Sign in

    Factset Research Systems Inc (FDS)

    Board Change

    FactSet Research Systems Inc. is a global financial digital platform and enterprise solutions provider that offers expansive data, sophisticated analytics, and flexible technology to power critical investment workflows for financial professionals. The company's primary revenue source is subscriptions to its multi-asset class data and solutions, which are delivered through its connected data and technology platform . FactSet operates through three reportable segments: the Americas, EMEA, and Asia Pacific, with solutions spanning the investment lifecycle, including investment research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting . The company's business strategy focuses on building a leading open content and analytics platform, offering personalized digital products, and delivering insights tailored to clients' specific business models .

    1. Workstations - Provides financial professionals with integrated tools for investment research, portfolio management, and trade execution.
    2. Portfolio Analytics - Offers solutions for performance measurement, risk management, and portfolio analysis to optimize investment strategies.
    3. Enterprise Data Solutions - Delivers comprehensive data services that support data integration, management, and analysis across various financial workflows.
    4. Managed Services - Supports data, performance, risk, and reporting workflows with tailored services to enhance operational efficiency.
    5. Americas Segment - Generates significant revenue by delivering FactSet's products and services across the American markets.
    6. EMEA Segment - Contributes to revenue through the provision of FactSet's offerings in Europe, the Middle East, and Africa.
    7. Asia Pacific Segment - Expands FactSet's reach and revenue in the Asia Pacific region by offering its comprehensive suite of financial solutions.
    Initial Price$417.49August 30, 2024
    Final Price$490.67November 30, 2024
    Price Change$73.18
    % Change+17.53%

    What went wrong

    • FactSet's buy-side business, particularly active management, remains under pressure and is uncertain, which may impact future growth. The CEO stated: "the piece of our business which has been under the most pressure for a long time is the buy side that's leveraged to active management. So that's a little bit more uncertain."
    • The company expects higher expenses in upcoming quarters due to increased hiring and technology investments, which may lead to margin compression. The CFO mentioned: "We do expect to ramp up on expenses starting in the second quarter... we do expect tech costs to go up as well as we're really ramping up on infrastructure spend in cloud-related expenses."
    • Competitive pressures in key markets are leading FactSet to be more aggressive in pricing and packaging, potentially limiting pricing power and revenue growth. The CFO noted: "It's a competitive environment... we have seen low price realization. So we are being a bit more aggressive there."

    Q&A Summary

    1. ASV Growth Acceleration
      Q: Should we expect acceleration in ASV growth in Q2?
      A: Management is optimistic about ASV growth accelerating in the second quarter due to positive momentum across various firm types. They highlighted strong performance in wealth management, with top 10 deals for the year—half are from wealth, including several 7-figure deals. They see increased momentum in private equity, venture capital, and hedge funds, expecting these markets to potentially grow at 10% this year. Good renewal conversations in banking and positive feedback on their Pitch Creator product are also encouraging.

    2. AI Products Monetization
      Q: Can you provide color on gen AI products' traction and ASV contribution?
      A: Management reports exceptional feedback on their generative AI products and sees great potential for monetization. They expect 30 to 50 basis points of growth in FY '25 from monetizing gen AI, which is included in their guidance but could potentially exceed expectations. Products like the conversational API, Pitch Creator, and Portfolio Commentary are gaining traction, with deals ranging from tens of thousands to hundreds of thousands of dollars. The focus is on efficiency gains for clients, such as saving time in pitch creation and portfolio commentary generation.

    3. M&A Appetite and AI Investments
      Q: Has your M&A appetite changed due to AI investments?
      A: The company maintains a high appetite for M&A and is in a better position to pursue acquisitions, focusing on filling gaps in their product suite. While they are not specifically targeting AI-related assets, they prefer companies with modern technology stacks, which may include AI capabilities. Their conviction in monetizing AI investments does not materially change their M&A strategy.

