FACTSET RESEARCH SYSTEMS, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2020 , our Current Reports on Form 8-K and our other filings with theSecurities and Exchange Commission . This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause such differences include, but are not limited to, those identified below and those discussed in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedAugust 31, 2020 . Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections: •Executive Overview •Key Metrics •Results of Operations •Non-GAAP Financial Measures •Liquidity and Capital Resources •Off-Balance Sheet Arrangements •Foreign Currency •Critical Accounting Policies and Estimates •New Accounting Pronouncements Executive OverviewFactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively, "we," "our," "us" or "FactSet") is a global provider of integrated financial information, analytical applications and industry-leading services for the investment and corporate communities. For over 40 years, global financial professionals have utilized our content and multi-asset class solutions across each stage of the investment process. Our goal is to provide a seamless user experience spanning idea generation, research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting, in which we serve the front, middle, and back offices to drive productivity and improved performance. Our flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in the organization. We are focused on growing our business through three segments: theAmericas , EMEA (Europe andAfrica ) andAsia Pacific . Within each of our segments, we primarily deliver insight and information through our four workflow solutions of Research,Analytics and Trading , Content and Technology Solutions ("CTS") and Wealth. We currently serve a wide range of financial professionals, including but not limited to portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and corporate clients. We provide both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and execute trades. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, an open marketplace, digital portals and application programming interface ("APIs"). Our revenue is primarily derived from subscriptions to our products and services such as workstations, portfolio analytics, enterprise data, and research management. Business Strategy Current technology trends are leading to a greater demand to deliver a fully digital and integrated client experience. To take advantage of these developments, we have focused our innovations and strategic investments in cloud computing, data lakes, APIs and our hosted proprietary data and analytics platform to provide real-time, predictive business intelligence for a seamless client experience. We continue to expand our broad financial content to provide support for our clients' most sophisticated investment strategies including enhanced data in private markets, industry specific deep sector and environmental, social, and governance ("ESG") data. As a premier financial solutions provider for the global financial community, we provide workflow solutions and leading analytical applications, powered by cognitive capabilities and robust technology, across the investment portfolio lifecycle. We bring the front, middle and back offices together to drive productivity and performance at every step of the investment process using our open and scalable solutions. Our strategy is focused on growing our business in each of our three segments: theAmericas , EMEA, andAsia Pacific . We believe this geographical strategic alignment helps us better 27 -------------------------------------------------------------------------------- Table of Contents manage our resources. To execute on our business strategy of broad-based growth across each geographical segment, we continue to look at ways to create value for our clients by offering data, products and analytical applications within our four workflow solutions of Research,Analytics and Trading , CTS and Wealth. Fiscal 2021 First Quarter in Review Revenue in the first quarter of fiscal 2021 was$388.2 million , an increase of 5.9% from the prior year. Revenue increased across our geographic segments, primarily in theAmericas , followed by EMEA andAsia Pacific , supported by increased revenue from each of our workflow solutions, mainly inAnalytics and Trading and CTS, followed by Wealth. Organic revenue contributed to 5.1% of the growth during the first quarter of fiscal 2021, compared to the prior year. Organic revenue excludes the effects of acquisitions and dispositions completed in the last 12 months, the effects of foreign currency movements on the current year period and the deferred revenue fair value adjustments from purchase accounting. Refer to Non-GAAP Financial Measures in Item 2. of this Quarterly Report for a reconciliation between revenue and organic revenue. As ofNovember 30, 2020 , organic annual subscription value ("organic ASV") plus professional services totaled$1.56 billion , an increase of 5.0% overNovember 30, 2019 . Organic ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes ASV from acquisitions and dispositions completed within the last 12 months, the effects of foreign currency movements on the current year period and professional services. Organic ASV increased across all our geographic segments with the majority of the increase related to theAmericas , followed by EMEA andAsia Pacific . Operating