Q1 2025 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the FactSet first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. To ask a question during the session, you will need to press star one on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yed He, interim head of investor relations.

Thank you, and good morning, everyone.

Welcome to FactSet's first fiscal quarter 2025 earnings call. Before we begin, the slides we referenced during this presentation can be found through the webcast on the Investor Relations section of our website at factset.com. A replay of today's call will be available on our website. After our prepared remarks, we will open the call to questions from investors.

The call is scheduled to last for one hour. To be fair to everyone, please limit yourself to one question. You may reenter the queue for additional follow-up questions we will take if time permits. Before we discuss our results, I encourage all listeners to review the legal slip notice on slide two, which explains the risk of forward-looking statements and the use of non-GAAP financial measures.

Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today. During this call, unless otherwise noted, relative performance metrics reflect changes as compared to the respective fiscal 2024 period.

Also, please note that beginning in this first quarter of fiscal 2025, FactSet will be reporting organic ASV, rather than organic ASV plus professional services, and focus on the recurring nature of our revenues. Joining me today are Phil Snow, Chief Executive Officer, Helen Shan, Chief Financial Officer, and Goran Skoko, Chief Revenue Officer. I will now turn the discussion over to Phil.

Thank you, Yed, and good morning, everyone. I'm pleased to share our first quarter results. We are off to a good start in fiscal 2025 with solid operating performance, growing organic ASV 4.5% year over year, delivering an adjusted operating margin of 37.6%, and achieving adjusted diluted EPS of $4.37. While a backdrop of macro uncertainty and cost pressure faced by clients continues to persist, we saw momentum building during the first quarter. We remain cautious, but I'm encouraged by the trends we are seeing in the pipeline.

As a reminder, the ASV we add in the first quarter is seasonally the lowest of the year. Given the timing of large deals, it is also important to look at half and full-year performance as more holistic measures of our progress. Consistent with our prior guidance, we expect ASV growth in fiscal 2025 will be second-half weighted. Before turning to our financial results, I want to thank those of you that joined our investor day last month and for the positive feedback we received.

For those that missed it, we discussed FactSet's strategy to supercharge financial intelligence and help clients as their trusted data and technology partner by delivering efficiency and innovation to their end-to-end workflows. This strategic direction builds on our market-leading franchises across the firm types we serve and is underpinned by our technology evolution, investment priorities, and product roadmap. There's still much to do, but we are confident in our ability to execute and achieve the medium-term targets we shared with you at Investor Day. Demand for our solutions remains steady with ASV retention over 95% and client retention at 91%.

During the first quarter, we grew our client base to almost 8,250, and our continued expansion within wealth drove our user count over 218,000. Turning now to our organic ASV performance by region. In the Americas, we grew 5% as we lapped a significant wealth win in Q1 last year. New business accelerated in the quarter across wealth, hedge funds, and asset owners. Improved retention across asset managers was overshadowed by softness in areas where clients are reprioritizing budgets.

In EMEA, we experienced 4% growth driven by wins in partnerships and asset owners with additional contribution from PEVC, hedge funds, and overall improved retention in the region. And in Asia Pacific, we maintained 7% growth. Improved seasonal hiring and banking relative to last year was a driver, particularly data solution wins with partners were offset by lower retention with asset manager clients. From a firm type perspective, our results were mixed.

After a very strong Q4 to close the year, wealth organic ASV growth was more subdued in the first quarter. Seat count continues to increase at a strong clip, sequentially adding over 2,000 users driven by marquee accounts. We also continue to add smaller wealth management clients this quarter. It's difficult to control the timing of when large deals close, but we remain confident the deceleration this quarter is temporary.

And within wealth, we continue to see a healthy pipeline of seven-figure opportunities with potential to upsell existing clients and expand the solution set, giving us conviction that growth will reaccelerate over the next several quarters. In dealmakers, growth was in line with last quarter. Banking, seasonal hiring continues to normalize but remains a drag to growth. As discussed at Investor Day, we expect several new products will add to the acceleration of our banking business in the second half of the year.

Most notably, our Gen AI-powered pitch creator offering is already seeing traction in our client conversations with two wins in Q1, ahead of our formal launch in early calendar 2025. Outside of banking, we saw continued acceleration in PEVC to double-digit growth, led by several competitor displacements and strength in Cobalt, our modern portfolio monitoring tool. Adding to corporates, we closed the acquisition of ON in early November to expand FactSet's ability to address the integrated workflow needs of IR professionals with an integrated modern solution. We have a strong pipeline and have already seen increased inbound interest from investor relations users since the acquisition was announced.

