPS increased 38.1% to $2.32 this quarter versus $1.68 in the prior year period. This was due to a decrease in employee compensation costs and an increase in revenues, partially offset by charges related to a Massachusetts sales tax dispute. Adjusted EPS rose by 23.8% to $3.74 from revenue growth, margin expansion, and a lower tax rate. Free cash flow, which we define as cash generated from operations less capital spending, was $137 million for the quarter, a decrease of 12% over the same period last year. The drivers are lower net cash from operating activities and increased capital expenditures. Fiscal 2024 free cash flow was $615 million, an increase of 5% over the prior year. Demand for our solutions remained steady with a fourth-quarter ASV retention rate of over 95% and a client retention at 90%. Through the fiscal year, we expanded our client base to over 8,200, adding 296 new logos. Concurrently, our user count increased 14%, adding over 26,000 to our total, driven primarily by wealth and dealmakers. On capital return for the quarter, we repurchased 153,650 shares for approximately $63 million at an average share price of $412.09. For fiscal 2024, we bought back a total of 537,800 shares for approximately $235 million at an average price of $437.40. On September 17, 2024, the Board of Directors of FactSet approved a new share repurchase authorization for up to $300 million. We paid a quarterly dividend of $1.04 per share today, to holders of record as of August 30, 2024. As a reminder, we increased our dividend by 6% in the third quarter, marking the 25th consecutive year of dividend increases. We remain committed to returning long-term value to our shareholders. Over the last 12 months, we have returned $386 million to our shareholders. In the fourth quarter, we paid down $62.5 million of our term loan, reducing our gross leverage to 1.6 times. This is consistent with our plan to repay the term loan in full by the second quarter of fiscal 2025. And finally, turning to our guidance for fiscal 2025. As Phil mentioned earlier, we anticipate growth accelerating as the year progresses, the next six months aligning with current conditions and the balance of the fiscal year improving from more favorable financial markets, execution on several long-standing large opportunities and new demand for our GenAI products and enterprise solutions. Our views are supported by a first-half sales pipeline that is comparable to last year. We foresee sustained momentum in wealth, subdued activity in banking, and modest improvement on the buy side. While we anticipate continued pressure on client budgets, we believe the overall pace of erosion will begin to moderate. Given these expectations, we are guiding incremental organic ASV growth of $90 million to $140 million, reflecting a 5% growth rate at the midpoint of our range. We expect adjusted operating margin of 36% to 37%. This range includes higher technology and content costs, the reset of the bonus pool, and targeted investments in banking and buy-side workflows, offset by lower controllable costs such as professional services. We are committed to maintaining expense discipline while also investing strategically to increase revenue and ensure earnings growth. Finally, adjusted EPS is expected to be in the range of $16.80 to $17.40. With respect to additional modeling assumptions for fiscal 2025, we expect interest expense to be between $44 million to $48 million. And we expect capital expenditures to be in the range of $95 million to $105 million. We remain positive about growth opportunities, particularly in wealth and buy-side solutions. By executing our generative AI roadmap, expanding connected content, and integrating FactSet further into our clients' workflows, we aim to increase market share and enhance client retention. We are committed to supporting our teams with the tools and knowledge they need to ensure we remain the partner of choice. We are now ready for your questions.

Thank you so much. I think this question is for both maybe Phil and Helen. You've had a very significant period of margin expansion since 2021 when we look forward, just given the balancing act that you mentioned of investment versus margin, should we view 2025 as representative of a normal year or how should we be thinking about margins over the long term? Thank you so much.

Toni, I'll start and I think Helen will have quite a bit to unpack there. I say this is probably a bit of a reset year. We've obviously expanded margins significantly. As you mentioned, I think the CUSIP acquisition was a tailwind for us there. But we have ended up I believe beyond what we've set out at the previous Investor Day, which was a little over two years ago. So we do believe we're investing well. We've had some long-standing programs that are fully funded and through our own efforts of being more efficient and self-funding, we feel we're in a great position to continue to invest. But Helen, why don't you provide a little bit more detail. Please.

