FACTSET RESEARCH SYSTEMS, INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") 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 ended August 31, 2022 ,
our Current Reports on Form 8-K and our other filings with the Securities 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 in our Annual Report on Form 10-K for the year ended August 31, 2022 .
Our 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
•Annual Subscription Value ("ASV")
•Client and User Additions
•Employee Headcount
•Results of Operations
•Non-GAAP Financial Measures
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements
•Foreign Currency Exposure
•Critical Accounting Estimates
•New Accounting Pronouncements
Executive Overview
FactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively, "we," "our," "us," the "Company" or "FactSet") is a global financial data and analytics company with an open and flexible digital platform that drives the investment community to see more, think bigger and do its best work. Our strategy is to build the leading open content and analytics platform to deliver a differentiated advantage for our clients' success. For 45 years, our platform has delivered expansive data, sophisticated analytics, and flexible technology used by global financial professionals to power their critical investment workflows. As ofNovember 30, 2022 , we had more than 7,600 clients comprised of approximately 181,000 investment professionals, including asset managers, bankers, wealth managers, asset owners, channel partners, hedge funds, corporate users, private equity and venture capital professionals. Our on- and off-platform solutions span the investment lifecycle including investment research, portfolio construction and analysis, trade execution, performance measurement, risk management and reporting. Our revenues are primarily derived from subscriptions to our multi-asset class data and solutions powered by our connected content, referred to as our "content refinery." Our products and services include workstations, portfolio analytics and enterprise solutions. We provide financial data and market intelligence on securities, companies, industries and people to enable our clients to research investment ideas, as well as to analyze, monitor and manage their portfolios. We combine dedicated client service with open and flexible technology offerings, including a configurable desktop and mobile platform, comprehensive data feeds, cloud-based digital solutions and application programming interfaces ("APIs"). Our CUSIPGlobal Services ("CGS") business supports security master files relied on by the investment industry for critical front, middle and back office functions. We drive our business based on our detailed understanding of our clients' workflows, which helps us to solve their most complex challenges. We provide them with an open digital platform, connected and reliable data, next-generation workflow solutions and highly committed service specialists. We operate our business through three segments: theAmericas , EMEA andAsia Pacific . Refer to Note 16, Segment Information, for further discussion. For each of our segments, we execute our strategy through our three workflow solutions: Research & Advisory;Analytics & Trading ; and Content & Technology Solutions ("CTS"). 30
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Business Strategy
As the needs of our clients evolve, they seek personalized and connected data, tools for multi-asset class investing and reduced costs. Clients are also seeking cloud-based solutions, open and flexible systems and increased efficiencies to support their digital transformations.
Our strategy is to build the leading open content and analytics platform to deliver differentiated advantages for our clients' success. To execute this strategy, we plan on:
•Growing our digital platform: We are scaling up our content refinery to offer a
comprehensive and connected inventory of industry, proprietary and third-party
data for the financial community. This data includes granular data for key
industry verticals, private companies, wealth management, real-time data, and
environmental, social and governance data ("ESG"). We are driving personalized
workflow solutions for financial professionals, including asset managers,
bankers, wealth managers, asset owners, channel partners, hedge funds, corporate
users and private equity and venture capital professionals. Our goal is to offer
an open ecosystem of cloud-based data and analytics, providing solutions and
content that is accessible and flexible through many delivery methods, enabling
our clients to more efficiently manage their workflows.
•Delivering execution excellence: We strive to be innovative and collaborative
across our organization to remain responsive, flexible and agile. Our open
ecosystem provides a digital foundation that powers client personalization and
efficiency, firm-type product development and core process automation. We employ
technology to accelerate content collection for industry, proprietary and
third-party data. Additionally, our sales force is improving price realization
by focusing on productivity, efficiency, and improved client outcomes. We are
also optimizing our operations and cost base to improve returns on our
investments in people and product. Finally, we are committed to promoting a
modern work environment that preserves the benefit of flexibility while
retaining talent, fostering creativity, innovation, and collaboration, and
enabling mentorship.
•Driving a growth mindset: To drive sustainable growth, we are recruiting,
training and empowering a diverse and operationally efficient workforce. As a
performance-based culture, we are investing in talent that can create leading
technological solutions and efficiently execute our strategy. We use
partnerships and acquisitions to accelerate our growth in strategic areas.
Our strategy centers on a relentless focus on our clients and their FactSet
experience. We aim to be a trusted partner and service provider, offering
personalized digital products powered by cognitive computing to research ideas
and uncover relevant insights. Additionally, we continually evaluate business
opportunities such as partnerships and acquisitions to increase our capabilities
and competitive differentiation.
We are focused on growing our global business through three segments: the
Americas , EMEA and Asia Pacific . We believe this geographic strategic alignment
helps us better manage our resources, target our solutions and interact with our
clients. We further execute on our growth strategy by offering data, products
and analytical applications within our three workflow solutions: Research &
Advisory; Analytics & Trading ; and CTS.
Fiscal 2023 First Quarter in Review
Revenues in the first quarter of fiscal 2023 were$504.8 million , an increase of 18.9% from the prior year comparable period. Revenues increased across all our segments, primarily in theAmericas and, to a lesser extent, EMEA andAsia Pacific , supported by increased revenues from each of our workflow solutions, mainly in CTS driven by the acquisition of CGS and, to a lesser extent, by Research & Advisory andAnalytics & Trading . Organic revenues contributed to 8.3% of our growth during the first quarter of fiscal 2023, compared with the prior year period. Refer to Part I, Item 2. Results of Operations, Non-GAAP Financial Measures in the MD&A of this Quarterly Report on Form 10-Q for a reconciliation between revenues and organic revenues. As ofNovember 30, 2022 , organic annual subscription value ("Organic ASV") plus Professional Services totaled$1.85 billion , an increase of 8.8% overNovember 30, 2021 . Organic ASV increased across all our segments, with the majority of the increase related to theAmericas and, to a lesser extent, EMEA andAsia Pacific , supported by increases in our workflow solutions, mainly Research & Advisory andAnalytics & Trading , followed by CTS. Refer to Part I, Item 2 Annual Subscription Value in 31
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the MD&A of this Quarterly Report on Form 10-Q for the definitions of Organic ASV and Organic ASV plus Professional Services.