    4. Pricing Dynamics
      Q: What are your pricing expectations this fiscal year versus last?
      A: Management expects realized pricing this fiscal year to be similar to last year but notes that the CPI increase they can capture is lower due to inflation coming down. In some new business and renewals, they've adjusted pricing structures to be more competitive, resulting in higher volumes despite slightly lower price realization. Overall, they expect the value provided to clients to translate into stable pricing year-over-year.

    5. Client Budgets and Pipeline Optimism
      Q: Clients' budgets remain flat; what's driving pipeline optimism?
      A: Despite expecting clients' budgets to remain flat and cost-focused, management is optimistic due to increased client engagement. Trials have increased 23% in the Americas and 13% in Europe, and RFPs are up 30% year-over-year in Q1. They see potential for market share gains as clients reassess providers and are encouraged by improved M&A activity, which may lead to increased spending on the sell side.

    6. Managed Services Growth
      Q: What are your thoughts on managed services as a growth driver?
      A: Managed services are seen as a key growth driver for buy-side ASV. Recent wins include a deal with an outsourced CIO provider, and they have a partnership with JPMorgan involving managed services. These services augment clients' internal capabilities, particularly in performance and risk reporting, helping clients reduce total cost of ownership. While they don't provide a market size due to lack of direct competition, they see considerable upside.

    7. Margin Expectations
      Q: Should we expect margin compression in the back half of the year?
      A: Management reaffirms guidance of margins being slightly down for 2025. They expect expenses to ramp up starting in the second quarter due to higher people costs and increased technology expenses, particularly in cloud-related areas. They anticipate H1 margins to be closer to the midpoint of their guidance range.

    8. Client Retention and ASV
      Q: Why didn't higher retention translate to ASV acceleration?
      A: Client retention improved to 91% this quarter, up from 90%. This improvement is attributed to fewer full client cancellations and efforts to enhance retention processes. However, the ASV retention rate remains above 95%, and the 1% increase in client retention may not significantly impact overall ASV acceleration due to churn among smaller clients.

    9. Competitive Pricing Strategy
      Q: How are you tweaking pricing to improve conversions?
      A: Management has proactively adjusted pricing and packaging to be more competitive, especially in new business where price pressure is highest due to switching costs. They've targeted specific firm types and changed pricing structures, resulting in higher volumes despite lower price realization. Increased rate cards mean overall ASV has increased due to higher volumes, even if price realization percentages appear lower.

    10. 7-Figure Landmark Win
      Q: What were key reasons for the 7-figure win over incumbent?
      A: The win involved an outsourced CIO, with key factors including the quality of FactSet's technology, analytics solutions, and open platform allowing flexibility and connectivity with partners. Their multi-asset class capabilities and managed services offerings also played significant roles.

    11. Wealth Segment Competitiveness
      Q: Are you seeing elongated decision-making in wealth?
      A: While they didn't have a large wealth win in Q1 similar to last year's, management expects wealth to reaccelerate for the rest of the year. They are confident due to increased new business, seat growth, and successful displacement of competitors. They do not see significant changes in decision-making timelines or competitive dynamics in the wealth segment.

    12. Client Segments Improvement
      Q: Which client segments will improve most in H2?
      A: Management expects strong growth in private equity, venture capital, and hedge funds, anticipating these markets to potentially grow at 10% this year. Wealth management is also expected to perform well. They are optimistic about the sell side if banking activity increases, while the buy side linked to active management remains more uncertain.

    13. Softness in Clients' Budget Priorities
      Q: Can you provide color on clients deprioritizing budgets?
      A: Clients remain cost-sensitive, with budgets expected to be flat. Management is encouraged by increased activity—trials and RFPs are up—indicating optimism for the remainder of the year. They focus on helping clients with efficiency gains through managed services and AI tools to perform well even in cost-constrained environments.

    14. Contribution of Irwin Acquisition
      Q: How should we think about Irwin's revenue contribution?
      A: The Irwin acquisition will not have a material impact on top-line revenue but will help the corporates business overall. The acquisition is meeting or exceeding expectations, and early signs are positive.