Yes. No, happy to do that. Thanks, Toni. So we took expense actions in 2024 to really help expand margin in what was a challenging top-line environment. And quite frankly, as Phil said, we are higher than what we had originally aimed for in a medium-term outlook, which is 35% to 36%. We've also worked to reduce spend in absolute terms in targeted areas like real estate, and we've managed down variable expenses when needed, like our incentive compensation. So I think when you think about the difference in margin between the midpoint of 25% and where we ended 2024, about half of that is attributable to resetting the bonus level because it's meant to be reset for our New Year. And the balance is really to help cover technology costs. And so I would look at this as a more normalized level. Now we are doing a fair amount of investing as well. And all of that as I mentioned in the script is very much self-funded. So that's already in the rate that we're giving in our guidance.

Thanks so much.

You're welcome.

Thanks for taking my question. I wanted to follow up on the prepared remarks about improvement in the second half or the growth accelerating as the year progresses. Despite that second half 2025 progress, the 2025 ASV guide implies no improvement compared to 2024, despite potentially better macro with Fed cutting rates. So I just wanted to understand what's your macro and pricing assumptions baked into the guidance? Thanks.

I will begin. Thank you, Ashish, for the question. We anticipate that the challenges we've faced over the past two years will continue in the coming months. However, we are starting to see some positive signs. For instance, there was a slight increase in banking hiring in the fourth quarter, and we achieved several significant wins during that time due to the team's excellent performance. It was promising to see our largest clients actively collaborating with us, indicating their desire to continue working together. Historically, FactSet has experienced a more robust second half compared to the first half of the year, and we believe this trend will continue. After the calendar year wraps up, clients will likely have the opportunity to reevaluate their budgets, and we expect much of the existing market uncertainty to diminish. That captures much of our perspective, and Goran or Helen, would you like to add anything?

The only thing I would add to what Phil said is that I think we have a good product pipeline. I think we had recent product launches that will contribute to our acceleration in the second half. We had some sales of those products in the fourth quarter, which further proved that point. But really, we hope to build the pipeline in the first half and realize sales in the second half. So we do expect by the second half in 2025 as we usually have.

All right. It seems like I pressed the right button this time. Hello. I guess just very quickly on the buy side, maybe you can flush out your comments a little bit more. One, you mentioned a large asset management cancel this quarter. Can you maybe give a little bit more background? It seems like in asset management, you usually have a very sticky offering and not a lot of competitive threats. So just wondering what's going on there. And then overall, the asset management environment looks like headcount reductions or hiring is stabilizing. So are you seeing some of that already? Or is it still too early to kind of get more positive on that end market? Thank you.

Thanks, Alex. So yes, let me address the first part, which was that cancel. Yes, every now and then, obviously, we're going to face a large cancel. And I think this one was probably just due to a firm needing to consolidate and being under cost pressure. But maybe what I'll do is just give you a little bit more data than we have in the past on our top 10 versus bottom 10 wins for the year. So if I look at our top 10 largest ASV wins for the entire fiscal year, nine of those were against competitors. And seven of them were against our top four competitors, which I think are well understood. Four of those displacements had over 700 seats added for FactSet. In the bottom 10 deals, six were lost to competitors, but only three of them were to our major competitors. And four of the bottom 10 deals were the result of M&A or firm closure. So I think there is a consolidation and cost pressure in the industries. On the buy side, in particular, when they look to stitch together the front, middle and back office, we're going to win some, lose some on that. And this was a case where we lost. But in our top 10 deals, there was one which was the opposite, where we won against the same competitor. The second part of your question, anecdotally, I would say it is becoming more constructive on the buy side. When meet with the C-suite on the buy side, it feels like there's an appetite to continue to do the transformation. But the cost pressures are there, honestly, and it's really up to us to execute against that.

Yes. And I might add a little bit to that. As we think about the buy side, one of the areas that we're seeing continued demand is on the managed services, which is really more of an enterprise, not a seat-based type of solution we provide. So, it had some strength in '23, and we continue to see that grow again in '24. So, we would probably look to that as one of the drivers of buy side going forward.

Excellent. Thanks, guys.

Thank you.

Thank you. Good morning. I just wanted to follow-up on the strong performance in CGS that you called out in your prepared remarks, Phil, I guess how fast has CUSIP been growing? I imagine with all the headlines in CDs, it's a pretty big number. So, just curious if you could give us the update on how fast it grew this year, I guess, what percentage of the business it is and what you've assumed for 2025?

Yes. Thanks, Manav. So yes, we don't break that out, but it is a significant portion of the partners' business line, which we broke out, I think, earlier in the slide. So that compared with FactSet's traditional partners business grew in aggregate at 6%. CUSIP really drove the growth. We did have a couple of partnerships that have been significant in the past, where we lost some ASV there. So I think you can probably triangulate what happened there. The CUSIP team did a great job this year executing. I'm really encouraged by the pace of new development there in terms of their thinking. So, I guess, maybe we can talk a bit more about that later, but that's about all we can talk about right now.