income grew 6.9% and diluted earnings per share ("EPS") increased 7.8% for the three months endedNovember 30, 2020 , compared to the prior year period. Operating margin increased to 31.2% during the three months endedNovember 30, 2020 compared to 30.9% in the prior year period. This increase in operating margin on a year-over-year basis was primarily due to higher revenue, a decrease in non-compensatory employee-related expenses, occupancy costs and computer depreciation, partially offset by higher computer-related expenses, employee compensation expenses, including stock-based compensation expense, and amortization of intangible assets, when expressed as a percentage of revenue. As ofNovember 30, 2020 , our employee headcount was 10,622, up 7.7% in the past 12 months, due primarily to an increase in net new employees of 8.8% inAsia Pacific , 6.0% in theAmericas and 5.6% in EMEA. Of our total employee headcount atNovember 30, 2020 , 6,736 were located inAsia Pacific , 2,505 were located in theAmericas , and 1,381 were located in EMEA. COVID-19 Update A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first reported inDecember 2019 , and it has since extensively impacted the global health and economic environment, with theWorld Health Organization characterizing COVID-19 as a pandemic onMarch 11, 2020 . The COVID-19 virus has spread to nearly all regions in the world, creating significant uncertainties and disruption in the global economy. We are closely monitoring pandemic-related developments, and our highest priority is the health and safety of our employees, clients, vendors and stakeholders. We have taken, and continue to take, numerous steps to address the COVID-19 pandemic. We have implemented a business continuity plan with a dedicated incident management team to respond quickly and effectively to changes in our environment to continue offering our clients uninterrupted products, services and support while also protecting our employees. We continue to coordinate our COVID-19 response based on guidance from global health organizations, relevant governments and pandemic response best practices. We have required the vast majority of our employees at our offices across the globe (including our corporate headquarters) to work remotely on a temporary basis and have implemented global travel restrictions for our employees. Nearly all our employees are currently working remotely. We believe our transition to remote working has been successful and has not significantly affected our financial results as ofNovember 30, 2020 . We are planning to re-open many of our offices during fiscal 2021, utilizing a three-phased approach to provide flexibility for employees with a focus on social distancing and safety. Our offices will not re-open until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied. There can be no assurances as to when we re-open our offices or that there will be no negative impacts arising from the return to the office environment. As ofNovember 30, 2020 , there has been minimal interruptions in our ability to provide our products, services and support to our clients. Working remotely has had relatively little impact on the productivity of our employees, including our ability to gather content. We continue to work closely with our clients to provide consistent access to our products and services and have remained flexible to achieve client priorities as many implement their own contingency plans. Since the start of the pandemic, 28 -------------------------------------------------------------------------------- Table of Contents we have increased our support desk resources to manage increased volumes and have extended additional web IDs to our clients in need of immediate remote access to financial data. Our revenue, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model. To date, we have not seen the COVID-19 pandemic having a material impact on our revenue or ASV, although we anticipate that there may be some level of revenue and ASV weakness going forward due to longer sales cycles and lower incremental client billings. The COVID-19 pandemic could curtail our clients' spending and lead them to delay or defer purchasing decisions or product and service implementations or may cause them to cancel or reduce their spending with us. In determining the possible revenue and ASV impact from the COVID-19 pandemic, we are considering the potential delay in decision making causing longer sales cycles (or conversely delayed cancellations from clients), as well as possible implementation risk due to restrictions on being able to work onsite at our clients' facilities. We have incurred, and may continue to incur, additional expenses in response to the COVID-19 pandemic, including costs to enable our employees to support our clients while working remotely. These additional expenses were not material to our first quarter fiscal 2021 results, and reductions in discretionary spending, particularly travel and entertainment, have more than offset these increased expenses. We believe that we have the ability to implement additional cost reduction efforts if necessary to mitigate the impact that any reduced revenues may have on our future operating income, through such methods as tighter management of headcount spending; reduction in variable third-party content costs in a manner consistent with client demand; and reduction of discretionary spending, including travel and entertainment. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law to address the economic impact of the COVID-19 pandemic. OnDecember 27, 2020 , the Consolidated Appropriations Act, 2021 was signed into law and includes further relief and stimulus provisions to address economic concerns related to the COVID-19 pandemic. We continue to monitor any effects that may result from these Acts and other similar legislation or actions in geographies in which our business operates. Key Metrics Organic ASV Organic ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes ASV from acquisitions and dispositions completed within the last 12 months, the effects of foreign currency movements on the current year period and professional services. With proper notice provided as contractually required, our clients can add to, delete portions of, or terminate service, subject to certain limitations. As ofNovember 30, 2020 , our organic ASV totaled$1.53 billion , up 5.0% overNovember 30, 2019 . As ofNovember 30, 2020 , organic ASV plus professional services was$1.56 billion , an increase of 5.0% compared toNovember 30, 2019 . The increase in year-over-year organic ASV was largely attributed to increased sales and price increases partially offset by cancellations by existing clients and increased sales to new clients. Organic ASV increased across all our geographic segments with the majority of the increase related to theAmericas , followed by EMEA andAsia Pacific . This increase was driven by additional sales in our workflow solutions, primarily inAnalytics and Trading , mainly due to increased sales in our portfolio reporting, risk management, performance and portfolio analytics solutions, CTS with increased sales from core and premium content sets, specifically related to company financial data and data management solutions, and Wealth from increased workstation sales. Segment ASV As ofNovember 30, 2020 , ASV from theAmericas was$958.5 million , an increase of 5.6% fromNovember 30, 2019 . ASV from EMEA was$422.0 million , an increase of 4.7% fromNovember 30, 2019 , and Asia Pacific ASV was$156.5 million , an increase of 9.5% compared toNovember 30, 2019 . The increase in ASV across all our geographic segments was largely driven by increased sales and price increases partially offset by cancellations by existing clients and increased sales to new clients. The increased ASV in theAmericas was primarily driven byAnalytics and Trading , followed by CTS. The EMEA ASV increase was mainly driven by CTS andAnalytics and Trading and the Asia Pacific ASV increase was primarily due toAnalytics and Trading and CTS. Combined EMEA and Asia Pacific ASV represented 37.6% of total ASV as ofNovember 30, 2020 , consistent withNovember 30, 2019 . 29 -------------------------------------------------------------------------------- Table of Contents Buy-side and Sell-side Organic ASV Growth Buy-side and sell-side organic ASV growth rates atNovember 30, 2020 were 5.1% and 4.4%, respectively, compared toNovember 30, 2019 . Buy-side clients account for approximately 84% of our organic ASV, consistent with the prior year period, and primarily includes portfolio managers, analysts, traders, wealth managers, performance teams and risk and compliance teams at a variety of firms, such as traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. The remainder of our organic ASV is derived from sell-side firms, primarily including investment bankers and private equity and research analysts. Client and User Additions The table below presents our total clients and users: As of November 30, 2020 2019 Change Clients 5,939 5,601 6.0 % Users 138,238 126,785 9.0 % Our total client count was 5,939 as ofNovember 30, 2020 , representing a net increase of 338 or 6.0% in the last 12 months. The increase was primarily due to an increase in wealth management and corporate clients. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our existing client base through sales of workstations, applications, services and content. As ofNovember 30, 2020 , there were 138,238 professionals using FactSet, representing a net increase of 11,453 or 9.0% in the last 12 months, driven primarily by an increase in corporate and wealth management professionals. Annual client retention was greater than 95% of ASV for the period endedNovember 30, 2020 andNovember 30, 2019 . When expressed as a percentage of clients, annual retention increased to approximately 90% for the period endedNovember 30, 2020 , compared to approximately 89% for the period endedNovember 30, 2019 . Returning Value to Stockholders OnNovember 4, 2020 , our Board of Directors approved a regular quarterly dividend of$0.77 per share. The cash dividend of$29.1 million was paid onDecember 17, 2020 to common stockholders of record at the close of business onNovember 30, 2020 . We repurchased 131,800 shares of common stock for$43.1 million during the first quarter of fiscal 2021 under our existing share repurchase program. For the three months endedNovember 30, 2020 , we returned$72.2 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we returned$270.6 million to stockholders in the form of share repurchases and dividends. OnMarch 24, 2020 , our Board of Directors approved a$220.0 million increase to the existing share repurchase program. As a result of this expansion,$215.9 million is available for future share repurchases as ofNovember 30, 2020 . Capital Expenditures Capital expenditures for the three months endedNovember 30, 2020 were$18.3 million , compared to$26.8 million for the three months endedNovember 30, 2019 . The majority of our capital expenditures during the three months endedNovember 30, 2020 related to the development of internal-use software and the build-out of our office space inthe Philippines . The decrease from the prior year period was mainly due to capital expenditures incurred during the three months endedNovember 30, 2019 related to the build-out of our new corporate headquarters inNorwalk, Connecticut , partially offset by an increase in capitalized internal-use software during the three months endedNovember 30, 2020 . 