For the institutional buy side, we maintained growth consistent with last quarter. The highlight for the quarter is a landmark seven-figure performance solutions win, where we beat a competitor and displaced key incumbents at a global outsourced CIO provider, seeking to overhaul their technology stack and solutions across the portfolio lifecycle. This wide-ranging enterprise deal includes our portfolio analytics, multi-asset class capabilities, and performance reporting solutions. This win also underscores FactSet's ability to effectively partner with clients using our managed services offering to deliver workflow efficiencies and an improved operating model.

Within asset management, we continue to see erosion pressure as clients scrutinize their budgets and pursue vendor consolidation, particularly with small and midsize firms, where it is more difficult to reach scaled efficiencies. Our recently announced partnership with JPMorgan Security Services seeks to address this total cost of ownership challenge by coupling FactSet's performance reporting and portfolio analytics solutions with accounting and investment book of records through JPMorgan's fusion data management platform. For partnerships in CGS, growth was solid. Improved retention and an increase in larger wins with partners contributed to accelerating growth.

CGS continues to perform well, buoyed by the strong issuance market and content expansion. As we execute against the strategy we outlined at Investor Day, clients are increasingly viewing FactSet as an innovation partner that can help them gain greater insights, drive lower cost of operations, and elevate productivity so they can focus on high-value work. We are leveraging our industry-leading data and technology to responsibly harness the power of Gen AI to bring more speed, accuracy, and efficiency to our clients. Building on the AI blueprint we announced last year, we recently unveiled our intelligent initiative, which integrates conversational AI at the platform level to enable next-generation search intelligence.

This latest innovation in our series of new product developments leverages FactSet Mercury, our conversational knowledge engine, to provide actionable and auditable insights across our extensive content refinery of structured and unstructured data assets. We hear loud and clear from our clients that they are not interested in marketing hype and promises of the future. They are demanding practical workhorse solutions to boost productivity, unlock efficiencies, and optimize daily workflows. We will be launching new workflow solutions throughout the year that will add to our rapidly evolving Gen AI capabilities and product set.

In summary, I'm pleased with the start to this year. It's worth reiterating that similar to last year, we expect growth to be weighted towards the back half of the year. As we head into the start of calendar 2025, I'm encouraged by early signs of momentum picking up as clients reset budgets in what many are anticipating as an improved macro backdrop. There's budding confidence that the operating environment may improve as we progress through the year.

A few examples of green shoots this quarter include greater client engagement in banking, strengthened data solution sales to hedge funds, and a greater pace of competitive displacements in PEVC, to name a few. We have a robust pipeline, greater visibility on some larger opportunities, and many new innovative products that resonate with clients. I'm confident in our path forward. As such, we are reaffirming our fiscal 2025 guidance.

I will now turn it over to Helen to discuss our first quarter performance in more detail.

Thank you, Phil, and hello to everyone on the call. It is great to be back with you all again. As you've seen from our press release this morning, we began our fiscal 2025 with solid operating performance and an uncertain but constructive market environment. Q1 organic ASV increased $3.4 million or 4.5% growth in a quarter that is seasonally our lowest.

Also, a reminder that starting this quarter, we are no longer reporting professional services in our ASV in order to better reflect the recurring nature of our revenues. On this new basis of reporting, the comparable ASV for the prior year is provided in this morning's release. For the quarter, GAAP revenue increased 4.9% to $569 million. Organic revenue, which excludes any impact from both acquisitions or dispositions over the past twelve months and foreign exchange movements, increased 4.7% to $568 million, driven by sales to wealth firms, asset owners, and institutional asset managers.

For our geographic segments, organic revenue grew by 5% in the Americas, 3% in EMEA, and 6% in Asia Pacific. Turning now to expense. GAAP operating expenses increased 6.8% year over year to $377 million, driven by the amortization of intangible assets, compensation-related expenses, and professional fees. This captures certain one-time nonrecurring items, including acquisition-related costs.

On an adjusted basis, operating expense grew 4.9% at the same rate as revenue. Technology spend was the primary expense driver, which increased 18% year over year, largely due to higher amortization of internal-use software and our continued investment in generative AI. As outlined at Investor Day, we are committed to investing in products and technology to maintain the market leadership needed to drive sustained and future growth. For the quarter, technology costs were just under 10% of revenue compared to 9% last year.