Yes. Hi. Good morning. Thank you. So I wanted to ask about the ASV guide for 2025. You're not baking in sort of any type of acceleration, which seems prudent. But I'm curious how you would characterize that? Is it more conservatism on your end? Are you seeing sort of anything in the marketplace that's leading you to believe that things won't change? And then I know you have your Investor Day coming up. So maybe give us a preview of how we should think about a more normalized ASV growth for the company.

Yes. Thanks, Faiza. So yes, as I already mentioned, we're seeing a bit of a headwind here as we sort of finish out the year, but we're much more optimistic about the second half. So we provided a range. I do think there's an opportunity to do better for sure. I'm really encouraged by what we're seeing on the generative AI front. So that's a bit of a wildcard that we're beginning to monetize that, and we have a great pipeline. So if that begins to come in or accumulate at a faster rate, I do think that would be encouraging. Someone mentioned hiring. Historically, we have been very highly correlated to hiring on the buy side and the sell side. I think if sell-side hiring goes up faster than we have anticipated, and we have been pretty conservative there on the sell side, I think that could certainly be a tailwind for us this year. But do remember that particularly for some of these larger deals, it's a pretty long sales cycle as we go at the enterprise level now. And I think at Investor Day, we'll be sharing more. We can't say too much now. But what I do want to stress is the team is most focused on the top line, right? So that's what we want to do. We're not happy growing at 5%. We want to grow faster, and that's going to be our main focus and what we'll talk more about at Investor Day.

Thank you.

Hi. Good morning. Thanks for taking my question. So you've previously talked about GenAI kind of expected to start delivering incremental ASV in FY 2025. I'm assuming that's already included in the 4% to 6% ASV growth guidance. But just curious, have you sized the impact of GenAI investments for both ASV and expense outlook for the next few years?

Sure. Why don't I take a shot at that one? Thanks, Kelsey. So when we think about the impact that GenAI may have, that's why as Phil mentioned, we're looking more at the back half of the year. So that's when a lot of our new solutions that are powered by GenAI will come out in the first half. So that we'll be able to have a better perspective on that. It is baked into our guidance range, and that's why we're talking about it being the first half more in current conditions and the second half boosted by what we hope will be stronger capital markets activity and demand for the new products as well as enterprise. Ideally, as we talked about some of the green shoots of reduced erosion. So, when I think about how much that's baked in there, we'll see somewhere between maybe 30 to 50 basis points is where we might see that come through. As it relates to the expense side, I think right now, when I look at the total amount of investments that we're making, I would call it about 50-plus basis points also attributed to GenAI, both what we've been investing in, what we're going to continue invest into 2025.

Thanks a lot.

You're welcome.

Thank you. With respect to the ASV guide, how should we think about the current pricing environment and what's built into the guide? And then related to pricing, how does something like FactSet Mercury or your AI offering, how do you price that?

Sure. I'm sorry, what was the second part of your question?

I'll take the second part, it's pricing for AI.

Sure, I can provide that information. Our standard pricing, as outlined in our contracts, is based on the higher of CPI or RPI or 3%. We anticipate some challenges in 2025 regarding our annual price increase. However, it's important to differentiate between the annual price increase and our pricing strategy throughout the year. Our rate cards have been adjusted based on experience and market activity, and we have been increasing prices on our packages. On average, the price realization from these adjustments has exceeded 80%. We're optimistic about our ability to capture sales in this market. I expect this year to mirror last year, with a larger portfolio and new clients which will help us generate additional revenue and improve our price realization against our rate cards. Overall, we expect a modest year-over-year decline in total contributions from pricing, but it will still be a positive driver of our overall growth rate.