Operating margin increased to 34.1% during the three months endedNovember 30, 2022 , compared with 28.9% in the prior year period. This increase in operating margin was due primarily to growth in revenues, lower employee compensation expense, data costs and occupancy costs, as well as, an impairment charge incurred in the prior year period, partially offset by higher amortization of intangible assets and royalty fees, when expressed as a percentage of revenues.
Diluted earnings per share ("EPS") increased 26.2% for the three months ended
CUSIP Global Services Acquisition
OnDecember 24, 2021 , we entered into a definitive agreement to acquire CGS for$1.932 billion in cash, inclusive of working capital adjustments. The acquisition was completed onMarch 1, 2022 . CGS, operating on behalf of theAmerican Bankers Association ("ABA"), manages a database of 60 different data elements uniquely identifying more than 50 million global financial instruments. It is the foundation for security master files relied on by critical front, middle and back-office functions. CGS is the provider ofCommittee on Uniform Security Identification Procedures ("CUSIP") and CUSIP International Number System ("CINS") identifiers globally and also acts as the official numbering agency for International Securities Identification Number ("ISIN") identifiers inthe United States . We believe that the CGS acquisition will significantly expand our critical role in the global capital markets. Revenues from CGS are recognized based on geographic business activities in accordance with how our operating segments are currently aligned. CGS functions as part of CTS. The purchase price for the CGS acquisition was financed from the net proceeds of the issuance of the Senior Notes and borrowings under the 2022 Credit Facilities. Refer to Note 6, Acquisitions and Note 11, Debt for more information on these defined terms as well as our acquisition of CGS, the Senior Notes and the 2022 Credit Facilities. COVID-19 Update A novel strain of coronavirus, now known as COVID-19, was first reported inDecember 2019 , with theWorld Health Organization characterizing COVID-19 as a pandemic onMarch 11, 2020 . In response to the COVID-19 pandemic, we implemented a business continuity plan with a dedicated incident management team to respond quickly and provide ongoing guidance so that we could continue offering our clients uninterrupted products, services and support while also protecting our employees. We believe these actions have been successful and that the pandemic, and our responses, have not significantly affected our financial results for the three months endedNovember 30, 2022 . As ofNovember 30, 2022 , there have been minimal interruptions in our ability to provide our products, services and support to our clients. Our revenues, earnings and ASV are relatively stable and predictable as a result of our subscription-based business model and, accordingly, the COVID-19 pandemic has not had a material negative impact on our revenues, earnings or ASV. Refer to Part I, Item 1. Business,Human Capital Management , How We Work and Item 1A. Risk Factors, Operational Risks of our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2022 for further discussion of the potential impact of the COVID-19 pandemic on our business.
As the military conflict betweenRussia andUkraine is ongoing, we continue to monitor the potential impact on our business, our people and our clients. We have taken all necessary steps to ensure compliance with all applicable regulatory restrictions on international trade and financial transactions. We have discontinued all commercial operations and delivery of products and services to clients inRussia ; have terminated all contracts with vendors inRussia ; and have suspended all new business, trials and prospecting activities inRussia . Total revenues associated with clients inRussia were not material to our consolidated financial results, and termination of Russian vendors has not had a material impact on our business or client relationships. We have no offices inRussia orUkraine , and none of our employees or contractors has been directly impacted by the crisis. We continue to monitor the regional and global ramifications of the events in the area, including the threatened disruptions to global energy markets, and are reviewing our business continuity plans to ensure that we are prepared in the event any of our offices are impacted. Our cybersecurity teams are ready to respond in the event of any attempted systems compromise.
Annual Subscription Value ("ASV")
We believe ASV reflects our ability to grow recurring revenues and generate positive cash flow and is a key indicator of the successful execution of our business strategy.
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-"ASV" at any point in time represents our forward-looking revenues for the next 12 months from all subscription services currently being supplied to clients, excluding revenues from Professional Services. -"Organic ASV" at any point in time equals our ASV excluding ASV from acquisitions and dispositions completed within the last 12 months and the effects of foreign currency movements. -"Professional Services" are revenues derived from project-based consulting and implementation, annualized over the past 12 months. -"Organic ASV plus Professional Services" at any point in time equals the sum of Organic ASV and Professional Services.
Organic ASV plus Professional Services
The following table presents the calculation of Organic ASV plus Professional Services as ofNovember 30, 2022 . With proper notice provided as contractually required, our clients can add to, delete portions of, or terminate service, subject to certain limitations. (in millions) As ofNovember 30 ,
2022
As reported ASV plus Professional Services(1) $ 2,016.0 Currency impact(2) (1.6) Acquisition ASV(3) (167.9) Organic ASV plus Professional Services $
1,846.5
Organic ASV plus Professional Services growth rate
8.8 %
(1)Includes
(2)The impact from foreign currency movements.
(3)Acquired ASV from acquisitions completed within the last 12 months.
As of
Organic ASV increased across all our 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 in Research & Advisory andAnalytics & Trading , and, to a lesser extent, by CTS. Sales increased in Research & Advisory mainly due to higher demand for our workstations. Sales increased inAnalytics & Trading mainly from our performance and reporting products, portfolio and benchmark services and portfolio analytics solutions. CTS sales increased primarily due to purchases of company financial data, such as fundamentals, estimates and ownership, along with data management solutions to empower data connectivity.