Employee expenses increased approximately 2% versus the prior year, as we held our headcount largely flat. People-related costs remain our largest expense category at 39% of revenue, down 130 basis points year over year. We continue to exercise operational discipline to self-fund investments in our strategic priorities through more efficient operations and increased productivity. Third-party content costs increased 4% year over year and remained less than 5% of revenue.

Real estate and related facilities expense decreased 4% year over year. These expenses are now less than 3% of revenue, approximately 30 basis points lower compared to the prior year. For a more detailed walk from revenue to adjusted operating income, please refer to the appendix in today's earnings presentation. Compared to the previous Q1, GAAP operating margin decreased by approximately 120 basis points to 33.6%, largely due to one-time items.

On an adjusted basis, operating margin was flat year over year at 37.6%. In the quarter, our cost of services as a percentage of revenue was lower year over year by approximately 90 basis points on a GAAP basis and just under 70 basis points on an adjusted basis, primarily due to lower compensation expense, partially offset by increased intangible asset amortization. SG&A as a percentage of revenue was approximately 210 basis points higher year over year on a GAAP basis, primarily due to people expense and an increase in professional fees. On an adjusted basis, SG&A was 70 basis points higher than the prior year.

Turning now to taxes. Our effective tax rate in Q1 was 16.5%. This was an increase compared to the 15.2% tax rate in the first quarter of last year, primarily due to the revaluation of a foreign deferred tax asset associated with a tax rate change. Our GAAP diluted EPS increased 1.3% to $3.89 this quarter versus $3.84 in the prior year period, driven by higher revenue, offset by margin compression and a higher tax rate.

Given these same factors, adjusted EPS increased by $0.25 or 6.1% to $4.37. EBITDA increased 5% to $230 million compared to the same period last year, driven by higher net income and higher add-back items. And finally, free cash flow, which we define as cash generated from operations less capital spending, decreased 56% year over year to $60 million in Q1. This was largely due to the resolution of a sales tax dispute, timing of vendor payments, and higher capital expenditures during the quarter. As we discussed at our Investor Day, we remain disciplined in our approach to capital allocation and are committed to returning capital to shareholders through a combination of stock buybacks and dividends.

In the quarter, we repurchased more than 104,000 shares for approximately $49 million at an average share price of $467. At the end of the quarter, we had $251 million of capacity remaining under the $300 million share repurchase authorization approved by our board of directors back in September. Today, we paid a quarterly dividend of $1.04 per share to holders of record as of November 29, 2024. Also, in the first quarter, we reduced our term loan principal by another $62.5 million, lowering our gross leverage ratio to 1.5 times. We expect the term loan to be repaid in full by the end of Q2. Our capital allocation remains consistent with our commitment to maintain investment-grade metrics.

And finally, as you heard from Phil, we are reaffirming our previously issued guidance. While there's still some variability around client budgets, we've observed encouraging signs with increased engagement and a growing willingness to make purchasing decisions. In the final weeks of Q1, we've experienced positive momentum, which we are determined to maintain in order to achieve our full-year objectives. We are actively taking steps in pricing and packaging to enhance our competitiveness against incumbent providers, such as with hedge funds and PEVC firms.

These actions have resulted in higher new business, and with multiple pilots currently being tested, we are looking to replicate the success across various firm types in different markets globally. Our sales pipeline is healthy, and we continue to witness promising demand for our new Gen AI products and enterprise solutions, setting the stage for this year to be another story of two distinct halves. In conclusion, we remain confident in FactSet's ability to deliver sustainable long-term shareholder value. By harnessing the power of our data and technology investments, we are poised to enhance our clients' financial insight and workflows significantly.

And with that, we are now ready for your questions. Operator?

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

Yes. Hey. Good morning, everyone. Sorry to be so short-term focused here, but obviously, you're talking about the two halves, but I feel like both Phil and Helen, both of you, talked about green shoots and optimism for the second quarter.

So if I look at the Q1, probably a little bit softer than what you saw last year, maybe some things slipped a little bit. I also think there's a chunkier deal coming into the second quarter. So shouldn't we be positioned for acceleration in ASV growth already in the second quarter, or how should we be thinking about the cadence from here? Thanks.

Thanks, Alex. Appreciate the question. So let me talk a bit more about the momentum that we just talked about in the script. And it's not all just Q2, but let me talk about the rest of the year.

So we are very encouraged by the momentum we're seeing. You know, in any given year, we're going to have a number of big rocks that are out there that could be new RFPs or renewals, and I would say in the balance, I'm very happy with how that's landed so far. In terms of Q1, the big deal we did, and some of the visibility we see moving out. More, you know, and across fund types, wealth just continuing to look very strong.