And in terms of pricing for AI, we're arriving at a model for this. Of course, we'll iterate on it. Some stuff will just get baked into FactSet out of the box. And we've already got some great product in there called Transcript Intelligence and Search Intelligence. You can go and look across a lot of different documents to get an idea of a trend of what's happening, get questions answered. Secondly, we're going to release deep workflow solutions. So we've released Portfolio Commentary. And we'll be charging for that on a usage basis. So it really will be driven by how many portfolios and how many commentaries you want to create. We did get a lot of demand for customization there after we announced this at Focus back in May. But we've done a lot of that work now. So we're in a great position to go out to the market. We've literally got hundreds of clients interested, and we'll be able to essentially customize this to some extent for them out of the box. So that's an approach we'll take with many of these things. We'll take a bundled approach in some cases where you can get a bundle of capabilities and get price for that. But most of this is going to be usage or consumption-based, I would imagine, and it might depend on the product. So a lot of it will be incremental ASV. We did have a great sale in Q4, which was our conversational API. So really, the search experience that you would have on FactSet, a client wanted to use that within their own ecosystem. A lot of the larger firms are going to want to do this. So we've taken a federated approach, which I think is a real winning approach. I'm going to pass the baton here to Goran because he had a lot to do with that sale. Do you want to add on to that and sort of your level of enthusiasm for this fiscal year?

Yes. We believe this sale can be repeated. We are already developing interest and a pipeline among multiple clients. As previously mentioned, we expect the impact of new product launches to be visible in the second half of the year. What’s particularly noteworthy is that our federated approach to the conversational API allows clients to speed up their internal development and significantly benefits their overall cost structure for in-house GenAI development. I'm very excited about this, as well as about the Portfolio Commentary and the upcoming releases we will discuss at the Investor Day.

Thank you. That’s very helpful.

Hi, thanks. Good morning. Your fiscal 2025 revenue growth guide of just over 4% is a deceleration from about 5.5% growth in fiscal 2024, even though ASV growth in fiscal Q4 benefited from several large wins that should ramp into next year. Can you help bridge the gap and discuss what may be dampening revenue performance next year compared to fiscal 2024?

Hi, George. I'll take that one. So as you know, the nature of our business, it is a recurring revenue business. So when the ASV goes in is how you get to recognize it. So a stronger Q4 is certainly helpful, but then you are carrying the last three quarters, which were lower. So revenue is a lag to ASV growth. And you'll see that over the period of time, if you look back at the last, whatever, 10 years. That's the way that it works. So that's the delta between the two. It also matters how the ASV gets converted in year. So as we mentioned already, the first half will be likely more where we are today and the second half being stronger. And so then that, again, will reflect more of the first half in revenue and then hopefully help us more into 2026.

Got it. Thank you.

You're welcome.

Hi, good morning. Thank you for taking my question. I wanted to ask maybe a bigger picture one on the investment dollars. It sounds like the year-over-year decline in operating margin is at least in part or it sounds like half is tied to the reset of the bonus pool, but there's obviously incremental dollars here tied to investment. And I just wanted to ask a little bit more about the thought process, how you think about kind of balancing that investment spend with kind of your priorities of driving top line growth? And then kind of relatedly, if embedded in your guidance is some flexibility to potentially ramp up investment spend as we move through the year, if you're hitting higher ends of your revenue guidance because it does look like a little bit of an inverse relationship between revenue growth and operating income guidance based on the table on the release. Thank you.

Sure. I'll take that. It's a very good question. So, as we mentioned before, we were able to take some expense actions in 2024 and reduce spend, which gives us some room for investment. So, overall, what I would think about the additional investment that we're putting into 2025, that is included in our margin and I'll call it self-funded, is roughly around 150 basis points, of which half is investments in GenAI, which we'll see that come through as Phil was speaking to likely on the front office as well as in banking and wealth. We're also investing in content, which comes through the form of real-time and fixed income and then also in our buy-side workflows. I mentioned earlier the increase in demand on managed services as well as investments we're going to be making in trading. And then lastly, a bit into infrastructure because to do some of the consumption tracking and billing to support the GenAI and other types of solutions that we have that are based more on usage, that's a bit built into our total of 150 basis points of spend. So, it's being funded in two ways; the productivity gains that we've taken as well as selected reduction in discretionary spend such as in professional services. So, we believe this is the right way to balance the need to invest for top line growth, which, as we said, is our primary focus, but also with the aim of maintaining the strong margins that we've already achieved.

Hi, good morning. Thank you for taking my question. I do have a follow-up with the investment, Helen, you just mentioned. So, as you start to monetize GenAI, do you need to continue to invest to maintain the growth rate or can you scale back some of your maybe early investments or current investments at some point? Thanks.

Sure. I realize I didn't address the second part of your question, so I'll try to combine the two. First, I believe we're in the early stages of this, so I can't make a judgment on whether we can reduce our investments. However, if we can see some of the ASV earlier and if that proves to be stronger, we'd be able to invest more as necessary. Right now, what we're focused on is continuing our investments as long as the returns exceed our costs. As I mentioned, our investments won't be limited to GenAI; they will also include content and improving the workflows themselves.