    15. AI Products' Value Proposition
      Q: What's the value proposition of AI products for clients?
      A: The value proposition focuses on saving clients time and improving efficiency. Products like Portfolio Commentary generate auditable commentary quickly, and Pitch Creator saves analysts significant time in creating pitches. Management focuses on efficiency gains rather than large-scale monetization, with deals ranging from tens of thousands to hundreds of thousands of dollars.

    16. Recent Pickup in Client Decision-Making
      Q: What's causing the recent pickup in client decisions?
      A: The recent pickup in the last six weeks is attributed to increased client-facing activities and a more optimistic market. Management has implemented processes to increase client outreach, and there's a sense of improved optimism among the sales force and clients.

    1. Your guidance indicates a more optimistic outlook for the second half of fiscal 2025, similar to last year's expectations; what specific factors give you more confidence this year compared to last year, beyond macroeconomic assumptions like Fed rate cuts?
    2. With the guidance for margins to be down sequentially, is there a strategic shift happening where you are pivoting from focusing on margin expansion to prioritizing growth, and could you elaborate on this change?
    3. Given the headwinds in your annual price increases due to lower CPI or RPI, how do you plan to mitigate the impact of potentially lower pricing on your revenue growth in fiscal 2025?
    4. Can you provide more clarity on the performance of CUSIP and how it is contributing to your overall growth, especially since it drove growth in the partnerships business but specific figures were not disclosed?
    5. Considering the competitive environment and observations of aggressive pricing by competitors, how are you balancing the need to win market share with the potential impact on margins, and what is your approach to pricing in this context?
    Program DetailsProgram 1Program 2
    Approval DateAugust 11, 2023 September 17, 2024
    End Date/DurationAugust 31, 2024 Fiscal 2025
    Total Additional Amount$250 million $300 million
    Remaining Authorization$64.8 million Not specified
    DetailsEnded August 31, 2024 New authorization for fiscal 2025

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Organic ASV Growth: Incremental organic ASV growth expected between $90 million to $140 million, reflecting a 5% growth rate at the midpoint .
      2. Adjusted Operating Margin: Expected to be in the range of 36% to 37% .
      3. Adjusted EPS: Expected to be in the range of $16.80 to $17.40 .
      4. Interest Expense: Expected to be between $44 million to $48 million .
      5. Capital Expenditures: Expected to be in the range of $95 million to $105 million .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Organic ASV plus Professional Services Growth: Expected between 4% and 5.5%, with incremental growth of $85 million to $120 million, reflecting 4.8% growth at the midpoint .
      2. Revenue: Expected to be in the range of $2.18 billion to $2.19 billion .
      3. GAAP Operating Margin: Expected to be in the range of 33.7% to 34%, up approximately 100 basis points from prior guidance .
      4. Adjusted Operating Margin: Expected to be in the range of 37% to 37.5%, up 70 to 80 basis points from prior guidance .
      5. Adjusted EPS: Expected to be $0.40 higher than prior guidance, in the range of $16 to $16.40 .
      6. Effective Tax Rate: Guidance remains unchanged in the range of 16.5% to 17.5% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. ASV Growth: Expected to finish the fiscal year at the lower end of the 5% to 7% range .
      2. Adjusted Operating Margin: Anticipated to decrease in the back half of the year, aiming for the midpoint of 36.5% .
      3. Revenue Outlook: Expected to land at the lower end of the guidance due to the Credit Suisse-UBS merger impact .
      4. Capital Markets Recovery: No bounce back built into numbers, reflecting a conservative approach .
      5. Expense Management: Plan to manage expenses to align with the lower end of the revenue range .
      6. Personnel Costs: Expected to remain flat, with adjustments to the bonus calculation .
      7. Technology Costs: Expected to increase due to cloud expenses and AI efforts .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue: Expected to range from $2.2 billion to $2.21 billion, reflecting approximately 6% growth at the midpoint .
      2. Organic ASV plus Professional Services Growth: Expected to be $110 million to $150 million, reflecting 6% growth at the midpoint .
      3. GAAP Operating Margin: Reduced to 32.5% to 33% .
      4. Adjusted Operating Margin: Maintained at 36.3% to 36.7% .
      5. Effective Tax Rate: Reduced by 50 basis points to 16.5% to 17.5% .
      6. Adjusted EPS: Expected to range from $15.60 to $16.00 .
      7. Cost Reduction Program: Expected to take a $10 million to $15 million charge in Q2 2024 .