Out of our top ten deals for the year, wealth makes up about half of those, and I talked about the seven-figure deals. So that is a very well-performing part of our business with a lot of opportunities. I would say that we're also seeing, as Helen mentioned, increased momentum in private equity venture capital. We're seeing really good momentum in the hedge funds.

Some of that's driven just by data that they're consuming. And then within corporates, you know, we did the acquisition of Owen. That's always been a good part of our business. But all of those end markets look poised to grow potentially at 10% this year.

So we're very excited about those. Thinking about banking, it's still a bit more uncertain sort of going into the year what the hiring's going to be like, but we're having really good renewal conversations in the middle markets. And the feedback that we're getting from our clients around the pitch creator product, which is the productivity tool on top of our current suite, but using AI, is getting really exceptional feedback relative to what people are seeing from our competitors. And that's playing a big part, honestly, in some of the renewals that we're doing.

So, you know, that's sort of one angle. Maybe what I'll do is I'll ask Goran now to talk a little bit more about some of the sales activity and how that compares to last year.

So I think we have certainly seen improvement in the pipeline and activity as we have gone through the quarter. Phil alluded to the last six weeks particularly being very productive for us. You know, to illustrate the increase in activity, I think our trials have gone up 23% in the Americas and 13% in Europe. And RFPs, we see a 30% increase year over year in Q1 of this year versus last year.

So I think that's where the optimism for the remainder of the year comes in for us, and, you know, we are quite optimistic about the activity and the client interaction that we've had today.

Yeah. I'll just end with this one, Alex, which is, you know, I think we've already talked about this, but the CPI increase that we'll be able to capture this year is lower than last year. And, you know, as inflation has come down, but I've seen really good work from Goran and the sales team on closing that difference in terms of, you know, what we would get. And on the buy side, even though that's outside of hedge funds, even though that's the piece of our business that's under the most cost pressure, that team has done an amazing job of beginning to build up a stronger pipeline as we enter the second half.

So, you know, we're optimistic and all signs so far are, you know, pointing green compared to, you know, how we were feeling maybe three or six months ago.

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

Hi. I hate to use my one question on it. The kind of housekeeping thing, Helen, but I'm going to do it anyway. Can you explain the total company ASV growth of 4.5% but the components were each lower than that, like buy side of 4.3 and sell side 3.5? Is there some kind of calculation adjustment that's being made to those items that would get you there 4.5?

Yeah. No. And thank you for that. I do understand why that might be a little bit confusing.

So in the past, we've always included all of CGS in the ASV calculations of both licensing and issuance, but we did not include in the buy side and sell side calculations the CGS issuance growth because it doesn't quite fit into that. But this quarter, as you, I'm sure, have noticed that there's been quite a lot of issuance. And as a result, CGS issuance really helped drive some of the organic ASV growth rate this quarter. It contributed about 25 basis points to get us to the 4.5%.

So that's why you're seeing that disconnect where buy side is at 4.3, sell side at 3.5, but CGS added another 25 basis points. That's how strong it was.

Thank you. Our next question comes from the line of Kelsey Xu with Autonomous. Your line is now open.

Hi. Good morning. Thanks for taking my question. It sounds like managed services could be a key growth driver for buy side ASV going forward. I was just wondering if we have any updated thoughts on total addressable market, who the key competitors are in this space, and just generally your strategy to expand in that market. Thanks.

Thanks, Kelsey. I'll start, and then I'll ask Goran to weigh in as well. So, yeah, we've seen some great momentum and work there from the team. You know, we closed a good deal in Q1 for an outsourced CIO provider that will include quite a bit of managed services here.

And there are some deals that we announced last year that did as well. And I think you probably saw the press release where we have entered into sort of a partnership with JPMorgan to do some work for them. So that's that there were managed services associated with as well, even though that deal was, you know, it's been going on for a little while now. We do see a good opportunity here, and it is, you know, really linked to our product suite.

So in many cases, these services are being applied to our technology and the fact that we've opened up the platform, particularly for the analytics suite, that's traditionally served the buy side. And that's, you know, the performance solution that we have is, you know, I think best in class. And that's now being leveraged pretty heavily by some of these firms. So I'll stop there, and maybe, Goran, you could add a little bit more color as to what else you see in terms of opportunity.