All right. Thanks a lot.

Thank you.

Thanks so much. Earlier, you referred to some of the wins you had in your top 10 customers. I think you said there were nine that you took share from your competitors. I know this may be a generalized question, but was there anything specific that drove that share change? I know each contract might be different, but I'm wondering if there are any commonalities in those deals. Thanks.

Thank you for the question. One trend I want to highlight is that we are increasingly engaged at the enterprise level with our clients. Goran has played a pivotal role in securing key wins by targeting the C-suite and delivering repeatable new solutions. For example, we achieved a significant win in Q4 with a client in the wealth management sector where we are enhancing middle-office performance. Goran and a strong team have been instrumental in our success in the wealth space over the past few years, and you can see our impressive performance this year, especially in that area. Wealth management and enterprise-level engagement are prominent themes, as our clients seem eager to derive value from us in various ways. Additionally, our desktop product continues to grow, and we recently had a notable win in banking, further strengthening our position in that sector. This progress has been fueled by our investment in deep sector knowledge and private markets, along with our team's ongoing efforts to improve efficiency for bankers. I believe we will see significant advancements once we launch some of our GenAI products.

In addition to what Phil mentioned, I believe our ability to compete for high-end terminals, particularly in wealth management, has significantly improved this year as we've added fixed income content and other capabilities. We're optimistic that this will drive future growth. One of the most encouraging signs of our recent successes is our expansion into additional workflows and diversification of our ASV sources. Phil highlighted our expansion into performance reporting for a large client, and we've also achieved a noteworthy win in wealth management by expanding into portfolio-related workflows. We plan to build on this in 2025 and beyond. The successes Phil pointed out are crucial for us.

Hi, good morning and thank you for taking my question. I'm interested in learning more about the competitive environment. It seems like you're capturing your fair share, but given the challenging market conditions, are you experiencing any aggressive pricing from your competitors? Thanks.

Hi Jason, thanks for the question. I wouldn't say any different than what we have experienced in the past. I think we always face competition and different level of aggressiveness when it comes to pricing. We are always keeping an eye out on the competition and exactly how we perform in terms of wins and losses. I do not think that much has changed competitively. There is certainly increased focus by some of the competitors on some of the segments that we do really well in, but we do not see that anything has significantly changed.

I'll add a little bit to that. It is a, as Goran said, a competitive environment. So we're being smart about this. So for example, in new business, we will, at times, given that they're switching costs, but to get the competitive displacement, we'll go in and be as competitive as possible. Now that being said, we've selectively used that pricing to also lock into longer-term contracts as well. And Goran said, we've seen some good success there in wealth and banking and incorporates. So I think we're just being smart how we're using price to be able win market share.

Yes, hi. Thank you. Question here. Over the year, how are your hedge fund clients doing in that market and also, when you sell into corporates? How is that going for you right now? Is it getting better or worse or about the same?

So I'll take a shot at that one. I would say it is about the same. It depends. We see a fair amount of churn on the hedge fund side, Craig. So we'll see ones that go down, and then they'll come pick back up. Our goal there is if they reconstitute themselves and come back as a new hedge fund that we catch them on the new business front, which we've seen a fair amount of. Interestingly, we've had good activity from the hedge fund community in Asia, in particular in the Singapore arena. So we're seeing what is relatively new growth out there, but hedge funds have done well. Corporates, we have a great partnership with a company called Irwin that we also do a lot of business with, and we've seen that uptick this year as well. There's a lot of churn. Our new logos, which we talked about in our call does come a lot from corporates.

Great. Thank you.

Yes. When you think about your strategy to stimulate top line growth back above 5%, I wonder do you feel you may need to be more aggressive in exploring inorganic actions? Or perhaps alternatively, would you consider partnership opportunities to accelerate growth in areas such as wealth, where you think there's a big TAM opportunity? Just curious as what you're thinking there is ahead of the Investor Day. Thanks.

Yes, thank you, Russell. Perhaps we can discuss this in more detail later. We believe it is an opportune time to pursue partnerships more proactively. With our efforts to enhance platform accessibility and interoperability, there is a chance to collaborate with specific firms across various market segments. Regarding mergers and acquisitions, we are now in a stronger position than we have been in the past two years to engage in targeted acquisitions, particularly after our significant purchase of CUSIP, which required us to reach this point. We are noticing a more favorable M&A environment with more opportunities that interest us. While we will remain disciplined, we recognize that this is a tool we can use to drive top-line growth.