30 -------------------------------------------------------------------------------- Table of Contents Results of Operations For an understanding of the significant factors that influenced our performance for the three months endedNovember 30, 2020 andNovember 30, 2019 , the following discussion should be read in conjunction with the Consolidated Financial Statements and related notes presented in this Quarterly Report on Form 10-Q. Three Months Ended November 30, (in thousands, except per share data) 2020 2019 Change Revenue$ 388,206 $ 366,658 5.9 % Cost of services$ 188,088 $ 164,957 14.0 % Selling, general and administrative$ 79,087 $ 88,515 (10.7) % Operating income$ 121,031 $ 113,186 6.9 % Net income$ 101,206 $ 93,957 7.7 % Diluted earnings per common share$ 2.62 $ 2.43 7.8 % Diluted weighted average common shares 38,697 38,587
Revenue
Three months endedNovember 30, 2020 compared to three months endedNovember 30, 2019 Revenue for the three months endedNovember 30, 2020 was$388.2 million , an increase of 5.9%. The increase in revenue was largely attributed to increased sales and price increases partially offset by cancellations by existing clients and increased sales to new clients. This was driven by increased revenue across all our geographic segments primarily from theAmericas , followed by EMEA andAsia Pacific . The increase in segment revenue was due to increased revenue in our workflow solutions, most notably byAnalytics and Trading and CTS, followed by Wealth, compared to the prior year. The revenue growth of 5.9% was reflective of organic revenue growth of 5.1% or$386.7 million in organic revenue, a 50 basis point increase from deferred revenue fair value adjustments from purchase accounting and acquisition-related revenue and a 30 basis point increase from foreign currency exchange rate fluctuations. Revenue by Operating Segment Three Months Ended November 30, (in thousands) 2020 2019 Change Americas$ 244,337 $ 231,330 5.6 % % of revenue 62.9 % 63.1 % EMEA$ 105,777 $ 100,830 4.9 % % of revenue 27.2 % 27.5 % Asia Pacific$ 38,092 $ 34,498 10.4 % % of revenue 9.8 % 9.4 % Consolidated$ 388,206 $ 366,658 5.9 % Three months endedNovember 30, 2020 compared to three months endedNovember 30, 2019 Revenue from ourAmericas segment increased 5.6% to$244.3 million during the three months endedNovember 30, 2020 , compared to$231.3 million from the same period a year ago. This year-over-year revenue increase was largely attributed to increased sales and price increases partially offset by cancellations by existing clients and increased sales to new clients. This increase was driven by increased sales of our workflow solutions, primarily inAnalytics and Trading and CTS, followed by Wealth. The revenue growth of 5.6% was reflective of organic revenue growth of 5.1% and a 50 basis point increase from deferred revenue fair value adjustments from purchase accounting and acquisition-related revenue. Revenue from ourAmericas operations accounted for 62.9% of our consolidated revenue for the three months endedNovember 30, 2020 , down from 63.1% in the prior year period. 31 -------------------------------------------------------------------------------- Table of Contents EMEA revenue increased 4.9% to$105.8 million during the three months endedNovember 30, 2020 , compared to$100.8 million from the same period a year ago. This year-over-year revenue increase was largely attributed to increased sales and price increases partially offset by cancellations by existing clients and increased sales to new clients. This increase was driven by increased sales of our workflow solutions, mainly inAnalytics and Trading and CTS. The revenue growth of 4.9% was reflective of organic revenue growth of 3.4%, a 100 basis point increase from foreign currency exchange rate fluctuations and a 50 point basis point increase from deferred revenue fair value adjustments from purchase accounting.Asia Pacific revenue increased 10.4% to$38.1 million during the three months endedNovember 30, 2020 , compared to$34.5 million from the same period a year ago. This year-over-year revenue increase was largely due to increased sales and price increases partially offset by cancellations by existing clients and increased sales to new clients. This increase was driven by increased sales of our workflow solutions, primarily inAnalytics and Trading and CTS. The revenue growth of 10.4% was reflective of organic revenue growth of 9.8% and a 60 basis point increase from foreign currency exchange rate fluctuations. Revenue by Workflow Solution Three months endedNovember 30, 2020 compared to three months endedNovember 30, 2019 The revenue growth of 5.9% across our operating segments was primarily driven by increased revenue fromAnalytics and Trading and CTS followed by Wealth for the three months endedNovember 30, 2020 , compared to the same period a year ago. The revenue increase fromAnalytics and Trading was primarily due to increased demand for our risk management, portfolio reporting, performance and portfolio analytics solutions. The increase in CTS revenue was driven mainly by higher sales of core and premium content sets, specifically related to company financial data and data management solutions. Wealth also experienced an increase in revenue mainly due to higher sales of our workstation product. 32 --------------------------------------------------------------------------------