Yeah. So, you know, I think a couple of things in terms of competition. I still have, as Phil said, I think demand of services for us are a little bit different than, you know, you would expect from managed services type providers, and it's really that highly skilled talent that we have that can help clients with their performance reporting or, you know, risk reporting type activities that is what we are providing to the clients and augmenting their internal capabilities in the process. It's particularly effective in the environment where the clients are cost-sensitive, and we can help them in their total cost of ownership by providing managed services and allowing them to focus on the high-value activities.

So, you know, we're excited about the progress over the last, you know, five, six quarters since we launched services, and we think that there is considerable upside there. You know, I don't have the market size because, quite frankly, there is no direct competition.

Comment on that since this is a relatively newer service that we're offering, but it was performance and now risk and reporting. And what we're tracking are the attach rates, and they're quite good. So back to Phil's comment, and we've already been with clients in the middle office, and what we're seeing is that they're turning to us to help them especially to gain more scale.

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

Yes. Hi. Thank you. So I wanted to ask about, you know, you mentioned that you're getting exceptional feedback on sort of some of the Gen AI products and, you know, what folks are seeing from your competitors.

So curious if you could give us a bit more color around that. Is that, you know, across the board? You know, are there any specific products where you're maybe getting more traction? And maybe if you can dimensionalize that for us, like, is there a way to think about, you know, potential contribution from ASV this year?

Is it incremental to the guide? Just a bit more color there would be helpful.

Yeah. Sure. I'd be happy to, Faiza. Thanks.

So on our last call, I think Helen stated that we continue to expect or we're expecting 30 to 50 bps of growth in FY 2025 from, you know, from the monetization of Gen AI. So that is included to some degree in the guidance that we gave you. But, you know, it's obviously a wildcard, and we could potentially do better than that. We certainly, you know, we didn't have a huge number as a goal for Q1. So some more of it is sort of weighted to Q2, Q3, and Q4. But what we have seen are very encouraging signs.

So we've monetized, you know, six or seven things already. One was the conversational API that we spoke about last year, which is the, you know, client's ability to essentially take that FactSet Mercury experience that you could have if you had a FactSet workstation and plug it into your own environment. So that was a wealth use case that we monetized last year. The banking products are getting great feedback.

So we have something called Pitch Creator, which further automates the pitch creation process, and there's all kinds of news out there right now about, you know, how really tough it is for junior bankers, the number of hours they're putting in, and the strain that they're under, and this will, you know, things like our tombstone creator will really help them, you know, with productivity. So that will be officially released in the coming months, but it's already played a key part in a few renewals. So great feedback there. We also have, you know, I think, shown some ability to monetize AI, you know, from our data.

So in two ways. So we now had, you know, we had a close where we sold data specifically for somebody that was building a Gen AI product. And then, as we've spoken about previously, we have our AI partner program where we'll work with small technology providers to empower them for their workflows, portfolio commentary, you know, which we've had out there for a while now. We, you know, we got our first commitment to that, which will show up after Q1. So the good news is, you know, we're proving that we've got products that can be monetized, and the question now is sort of building up.

We have a very solid pipeline, by the way. So now it's as we get into January first, it's monetizing these at scale, which is the exciting part of it. So overall, it's still, you know, a very exciting thing for us as a company. It's the type of stuff we love to build.

We certainly see great potential. Of course, there's lots of news out in the market about, you know, firms maybe not monetizing this as quickly as they thought, or is it real? We believe vehemently that it is real. You know, it may take some firm types longer than others to get comfortable bringing these solutions on board, but we're ready, and we're already seeing the demand.

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

Thanks for taking my question. In the prepared remarks, there was a reference to softness in areas where clients are departing budget. I was just wondering if you could provide some color on that front, but also as we get into calendar year 2025, any early commentary on how those budgets are shaping up for your customers? Thanks.

Ashish, I didn't that came across a little muted for me. So you asking about the just overall across all firm types? Or how the budget discussions are going?

Yes. Yes. That's right. Thank you.

Okay. Goran, do you want to address that, please?

Sure. You know, I think we do not see a big change in terms of the budgets. Early signs are that, you know, the client budgets will remain flat, and the clients will continue to focus on, you know, on cost for the foreseeable future. We are encouraged in terms of clients' continued engagement in terms of their, you know, transformation of technology and in terms of implementation of new tools and new content that can be to help them across their investment process.

So we're quite encouraged by all of the activity and, like I said, you know, the number of trials and RFPs has increased significantly, which I think, you know, gives us reason for optimism and more productive client conversations for the rest of the year.