Great. Thank you.

Hi. Thanks for squeezing me in. Phil, I want to ask you a little bit just holistically, over the last few years, we've seen the company expand the margins. Growth hasn't been as much as what we've historically seen. And FactSet has usually been more of a growth company. It seems like now, the guidance right now is for margins to be down a little bit sequentially, but a lot more talk about the new products or anything. Is there any change philosophically that is going on recently within the company where you have pivoted a little more to margin and now are pivoting more to growth? And I just wanted to ask you to talk about that. And then just a little bit about the 2H improvement this year versus what you were talking about last year because the outlook at this time year was almost exactly the same way in terms of a muted first half and then expectations in the second half. If you could point out the differences internally where you have line of sight to things, I would say, beyond just kind of the Fed rate cut, but things that you're actually seeing in front of you that give you more confidence this year versus last year, that would be helpful.

Yes, absolutely. Thanks, Shlomo. So, fundamentally, there hasn't been a significant change in our approach. We have always prioritized growth while also ensuring we deliver cash flow to the market. You have been following us for a long time, and we take great pride in maintaining that balance. It's been quite some time since we've consistently achieved double-digit growth, at least a decade, but we aim to return to high single digits. This period marks the third or possibly third year in which the market has been particularly challenging during my time with the company. Much of what we've faced in the past two years has been due to market pressures impacting our execution. Therefore, our emphasis on margin is essentially aimed at continuing to produce strong earnings growth for the market. So, no major shift there. Last year, we were somewhat optimistic that the obstacles would ease more rapidly, but that did not happen. However, we now feel more confident that the market conditions will be more favorable. We have made significant strides in evolving our platform and believe we are well-positioned to serve clients on a much larger scale than before. Our focus must now be on securing seven and eight-figure deals, as that will drive our top line. I believe we are well-equipped to achieve that. Additionally, we are also concentrating on efficiency. I see a good opportunity for FactSet to enhance its efficiency, and whether we decide to reinvest in more product offerings remains an open question. Generative AI will certainly play a role in our approach to developing products for our clients.

Shlomo, just maybe to follow up on the second part of your question. I think what gives us increased confidence, I already mentioned it, but I think the level of innovation and new products that we have delivered this year. We really believe that that's going to contribute to the second half projections that are more optimistic than the first half. So we are not counting on the market necessarily turning. But I think just that product pipeline and what we think we can deliver based on that.

Thanks for squeezing me in here. Just wanted to go back to some of the commentary on the data expansion side of your strategic investment plan with deep sector, private markets, and real-time. Just wanted to maybe get a little bit more color on sort of how that's coming up and maybe impacting your conversations with clients, specifically on the renewal side. And then I know we'll probably hear more about this at Investor Day, but if you can kind of give us a sense of maybe sort of the road map on the product side with those three initiatives would be great. Thank you.

Yes, sure, Scott. Why don't we start with real-time? I'm going to ask Goran here because he has a lot of experience with this, and I think we're at a good inflection point.

Yes, I believe we continue to produce outstanding products in that area. We had a significant success with real-time a couple of years ago, and I think the client has implemented all of their deliverables. We're very pleased with the progress, particularly in terms of content coverage and incorporating all the over-the-counter content flowing through the product. We're enthusiastic about the opportunities there. Additionally, I want to mention our advancements in the deep sector. We're making great progress with the product, and we have several clients working with us to deliver focused sector coverage, which has led to a high level of client engagement and product development in that area.

In private markets, we continue to invest. Many different firms are interested in that for various reasons. The biggest highlight for us is that we've doubled our coverage to around 9 million companies or securities and are obtaining increasingly better data. This serves as a strong foundation for our efforts in banking, private equity, and venture capital. Asset owners are paying attention, and there are numerous opportunities for us to monetize that investment.

Great. Thanks, guys.

Welcome.

Thank you. So I just first want to really thank Helen and the entire sales team for really closing out the year in such a great way. I think that's encouraging for the upcoming year. I want to thank all of you on the call and all FactSeters for the hard work they did this year. We look forward to seeing you all at Investor Day on November 14. I think it's going to be well worth your time. We're going to show some really innovative products and talk about the future and what you can expect from FactSet. Thank you.