FactSet - Earnings Call - Q2 2025

Executive Summary

• Q2 FY2025 delivered steady top-line growth and durable cash generation: GAAP revenue $570.7M (+4.5% YoY), GAAP diluted EPS $3.76 (+3.0% YoY), adjusted diluted EPS $4.28 (+1.4% YoY); free cash flow $150.2M (+23.3% YoY).
• Guidance was tightened: revenue raised to $2.305–$2.325B, organic ASV narrowed to $100–$130M (midpoint reaffirmed ~5%), while GAAP operating margin (32–33%) and GAAP EPS ($14.80–$15.40) were lowered, reflecting acquisition-related costs; adjusted margin (36–37%) and adjusted EPS ($16.80–$17.40) maintained.
• Strategic execution highlights: LiquidityBook acquisition (OMS/IBOR + FIX network) to deepen front-office integration; launch of AI-powered Pitch Creator; UBS win to power adviser desktops in the Americas; continued momentum in data feeds and managed services.
• Street consensus comparisons via S&P Global were unavailable in our session; we will update estimate benchmarks on request when access is restored (S&P Global) (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

• Wealth reaccelerated to double-digit growth, including UBS selecting FactSet to power adviser desktops and a client-facing portal in the Americas; enterprise wins expand footprint across top-tier wealth managers.
• Strong cash generation and capital returns: Q2 operating cash flow $174.0M and free cash flow $150.2M; repurchased ~137K shares for $64.4M; quarterly dividend $1.04 per share paid Mar 20, 2025.
• Product-led innovation: Pitch Creator launched with ~2,000 active trials; conversational API and portfolio commentary monetization underway; momentum in enterprise data feeds and managed services as clients build GenAI and data strategies.

What Went Wrong

• Margin pressure: GAAP operating margin 32.5% (-~80 bps YoY) and adjusted margin 37.3% (-100 bps YoY), driven by higher technology spend (+31% YoY) and acquisition-related fees; tech costs rose to >10% of revenue.
• Sell-side/banking demand remained a headwind; management’s near-term pipeline does not rely on banking pickup to meet the guidance midpoint, indicating cautious outlook for that segment.
• Lower CPI muted annual price increases vs last year (~$18M captured vs ~$25M prior year), creating a ~$7M ASV growth headwind in Q2; proactive retirement of a legacy bespoke solution caused a seven-figure cancellation.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the FactSet second quarter 2025 earnings conference call. At this time, all participants are in a listening mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yet He, with Investor Relations. Please go ahead.

Yet He (Head of Investor Relations)

Thank you, and good morning, everyone. Welcome to FactSet second fiscal quarter 2025 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 at factset.com. 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 two, which explains the risk of forward-looking statements and the use of non-GAAP financial measures.

Additionally, please refer to our forms 10-K and 10-Q for a discussion of risks 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 direct comparable GAAP measures are in the appendix to the presentation in our earnings release issued earlier today. During this call, unless otherwise noted, relative performance metrics reflect changes as compared to the respective fiscal 2024 period. Also, consistent with the last quarter, please note that starting fiscal 2025, FactSet is reporting organic ASV rather than organic ASV plus professional services to focus on the recurring nature of our revenues. Joining me today 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 Snow.

Phil Snow (CEO)

Thank you, Yet, and good morning, everyone. Thanks for joining us today. Before I begin, let me start by welcoming Kevin Toomey as our new Head of Investor Relations and thanking Yet for serving in the role on an interim basis, maintaining strong investor engagement during the past six months, in addition to his role as Head of Corporate Development. Kevin brings to FactSet over two decades of experience in investor relations, equity research, and financial markets, and I look forward to working with him to continue growing our investor relations program. Now on to the results. In the second quarter, we grew organic ASV 4.1% year over year, delivering adjusted operating margin of 37.3% and adjusted diluted EPS of $4.28.

We are encouraged by the positive momentum of deals progressing through the sales cycle this past quarter and have confidence that we are reaching an inflection point in ASV growth heading into the back half of the year. We anticipated a slow start to fiscal 2025 and continue to operate in a challenging market environment. Lower CPI has resulted in a lower year-over-year annual price increase, and softer results in asset management and banking mask the significant progress we made developing and executing against our pipeline during the quarter. While acknowledging there remains market uncertainty, I'm pleased with the strength of our pipeline and the product-led innovation FactSet is bringing to the market. Our dialogue with clients continues to be constructive, positioning our business positively for the growth acceleration we anticipate in the second half of the year.

With increased visibility into the remainder of the fiscal year, we are reaffirming the 5% midpoint of our organic ASV growth guidance and narrowing the range of anticipated top-line outcomes. Helen will cover the rest of our revised guidance in more detail later in her remarks. Turning back to the second quarter, ASV retention remained greater than 95%, and client retention was 91%. We grew our client base to over 8,600, led by an increase in corporates, wealth, and partners, and our user count increased to over 219,000, driven by our continued success in wealth. Starting with our performance by region, in the Americas, we grew organic ASV by 4%. Strength in wealth and hedge funds was offset by mixed results for asset managers, asset owners, and partners, where a few large losses masked the benefit of strategic seven-figure wins. In EMEA, organic ASV growth was 3%.