Thank you. Our next question comes from the line of Scott Wurtzel with Wolfe Research. Your line is now open.

Just a quick housekeeping one. Just on the Irwin acquisition and, you know, how we should think about the contribution from that to total revenue for this year would be helpful. Thank you.

Thanks for your question. I'll take that one, Scott. So it's not going to have a material impact in terms of the acquired revenues themselves. So broadly speaking, if it's small, we don't call it out. So it's not going to have a material impact on the top line. But it will help our corporate's business overall.

And just to add to that, you know, it's early days, but the acquisition case we had and what we expected to deliver between now and the end of August, our fiscal year is either on or above, you know, what we thought it was going to be.

Thank you. Our next question comes from the line of Jeffrey Silver with BMO Capital Markets. Your line is now open.

Thank you so much. I wanted to shift gears to talk about margins a bit. If I remember correctly, you're guiding to margins for 2025 to be somewhat slightly down. They were flattish in the first quarter.

Is that something that, you know, we should expect to continue? Should we expect to continue or expect to see, you know, margin compression in the back half of the year? And if so, what are the reasons for that? Thanks.

Yeah. Thanks for that question. So this quarter, we saw some good favorability compared to year over year with lower people costs. If you recall, we did take some actions through the year, so in comparison, that came through.

There's some timing of some third-party credits that also came in that was favorable. And then, of course, we've had productivity overall. But as we reaffirmed our guidance, we do like the ramp-up on expenses starting in the second quarter. We had a little bit of a slow start in investments that we've talked about in our last call.

So it takes some time to hire. So the people cost, we think, will be higher in Q2. And then keep in mind, last year, we also had a comparison with our adjustment to a bonus accrual. So there's going to be some of that comparison. We do expect tech costs to go up as well as we're really ramping up on infrastructure spend and cloud-related expenses.

So I would look at the H1 margin to be closer to the midpoint of our guidance range.

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

Thanks so much. I wanted to look at the wealth part again because I think you mentioned that you were lapping a big wealth win in the quarter, but specifically called out maybe a deceleration because of timing around large deals. But a good pipeline. So I was hoping to talk about, like, are you seeing even more elongated decision-making in wealth?

Are you seeing any changes in the competitive environment? Are people being particularly aggressive? I know it's always been sort of a competitive market, but just wanted to get more color there. Thanks.

Great. Thanks. I'll start, and then I'm sure Goran has a lot to say about this. So, I mean, it was we had a very large deal in last Q1. So I wouldn't read anything more into my comments other than we didn't have, you know, something of that size in Q1 or enough singles and doubles to sort of match that, but, you know, as I spoke about already, Toni, I think we do see that snapping back here pretty quickly.

And we see continued momentum in the space, you know, at different levels of wealth shops. At the very largest shops, it takes, you know, a long time for these decisions to be made, and then you go through the implementation. But I would not see that we're seeing a massive change there, honestly, in terms of timing or so on.

You know, I think Phil covered it well. You know, I think, you know, it's really just we didn't have a win of similar size this quarter. We are very confident that wealth will reaccelerate for the rest of the year. We mentioned that we saw an uptick in new business in wealth management.

We saw seat growth. But we are, I think, continuing to successfully displace competitors. We see geographic expansion this year. We're particularly focused on Switzerland and the UK as, you know, growth markets.

And, you know, we continue to penetrate additional workflows. So we're very confident about the wealth, you know, continuing to do, you know, very well for us. And I think Phil already mentioned that, you know, we're expecting double-digit growth this year.

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

Good morning. Thank you for taking my question. I think I heard that you had the seven-figure landmark win away from a key incumbent. What were the key reasons for the win? Do you have a more competitive pricing strategy or products? And do you expect more wins like that in the coming quarters? Thanks.

Well, I'll chat about this one a little bit, and then as usual, let's Goran weigh in. So this was an outsourced CIO, and, of course, there's a limited number of those globally. But, you know, it was a complicated deal. There were many aspects to what we were doing for them.

And, you know, I think it really just comes down to the quality of our technology, our analytics solutions, and our approach to partnership. In fact, Helen, you spent a lot of time, I think, nurturing this deal and getting it over the line. So what would you add for that?

Yeah. No. I think that's right. And our ability to partner was a big piece of this.

As Phil mentioned, there's also the managed services aspect, which they wanted. I think there were a number of things that we really brought to the table here, the connectivity and the flexibility of our open platform, so they were able to bring partners to bear. So those would be the ones that helped us and have continued to help us, I think, as we go forward.

