The operator introduces the FactSet Q1 earnings call and reminds participants that the call is being recorded. Ali van Nes, SVP IR, then welcomes everyone and provides instructions for the call. The legal notice and risk factors are discussed, as well as the use of non-GAAP financial measures. Phil Snow, Linda Huber, Helen Shan, and Kristi Karnovsky are introduced as the speakers for the call.

Phil Snow discusses the company's growth in the first quarter, including a 7.1% increase in organic ASV and two major deals with a wealth management firm and asset manager. However, sales cycles have been lengthening and client budgets remain restricted, leading to a revision of the company's fiscal 2024 top line guidance. To support investments in strategic initiatives, the company will be implementing a cost reduction program in Q2 of FY '24. Snow also mentions the company's performance by region.

The growth in this quarter was mainly driven by a large win in the Americas and solid demand for data solutions, offsetting weaker results in other parts of the business. In the Americas, there was strong growth in wealth but weaker demand in banking and asset management. EMEA experienced a slowdown in core markets due to reduced revenues and margin pressures. In Asia Pac, there was solid growth with asset owners but seasonal banking layoffs. Wealth showed the most growth, while there were fewer new logos in private equity and corporates. Churn and lower hiring led to erosion in banking, and longer sales cycles dampened results for asset owners and hedge funds. Sales of data solutions drove growth with partners across regions. The fiscal 2023 price increase had a positive effect, but higher cancels and erosion partially offset it. FactSet's new product releases have been a key factor in their strong market position over the past 45 years.

FactSet has a history of introducing innovative products, such as Universal Screening, Portfolio Analytics, FactSet Fundamentals, and the recently released FactSet Mercury, a conversational AI interface. FactSet is also working on other AI initiatives, as well as deep sector and real-time capabilities, the wealth workstation, and the portfolio life cycle. The private credit market is also a growing area of focus for FactSet, and the company remains confident in its strategy and optimistic about future opportunities.

In the paragraph, Linda Huber discusses the company's first quarter performance in more detail. She notes that Q1 organic ASV and revenue growth exceeded 7%, and provides a reconciliation of adjusted metrics compared to GAAP. She also mentions the current macroeconomic conditions, including the Federal Reserve's decision to hold rates steady and expectations for market recovery later than previously anticipated. She then breaks down the company's GAAP revenue and organic revenue growth by geographic segment. Finally, she discusses the increase in GAAP operating expenses and the 80 basis point increase in operating margin, as well as the 9% growth in adjusted operating expenses driven by technology expenses.

In the sixth paragraph, the company discusses their investments in technology and the resulting increase in technology costs, as well as the growth in employee expenses and third-party data content costs. They also mention their efforts to right-size their real estate footprint, resulting in a decrease in facilities expenses. The adjusted operating margin decreased due to higher technology expenses, but was partially offset by lower facilities, professional services, and T&E expenses. The company also provides an expense walk from revenue to adjusted operating income. The cost of services was higher on both a GAAP and adjusted basis, while SG&A expenses decreased. The tax rate increased due to lower benefits related to stock option exercises and higher pre-tax income. GAAP EPS increased due to higher revenue and margin expansion, but was partially offset by a higher tax rate.

In the fourth quarter, the company's adjusted EPS increased due to revenue growth, but was partially offset by margin compression and a higher tax rate. EBITDA also increased, driven by higher net income and tax add-backs. The company returned value to shareholders through share repurchases and increased dividends. Due to a delayed market recovery, the company has revised its guidance for fiscal 2024, expecting lower organic growth and revenue compared to previous guidance.

The company has reduced its GAAP operating margin guidance, but has not changed its adjusted operating margin guidance. The effective tax rate guidance has also been reduced and adjusted EPS is expected to grow at the midpoint. The company is focused on expense management and plans to take a charge in the second quarter of fiscal 2024. Despite the uncertain environment, the company remains confident in its long-term growth and has a diverse pipeline and enterprise contracts to provide downside protection. The operator then opened the call for questions.

In response to a question about the impact of the macro environment on the company's performance, Phil Snow and Helen Shan explain that while they had a strong first quarter, the second quarter is looking weaker due to market sentiment and clients' budget constraints. They believe they have the product, strategy, and competitive positioning to do well in the long run, but are facing headwinds in the current market. Around 40 basis points of the change from 90 days ago is due to pricing pressures and lower price realization, 30 basis points from higher erosion, and 25 basis points from delayed decisions and spend. They anticipate a stronger fourth quarter, but the timing is uncertain. They have not seen significant fallout, indicating the strength of their business.