We're continuing to see momentum with hedge funds and PEVC firms in the region, but these gains were offset by erosion headwinds faced in the quarter. This trend was most notable in asset management and banking. In Asia-Pacific, we maintained 7% organic ASV growth, driven by continued strong sales of data solutions, particularly among wealth, corporates, hedge funds, and PEVC firms. Now turning to our results from a firm-type perspective, wealth re-accelerated to double-digit growth in the quarter, lapping last year's large cancellation. We continue to gain market share with leading clients in wealth, evidenced by UBS selecting FactSet to power their advisor desktops and client-facing portal in the Americas. This is another example of an enterprise deal where our digital and technology capabilities are winning in the market. Our differentiating wealth advisor solution and industry-leading client service were key to this success.

Implementation and rollout are expected to occur throughout the remainder of the year. With this latest win, FactSet is now the primary market data partner to half of the world's top 20 wealth management firms, including three of the four U.S. wirehouses and three of the top five Canadian wealth managers. The opportunity for our wealth business is global, and we are seeing traction with clients outside North America. As we execute against our sales pipeline, I'm confident there is continued runway to extend our success, both geographically and beyond the advisor desktop, into the wealth home office and adjacent workflows. Within dealmakers, while banking was a drag to growth, we still saw renewal activity increase notably in the quarter. We signed more than a dozen large banking renewals, securing multi-year contracts on many of them to reinforce FactSet as a trusted partner and opening the opportunity for future upsells.

We are confident FactSet's focus on workflow efficiency and total cost of ownership is top of mind for many of our banking clients. We launched PitchCreator midway through the quarter and already have a robust pipeline with more than 50 opportunities, almost two dozen of our largest banking clients actively trialing the product, and several of our clients in the latest stages of commercial negotiation. PitchCreator and our recently acquired Logo Intern Solution are extending FactSet's lead, empowering junior bankers by streamlining their daily workload. Clients are telling us they welcome the practical, workhorse approach FactSet is taking to boost the productivity of their junior employees, who are increasingly asked to do more in the current environment. We expect acceleration of our banking business in the second half of the year, notwithstanding the more cautious sentiment and macro uncertainty of recent weeks.

Outside of banking, PEVC remains a bright spot with accelerated double-digit growth in the second quarter. Corporates also added to growth, fueled by the momentum from our Irwin acquisition in the first quarter. Within the institutional buy side, headwinds from cost rationalization and budget tightening persisted among our asset manager and asset owner clients. While retention pressured growth, particularly among active asset managers facing AUM outflows, the impact in the second quarter included a seven-figure cancel due to our proactive retirements of a legacy and bespoke solution that we are no longer supporting. As clients continue to cut costs and optimize headcount, our managed services offering is providing a natural hedge and an additional growth channel. We gained further momentum with a large seven-figure win, displacing a legacy performance system with attached managed services to support the operational workflows of a leading asset management client.

Hedge funds were also a bright spot in the second quarter, as we capitalized on fund launches, higher Workstation retention, and strong data solution sales. During the second quarter, we announced the acquisition of LiquidityBook to enhance FactSet's ability to serve the integrated workflow needs of our clients across the entire Portfolio Lifecycle. Adding LiquidityBook's technology-forward OMS, pre-trade compliance, and eyeball capabilities to our Workstation enables us to more seamlessly link adjacent steps in the front office trade workflow. We are excited about the bidirectional cross-sell opportunities that we are already executing on and expect this acquisition to be immediately accretive to FactSet's growth. For partnerships and CGS, growth in the second quarter remained solid. We are seeing robust new business and expansion activity across multiple partner segments, particularly amongst index providers, exchanges, and AI-focused fintechs.

Similar to last quarter, CGS benefited from the continued strong new issuance market across several asset classes. In summary, I want to reiterate that our number one priority is to drive top-line growth. As we head into the second half of the fiscal year, we have increasing visibility into a robust sales pipeline and positive underlying momentum. Wealth will continue to be a growth engine. Not only are we gaining market share and extending our track record of success displacing the incumbent in this market, but we are also widening the aperture on the breadth of workflows our solutions can address. Leading clients are choosing FactSet to be their enterprise partner, and we continue to receive validating feedback that our products and service levels are positive differentiators versus the competition. There is ample runway for accretive growth across our smaller firm types.

The acquisitions of Irwin and LiquidityBook in recent months are already driving cross-selling opportunities and pulling FactSet into higher volume, shorter sales cycle opportunities with corporates and hedge funds, where client purchase decisions are more rapid. Additionally, Cobalt, which we acquired a few years ago, continues to open doors and position us to cross-sell PEVC clients seeking enterprise solutions. Our banking products remain best in class, strengthened by content investments across private markets, deep sector, and fundamental data. Our clients consistently provide positive feedback on the breadth and quality of our data that we feel is a competitive advantage. We believe FactSet has the best banking product in the market, and we continue to extend this lead with our focus on workflow productivity.

In the past 18 months, we renewed more than a third of our banking ASV, representing over 40% of banking users, including more than half of our top 25 investment banking clients, to multi-year contracts, limiting downside risk in the second half of the year and positioning FactSet to grow wallet share with our expanded enterprise data and workflow productivity solutions. For the institutional buy side, we are making steady progress, driving client engagement at the enterprise level with a focus on improving their total cost of ownership. Managed services and our expanded data solutions offering are contributing to a healthy second-half pipeline and lowering the risk of large client cancellations. Our teams are intensely focused on capitalizing on FactSet's early mover status on GenAI products, executing our go-to-market strategies across our new and differentiated solutions, and mitigating the headwinds that pressured retention in the first half.