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Operating Expenses
Three Months Ended November 30,
(in thousands) 2020 2019 Change
Cost of services $ 188,088 $ 164,957 14.0 %
Selling, general and administrative 79,087 88,515 (10.7) %
Total operating expenses $ 267,175 $ 253,472 5.4 %
Operating Income $ 121,031 $ 113,186 6.9 %
Operating Margin 31.2 % 30.9 %
Cost of Services
Three months ended November 30, 2020 compared to three months ended November 30,
2019
Cost of services increased 14.0% to $188.1 million for the three months ended
November 30, 2020 , compared to $165.0 million in the same period a year ago,
primarily due to an increase in employee compensation expense and
computer-related expenses.
Cost of services, when expressed as a percentage of revenue, was 48.5% for the
three months ended November 30, 2020 , an increase of 350 basis points compared
to the same period a year ago. This increase was primarily due to an increase in
computer-related expenses, employee compensation expense and intangible asset
amortization, partially offset by a reduction in computer depreciation, when
expressed as a percentage of revenue. Computer-related expenses increased 190
basis points, primarily driven by increased technology investments related to
our migration to cloud-based hosting services and licensed software
arrangements. Employee compensation expense increased 170 basis points,
primarily driven by a net increase in employee headcount of 757 employees, most
of whom are located in lower cost locations, with the majority of their salaries
included in cost of services. Employee compensation expense also increased due
to higher annual base salaries and an increase in year-over-year variable
compensation, partially offset by higher capitalization of compensation costs
related to development of our internal-use software projects. Intangible asset
amortization increased 30 basis points due to a higher investment in capitalized
internal-use software that has been placed in service. Computer depreciation
decreased 30 basis points mainly due to an overall reduction in computer
equipment as we migrate to cloud-based hosting services.
Selling, General and Administrative
Three months ended November 30, 2020 compared to three months ended November 30,
2019
Selling, general and administrative ("SG&A") expenses decreased 10.7% to $79.1
million for the three months ended November 30, 2020 , compared to $88.5 million
for the same period a year ago, primarily due to a decrease in non-compensatory
employee-related expenses.
SG&A expenses, when expressed as a percentage of revenue, were 20.4% for the
three months ended November 30, 2020 , a decrease of 380 basis points over the
prior year period. This decrease was primarily driven by a decrease in
non-compensatory employee-related expenses and a reduction in occupancy costs,
partially offset by higher stock-based compensation costs. Non-compensatory
employee-related expenses, inclusive of travel, entertainment and office
expenses, decreased 230 basis points mainly due to restrictions and impacts
related to the COVID-19 pandemic as most employees continue to work from home.
Occupancy costs decreased 60 basis points, as the three months ended
November 30, 2019 included costs related to concurrent lease expenses of our new
and prior corporate headquarters in Norwalk, Connecticut . Stock-based
compensation increased 50 basis points primarily due to the accelerated
recognition of expense associated with certain retirement provisions in our
employee equity award plan. For these employees, the amortization of new grants
was recognized over the period from the grant date to the retirement-eligible
date if such period was shorter than the standard vesting schedule.
Operating Income and Operating Margin
Three months ended November 30, 2020 compared to three months ended November 30,
2019
Operating income increased 6.9% to $121.0 million for the three months ended
November 30, 2020 compared to $113.2 million in the prior year. Operating income
increased due to higher revenue and a reduction in non-compensatory
employee-related expenses, partially offset by an increase in employee
compensation expense and computer-related expenses compared to the prior year
period. Operating margin increased to 31.2% during the three months ended
November 30, 2020 compared to 30.9% in the prior year period. This increase in
operating margin on a year-over-year basis was primarily due to higher revenue
and a decrease in non-compensatory employee-related expenses, occupancy costs
and computer depreciation, partially offset by
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higher computer-related expenses, employee compensation expenses, stock-based
compensation expense and amortization of intangible assets, when expressed as a
percentage of revenue.