Segment ASV
As ofNovember 30, 2022 , ASV from theAmericas represented 64% of total ASV and was$1,271.0 million , an increase from$1,054.9 million as ofNovember 30, 2021 . Americas Organic ASV increased to$1,146.6 million as ofNovember 30, 2022 , a 8.5% increase from the prior year period. The increased Organic ASV in theAmericas was primarily driven by increased sales of Research & Advisory andAnalytics & Trading . As ofNovember 30, 2022 , ASV from EMEA equaled 26% of total ASV and was$521.1 million , an increase from$452.0 million as ofNovember 30, 2021 . EMEA Organic ASV increased to$487.0 million as ofNovember 30, 2022 , a 8.8% increase from the prior year period. The EMEA Organic ASV increase was mainly driven by higher sales of Research & Advisory andAnalytics & Trading , and, to a lesser extent CTS. As ofNovember 30, 2022 , ASV fromAsia Pacific represented 10% of total ASV and was$200.9 million , an increase from$175.4 million as ofNovember 30, 2021 . Asia Pacific Organic ASV increased to$189.9 million as ofNovember 30, 2022 , a 11.1% increase from the prior year period. The Asia Pacific Organic ASV increase was primarily due to increased sales ofAnalytics & Trading and Research & Advisory. 33
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Buy-side and Sell-side Organic ASV Growth
The buy-side and sell-side Organic ASV growth rates atNovember 30, 2022 , compared withNovember 30, 2021 , were 8.0% and 14.4%, respectively. Buy-side clients account for approximately 83% of our Organic ASV, consistent with the prior year period, and primarily include asset managers, wealth managers, asset owners, channel partners, hedge funds, and corporate firms. The remainder of our Organic ASV is derived from sell-side firms and primarily include broker-dealers, banking and advisory, private equity and venture capital firms.
Client and User Additions
The table below presents our total clients and users:
As of November 30, 2022 As of November 30, 2021 Change
Clients(1) 7,631 7631 6,759 12.9 %
Users 180,959 162,161 11.6 %
(1)The client count includes clients with ASV of
Our total client count was 7,631 as ofNovember 30, 2022 , a net increase of 12.9% or 872 clients in the last 12 months, mainly due to an increase in corporate clients, wealth management clients, private equity and venture capital firms and channel partners. We believe this increase was primarily due to our expanded suite of on- and off-platform solutions, personalized content, and continued execution excellence by our sales and client facing teams. As ofNovember 30, 2022 , there were 180,959 professionals using FactSet, representing a net increase of 11.6% or 18,798 users in the last 12 months, primarily driven by an increase in wealth advisory professionals from our wealth management clients as well as an increase in sell-side users from our banking clients. The increase in users was mainly due to new wealth management clients and increased new hiring at our banking clients.
Annual ASV retention was greater than 95% of ASV and 92% when expressed as a
percentage of clients for the period ended
Employee Headcount
As ofNovember 30, 2022 , our employee headcount was 11,627, an increase of 6.7% compared with 10,898 employees as ofNovember 30, 2021 . This growth in headcount was primarily due to an increase of 7.1% inAsia Pacific , 6.5% in theAmericas and 5.1% in EMEA. AtNovember 30, 2022 , 7,698 employees were located inAsia Pacific , 2,495 in theAmericas , and 1,434 in EMEA.
Results of Operations
For an understanding of the significant factors that influenced our performance for the three months endedNovember 30, 2022 andNovember 30, 2021 , 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. 34
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The following table summarizes the results of operations for the periods described:
Three Months Ended
November 30,
(in thousands, except per share data) 2022 2021 Change % Change
Revenues $ 504,815 $ 424,725 $ 80,090 18.9 %
Cost of services 227,042 207,131 $ 19,911 9.6 %
Selling, general and administrative 105,596 91,238 $ 14,358 15.7 %
Asset impairments 282 3,695 $ (3,413) (92.4) %
Operating income $ 171,895 $ 122,661 $ 49,234 40.1 %
Net income $ 136,798 $ 107,647 $ 29,151 27.1 %
Diluted weighted average common shares 38,914 38,641 273
Diluted earnings per common share
Revenues
Three months ended
Revenues for the three months endedNovember 30, 2022 were$504.8 million , an increase of 18.9%. The increase in revenues was largely attributed to increased sales to existing clients and, to a lesser extent, price increases to existing clients and new client sales, partially offset by existing client cancellations. Revenues increased across all our segments, primarily from theAmericas , followed by EMEA andAsia Pacific , driven by increased revenues in all our workflow solutions, mainly in CTS driven by the acquisition of CGS, followed by Research & Advisory andAnalytics & Trading , compared with the prior year. Organic revenues increased to$459.9 million for the three months endedNovember 30, 2022 , a 8.3% increase over the prior year period. Refer to Part I, Item 2. Results of Operations, Non-GAAP Financial Measures in the MD&A of this Quarterly Report on Form 10-Q for further discussion on organic revenues. The growth in revenues of 18.9% was reflective of organic revenues growth of 8.3% and a 11.4% increase primarily due to the impact of acquisition-related revenues, partially offset by a 0.8% decrease from foreign currency exchange rate fluctuations. Revenues by Segment The following table summarizes our revenues by segment for the periods described: Three Months Ended November 30, (in thousands) 2022 2021 % Change Americas$ 323,367 $ 266,913 21.2 % % of revenues 64.1 % 62.8 % EMEA$ 130,738 $ 115,003 13.7 % % of revenues 25.9 % 27.1 % Asia Pacific$ 50,710 $ 42,809 18.5 % % of revenues 10.0 % 10.1 % Consolidated$ 504,815 $ 424,725 18.9 % 35
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Three months ended
EMEA
EMEA revenues increased 13.7% to$130.7 million during the three months endedNovember 30, 2022 , compared with$115.0 million from the same period a year ago. The increased revenues were driven by higher sales in all of our workflow solutions, primarily in CTS. The growth in revenues of 13.7% was due to a 7.2% increase in organic revenues and an 8.1% from acquisition-related revenues, partially offset by a 1.6% decrease driven by the effects of foreign currency exchange rate fluctuations.Asia Pacific Asia Pacific revenues segment increased 18.5% to$50.7 million during the three months endedNovember 30, 2022 , compared with$42.8 million from the same period a year ago. The increased revenues were driven by higher sales in all of our workflow solutions, primarily in CTS, followed byAnalytics & Trading and Research & Advisory. The growth in revenues of 18.5% was reflective of 14.9% increase in organic revenues and a 7.3% increase from acquisition-related revenues, partially offset by a 3.7% decrease driven by the effects of foreign currency exchange rate fluctuations.