We are well-positioned to deliver on our mission to supercharge financial intelligence, and I am confident in our path forward. I'll now turn it over to Helen to take you through our second quarter and first half 2025 performance in more detail.

Helen Shan (CFO)

Thank you, Phil, and hello to everyone on the call. Over the first two quarters of the fiscal year, we delivered solid financial and operating performance that sets us up for a strong second half, as we previously guided. We utilize our balance sheet to acquire essential capabilities for our buy side, corporate, and banking workflows while continuing to return capital to our shareholders. As Phil mentioned, we have a promising pipeline across all firm types, which should boost ASV in the remainder of the fiscal year.

As a result, we have updated our fiscal 2025 guidance by narrowing our organic ASV growth range to reflect our confidence in achieving the 5% midpoint. We are also reaffirming the ranges for adjusted operating margin and adjusted diluted EPS, with our productivity and expense management efforts expected to absorb the dilution from recent acquisitions. More detailed information to follow, but first, I will review our quarterly results. Organic ASV grew by $19.6 million in the quarter and 4.1% year-over-year. It is important to remember that our annual price increase partly depends on CPI, which has declined compared to last year, thus impacting the price increase for this fiscal year. We captured over $18 million in price increases, primarily in the Americas, versus $25 million in the prior year, resulting in a nearly $7 million headwind to ASV growth this quarter.

GAAP revenues increased 4.5% year-over-year to $571 million, while organic revenues, which exclude foreign exchange movements and impact from acquisitions or dispositions over the past 12 months, increased 4% to $568 million. For our geographic segments, organic revenues grew by 4% in the Americas, 3% in EMEA, and 7% in Asia-Pacific. GAAP operating expenses, which include one-time non-recurring items, rose 5.8% year-over-year to $385 million. This increase resulted from higher acquisition-related professional fees and technology expenses, partly offset by lapping a one-time restructuring charge in the prior year. Due to these factors, GAAP operating margin decreased by approximately 80 basis points to 32.5% compared to last year's second quarter. On an adjusted basis, operating expenses grew 6.3%, and operating margin decreased 100 basis points year-over-year to 37.3%.

This was primarily driven by a 31% increase in technology-related spend due to higher cloud and software expenses and greater amortization of internal-use software, reflecting our ongoing investment in generative AI. Technology costs accounted for over 10% of revenue in the quarter, up from 8% in the prior year. Employee expenses increased 3% year-over-year, primarily due to last year's lower bonus accrual. Excluding this factor, our employee expenses would have been flat to down year-over-year. People expenses are our largest cost category, constituting 40% of revenue, which is down nearly 60 basis points versus the prior year. By streamlining processes and utilizing automation, we continuously find ways to enhance workforce efficiency and maintain cost discipline while investing in strategic priorities. Third-party content costs rose 7% year-over-year but remain less than 5% of revenues, similar to the prior year's quarter. With increased data demand, we have actively managed this growth.

For example, in the second quarter, we replaced several providers with our own self-collected data. We not only reduce licensing fees we pay third parties, but also now offer superior content with full redistribution rates that align seamlessly with FactSet's proprietary identifiers. Real estate and related facilities expense decreased 6% year-over-year, staying under 3% of revenues, about 30 basis points lower than the prior year. Please refer to the appendix for today's earnings presentation for a more detailed expense walk from revenue to adjusted operating income. During the quarter, our cost of services as a percentage of revenue was higher year-over-year by approximately 50 basis points on a GAAP basis and more than 180 basis points on an adjusted basis, primarily due to higher technology expenses, partially offset by lower compensation expense.

SG&A as a percentage of revenue was approximately 30 basis points higher year-over-year on a GAAP basis, primarily due to increased professional fees linked to acquisitions, offset by reduced bad debt expense. On an adjusted basis, SG&A was about 75 basis points lower after excluding one-time non-recurring items. Our GAAP effective tax rate in the second quarter was 15.9%, a decrease when compared to the 16.4% tax rate in the second quarter of last year. This change was mainly due to lower U.S. tax on foreign earnings, partially offset by discrete items like reduced tax benefits from stock-based compensation. Our GAAP diluted EPS increased $0.11 or 3% to $3.76 this quarter versus $3.65 in the same period last year, primarily due to higher revenue, partially offset by an increase in acquisition-related professional fees and technology-related expenses. Adjusted EPS increased by $0.6 cents or 1.4% to $4.28.

EBITDA for the quarter grew 3.6% compared to the prior year period to $225 million, driven by higher net income. Free cash flow, which we define as cash generated from operations minus capital spending, was $150 million in the second quarter, up 23% over the same period last year. This result was driven by positive working capital shifts due to decreased income tax payables and improved accounts receivable collections. Turning to return of capital to shareholders. In the quarter, we repurchased nearly 137,000 shares for approximately $64 million at an average share price of $470.70. At fiscal quarter end, we had a capacity of $187 million remaining under the $300 million share repurchase authorization approved by our board of directors last September. Today, we paid a quarterly dividend of $1.04 per share to holders of record as of February 28, 2025.