I think our multi-asset class capabilities also played significantly into that.

Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.

Thank you. Helen, I think you made some remarks around, you know, just the pricing, packaging versus competition. I was hoping you could just elaborate on that just in the context of it sounds like your growth pipelines are obviously really strong, but what exactly are you, you know, tweaking, I suppose, to make the conversions better?

Yeah. Sure. Thanks for that question. So clearly, it's a competitive environment.

And all along, we've been investing to improve our products. So a point of, for example, our new business, where that's where you typically see the most price pressure. And it's usually driven in part because to move someone off of a displacement, there are switching costs. And so what we've done is had a very proactive approach where we've targeted specific types of firms, where we've changed our pricing structure.

And the result of that, because of the strength of our product, which has improved in certain cases, like in the private markets, the result is having higher volume. We have seen lower price realization, so we are being a bit more aggressive there. But overall, that's resulted in increased ASV. And in particular, we're seeing this in the Americas and in EMEA.

So that's where our packaging and pricing is being used as a competitive tool. And along with enterprise as well, we've been able to leverage some of our enterprise solutions, especially during renewals, and that has been very, very effective also.

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

Hi. Good morning. Appreciate you taking the question. I wanted to ask about your appetite for M&A. The latest and greatest there. And, relatedly, is your conviction in the monetization of your AI investments changing that appetite at all, or does it inform the types of assets that are most attractive to you in terms of, you know, inorganic action? Thank you.

Yeah. That's an interesting question. So, yeah, we have a high appetite for M&A. You know, I think we're in a better position to do more now, and there's a couple of gaps in our product suite across firm sites that if we can find the right assets, we'd be excited to execute on.

Most of the things we've been looking at, though, Andrew, are not AI-related. Although, we always look for somebody that has a good technology stack, modern, like, we don't have to do a ton of repair work, so that always plays into it. And very often, folks will have already done some work in that area. I believe we've invested enough so far in our AI suite to make a real impact.

And by empowering, like, so many of our employees, I think that was the trick to how we've gotten to where we are so far, but I don't know any other thoughts?

No. I think that's exactly right. That, as we mentioned, we've got a strong balance sheet. We've got the ability for increased leverage, and we've also been very deliberate in how we've been allocating our capital. We will spend more on capex this year, for example, to help do the internal builds, but that gives us still ample room to be able to use inorganic as part of our growth strategy.

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

Thank you. I guess I'd like to touch base on the monetization of some of your AI products over the past year. Can you maybe talk about the value proposition from the perspective of the client and what you're seeing in terms of maybe the uplift to your revenues and where the offset is from the perspective of the client in terms of the savings or the efficiencies that they're seeing? Because one of the things that we found is that a lot of Gen AI solutions tend to be quite expensive.

And it's quite easy to use a lot of your, what I would call, your credits, tokens, or your AI budget. Especially given that the earlier commentary around, you know, clients not really seeing a material improvement in their overall budgets.

Yep. Well, let me kick it off here. I think there's a lot to talk about. So we're definitely looking to get adoption right and just proof that we're adding value to clients.

And then think of, like, I like what you said about tokens. Just think about how do you best monetize this and, you know, how do clients feel like they're getting value and not exposing themselves to big spikes in expense. So, you know, we're hitting a lot of singles and doubles here. There's some deals that are, you know, in the tens of thousands, some that are in the hundreds of thousands.

But we're not going out there right now and selling, you know, multimillion-dollar AI solutions. So, you know, the value proposition really is saving clients' time. So the portfolio commentary solution, you know, gets you an excellent, auditable commentary on how you did versus the benchmark in, you know, a minute or less versus how, like, however long it would take somebody to write that. The pitch creator product, we've already talked about it.

It's just saving tens of hours of a junior analyst's time in terms of arranging, you know, logos on spreadsheets or running their models or building their templates or their charts. So that's how we're approaching it is really just brute force efficiency and this, you know, there's an idea generation aspect to this, which is important, but we think that low-hanging fruit of the efficiency gains. So Goran or Helen, I don't know if you want to add on.

I think, Phil, you've covered it well. You know, I think it is really gains in efficiency. You can just imagine, you know, the month-end process on the asset management side and portfolio managers having to deliver their commentary in time, that's certainly where we help them and clients find value. In terms of the cost itself, I think we have done a lot to optimize on our side to make sure that the costs do not run away.