Revenues by Workflow Solution
Three months ended
The growth in revenues of 18.9% for the three months endedNovember 30, 2022 , compared with the same period a year ago, was due to revenue growth across each of our segments supported by increased revenues from our workflow solutions, primarily from CTS, followed by Research & Advisory andAnalytics & Trading . The increase in CTS revenues was driven mainly by CGS related data licensing and issuance revenues. The increase in Research & Advisory revenues was driven mainly by higher demand for our workstations. The increase in revenues fromAnalytics & Trading was primarily due to increased demand for our performance and portfolio reporting products, portfolio and benchmark services and portfolio analytics solutions. Operating Expenses
Principal Operating Costs and Expenses
Cost of services is mainly comprised of employee compensation costs and also includes expenses related to data costs, computer-related expenses, amortization of identifiable intangible assets, royalty fees, client-related communication costs and computer depreciation.
Selling, general and administrative ("SG&A") consists primarily of employee compensation costs and also includes expenses related to occupancy costs, professional fees, depreciation of furniture and fixtures, amortization of leasehold improvements, travel and entertainment expenses, marketing costs, non-compensatory employee expenses, internal communication costs and bad debt expense.
Employee compensation costs are a major component of both our cost of services and SG&A. These expenses primarily include costs related to salaries, incentive compensation and sales commissions, stock-based compensation, benefits, employment taxes, and any applicable restructuring costs. We assign employee compensation costs between costs of services and SG&A based on the roles and activities associated with each employee. We categorize employees within the content collection, consulting, product development, software and systems engineering groups as cost of services personnel. Employees included in our sales department and those that serve in various other support departments, including marketing, finance, legal, human resources and administrative services, are classified as SG&A.
Asset impairments consist primarily of expenses recognized when the carrying amount of an asset exceeds its fair value.
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The following table summarizes the components of our total operating expenses and operating margin for the periods described:
Three Months Ended
November 30,
(in thousands) 2022 2021 % Change
Cost of services $ 227,042 $ 207,131 9.6 %
SG&A 105,596 91,238 15.7 %
Asset impairments 282 3,695 (92.4) %
Total operating expenses $ 332,920 $ 302,064 10.2 %
Operating income $ 171,895 $ 122,661 40.1 %
Operating margin 34.1 % 28.9 %
Cost of Services
Three months ended
Cost of services increased 9.6% to$227.0 million for the three months endedNovember 30, 2022 , compared with$207.1 million for the same period a year ago, primarily due to an increase in amortization of intangible assets and royalty fees related to our CGS acquisition and computer-related expenses. Cost of services, when expressed as a percentage of revenues, was 45.0% for the three months endedNovember 30, 2022 , a decrease of 380 basis points over the prior year period. This decrease was primarily due to lower employee compensation costs and data costs, partially offset by higher amortization of intangible assets and royalty fees. •Employee compensation costs decreased 560 basis points primarily due to a one-time restructuring charge to drive organizational realignment incurred during the three months endedNovember 30, 2021 and increased capitalization of compensation costs related to development of our internal-use software projects, partially offset by higher annual base salaries and higher variable compensation expense. The increase in annual base salaries was mainly due to a net headcount increase in cost of services of 558, partially offset by a shift of our headcount from high to low cost locations. •Data costs decreased by 160 basis points due to the release of certain accruals related to the successful resolution of exchange audits, partially offset by increased data prices and usage-based fees. •Amortization of intangible assets increased 190 basis points mainly due to increased amortization related to acquired intangible assets, primarily from the CGS acquisition.
•Royalty fees increased cost of services by 170 basis points due to contracts acquired in connection with the acquisition of CGS.
Selling, General and Administrative
Three months ended
SG&A expenses increased 15.7% to
SG&A expenses, expressed as a percentage of revenues, were 20.9% for the three months endedNovember 30, 2022 , a decrease of 60 basis points over the prior year period. This decrease was primarily due to lower occupancy costs, partially offset by higher travel expenses. •Occupancy costs decreased by 90 basis points mainly driven by vacating leased office space and recognizing an impairment charge during fiscal 2022, thereby reducing occupancy costs recorded over the remaining lease terms. •Travel expenses increased as we lifted our COVID-19 travel restrictions during the current year. 37
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Asset Impairments
Three months ended
Asset impairments were$0.3 million for the three months endedNovember 30, 2022 , compared with$3.7 million in the same period a year ago. The impairment charges incurred during the three months endedNovember 30, 2021 related to our lease right-of-use ("ROU") assets and property, equipment and leasehold improvements associated with vacating certain leased office space.
Operating Income and Operating Margin
Three months ended
Operating income increased 40.1% to$171.9 million for the three months endedNovember 30, 2022 , compared with$122.7 million in the prior year. This increase was primarily due to growth in revenues, partially offset by an increase in amortization of intangible assets, royalty fees, employee compensation expense, computer-related expenses and travel expenses. Foreign currency exchange rate fluctuations, net of hedge activity, increased operating income by$8.6 million for the three months endedNovember 30, 2022 , compared with a decrease of$4.3 million during the three months endedNovember 30, 2021 Operating margin increased to 34.1% during the three months endedNovember 30, 2022 , compared with 28.9% in the prior year period. Operating margin increased mainly due to growth in revenues, lower employee compensation expense, data costs and occupancy costs, an impairment charge incurred in the prior year period, partially offset by higher amortization of intangible assets, royalty fees and travel expenses, when expressed as a percentage of revenues.