We remain diligent with our buyback program and are committed to delivering long-term value to our shareholders. Combining dividends and share repurchases, we returned $392 million to our shareholders over the last 12 months. At the end of the second quarter, we paid off the remaining principal of the $1 billion term loan we took out for our CGS acquisition three years ago. We funded the recent LiquidityBook acquisition with new borrowings under our revolving credit facility, with $480 million drawn at quarter end. Our gross leverage ratio was 1.7 times, consistent with our aim to maintain investment-grade ratings. Finally, we remain confident in our second-half top-line acceleration and are reaffirming the 5% midpoint of our prior guidance on organic ASV growth.

We are also narrowing our ASV growth range by adjusting both the top and bottom ends of the range by $10 million to $100 million-$130 million, reflecting a growth rate range of approximately 4.4%-5.8%. Our guidance for revenue is now a range of $2.305 billion-$2.325 billion, a $20 million increase from our previous guidance. The change factors in the expected impact for the rest of the year from our recent acquisitions of Irwin in November, LiquidityBook in February, and Logo Intern in early March. Based on our solid performance and conscientious cost management in the first half, we are maintaining our guidance range for adjusted operating margin at 36%-37% and adjusted diluted EPS at $16.80-$17.40. This decision illustrates our ability to mitigate the modest margin and EPS dilution from the aggregate impact of our recent acquisitions.

On a GAAP basis, we expect operating margin in the range of 32%-33% and EPS to be between $14.80 and $15.40 for the year. This decrease from prior guidance of 50 basis points and $0.30, respectively, reflects one-time non-recurring expenses incurred in connection with these acquisitions. The guidance range for our effective tax rate remains unchanged between 17%-18%. As Phil indicated, our teams are well-equipped to deliver second-half growth. We have clearer visibility into our pipeline strength based on our increased breadth of solutions and growing client interest in our GenAI solutions. We will continue to leverage our expense base and invest smartly, focusing on differentiated products and internal efficiencies. We anticipate higher expenses in the second half for planned GenAI and infrastructure projects alongside go-to-market initiatives to further boost pipeline volume and quality over the next 12 months.

In conclusion, we are prioritizing ASV growth, operational focus, and strategic capital allocation to enable FactSet to deliver sustainable long-term value for shareholders. With that, we are now ready for your questions. Operator?

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kelsey Zhu with Autonomous. Your line is now open.

Kelsey Zhu (Financial Information Technology Analyst)

Hi, good morning. Thanks for taking my question. I want to start with a GenAI question. I think in this space, FactSet definitely has a first-mover advantage.

I was wondering if you can provide more colors around the traction you've been gaining with clients, especially when it comes to PitchCreator and some of the other GenAI products that you've highlighted before. How are you thinking about the pricing for these products and how receptive are clients to add those as an additional service and not as part of the current subscription?

Phil Snow (CEO)

Thanks, Kelsey. It's Phil Snow, and I think Goran may have some extra words to say here. Yeah, we're pleased with the momentum. You know, we're well on our way to getting to the 30-50 basis points that we spoke about in terms of monetizing these assets this year. We've got six SKUs now that we've sold, and they're out there and more coming.

I would say the one SKU that sort of got the most momentum is PitchCreator, which I spoke about in my opening comments. Very good reception from the banks, obviously sitting on top of the best banking product in the industry already. This has been very exciting for us. During the quarter, getting Logo Intern was a nice little add there to kind of put into the product. It has just been released. We had tons of people trialing it, giving us feedback, but I do think we're now on the cusp of being able to monetize that more seriously as we get into Q3 and Q4. I would say the second SKU that we've got the most traction on is the Conversational API.

That is really taking the ability to take what you can do in FactSet to search with AI capabilities and plugging it into your own environment. We are seeing receptivity for that across all firm types. There are many firms, particularly the larger ones, that want to control the research environment and combine the best of something like FactSet with their own data that sometimes they are reluctant to release out to anyone and maybe some other sources. That is going really well. We are beginning to monetize portfolio commentary. That has been a bit slower, although what we have done is we have packaged that together with a bunch of other things that are a bit more sort of usage-based for the buy side. We think that is going to be a good approach. People love the product.

I think they're waiting for all the asset classes in some cases to be filled out. We've done equity risk, but we have begun to sell it. Those are the three today, and we're coming out with some other SKUs in Q3 and Q4. I guess I'll pause there. Goran, do you want to add?

Goran Skoko (CRO)

Yeah, just to add a couple of things. One is clients are reacting very well to the pricing structure that we have put in place. Certainly, I'm realizing productivity gains from the products that we have launched, in particular in PitchCreator. We have almost two dozen active trials and late stages of negotiation with a number of larger clients. We are also helping clients drive their internal initiative via Conversational API as well as vectorized data packages that are ready for clients to implement in their own environment.

All of those solutions are resonating well, and as is our pricing structure for those.

Operator (participant)

Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open.

Shlomo Rosenbaum (Managing Director)

Hi, thank you. Phil, it sounds like your tone is definitely getting better as the year goes on. What I'm trying to understand is if you could parse out, is the environment getting better, or do you feel like the company is doing better in an environment that's not really changing that much with all the proactive items that you guys have been doing? I guess it sounds like the green shoots have been turning greener, and I guess I'm looking for the reasons for it just to understand how you guys are progressing.

Phil Snow (CEO)

Yeah, I'm all tacked in that. I appreciate that you've recognized my tone is improving. Thanks, Shlomo.

