The FactSet Q4 2024 Conference Call has begun with the operator introducing the call and handing it over to Kate Kirby. The call will last for one hour and will be followed by a Q&A session. Listeners are advised to review the legal notice and risk factors before discussing the results. Non-GAAP financial measures will also be discussed. CEO Phil Snow, CFO Helen Shan, and CRO Goran Skoko are present on the call. Phil Snow will now discuss the fourth quarter and full year fiscal 2024 results.

Fiscal 2024 saw organic ASV and Professional Services growth of $104 million, above the midpoint of the guidance range. Annual revenue, adjusted operating margin, and adjusted EPS all exceeded the high end of guidance. Despite macro uncertainty, there were positive trends and sales momentum on large deals. In Q4, $54 million of ASV was added, driven by multiyear renewals and competitive displacements. The Americas had 6% growth, EMEA had 2% growth, and APAC had 7% growth. Wealth management was the largest contributor to ASV growth, despite one-time loss of a client earlier in the year.

In the fourth quarter, FactSet experienced strong demand and saw a 12% increase in organic ASV growth, driven by large enterprise deals and competitive displacements. The company also added over 23,000 advisor desktops and expanded their offering for wealth managers. FactSet is well positioned to continue their momentum in competitive displacements and has seen early success in adjacent workflows. In the dealmakers segment, there was a 4% organic ASV growth, driven by a competitive win in banking and contract renewals.

The author discusses the current state of the banking industry and the challenges faced by FactSet, a financial data and software company. Despite headwinds such as tighter budgets and fee compression, FactSet has seen growth in its partnerships and CGS divisions. The company plans to continue its strategic investment plan, focusing on data expansion and embedding its services deeper into client workflows.

FactSet is prioritizing investment in the front office for institutional clients, leveraging their strongholds in portfolio performance, analytics, and risk. They aim to capture more market share in wealth management and continue to engage with banking clients for automation and productivity. The company is also focused on accelerating innovation through generative AI, with early signs of success in their open ecosystem approach and new GenAI-powered solutions. This is driving incremental ASV and improving client retention.

FactSet is making progress in their GenAI program and will share more at their Investor Day on November 14. They have expanded their product preview program to over 50 clients and are enabling third-party developers to build on their data and technology. Despite industry challenges, FactSet remains a trusted partner for clients and sees opportunity in helping them modernize. They are guiding for organic ASV growth of 5% and remain committed to responsible expense and capital management.

Helen Shan, in her discussion of the fourth quarter and full year performance, highlights the company's highest ASV growth in the fourth quarter and organic ASV growth of 4.8% year-over-year. The company also achieved 44 consecutive years of top line growth and exceeded their guidance for adjusted margins and EPS, though GAAP margins and EPS were affected by a one-time charge related to a sales tax dispute. The company saw a 5% increase in GAAP revenues and a 5% increase in organic revenues, with growth in all geographic segments. GAAP operating expenses increased 3%, but on an adjusted basis, they grew 1%.

In the fourth quarter, technology costs increased by 20% and were the main driver of expenses. Employee expenses decreased by 7%, while third-party content costs rose by 15% and real estate expenses decreased by 9%. This expense management is allowing FactSet to invest in technology and strategic initiatives for future growth. The GAAP operating margin increased by 110 basis points, while the adjusted operating margin improved by 240 basis points. The cost of services as a percentage of revenue declined by 330 basis points due to lower compensation expenses.

In the fourth quarter, FactSet's adjusted cost of services decreased by 40 basis points, while SG&A as a percentage of revenue was higher due to a Massachusetts sales tax charge. The effective tax rate for the quarter decreased to 23.6%, resulting in an increase in GAAP EPS by 38.1% and adjusted EPS by 23.8%. Free cash flow decreased by 12% compared to the same period last year, but increased by 5% for the fiscal year. Demand for FactSet's solutions remained steady and they added 296 new clients and 26,000 new users. They also repurchased shares for a total of $235 million in fiscal 2024 and approved a new share repurchase authorization for up to $300 million.