Operating Income by Segment
Our internal financial reporting structure is based on three segments: the
Three Months Ended
November 30,
(in thousands) 2022 2021 $ Change % Change
Americas $ 67,531 $ 55,498 $ 12,033 21.7 %
EMEA 67,322 40,654 26,668 65.6 %
Asia Pacific 37,042 26,509 10,533 39.7 %
Total Operating Income $ 171,895 $ 122,661 $ 49,234 40.1 %
Three months ended
•Amortization of intangible assets primarily increased due to amortization related to acquired intangible assets, mainly from the CGS acquisition. •Royalty fees increased due to contracts acquired in connection with the acquisition of CGS. •Employee compensation expense increased primarily due to an increase in annual base salary, inclusive of a net increase in employee headcount of 152 and an increase in stock-based compensation and payroll taxes, partially offset by the impact of a one-time restructuring charge incurred during the three months endedNovember 30, 2021 to drive organizational realignment. •Computer-related expenses increased primarily due to increased spend from our migration to cloud-based hosting services to support our transition to a hybrid cloud strategy, as well as expenses related to licensed software arrangements. 38
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EMEA
EMEA operating income increased 65.6% to$67.3 million during the three months endedNovember 30, 2022 , compared with$40.7 million recognized during the same period a year ago. This increase was primarily due to growth in revenues of 13.7% and a reduction in data costs. Data costs were lower due to the successful resolution of exchange audits, partially offset by increased data prices and usage-based fees.Asia Pacific Asia Pacific operating income increased 39.7% to$37.0 million during the three months endedNovember 30, 2022 , compared with$26.5 million from the prior year. This increase was mainly due to growth in revenues of 18.5%, partially offset by higher employee compensation expense. Employee compensation expense increased mainly due to higher annual base salaries, inclusive of a net increase in employee headcount of 508.
Income Taxes
The provision for income taxes and the effective tax rate is as follows:
Three Months Ended
November 30,
(in thousands) 2022 2021 $ Change % Change
Income before income taxes $ 157,885 $ 119,930 $ 37,955 31.6 %
Provision for income taxes $ 21,087 $ 12,283 $ 8,804 71.7 %
Effective tax rate 13.4 % 10.2 % 3.1 % 30.4 %
Our effective tax rate is based on recurring factors and non-recurring events,
including the taxation of foreign income. Our effective tax rate will vary based
on, among other things, changes in levels of foreign income, as well as discrete
and other non-recurring events that may not be predictable. For the three months
ended November 30, 2022 , our effective tax rate is lower than the applicable
U.S. corporate income tax rate mainly due to research and development ("R&D")
tax credits, a foreign derived intangible income ("FDII") deduction and a tax
benefit from the exercise of stock options.
Three months ended
For the three months endedNovember 30, 2022 , the provision for income taxes was$21.1 million , compared with$12.3 million for the same period a year ago. The provision increased mainly due to higher pretax income at a higher effective tax rate and, to a lesser extent, an increase of theUK statutory tax rate.
Net Income and Diluted Earnings per Share
Three Months Ended
November 30,
(in thousands, except for per share data) 2022 2021 Change % Change
Net income $ 136,798 $ 107,647 $ 29,151 27.1 % Diluted weighted average common shares 38,914 38,641 273 0.7 %
Diluted earnings per common share
Three months ended
Net income increased 27.1% to$136.8 million and diluted earnings per share ("EPS") increased 26.2% to$3.52 for the three months endedNovember 30, 2022 , compared with the same period a year ago. Net income and diluted EPS increased primarily due to higher operating income, partially offset by an increase in interest expense as a result of higher outstanding debt and an increase in the provision for income taxes due to higher pretax income at a higher effective tax rate, compared with the prior year period. 39
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Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"), we use non-GAAP financial measures including organic revenues, adjusted operating income, adjusted operating margin, adjusted net income, EBITDA, adjusted EBITDA and adjusted diluted EPS. The reconciliations from our financial measures calculated and presented in accordance with GAAP to these non-GAAP financial measures are shown 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 our business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than 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. Adjusted revenues exclude the impact of the fair value of deferred revenues acquired in a business combination. Organic revenues further excludes revenues related to acquisitions and dispositions completed in the last 12 months and foreign currency movements in all periods presented.
The table below provides an unaudited reconciliation of revenues to adjusted revenues and organic revenues.
Three Months Ended
November 30,
(In thousands) 2022 2021 $ Change % Change
Revenues $ 504,815 $ 424,725 $ 80,090 18.9 %
Deferred revenues fair value adjustment(1) - 86 (86)
Adjusted revenues $ 504,815 $ 424,811 $ 80,004 18.8 %
Acquired revenues(2) (48,455) - (48,455)
Currency impact(3) 3,500 - 3,500
Organic revenues $ 459,860 $ 424,811 $ 35,049 8.3 %
(1) Reflects the amortization effect of the purchase accounting adjustment related to the fair value of acquired deferred revenues for acquisitions prior to fiscal 2022. Acquisitions thereafter do not include this adjustment in accordance with our adoption of ASU No. 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805).
(2) Revenues from acquisitions completed within the last 12 months.
(3) The impact from foreign currency movements year over year.
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, EBITDA, adjusted EBITDA and
adjusted diluted EPS. Adjusted operating income and margin, adjusted net income,
and adjusted diluted earnings per share exclude intangible asset amortization,
the impact of the fair valuing of deferred revenues acquired in a business
combination and non-recurring items. EBITDA excludes interest expense, provision
for income taxes and depreciation and amortization expense, while Adjusted
EBITDA further excludes non-recurring non-cash expenses.