Yeah, I think what we feel really good about is I think we've de-risked all of the big rocks for the year, basically. We now have visibility on almost all of those. I think a lot of the things that we were battling for in terms of the bigger renewals and so on, I think the majority of those have fallen our way. I think we feel good about sort of where we stand there. I think we're seeing, we're definitely seeing strength across every market. I would say the Americas, Europe, and Asia all look like they're going to come in. They're going to accelerate in the second half if the pipeline proves out. We're seeing really good, I think, resurgence in asset management. The environment is not getting any easier, that's for sure.

I do think that we're really beginning to see some real progress at selling at the enterprise level. On the buy side, I really want to talk to kind of performance reporting, the managed services, which I know you've asked about. That continues to do well. Our feeds business, which decelerated a bit over the last year or two, is having a really strong comeback. It is not just the real-time and reference data feeds that we've released more recently, but our benchmark data feeds are doing really well, and some of our core data is doing well also. The smaller firm types are doing great, like hedge funds, private equity, corporates. Wealth, obviously, they're growing at a high clip. What I want to stress is we're not relying on banking for the numbers that we talked about today and the narrowing of the range.

Banking's tough. I don't think that the environment's getting any more, there's not more deals coming to market. I think we saw that in January and February. We're not relying on some data from the banking business to hit the numbers that we spoke about today. If that comes through, that'll be great. That'll be a tailwind for us. Goran, do you want to add anything?

Goran Skoko (CRO)

Yeah, just in addition to everything Phil said about the buy side improvement, I think in addition to our traditional strength in the middle office solutions, performance solutions, we're also seeing improvement and we're quite pleased with activity in the EMS space with our portfolio solution, as well as our front office solutions are gaining more and more traction. Lastly, on the buy side, I think the LiquidityBook really helps us complete the PLC lifecycle.

It makes us the go-to for consolidation for our hedge fund and smaller to mid-size buy side clients. We're quite excited about that. It creates a cross-sell opportunity for us of FactSet solutions and, as Helen said, bidirectional cross-sell opportunities. We're excited about the second half. There is a lot in front of us, and we have the tools to do it.

Operator (participant)

Thank you. Our next question comes from the line of Alex Kramm with UBS. Your line is now open.

Alex Kramm (Managing Director and Senior Equity Research Analyst)

Yes. Hey, good morning, everyone. Just actually to follow up on the last question, Phil, you just mentioned you're not relying on banking or the sell side. Obviously, there is a range. Maybe you can be a little bit more specific. Does that mean you don't need banking to pick up to hit the low end, or are you talking about the midpoint?

Because clearly, post-election, there was a lot of enthusiasm with capital markets picking up and hiring picking up. Clearly, that continues to get pushed out. It should continue to be a swing factor. I just want to figure out where exactly does that swing factor lie in your guidance range. Thanks.

Phil Snow (CEO)

Yeah, I think we've been fairly conservative in sort of what we've put in the pipeline in terms of banking hiring. That is in our numbers. I think the bright spot is definitely PitchCreator, so that could actually help there. Goran, what do you want to say here?

Goran Skoko (CRO)

As Phil said, I think what we are baking in for our midpoint in terms of guidance is really slightly lower or even headcount compared to last year. There is no upside in those numbers that we are counting on.

I think it would be a swing towards higher end of the range.

Operator (participant)

Thank you. Our next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is now open.

Faiza Alwy (Managing Director)

Yes, hi. Thank you. I had a couple of quick questions about ASV in the quarter. One, just for avoidance of doubt, I want to make sure, is the UBS wealth deal included in the ASV this quarter? And if you could help quantify that, that would be helpful. And then just secondly, you talked about the proactive retirement of a legacy solution. Maybe if you can help quantify that also. And if there's any sort of are there any more legacy contracts like that or products that are expected to be retired, whether it's this particular product or something else in the future? Thank you.

Goran Skoko (CRO)

Hi, Faiza. It's Goran. So a couple of things.

Absent the lower price increase that we implemented this quarter and a couple of strategic deals that we proactively canceled, we would have actually seen acceleration in the quarter. There is no further retirement of the products that we are planning on for the rest of the year. You have already seen the impact of that in Q2. Back to your question about the UBS deal, we signed the contract in the quarter. We are thrilled with it. It is another strategic win for the fastest-growing segment of our portfolio. We are quite pleased with it. I think it speaks to the strength of the product. We purely want this on a better product suite, really. It enables us to further expand this relationship as the years progress. Implementation of it will take place throughout the next five or six months.

I think we will be starting that in quarter three, in Q3. It's a very strategic win for us. We love our position in that space, and it really positioned us to land and expand as we expand additional services to all of these clients and the markets here we have won over the last few years.

Phil Snow (CEO)

Yeah, Faiza, just to add on. Yes, it was booked in Q2. The users for UBS won't come through until the next quarter or two as we roll it out. The ASV that we captured, at least in the initial stages of UBS, is not part of the second half where we see a really robust pipeline. You can model that out.

Operator (participant)

Thank you. Our next question comes from the line of Ashish Agrawal with RBC. Your line is now open.

Ashish Agrawal (Quality Assurance Lead)

Good morning, question.

Just wanted to clarify the pricing in the quarter. There was a reference to lower CPI weighing on pricing. I was just wondering if you could provide any color on pricing versus pricing realization for existing deal versus new and renewals, any color on that front. Similarly, on international, should we expect similar pressure on the international pricing in the third quarter as well?