Segment Information
Reportable Segments
Our operating segments are aligned with how we manage the business, the
geographic markets we serve, and how our chief operating decision maker
("CODM"), our Chief Executive Officer, assesses performance. Our internal
financial reporting structure is based on three reportable segments, the
Each segment records compensation expense (including stock-based compensation),
depreciation of furniture and fixtures, amortization of lease right-of-use
("ROU") assets, leasehold improvements and intangible assets, as well as
communication costs, professional fees, rent expense, travel, office and other
direct expenses. Expenditures associated with our data centers, third-party data
costs and corporate headquarters charges are recorded by the Americas segment
and are not allocated to the other segments. The content collection centers,
located in India , the Philippines , and Latvia , benefit all our operating
segments, and thus the expenses incurred at these locations are allocated to
each segment based on a percentage of revenue. Refer to Note 16, Segment
Information for financial information, including revenues, operating income and
long-lived assets for each of our segments.
Operating Income by Segment
Three Months Ended November 30,
(in thousands) 2020 2019 Change
Americas $ 56,376 $ 49,623 13.6 %
EMEA 40,634 41,218 (1.4) %
Asia Pacific 24,021 22,345 7.5 %
Total Operating Income $ 121,031 $ 113,186 6.9 %
Three months ended November 30, 2020 compared to three months ended November 30,
2019
Americas operating income increased 13.6% to $56.4 million during the three
months ended November 30, 2020 compared to $49.6 million in the same period a
year ago. The increase in Americas operating income was primarily due to revenue
growth of 5.6% and a decrease in non-compensatory employee-related expenses,
partially offset by an increase in computer-related expenses and employee
compensation expense. Non-compensatory employee-related expenses, inclusive of
travel, entertainment and office expenses, decreased mainly due to restrictions
and impacts related to the COVID-19 pandemic. Computer-related expenses
increased primarily due to increased technology investments related to our
migration to cloud-based hosting services and licensed software arrangements.
Employee compensation expense increased mainly due to a net increase in employee
headcount of 142 employees, higher annual base salaries and an increase in
year-over-year variable compensation, partially offset by higher capitalization
of compensation costs related to development of our internal-use software
projects.
EMEA operating income decreased 1.4% to $40.6 million during the three months
ended November 30, 2020 compared to $41.2 million in the same period a year ago.
The decrease in EMEA operating income was primarily due to revenue growth of
4.9%, partially offset by an increase in employee compensation expense. Employee
compensation expense increased mainly due to a net increase in employee
headcount of 73 employees, higher annual base salaries and an increase in
year-over-year variable compensation.
Asia Pacific operating income increased 7.5% to $24.0 million during the three
months ended November 30, 2020 , compared to $22.3 million in the same period a
year ago. The increase in the Asia Pacific operating income was mainly due to
revenue growth of 10.4% and a decrease in non-compensatory employee-related
expenses, partially offset by an increase in employee compensation expense.
Non-compensatory employee-related expenses, inclusive of travel, entertainment
and office expenses, decreased mainly due to restrictions and impacts related to
the COVID-19 pandemic. Employee compensation expense
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increased mainly due to a net increase in employee headcount of 542 employees
and annual base salary increases year-over-year.