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Three Months Ended
November 30,
(In thousands, except per share data) 2022 2021 % Change
Operating income $ 171,895 $ 122,661 40.1 %
Deferred revenues fair value adjustment - 86
Intangible asset amortization 18,008
6,052
Business acquisition / integration costs(1) 3,499 - Restructuring / severance - 9,028 Real estate charges(2) - 3,695 Transformation costs (3) - 1,188 Adjusted operating income$ 193,402 $ 142,710 35.5 % Operating margin 34.1 % 28.9 % Adjusted operating margin(4) 38.3 %
33.6 %
Net income$ 136,798 $ 107,647 27.1 % Deferred revenues fair value adjustment -
77
Intangible asset amortization 15,577
5,419
Business acquisition / integration costs(1) 3,026 - Restructuring / severance - 8,084 Real estate charges(2) - 3,309 Transformation costs(3) - 1,064 Income tax items (230) (259) Adjusted net income(5)$ 155,171 $ 125,341 23.8 % Net income$ 136,798 $ 107,647 Interest expense 16,537 1,972 Income taxes 21,087 12,283 Depreciation and amortization expense 25,997 19,432 EBITDA$ 200,419 $ 141,334 41.8 % Real estate charges(2) - 3,695 Adjusted EBITDA$ 200,419 $ 145,029 38.2 % Diluted earnings per common share$ 3.52 $ 2.79 26.2 % Deferred revenues fair value adjustment -
0.00
Intangible asset amortization 0.40
0.14
Business acquisition / integration costs(1) 0.08 - Restructuring / severance - 0.21 Real estate charges(2) - 0.09 Transformation costs(3) - 0.03 Income tax items (0.01) (0.01)
Adjusted diluted earnings per common share(5)
38,914 38,641
(1)Related to integration costs of our CGS acquisition.
(2)Related to impairment charges of our lease ROU assets and property, equipment and leasehold improvements associated with vacating certain leased office space.
(3)Primarily related to professional fees associated with our ongoing multi-year investment plan.
(4)Adjusted operating margin is calculated as Adjusted operating income divided by Adjusted revenues as shown in the revenues reconciliation table above.
(5)For purposes of calculating Adjusted net income and Adjusted diluted earnings
per share, all adjustments were taxed at the quarterly effective tax rates of
13.5% for fiscal 2023 and 10.5% for fiscal 2022.
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Liquidity and Capital Resources
Our cash flows provided by operating activities, existing cash and cash equivalents, supplemented with our long-term debt borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used to, among other things, service our existing and future debt obligations, satisfy our working capital requirements and fund our capital expenditures, acquisitions, dividend payments and repurchases of our common stock. Based on past performance and current expectations, we believe our sources of liquidity, including the available capacity under our existing revolving credit facility and 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 & Swap Agreements
2022 Credit Agreement
OnMarch 1, 2022 , we entered into a credit agreement (the "2022 Credit Agreement") and borrowed an aggregate principal amount of$1.0 billion under its senior unsecured term loan credit facility (the "2022 Term Facility") and$250.0 million of the available$500.0 million under its senior unsecured revolving credit facility (the "2022 Revolving Facility" and, together with the 2022 Term Facility, the "2022 Credit Facilities"). The 2022 Term Facility matures onMarch 1, 2025 , and the 2022 Revolving Facility matures onMarch 1, 2027 . The 2022 Revolving Facility allows for the availability of up to$100.0 million in the form of letters of credit and up to$50.0 million in the form of swingline loans. We may seek additional commitments under the 2022 Revolving Facility from lenders or other financial institutions up to an aggregate principal amount of$750.0 million . We pay a commitment fee on the daily unused amount of the 2022 Revolving Facility using a pricing grid based upon our senior unsecured non-credit enhanced long-term debt rating and our total leverage ratio. The commitment fee remained at 0.125% from the borrowing date throughNovember 30, 2022 . During fiscal 2022, we incurred approximately$9.5 million in debt issuance costs related to the 2022 Credit Facilities. We used these borrowings, along with the net proceeds from the issuance of the Senior Notes (as defined below) and cash on hand, to finance the consideration for the CGS acquisition, to repay borrowings under the 2019 Credit Agreement (as defined below) and to pay related transaction fees, costs and expenses. We may voluntarily prepay loans under the 2022 Credit Facilities at any time without premium or penalty. During the first quarter of fiscal 2023, we repaid$125.0 million under the 2022 Term Facility, inclusive of voluntary prepayments of$112.5 million . SinceMarch 1, 2022 , we have repaid$375.0 million under the 2022 Term Facility, inclusive of voluntary prepayments of$350.0 million . As ofNovember 30, 2022 , the outstanding borrowings under the 2022 Credit Facilities bore interest at a rate equal to the applicable one-month Term Secured Overnight Financing Rate ("SOFR") rate plus a 1.1% spread (comprised of a 1.0% interest rate margin based on a debt leverage pricing grid plus 0.1% credit spread adjustment). The spread remained consistent from the borrowing date throughNovember 30, 2022 . Interest on the 2022 Credit Facilities is currently payable on the last business day of each month, in arrears. The 2022 Credit Agreement contains usual and customary event of default provisions for facilities of this type, which are subject to usual and customary grace periods and materiality thresholds. If an event of default occurs under the 2022 Credit Agreement, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings immediately due and payable. The 2022 Credit Agreement contains usual and customary affirmative and negative covenants for facilities of this type, including a financial covenant requiring maintenance of a total leverage ratio of no greater than 4.00 to 1.00 as ofNovember 30, 2022 . We were in compliance with all covenants and requirements of the 2022 Credit Agreement as ofNovember 30, 2022 .
Refer to Note 11, Debt for further discussion of the 2022 Credit Agreement.