    Competitors mentioned in the company's latest 10K filing.

    • Bloomberg L.P. - Mentioned as one of the largest competitors in the financial information services industry .
    • S&P's Market Intelligence division - Listed as a major competitor .
    • London Stock Exchange Group's (LSEG's) Data & Analytics division (formerly known as Refinitiv) - Identified as a significant competitor .
    • BlackRock Aladdin - Mentioned as a competitive product .
    • MSCI Inc. - Listed as a competitor .
    • Morningstar Inc. - Included as a competitor .

    Recent developments and announcements about FDS.

    Financial Reporting

      Earnings Call

      ·
      Dec 19, 2024, 9:58 PM

      FactSet (FDS) recently released its earnings call transcript for the first fiscal quarter of 2025. Here are the key points from the call:

      • Revenue and Profit Performance: FactSet reported a 4.9% increase in GAAP revenue to $569 million and a 4.7% increase in organic revenue to $568 million. The growth was driven by sales to wealth firms, asset owners, and institutional asset managers. The GAAP operating expenses increased by 6.8% year-over-year, primarily due to amortization of intangible assets and compensation-related expenses. The GAAP operating margin decreased by approximately 120 basis points to 33.6%, while the adjusted operating margin remained flat at 37.6% .

      • Management’s Forward Guidance: FactSet reaffirmed its fiscal 2025 guidance, expecting ASV growth to be second half-weighted. The company is optimistic about its pipeline and expects improved performance in the second half of the year, particularly in wealth management and banking sectors .

      • Market Conditions and Strategic Initiatives: FactSet is experiencing a constructive market environment despite macroeconomic uncertainties. The company is focusing on investing in technology and products to maintain market leadership. It has also seen increased client engagement and a robust pipeline, particularly in banking and data solutions .

      • Analyst Questions and Management Responses: Analysts inquired about various topics, including margin expectations, pricing strategies, and client budget trends. Management indicated that margins might compress due to increased expenses, but they are optimistic about revenue acceleration in the second half of the year. They also noted that client budgets are expected to remain flat, but there is potential for market share gains .

      • AI and Technology Investments: FactSet is investing in generative AI and other technologies to enhance its product offerings. The company has launched several AI-powered products, such as the Pitch Creator, which have received positive feedback and are expected to contribute to revenue growth .

      Overall, FactSet is focusing on strategic investments and maintaining operational discipline to drive growth in a challenging market environment.

      Earnings Report

      ·
      Dec 19, 2024, 12:15 PM

      FactSet has released its earnings results for the first quarter of fiscal 2025, ending November 30, 2024. GAAP revenues increased by 4.9% to $568.7 million, compared to the same period last year. The organic Annual Subscription Value (ASV) rose by 4.5% year-over-year to $2,258.8 million. The GAAP operating margin decreased to 33.6%, while the adjusted operating margin remained consistent at 37.6%. GAAP diluted EPS increased by 1.3% to $3.89, and adjusted diluted EPS rose by 6.1% to $4.37. The company experienced a significant decrease in free cash flow, down 56.4% to $60.5 million, primarily due to lower net cash provided by operating activities and increased capital expenditures .

    Corporate Leadership

      Board Change

      ·
      Dec 19, 2024, 12:14 PM

      Barak Eilam has been elected as a director of FactSet Research Systems Inc. and appointed to the company's Compensation and Talent Committee as of December 17, 2024. Eilam brings nearly three decades of experience in scaling enterprise software companies, having served as CEO of NICE Ltd. from 2014 to 2024 .