Helen Shan (CFO)

Thanks. Hey, Ashish, it's Helen. I'll take that one. Thank you for clarifying your thoughts there. Our standard contracts include annual price increases based on the higher CPI or RPI or 3%. Our guidance range does reflect the lower inflation rate versus last year. We expect the international price increases to align proportionally to that, what we've seen in the Americas. We do adjust rate cards throughout the year. In January, we activated on that.

We actually raised global rate cards depending on the package. And we've seen higher price realization in certain firm types like corporates and hedge funds, also along with StreetAccount. On new business, we are seeing price realization slightly lower year-over-year, but the volume is up nearly 25%. Driving our total ASV from new business up nearly 10%. That reflects our positioning in taking more market share. We do believe in the sort of land and expand type of strategy. These impacts will come through our renewals and new business. That's separate from the annual price increase. The annual price increase is expected to be lower than last year, but we're capturing additional ASV either through higher pricing via rate cards or through higher quantity in new business.

Operator (participant)

Thank you. Our next question comes from the line of Manav Patnaik with Barclays.

Your line is now open.

Hi, good morning. This is Brendan on for Manav. Just wanted to ask on the margin guide, given I believe you guys have already talked about tech costs going up quite a bit this year, I think 25%. Obviously, you have the acquisitions coming in, some cost there. It seems like the people cost has to be held down, I guess, a net of those acquisitions quite a bit to get to the midpoint. Normally, we kind of see those float up a little bit throughout the year. I guess you've mentioned some efficiency programs, some initiatives. I guess any color on what you guys are doing and how to kind of bridge to the midpoint?

Helen Shan (CFO)

Sure. I'll take that one as well. Thanks for the question.

Yeah, we have seen in this quarter, this half, where we've benefited from lower people costs despite sort of higher year-on-year comparison because last year there was a change in that bonus accrual. Without this, though, the adjusted people expenses would have been lower. We're actively managing that. We've got mix that continues to float that way. We are managing our content and technology costs as well, including having vendor credits and cancellations of contracts, which I mentioned in my earlier remarks. We're also seeing some benefit in the first half on FX, which is also helping us as well. Those are the things that are helping on the first half. We'll expect to see a ramp-up in expenses in the second half as we prioritize strategic investments. The tech costs, like you said, are going to continue to ramp up in GenAI and the infrastructure.

Our go-to-market, we're actually going to put more money in to really build the pipeline in the next 12 months. We're not looking for FX benefit either. That's really how we're coming through. Absolutely, the benefit here is that we're able to absorb the dilution that comes from the acquisitions, which is about 40-50 basis points.

Operator (participant)

Thank you. Our next question comes from the line of Owen Lau with Oppenheimer. Your line is now open.

Owen Lau (Executive Director and Senior Analyst)

Hi, good morning, and thank you for taking my questions. I have a follow-up with the previous question about the data and fits business and sales. Is it fair to say that the market uncertainty actually helps your data fit business because people want more data, people want more kind of information? That's why that part of the business outperformed compared to your initial expectation.

The M&A part, it looks like it cooled down a little bit. That's why you can still maintain the full year ASV guidance or narrow to a narrower range.

Phil Snow (CEO)

Thanks. Yeah, maybe I'll start. I think FactSet always does very well through all types of cycles. We'll manage through whatever market we're in. I'm not sure that that's the main reason for the data feed predicted growth or growth. I think a lot more of it has to do with us becoming increasingly an enterprise partner for our clients. We're selling at the top of the house. Very often now, we're constructing agreements where clients can really take value from FactSet any way they want, whether it's through the desktop, analytics, an API, GenAI, some other provider. That all feeds into that.

I think the fact that we've released some new products here is super exciting. Goran, I don't know if you want to talk a little bit more about the feeds, and then we'll come back to your acquisition question.

Goran Skoko (CRO)

Yeah, just to follow up on what Phil said, it is the quality of our content that's really driving the improvement in our numbers in the data feed business. As well, we have put some more sales focus on it. I think there is a high demand for high-quality data by hedge funds, by other players in the industry. Also, as you see, all of these new tech startups that are really AI-focused, I think our best-of-breed data is really the fuel that drives their entire development and potential growth.

We are focused on developing partnerships that we think will help us in the future. There is higher demand for our data in traditional business as well. With the development of our real-time data feeds, exchange data feeds, as well as our security master offering, we are seeing more and more success. We do have a superior delivery and superior technological solutions for our clients that really improve the efficiency of their operation as they switch to our products. That is evidenced by a number of wins in this quarter. We had about four or five that were very specific to some of the hardest-to-deliver exchange data feed sets, in particular options. We are quite pleased with that progress, and we believe that the data feed business will be a driver of our success for the rest of the year and going forward.

Helen Shan (CFO)

Maybe I can just add one other piece that we're beginning to see growth in, which is our data management services piece, which is where we're helping clients be able to concord not only our data, but also with the client data. That is quite difficult. That is largely done through technology with some people services as well. That is a very profitable service for us, and we expect to see that continue to grow going forward.

Goran Skoko (CRO)

Owen, you asked about M&A, and I do think the two or three things that we've done this fiscal year are really going to help. They're smaller, but there's so many great synergies and cross-sell opportunities for the team. The LiquidityBook acquisition, which we just announced, when we acquired it, was about $22 million of ASV. Owen previously was about $9 million.