Income Taxes, Net Income and Diluted Earnings per Share
Three Months Ended
(in thousands, except for per share data) 2020 2019 Change Provision for income taxes$ 19,026 $ 14,784 28.7 % Net income$ 101,206 $ 93,957 7.7 % Diluted earnings per common share$ 2.62 $ 2.43 7.8 % Income Taxes Three months endedNovember 30, 2020 compared to three months endedNovember 30, 2019 Our effective tax rate is lower than the applicableU.S. corporate income tax rate for the three months endedNovember 30, 2020 driven mainly by research and development ("R&D") tax credits and a foreign derived intangible income ("FDII") deduction. Our effective tax rate for the three months endedNovember 30, 2020 is further reduced by windfall tax benefits from stock-based compensation. For the three months endedNovember 30, 2020 , the provision for income taxes was$19.0 million , compared to$14.8 million from the same period a year ago. The provision increased due to higher operating income and a reduction in income tax benefits for the three months endedNovember 30, 2020 , compared to the same period a year ago. The income tax benefit for the three months endedNovember 30, 2020 was$3.0 million related to windfall tax benefits from stock-based compensation compared to$5.9 million for the three months endedNovember 30, 2019 related to the remeasurement of a foreign net deferred tax position due to changes in the jurisdiction's tax rate, finalizing prior years' tax returns, and windfall tax benefits from stock-based compensation. Net Income and Diluted Earnings per Share Three months endedNovember 30, 2020 compared to three months endedNovember 30, 2019 Net income increased 7.7% to$101.2 million and diluted earnings per share ("EPS") increased 7.8% to$2.62 for the three months endedNovember 30, 2020 , compared to the same period a year ago. Net income and diluted EPS increased primarily due to increased operating income and a reduction in interest expense, net, partially offset by an increase in the provision for income taxes. Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures including organic revenue, adjusted operating margin, adjusted net income and adjusted diluted EPS. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are show in the tables below. These non-GAAP financial measures should not be considered in isolation from, as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently that we do, limiting the usefulness of those measures for comparative purposes. Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures, and the information they provide, are useful in viewing our performance using the same tools that management uses to gauge progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance. 35
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Table of Contents The table below provides an unaudited reconciliation of revenue to organic revenue.
Three Months Ended
(In thousands) 2020 2019 Change Revenue$ 388,206 $ 366,658 5.9 % Deferred revenue fair value adjustment(1) 60 1,216 Acquired revenue(2) (375) - Currency impact (1,240) - Organic revenue$ 386,651 $ 367,874 5.1 %
(1)Deferred revenue fair value adjustment from purchase accounting (2)Acquired revenues from acquisitions completed within the last 12 months
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Table of Contents The table below provides an unaudited reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS.
Three Months Ended
(In thousands, except per share data) 2020(1) 2019(2) Change Operating income$ 121,031 $ 113,186 6.9 % Intangible asset amortization 5,699 5,152 Deferred revenue fair value adjustment 60 1,216 Other items 6,213 5,168 Adjusted operating income$ 133,003 $ 124,722 6.6 % Adjusted operating margin 34.3 % 33.9 % Net income$ 101,206 $ 93,957 7.7 % Intangible asset amortization(3) 4,797 4,181 Deferred revenue fair value adjustment(4) 51 987 Other items(5) 5,229 4,011 Income tax items - (3,481) Adjusted net income$ 111,283 $ 99,655 11.7 % Diluted earnings per common share $ 2.62$ 2.43 7.8 % Intangible asset amortization 0.12 0.11 Deferred revenue fair value adjustment - 0.03 Other items 0.14 0.10 Income tax items - (0.09) Adjusted diluted earnings per common share $ 2.88$ 2.58 11.6 % Weighted average common shares (Diluted) 38,697 38,587 (1)Operating income, net income and diluted EPS for the three months endedNovember 30, 2020 were adjusted to exclude (i) acquired intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items primarily related to professional fees associated with the ongoing content and technology investment plan and facilities costs. (2)Operating income, net income and diluted EPS for the three months endedNovember 30, 2019 were adjusted to exclude (i) acquired intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items primarily related to severance, professional fees related to infrastructure upgrade activities and facilities costs. (3)The acquired intangible asset amortization was recorded net of a tax provision of$0.9 million for the three months endedNovember 30, 2020 , compared to$1.0 million during the same period in the prior year. (4)The deferred revenue fair value adjustment was recorded net of a tax provision of zero for the three months endedNovember 30, 2020 , compared to$0.2 million for the same period in the prior year. (5)Other items were recorded net of a tax provision of$1.0 million for the three months endedNovember 30, 2020 , compared to a$1.2 million tax benefit for the same period in the prior year. 37 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Our primary sources of liquidity have been our cash flows generated from our operations, existing cash and cash equivalents and, when needed, our credit