2022 Swap Agreement
OnMarch 1, 2022 , we entered into the 2022 Swap Agreement to hedge a portion of our outstanding floating SOFR rate debt with a fixed interest rate of 1.162%. Refer to Note 5, Derivative Instruments, for defined terms and more information on the 2022 Swap Agreement. 42
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Senior Notes
OnMarch 1, 2022 we completed a public offering of$500.0 million aggregate principal amount of 2.900% Senior Notes dueMarch 1, 2027 (the "2027 Notes") and$500.0 million aggregate principal amount of 3.450% Senior Notes dueMarch 1, 2032 (the "2032 Notes" and, together with the 2027 Notes, the "Senior Notes"). The Senior Notes were issued pursuant to an indenture, dated as ofMarch 1, 2022 , by and between us andU.S. Bank Trust Company, National Association , as trustee (the "Trustee"), as supplemented by the supplemental indenture, dated as ofMarch 1, 2022 , between us and the Trustee (the "Supplemental Indenture"). Interest on the Senior Notes is payable semiannually in arrears onMarch 1 andSeptember 1 of each year, with the first payment made onSeptember 1, 2022 . The Senior Notes were issued at an aggregate discount of$2.8 million during fiscal 2022 and we incurred approximately$9.1 million in debt issuance costs. We may redeem the Senior Notes, in whole or in part, at any time at specified redemption prices, plus any accrued and unpaid interest. Upon the occurrence of a change of control triggering event (as defined in the Supplemental Indenture), we must offer to repurchase the Senior Notes at 101% of their principal amount, plus any accrued and unpaid interest.
2019 Credit Agreement
OnMarch 29, 2019 , we entered into a credit agreement withPNC Bank, National Association (the "2019 Credit Agreement"), and borrowed$575.0 million of the available$750.0 million provided by the revolving credit facility thereunder (the "2019 Revolving Credit Facility"). Borrowings under the 2019 Revolving Credit Facility bore interest on the outstanding principal amount at a rate equal to the daily LIBOR plus a spread using a debt leverage pricing grid. Interest on the amounts outstanding under the 2019 Revolving Credit Facility was payable quarterly, in arrears, and on the maturity date.
As of
Uses of Liquidity
Returning Value to Shareholders
We returned$33.7 million in the form of dividends and$49.3 million in the form of share repurchases and dividends to shareholders during the three months endedNovember 30, 2022 andNovember 30, 2021 , respectively. Over the last 12 months, we returned$128.9 million to stockholders in the form of dividends. Refer to the Share Repurchase Program below for more information on the current suspension of our share repurchase program.
Dividends
During the three months endedNovember 30, 2022 andNovember 30, 2021 , we paid dividends of$33.7 million and$30.7 million , respectively. Our dividends per share related to dividends paid during the three months endedNovember 30, 2022 increased 8.5% compared to the three months endedNovember 30, 2021 . Fiscal 2022 marked 23 consecutive fiscal years of dividend increases, highlighting our continued commitment to returning value to stockholders. Future dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and are subject to final determination by our Board of Directors.
Share Repurchase Program
As ofNovember 30, 2022 ,$181.3 million remained authorized for future share repurchases under our share repurchase program. There is no defined number of shares to be repurchased over a specified timeframe through the life of the program. We may repurchase shares of our common stock under the program from time-to-time in the open market and privately negotiated transactions, subject to market conditions. We did not repurchase any shares during the three months endedNovember 30, 2022 , compared with 46,200 shares for$18.6 million during the three months endedNovember 30, 2021 . Beginning in the second quarter of fiscal 2022, we suspended our share repurchase program until at least the second half of fiscal 2023, with the exception of potential minor repurchases to offset dilution from grants of equity awards or repurchases to satisfy withholding tax obligations due upon the vesting of stock- 43
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based awards. The suspension of our share repurchase program allows us to prioritize the repayment of debt under the 2022 Credit Facilities. Refer to Note 11, Debt for more information on the 2022 Credit Facilities.
Capital Expenditures
For the three months endedNovember 30, 2022 , capital expenditures increased by 109.3% to$18.0 million , compared with$8.6 million during the same period a year ago. This increase was primarily due to higher expenditures related to the development of capitalized internal-use software, followed by an increase in technology expenditures. Acquisitions CUSIP Global Services OnMarch 1, 2022 , we completed the acquisition of CGS for a cash purchase price of$1.932 billion , inclusive of working capital adjustments. CGS manages a database of 60 different data elements uniquely identifying more than 50 million global financial instruments. It is the foundation for security master files relied on by critical front, middle and back-office functions. CGS, operating on behalf of the ABA, is the provider of CUSIP and CINS identifiers globally and also acts as the official numbering agency for ISIN identifiers inthe United States and as a substitute number agency for more than 35 other countries. We believe that the CGS acquisition will significantly expand our critical role in the global capital markets.Cobalt Software, Inc. OnOctober 12, 2021 , we acquired all of the outstanding shares ofCobalt Software, Inc. ("Cobalt") for a purchase price of$50.0 million , net of cash acquired, and inclusive of working capital adjustments. Cobalt is a leading portfolio monitoring solutions provider for the private capital industry. This acquisition advances our strategy to scale our data and workflow solutions through targeted investments as part of our multi-year investment plan and expands our private markets offering.
Refer to Note 6, Acquisitions, for further discussion of the CGS and Cobalt acquisitions.
Contractual Obligations
Purchase obligations represent our legally-binding agreements to purchase fixed or minimum quantities at determinable prices. As ofAugust 31, 2022 , we had total purchase commitments of$373.9 million , primarily related to hosting services and data acquisition, followed by third-party software providers. Hosting services support our technology investments related to our migration to cloud-based hosting services, the majority of which rely on third-party hosting providers. Data is an integral component of the value we provide to our clients. Third-party software mainly includes internal-use software licenses. SinceAugust 31, 2022 , there were no material changes to our contractual obligations. We also have contractual obligations related to our lease liabilities and outstanding debt. Refer to Note 10, Leases, Note 11, Debt and Note 12, Commitments and Contingencies for information regarding our contractual obligations related to our lease liabilities, outstanding debt and other commitments, respectively.