The speaker discusses the reduction in hiring by firm type, with about half coming from deal makers and a quarter from the buy side. They mention cost rationalization and delayed decisions as factors contributing to this. They also mention strong wins in the wealth sector, but a slowdown in advisor hiring and losses on smaller firms. They believe they can still hit the high end of their revised range due to factors such as improved capital markets and potential large competitive opportunities. The speaker also mentions a price increase being implemented for the upcoming calendar year.

In the second quarter, the company experienced changes in their outlook, with the biggest change being in the Americas. The company typically has an annual price increase, but clients are taking the opportunity to review their list, resulting in some erosion and lower price realization. In the second quarter of the previous year, the company had added $54 million in revenue organically, with $31 million coming from pricing.

Helen Shan, answering a question from Alex Kramm, discusses the consistency of pricing and the potential negative impact of the second quarter. She mentions that last year's strong Q2 has led to a lower annual price increase this year, and that the acquisition of Credit Suisse by UBS and downsizing will also have a material impact on growth. Faiza Alwy asks about cost savings and Linda Huber responds that they are looking to offset a $15 million reduction in revenue and maintain a 36.5% adjusted operating margin. They will need to adjust expenses to achieve this.

The company is planning to take a $30 million cost cut in the second quarter. They will focus on reducing variable costs such as travel and professional services, as well as adjusting the bonus pool. They also plan to make personnel and headcount reductions, but this must be done carefully to maintain investment funding. Third-party data costs will be flat and real estate costs have already been reduced, but technology costs are increasing.

The speaker, Phil Snow, is addressing the topic of cost drivers for their technology company. He mentions three main areas of expense: software development, cloud expenses, and third-party software purchases. He also mentions the importance of investing in AI and monitoring cloud expenses. He notes that people make up 65% of their expense base and they will need to ensure they have the right team in place for their goals. He provides details on the ramp-up of expenses for the first and second quarter and mentions a potential decrease in margin as the year progresses. He also mentions the possibility of vendor consolidation and potential opportunities for business growth or M&A activity.

The CEO and CFO of FactSet are optimistic about the company's future prospects, citing an increase in demand for their services during times of market uncertainty. They have seen a push from larger clients to drive cost savings in their direction and are confident in their competitive position due to their strategy and investments in generative AI. The company is well-positioned to provide sophisticated tools and reporting to clients who are facing budget constraints and in need of scalable technology solutions. The open platform approach also allows for replacement of specific pieces of a workflow rather than a complete overhaul, making FactSet a desirable partner for clients.

The speaker discusses the timing of the economic recovery and the uncertainty surrounding when capital markets will bounce back. They mention that hiring in investment banking and banking is a lagging indicator and that recent interest rate increases may have contributed to the delay in the turnaround. The speaker also references a recent interview with Brian Moynihan and suggests that the recent actions of Jay Powell may have a positive impact on the market. However, it is difficult to predict how quickly things will improve.

The company is being realistic about the pace of the turn in the market and believes it will come eventually, but it may take longer than expected. They are focused on AI and have seen success in their conversations with clients. The company is also cutting costs and has potential for efficiency gains through AI and their Centers of Excellence, but it is too early to discuss specifics.

The focus is currently on improving efficiency for clients, engineers, and the help desk. The company has successfully improved cash flow and collection. There are three main areas of cost opportunity for generative AI, including engineering, content and collection, and sales. The company has successfully piloted GitHub Copilot and is seeing great efficiency. The CEO has personally witnessed the efficiency of using generative AI in India. The help desk has also seen a significant decrease in coding calls due to the use of copilot.

The speaker discusses the potential for increased efficiency and margin in the company, as well as plans to use the money saved in other areas. They mention a potential impact in the next fiscal year and the possibility of recognizing some of it later in the second half of the year. They also mention the potential for growth through M&A opportunities, and the impact of AI on data assets and potential multiples.

The speaker discusses three areas of interest for M&A and mentions that they are actively looking at other interesting content assets. They also mention that the market is beginning to throw and that they are in a better position than they were six months ago. They believe that the winners in artificial intelligence will be those who own the data, and they are in a good position in that regard. They also mention that the price of data assets may go up, but it may be easier for newer firms to collect data. The speaker concludes by stating that they are actively looking at what is available in the market.