capacity under our existing credit facility. We have primarily used these sources of liquidity to, among other things, service our existing and future debt obligations, fund our working capital requirements for operations and capital expenditures, investments, acquisitions, dividend payments and repurchases of our common stock. Based on past performance and current expectations, we believe our liquidity, along with other financing alternatives, will provide us the necessary capital to fund these transactions and achieve our planned growth for the next 12 months and the foreseeable future. Sources of Liquidity Long-Term Debt OnMarch 29, 2019 , we entered into a credit agreement withPNC Bank, National Association ("PNC") (the "2019 Credit Agreement"), which provides for a$750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). We may request borrowings under the 2019 Revolving Credit Facility until its maturity date ofMarch 29, 2024 . The 2019 Credit Agreement also allows us, subject to certain requirements, to arrange for additional borrowings with PNC for an aggregate amount up to$500.0 million , provided that any such request for additional borrowings must be in a minimum amount of$25.0 million . As ofNovember 30, 2020 , we have borrowed$575.0 million of the available$750.0 million provided by the 2019 Revolving Credit Facility, resulting in$175.0 million available to be withdrawn. We are required to pay a commitment fee using a pricing grid which was 0.10% as ofNovember 30, 2020 . This fee is based on the daily amount by which the available balance in the 2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheets atNovember 30, 2020 andAugust 31, 2020 . The principal balance is payable in full on the maturity date. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to LIBOR plus a spread using a debt leverage pricing grid, which was 0.875% as ofNovember 30, 2020 . The variable rate of interest on the 2019 Revolving Credit Facility can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, onMarch 5, 2020 , we entered into an interest rate swap agreement with a notional amount of$287.5 million to hedge the variable interest rate obligation on a portion of our outstanding balance under the 2019 Revolving Credit Facility. Under the terms of the interest rate swap agreement, we will pay interest at a fixed rate of 0.7995% and receive variable interest payments based on the same one-month LIBOR utilized to calculate the interest expense from the 2019 Revolving Credit Facility. The interest rate swap agreement matures onMarch 29, 2024 . Including the effects of the interest rate swap agreement, the weighted average interest rate on amounts outstanding under our 2019 Revolving Credit Facility was 1.40% for the three months endedNovember 30, 2020 . The weighted average interest rate for the fiscal year endedAugust 31, 2020 was 2.20%. Interest on the outstanding balance under the 2019 Revolving Credit Facility is payable quarterly, in arrears, and on the maturity date. The 2019 Credit Agreement contains covenants and requirements restricting certain activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that we maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA (as defined in the 2019 Credit Agreement) below a specified level as of the end of each fiscal quarter. We were in compliance with all the covenants and requirements within the 2019 Credit Agreement as ofNovember 30, 2020 . As part of theTruvalue Labs, Inc. ("TVL") acquisition, FactSet assumed an additional$1.1 million in long-term debt. Refer to Note 7, Acquisition for further discussion on the TVL acquisition. Uses of Liquidity Returning Value to Shareholders For the three months endedNovember 30, 2020 , we returned$72.2 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we returned$270.6 million to stockholders in the form of share repurchases and dividends. Share Repurchase Program Repurchases of shares of our common stock are made from time to time in the open market and privately negotiated transactions, subject to market conditions. In the three months endedNovember 30, 2020 , we repurchased 131,800 shares for$43.1 million under our existing share repurchase program compared to 343,000 shares for$84.4 million in the same period a 38
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Table of Contents year ago. As ofNovember 30, 2020 ,$215.9 million remains available under the share repurchase program for future share repurchases. There is no defined number of shares to be repurchased over a specified timeframe through the life of the share repurchase program. It is expected that share repurchases will be paid using existing and future cash generated by operations. Dividends OnNovember 4, 2020 , our Board of Directors approved a regular quarterly dividend of$0.77 per share. The cash dividend of$29.1 million was paid onDecember 17, 2020 , to common stockholders of record at the close of business onNovember 30, 2020 . Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to final determination by our Board of Directors. Acquisitions OnNovember 2, 2020 , FactSet acquired all of the outstanding shares of TVL for a purchase price of$41.9 million , subject to working capital and other adjustments. TVL is a leading provider of ESG information derived from artificial intelligence, and the acquisition of TVL further enhances FactSet's commitment to providing industry leading access to ESG data across its platforms. Refer to Note 7, Acquisition for further discussion on the TVL acquisition. Summary of Cash Flows The table below, for the periods indicated, provides selected cash flow information:
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