That LiquidityBook comes with around 170 clients. I would say more than half of those are hedge funds. There is also sort of a healthy group of clients. There is a sell-side offering, and then there is a great opportunity for us to serve kind of the middle of the bell curve and the buy-side for those firms that need the entire portfolio lifecycle from FactSet. This is really the missing piece. Combining the OMS and the IBOR with FactSet EMS and some of our other portfolio managing capabilities really does open up a lot more market for us with a lot of our existing clients. We could not be more excited. It also comes with a FIX network. I think that was probably in the press release, but there are some great synergies that we expect to capture from that as well.

Operator (participant)

Thank you.

Our next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.

Andrew Nicholas (Equity Research Analyst)

Hi, good morning, and thanks for taking my question. I wanted to double back to the commentary on wealth, in particular, ASV growth accelerated, some big wins there, and you talked about your strong share within the top 20. Can you help outline maybe what the land and expand strategy kind of skews towards on a go-forward basis within that market? Is it adding additional services to existing clients? Is it selling additional users within those contracts, new regions? I am just trying to understand kind of where the growth opportunities are once you have signed up as many flagship clients as you have at this point. Thank you.

Goran Skoko (CRO)

Okay. Hi, it is Goran. I will take that. All of the above, I think we certainly see opportunity for regional expansion.

We have done very well in the Americas. We have made good progress in Europe, and we are focusing on kind of what we have done in the U.S. and Canada, really copying that to what we are doing in Europe. Particularly, we're focused on Switzerland, and the U.K. is the growth market for us in the near future, and then further expansion in Asia as well. Asia is growing quite nicely for us, and we see those geographic opportunities as significant. We do see opportunities for more users, especially in the home office and replacing some of the higher-end terminals. That is another area of focus, and we have been actually quite successful there. The real extension of our strategy is layering on additional services to support additional workflows or our clients.

For example, we supported their business development with some of our lead generation tools that we have recently launched, and they are resonating quite well in the market. All of the other portfolio management workflows that our clients undertake are other areas that we are building for and expanding into. I hope that answers your question.

Operator (participant)

Thank you. Our next question comes from the line of Craig Huber with Huber Research Partners. Your line is now open.

Phil Snow (CEO)

Can't hear you. I do not know if that is on our side or your side.

Craig Huber (Managing Director and Equity Research Analyst)

Yeah, can you hear me here?

Phil Snow (CEO)

Yeah, we can now, yeah, if you could speak up.

Craig Huber (Managing Director and Equity Research Analyst)

Okay. I am not sure what happened there. Coming into this decade, I recall you guys announced a large three-year internal investment program with a goal of accelerating your organic revenue growth to the high single digits.

It successfully worked, as you recall. You had high single-digit growth for two-plus years and stuff. I think you talked about a 31% increase in technology spend. Are you anticipating a significant ramp-up in your organic revenue growth because of these internal investment spending here, as you think out over the next couple of years? Thank you.

Helen Shan (CFO)

Hey, Craig, it's Helen. Let me try to answer that one. When we talked about this at our investor day, as you know, in our three-year plan, we plan to be in that mid to high single digits. The investments that we're making in technology is to help support that. There is no specific additional large investment plan that we had done, like you rightfully said back in 2019, 2020.

This is part of our consistent investment back into the business in technology and GenAI and funding that through rationalization of costs of our existing expense base.

Operator (participant)

Thank you. Our next question comes from the line of George Tong with Goldman Sachs. Your line is now open.

George Tong (Senior Research Analyst of Equity Research)

Hi, thanks. Good morning. In light of the recent market downturn and volatility, can you talk a little bit more about changes you're seeing with buy-side budgets and broader sales cycles, especially among large asset managers and asset owners?

Phil Snow (CEO)

Sure. Hey, George, it's Phil. Yeah, I don't think we're really seeing much of a change, at least not yet. I think we've been working through a great period of uncertainty for a number of years. The pressures that are on the buy-side in terms of the shift from active to passive obviously are not new.

I think that probably is the forcing function, honestly. We're addressing that with the enterprise solutions we have, the generative AI offerings. Yes, it could be choppy. Again, I think we're very resilient through these markets. We've built a very strong pipeline for the second half. A lot of that is the buy-side. We don't anticipate that the current market environment could influence that pipeline that strongly.

Operator (participant)

Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open.

Toni Kaplan (Executive Director of Equity Research)

Thanks so much. I wanted to go back to the price increase. You mentioned the CPI, the lower CPI being a driver there. I guess when I was doing the calculation, I was getting about 2% price increase versus roughly 3% last year. That obviously does impact the organic ASV growth and puts pressure on that.

You are, it sounds like, aiming for inflection here. Is your confidence coming from your strong pipeline in deals? It sounds like the international price increase you are expecting to be sort of similar to U.S., so that probably does not help that much. Is it the pipeline, or is there something that is really going to drive this inflection higher in the organic ASV? A competitive environment might be relevant here as well if that is a factor. Thanks.

Goran Skoko (CRO)

Tony, it is Goran. There are a number of factors that I think we can point to. At this point in time, our booked ASV is actually quite a bit higher year over year as compared to 2024 and 2023. That gives us quite a bit of confidence. The pipeline is better, again, compared to both years.

In terms of our selling environment, we see it more equivalent to 2023 than 2024. We have better visibility into the downside for us. As Phil and Helen mentioned, we do not see any material losses in the second half. The year-over-year retention will improve in the second half. We have a very solid and diverse pipeline. What we are quite happy with is that pipeline represents large seven-figure deals, but also those mid-size deals that are easier to execute on. All of that gives us confidence that we are at the inflection point for the organic growth for the rest of the year.