Linda Huber, the speaker, is responding to a question from George Tong about the restructuring plans of the company. She mentions that they are not yet able to provide specific details about which areas of the business will be affected or where the cost reductions will come from. However, they are looking to invest in higher value and emerging opportunities and are carefully considering the best approach to take in reducing costs. The company aims to cut $10 million to $15 million in costs and is being cautious and thoughtful about the process.

During the Q&A portion of the earnings call, Craig Huber from Huber Research Partners asked for more clarity on the breakdown of workflow changes in the quarter by client type. CEO Phil Snow responded by saying that the banking sector was the most affected, with weaker hiring and more churn than last year. Asset management saw a slight decrease in headcount, particularly in the front office, but overall growth rates remained steady. Wealth increased significantly due to a large deal in Q1. Smaller areas of the business, such as private equity and corporations, also saw slower growth due to the current environment. Another question from Kelsey Zhu from Autonomous focused on the acceleration of growth in the wealth sector, which Snow had previously mentioned. Snow highlighted a recent large win and emphasized the company's strategy to expand its share and TAM (total addressable market) in this sector.

Helen Shan, speaking to Kelsey, discusses the company's expansion into workflows outside of the Advisory Dashboard. She mentions a recent win in the wealth sector and explains that wealth clients are looking to improve and modernize their platforms to meet the demands of their clients. The company has won contracts with large wealth firms and is now seeing interest from mid-tier clients. These clients are seeking more sophisticated digital technologies and are turning to the company for solutions. The discussions with these clients include considerations such as data APIs and widgets, with the latter being a quicker and easier option.

The company is expanding beyond the wealth platform and into data and CRM, which will help wealth clients focus on top-line growth. The recent slowdown in client growth was due to two large deals but the company is targeting larger enterprise deals which may result in more lumpy and volatile ASP growth. The company has had significant wins in different sectors and the CEO is seeing an appetite from bigger clients to engage more with FactSet.

FactSet's business model is consistent and they are always looking for big deals, especially now with their new product suite and open strategy. They have launched FactSet Mercury, a conversational AI interface, as part of their AI Blueprint. This will improve discoverability and provide users with personalized and insightful information, allowing them to act quickly and confidently.

The company conducted extensive user research and found that auditability of data is important to users. They have received positive feedback on this and other features such as suggested next steps. Their AI Blueprint also includes mild deep workflow automation, which aims to streamline workflows for different types of clients. The first release is geared towards junior bankers and can help with tasks such as creating charts. The last pillar of their strategy is mile-high innovation acceleration, where they are using GenAI to develop new solutions.

FactSet is developing AI solutions that can be used by clients as building blocks in their own products. They have already begun to commercialize their data solutions and expect more demand for these building blocks as clients progress with their own AI plans. FactSet Mercury, which launched last week, is seen as a natural evolution of the FactSet user experience and will be included in workstation packages. The company is still working on the best commercial models for deeper AI workflows such as pitch book building and portfolio performance commentary.

The company expects to streamline workflows and increase efficiency for clients through their FactSet Explorer beta program. Monetization is not currently factored into their guidance for the year. There are several six and seven figure deals in the pipeline, but their closing may depend on the opening of client budgets. The company previously mentioned that client budgets may open up for calendar year '24, but this may be delayed. The company is currently seeing a slower recovery in the second half of the year.

Linda Huber, the CFO of MSCI, explains that the company's clients are finishing their budgeting process and most budgets are expected to be flat. However, clients are being asked to do more with what they have and the ability to scale is a top concern. The company is well positioned to take advantage of increased technology and GenAI spending. A question is raised about the change in outlook and Linda attributes it to the market recovery taking longer than anticipated. However, there seems to be a disconnect between the current positive sentiment and the company's outlook, which may be due to the negative sentiment in October.

The speaker addresses concerns about the timing of the company's guidance and explains that market sentiment has worsened due to recent events. They acknowledge that the market may be ahead of itself, but hiring for clients is a lagging indicator. The speaker expresses optimism for the future and hands it over to Phil to comment. Phil emphasizes that sales cycles for enterprise solutions take time, but they are excited about the potential of artificial intelligence.

The speaker discusses the success of FactSet in the market and the excitement of clients when they see the product. They mention a slower second quarter and a recent acquisition by UBS. They also mention an upcoming event focused on artificial intelligence and invite attendees to join. The call ends with a thank you from the operator.

This summary was generated with AI and may contain some inaccuracies.