The company has paid a quarterly dividend of $1.04 per share, marking the 25th consecutive year of dividend increases. They have returned $386 million to shareholders in the last 12 months and plan to repay their term loan in full by the second quarter of fiscal 2025. They anticipate growth to accelerate in the second half of the year and are guiding for a 5% growth rate and an adjusted operating margin of 36% to 37%. They also expect adjusted EPS to be in the range of $16.80 to $17.40.

The company expects interest expense to be between $44 million to $48 million and capital expenditures to be in the range of $95 million to $105 million for fiscal 2025. They are optimistic about growth opportunities and plan to increase market share and enhance client retention through their generative AI roadmap and integration of FactSet into clients' workflows. The company is committed to supporting their teams and remaining the partner of choice. During the Q&A session, a question was asked about the company's margin expansion and the CEO stated that 2025 may be a reset year as they have exceeded their previous goals set at the previous Investor Day. They believe they are investing well for the future.

The company has implemented expense actions to increase margin and is in a good position to continue investing. The margin is higher than originally aimed for and this is due to resetting bonus levels and covering technology costs. The company is also making investments, which are self-funded. The company expects growth to accelerate in the second half of the year, but the 2025 ASV guide does not show improvement compared to 2024. The company's macro and pricing assumptions are not specified.

The company expects to face some challenges in the next few months, but is starting to see signs of improvement. There was a slight increase in banking hiring in the last quarter and the company closed some significant deals. The largest clients are eager to work with the company in the future. The company traditionally has a stronger second half of the year. They believe that once the year ends, clients will have a better idea of their budgets and uncertainties in the market will be resolved. The company has a strong product pipeline and recent product launches have already resulted in sales. They expect this trend to continue in the second half of the year. In terms of the buy side, a large asset management client cancelled this quarter, but the company did not provide further details.

The speaker addresses a recent cancel in asset management and provides data on their top 10 and bottom 10 wins for the year. They mention that there is a consolidation and cost pressure in the industry, but they have been successful in displacing competitors in most of their top 10 deals. The speaker also notes that there is a more positive outlook on the buy side, but cost pressures still exist and it is up to the company to execute against them.

The speaker discusses the buy side and mentions that there has been continued demand for managed services in the enterprise sector. They expect this to be a driver of growth in the buy side going forward. The next question asks about the strong performance in CGS, specifically in CUSIP, but the speaker does not provide specific numbers. They mention that CUSIP is a significant portion of the partners business line and drove the growth in the partners business, which grew at 6%. They also mention that they lost some ASV in partnerships but are encouraged by the pace of new development in CUSIP. The speaker cannot provide any further details at this time.

Philip Snow, the CEO of the company, explains that they are not expecting any acceleration in growth in the near future, but they are more optimistic about the second half of the year. He mentions that the generative AI aspect of their business could potentially bring in more revenue, as well as an increase in hiring on the sell-side. Snow emphasizes that the company's main focus is on increasing their top line and they will provide more details at their upcoming Investor Day.

The speaker discusses the expected impact of GenAI investments on ASV and expenses for the next few years. They mention that GenAI is expected to start delivering incremental ASV in FY 2025, but the impact is already included in the 4% to 6% ASV growth guidance. They estimate that GenAI will contribute around 30 to 50 basis points to ASV and 50-plus basis points to expenses. They also mention that the pricing environment and the pricing for new products like FactSet Mercury and AI offerings are factors to consider in the ASV guide.

FactSet has a standard pricing strategy of either CPI or RPI or 3% for their contracts. They have been able to raise prices on their packages and have seen a price realization of above 80%. However, they expect a modest decrease in overall contribution from pricing this year. For AI, they have a model in place that includes products such as Transcript Intelligence and Search Intelligence. They will also offer deep workflow solutions, such as Portfolio Commentary, which will be charged on a usage basis. After receiving demand for customization, they have completed the necessary work and are ready to bring these solutions to the market.