Summary of Cash Flows
As ofNovember 30, 2022 , Cash and cash equivalents were$437.1 million , compared with$673.9 million as ofNovember 30, 2021 . Our cash and cash equivalents are held in numerous locations throughout the world, with$234.1 million in theAmericas ,$116.2 million in EMEA (predominantly in theUK ) and the remaining$86.8 million inAsia Pacific (predominantly inIndia andthe Philippines ) as ofNovember 30, 2022 . We permanently reinvest all foreign unremitted earnings, except in jurisdictions where earnings can be repatriated substantially free of tax. 44
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The table below, for the periods indicated, provides selected cash flow
information:
Three Months Ended
November 30,
(in thousands) 2022 2021 $ Change % Change
Net cash provided by operating activities
$ 33,718 46.2 % Net cash used in investing activities (27,852) (58,851) 30,999 (52.7) % Net cash provided by/(used in) financing activities (146,232) (16,482) (129,750) 787.2 % Effect of exchange rate changes on cash and cash equivalents 1,317 (5,550) 6,867 (123.7) % Net increase (decrease) in cash and cash equivalents$ (66,131) $ (7,965) $ (58,166) 730.3 % Operating For the three months endedNovember 30, 2022 , net cash provided by operating activities was$106.6 million , which included net income of$136.8 million , non-cash charges of$47.4 million and higher working capital requirements of$77.6 million . The non-cash charges were primarily driven by$26.0 million of depreciation and amortization and$12.2 million of stock-based compensation expense. The change in our working capital was primarily due to a cash outflow of$66.8 million related to our variable compensation payment. For the three months endedNovember 30, 2021 , net cash provided by operating activities was$72.9 million , which consisted of net income of$107.6 million , non-cash charges of$43.9 million and higher working capital requirements of$78.7 million . The non-cash charges were primarily driven by$17.2 million of depreciation and amortization and$11.1 million in amortization of lease ROU assets. The change in our working capital was primarily due to a cash outflow of$53.5 million related to our variable compensation payment.
Investing
For the three months ended
For the three months ended
Financing
For the three months endedNovember 30, 2022 , net cash used in financing activities was$146.2 million , consisting mainly of$125.0 million related to the partial repayment of the 2022 Term Facility and$33.7 million of dividend payments, partially offset by$23.4 million of proceeds from employee stock plans. For the three months endedNovember 30, 2021 , net cash used in financing activities was$16.5 million , consisting mainly of$33.7 million of dividend payments and$18.6 million of repurchases of common stock, partially offset by$35.8 million of proceeds from employee stock plans.
Free Cash Flow
We define free cash flow, a non-GAAP financial measure, as cash provided by
operating activities less purchases of property, equipment, leasehold
improvements and capitalized internal-use software. We believe free cash flow is
a liquidity measure that provides useful information to management and investors
about the amount of cash generated by the business that, after capital
expenditures, can be used for strategic opportunities, including returning value
to shareholders, investing in our business, making strategic acquisitions and
strengthening the balance sheet. Free cash flow should be considered in addition
to, rather than as a substitute for, consolidated net income as a measure of our
performance and net cash provided by operating activities as a measure of our
liquidity.
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The following table reconciles our net cash provided by operating activities to
free cash flow:
Three Months Ended
November 30,
(in thousands) 2022 2021 Change
Net cash provided by operating activities $ 106,636 $ 72,918 $ 33,718
Less: purchases of property, equipment, leasehold (17,960) (8,583) (9,377)
improvements and internal-use software
Free cash flow $ 88,676 $
64,335
We generated free cash flow of$88.7 million during the three months endedNovember 30, 2022 , an increase of$24.3 million compared with the same period a year ago. This change reflects a$33.7 million increase in cash provided by operating activities, mainly due to higher net income, partially offset by a$9.4 million increase in capital expenditures, primarily driven by an increase in capitalized costs related to internal-use software.
Off-Balance Sheet Arrangements
AtNovember 30, 2022 andAugust 31, 2022 , we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing, other debt arrangements, or other contractually limited purposes.
Foreign Currency Exposure
As we operate globally, we are exposed to the risk that our financial condition, results of operations and cash flows could be impacted by changes in foreign currency exchange rates. To mitigate this foreign currency exposure, we entered into a series of forward contracts to hedge a portion of our foreign currency exposures related to the British Pound Sterling, Euro, Indian Rupee and Philippine Peso. As ofNovember 30, 2022 , these forward contracts hedge a portion of our foreign currency transaction exposure ranging from 25% to 75%, over their respective hedged periods, which are set to mature at various points between the second quarter of fiscal 2023 through the first quarter of fiscal 2024. During the three months endedNovember 30, 2022 , foreign currency exchange rate fluctuations, net of hedge activity, increased operating income by$8.6 million , compared with a decrease of$4.3 million to operating income a year ago. A loss on foreign currency forward contracts of$5.0 million was recorded into operating income for the three months endedNovember 30, 2022 , compared with a loss on forward currency forward contracts of$0.4 million in the same period a year ago.
The following table summarizes the gross notional value of foreign currency
forward contracts to purchase the British Pound Sterling, Euro, Indian Rupee,
and Philippine Peso with
November 30, 2022 November 30, 2021
Local Currency Notional Contract Local Currency Notional Contract
(in thousands) Amount Amount (USD) Amount Amount (USD)
British Pound Sterling £ 48,000 $ 57,337 £ 44,200 $ 55,567
Euro € 38,000 39,892 € 37,500 40,679
Indian Rupee Rs 2,739,827 33,600 Rs 2,667,928 33,600
Philippine Peso ? 1,540,066 27,300 ? 1,462,060 27,000
Total $ 158,129 $ 156,846
Critical Accounting Estimates
We prepare the Consolidated Financial Statements in conformity with GAAP, which requires us to make certain estimates and apply judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base
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our estimates on historical experience and other assumptions that we believe to
be reasonable at the time the Consolidated Financial Statements are prepared
and, as such, they may ultimately differ materially from actual results.
We describe our significant accounting policies in Note 2, Summary of
Significant Accounting Policies, of the Notes to the Consolidated Financial
Statements included in Item 8 of our Annual Report on Form 10-K for the fiscal
year ended August 31, 2022 . These accounting policies were consistently applied
in preparing our Consolidated Financial Statements for the three months ended
November 30, 2022 .
We disclosed our critical accounting estimates in Part II, Item 7 Critical
Accounting Estimates in the MD&A of our Annual Report on Form 10-K for the
fiscal year ended
New Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include herein by reference.
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