Operator (participant)

Thank you. As a reminder to ask the question at this time, please press star one one on your touchstone telephone. Our next question comes from the line of Jeff Silver with BMO Capital Markets. Your line is now open.

Hey, good morning. This is Ryan on for Jeff. You talked in the past about selling more into the tech budgets. I was just wondering what type of sensitivity that is seen as the macro has unwound a bit compared to what you might see in the financial services and market data budgets. Just more broadly, how have clients' conversations and sales cycles been trending over the last few weeks? Thank you.

Phil Snow (CEO)

I'll start. I think selling into the tech budgets is good. I think everyone, including ourselves, is investing very heavily in technology as we sort of transition to a new paradigm, I think, in terms of how we're all going to be working over the next few years.

I think we've got good data to support that some of the deals that we're going out there and selling aren't always into the market data budget, which is the one that, not surprisingly, has been under a bunch of pressure. I'm not sure that we've seen much of a change in the last few weeks.

Goran Skoko (CRO)

The question was specific to the sell side. We're not seeing much of a change. I think clients do appreciate we have best-of-breed products. I think some of the, in general, I think lots of the conversations are about our GenAI tools in that space. The conversations have been good. I will just add, we are having that level of C-level technical discussions with some of the clients.

Some of the larger deals in the second half will come from the technological budget rather than traditional market data. That is definitely shifting more and more as clients invest more and more in their GenAI efforts.

Operator (participant)

Thank you. Our next question comes from the line of Jason Haas with Wells Fargo. Your line is now open.

Jason Haas (Executive Director and Senior Equity Analyst)

Hey, good morning, and thanks for taking my question. I saw there was a nice uptick in the client count growth year over year. On the flip side, it looks like the amount of users per client declined for the first time in a while. I was not sure what was causing that dynamic, if it was M&A or something, or maybe the type of clients that you are bringing on. If you could explain that, that would be helpful. Thank you. Thank you.

Phil Snow (CEO)

I will take that.

I think we have seen a significant uptick in private equity in terms of the clients we're bringing on. Those are usually a smaller number of users for us. I think both competitively and in terms of our pricing and packaging, as well as the improvement in the private markets product, we are seeing more success there. That is really what is impacting the number of users per client that you're seeing this quarter.

Goran Skoko (CRO)

I think it may also be a function of we put in all of the clients from the Irwin acquisition this quarter. I think that was a few hundred clients, right?

Helen Shan (CFO)

Yes. There's a little bit of continued integration. The users were not included. That might be driving your number there as well.

Operator (participant)

Thank you. Our next question comes from the line of Surinder Thind with Jefferies. Your line is now open.

Surinder Thind (Equity Research Analyst)

Thank you. It sounds like the confidence in the second half comes from the fact or part of it is just not having as much renewal activity. It sounds like you've gone through a really solid period where you've seen some really good strength in your renewals. Have you guys been more proactive about trying to get ahead of deals before renewal cycles? Or do we just happen to go through a renewal cycle where maybe there's just a lot more elevated activity or renewals coming up in the past little bit? Just trying to understand the forward cadence and how we should think about renewals and risk in the cycle at this point in time. If just clients maybe are trying to take advantage of pricing at this point, and so you just, they themselves have been pushing for more renewals.

Goran Skoko (CRO)

I think what you're seeing in the current cycle is really related to the contract expiration dates. Going forward, I think we're being a lot more organized around renewals. I think we spoke about this during our investor day. As we have a very large number of clients now, we're creating playbooks for renewals. We're being proactive. Wherever we can, we are trying to get ahead of those renewals and renew them prior to the expiration date. We're trying to make sure that we have a better dispersion of renewals across the entire year rather than them being bunched up. All of that is something that we are paying lots of attention to in terms of our sales operations and how we're addressing those. Yeah.

Helen Shan (CFO)

As Goran mentioned, to get to your point on pricing, for example, the dozen large banking renewals that we completed, all of them were either flat or up. In aggregate, they were up. It is not a case where we're sacrificing price in terms of total ASV per contract to be able to renew it. As Goran talked about at our investor day, retention is a huge focus of ours. I think you're seeing some of the benefits from that.

Phil Snow (CEO)

I'm not going to be able to stop myself here. A lot of what we talked about today with these banking renewals, we have an amazing banking product. We've always had the best product in the industry. We're leaning into the technology part of this with PitchCreator.

We have also made a massive investment in data over the last five years or so. We continue to build out the core FactSet fundamental data and the other data. Our investment in private company data has been significant. I think we have gone from like three or four million to almost nine plus million private companies with much higher quality data. We are not relying now on some third-party sources. We are doing a lot of this ourselves because we can do it better. The deep sector initiative that we started in 2019, that is a long road, but that is beginning to pay off. I just want to really stress for our banking clients, the combination of the technology, the integration with Office, the GenAI work we are doing, as well as the data, is just such a powerful combination.

It has a lot to do with the banks wanting to renew with FactSet. I think that's the last question. Thank you for joining us today. In closing, our solid financial performance and disciplined execution against our full-year pipeline in the first two quarters of this year has positioned us well for the acceleration we anticipate in the second half. Thanks for all the great questions today. We'll see you next quarter. Operator, that ends today's call.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.