The company has received a lot of interest from clients for their customizable product, and they plan to offer it through a bundled or usage-based pricing model. They had a successful sale in Q4 for their conversational API, and the approach they took is expected to bring in more revenue in the second half of the year. The company's federated approach to their conversational API has been well received by clients and is expected to benefit their cost structure. The company is also excited about upcoming releases, such as Portfolio Commentary, which will be discussed at their Investor Day.

In response to a question about the projected deceleration in revenue growth for fiscal 2025, Helen Shan explains that the nature of their business, which is recurring revenue, means that revenue lags behind ASV growth. She also mentions that the conversion of ASV into revenue will likely be stronger in the second half of the year, which will benefit 2026. When asked about the decline in operating margin, the company attributes half of it to a reset of the bonus pool and the other half to investments. They emphasize the importance of balancing investment spending with their goal of driving top line growth.

The speaker responds to a question about the company's guidance and potential for increased investment spending. They explain that the company has room for investment due to expense actions taken in the previous year. The additional investment is self-funded and amounts to roughly 150 basis points, with half going towards GenAI and the remaining portion towards content, managed services, and infrastructure. The company aims to balance the need to invest for top line growth while maintaining strong margins.

During a follow-up question about monetizing GenAI, Helen Shan from the company mentioned that they are in the early stages and may need to continue investing to maintain growth. However, if they are able to realize strong returns, they may be able to invest more. In response to another question, Philip Snow highlighted a trend of doing more at the enterprise level with clients and mentioned a key win in Q4 where they are providing middle-office performance for wealth.

The speaker discusses the success of the company in the wealth space and notes that a common theme among their clients is their excitement for consuming value in different ways. They also mention a strong team and an excellent desktop product, which has led to a recent win in banking. The company's ability to compete for higher-end terminals has improved, and they have seen significant wins in expanding into additional workflows and diversifying their sources of ASV. The speaker is encouraged by these wins and plans to build on them in the future.

The speaker is asked about the competitive environment and if they are seeing any aggressive pricing from competitors. They respond by saying that they always face competition and keep an eye on their performance in terms of wins and losses. They do not believe that anything has significantly changed in terms of competition. The speaker also mentions that they have been successful in using pricing to win market share and lock in longer term contracts. The next question is about the performance of hedge fund clients and selling to corporates. The speaker responds by saying that it is about the same and depends on the specific situation.

The speaker discusses the churn in the hedge fund industry and mentions a partnership with a company called Irwin. They also mention an uptick in new logos from corporates. In order to stimulate top line growth, they are considering being more aggressive in exploring partnerships and targeted M&A opportunities.

The company has seen an increase in M&A activity and is maintaining discipline while using it as a lever for top line growth. The company has historically been more focused on growth but has also prioritized delivering cash flow. There has not been a significant change in the company's philosophy, and they remain focused on both growth and profitability. The company expects margins to be down in the short term but has confidence in future growth due to factors such as increased M&A activity.

The company has not seen consistent double-digit growth in over a decade, but aspires to reach high single-digit growth. The past two years have been tough due to market pressure, but the company remains focused on delivering good earnings growth and is optimistic about the market becoming more constructive. They have evolved their platform and are well-positioned to secure larger deals. They are also focused on efficiency and may choose to invest in new products. The level of innovation and new products delivered this year gives them increased confidence for the second half projections. They are not solely relying on the market to turn around.

The speaker is discussing the company's product pipeline and how it will impact their conversations with clients, specifically on the renewal side. They mention three initiatives - deep sector, private markets, and real time - and how they are making progress in those areas. They also mention a large win in real time and multiple clients engaged in deep sector. They are encouraged by the level of client engagement and product progress in these areas. They continue to invest in private markets, as many firms are interested in this.

The speaker thanks the sales team for a successful year and expresses excitement for upcoming products and Investor Day.

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