And then we spoke about, you know, our pricing model here, which is basically subscription plus consumption-based, you know, that, you know, clients will have lots of visibility into. But, you know, improved productivity on the client side is really the value that we are offering. And then for those that build their own solutions, we are really enhancing their time to market the capabilities.

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

Great. Thank you. Can you talk about pricing if you would for this fiscal year? You talked about that it won't be probably as strong as last year.

What are you expecting for realized pricing this fiscal year versus last year? And it's just interesting you're talking about expecting overall revenues to accelerate in the second half of the year. It's obviously against a backdrop that sounds like it'll not be quite as beneficial on the pricing side, but if you could quantify as best you could this year versus last? Thank you.

Hey, Craig. Thanks for that question. So, yes, as Phil noted, our pricing is based off the higher of CPI with 3%. So CPI being where it's at, it does put a bit of a lower or a headwind on that front.

But, yes, the stronger pipeline helps. Right now, we're still seeing the price realization essentially overall quite flat to the last year, so we're not necessarily seeing an uplift but we're not seeing a degradation either. Now the only place where I noted earlier where that might be the case is where we're doing a new business and in some renewals. But what we're seeing is while the price realization against our rate card might be a little bit lower, we're actually seeing more in terms of volume, so that's sort of p times q concept.

Please note that we've also increased our rate cards, so the price realization percentage gets a little bit harder to completely track, but overall, the value that we've been able to provide, we've been able to capture it pretty firmly again year over year.

Thank you. Our next question comes from the line of David Motamaiden with Evercore ISI. Your line is now open.

Hey. Good morning. I had a question just on the client retention. It was good to see that it's been, you know, around 90%.

For the past year, that ticked up a little bit to 91% this quarter. You know, historically, we've seen that when retention has moved up, you've also seen ASV accelerate. That wasn't the case this quarter. Is that just the pricing dynamic?

Or maybe you could unpack what was driving that increase in the retention and why we're not seeing that translate to a reacceleration in ASV this quarter?

So, you know, just a couple of things. I think we're seeing, obviously, we spoke quite a bit about our focus on improving retention during the day. I think we're putting processes, procedures in place to help our, you know, client-facing organization to focus on retention. You know, we're encouraged by the improvement in client retention.

There are certainly fewer, you know, client cancels this quarter than previously, which accelerated our retention rate, and that I think is a good sign of, you know, what's to come. You know, all of the retention efforts we're putting in place are currently reflected, I would say, in specific areas. We saw improvement in retention in investment management in the Americas in particular, both for our workstation and analytics solution. And everything that we are focusing on currently, you know, we expect the number of better results as we move as we go along.

But, you know, I think not immediate, but, you know, we do expect retention will continue to improve over the coming quarters.

Yeah. Maybe I can add a little bit to what Goran was just saying. Given the number of clients that we have, we see a fair amount of churn, David, at the bottom. So that 1% change, while we like to obviously see higher client retention, the number that is more impactful will be the ASV retention, which continues to be above 95%.

But just to make that part, if there's a lot of churn happening, it might make the numbers move a point, but it's probably more rounding than a strong indicator.

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

Hey. Good morning, and thanks for taking my question. I'm trying to reconcile a couple of comments that you've made. So it's good to hear that you're seeing some more optimism on client engagement and a better pipeline.

But I think you also said that you're expecting your customers' budgets to remain flat and still be pretty cost-focused. So I wasn't sure if that implies that you're, you know, seeing potential for more share gains or you're seeing a situation where clients are spending more time shopping. And maybe just following up on the budget point, think given that we've had pretty good equity market performance and there's generally an expectation for M&A activity to pick up, why don't you think clients will increase their budget? What's holding them back at this point from doing so?

Thanks.

A couple of things. You know, maybe my comment was a little bit too pessimistic about, you know, clients not increasing their budgets. I think certainly the improved M&A activity and the improvement in banking fees, you know, is something that we spoke about correlation of our sell-side revenues to, you know, to bank fees. And we do expect that some of the macro conditions will improve as we go through the year and, you know, and then the hiring and banking in the fourth quarter takes place.

I also think it's really important that our strategy is to make sure that we can perform well in the cost-constrained or cost-sensitive times as much as we can, you know, rely on markets improving. So if you look at the services that provide, we spoke about, you know, managed services or helping clients with efficiency gains with our Gen AI tooling, I think all of that can help us, you know, weather the, you know, the more difficult, you know, market conditions as well. So, you know, we are focused on performing well regardless of the conditions. And, you know, the early signs of budgets, you know, I do not see significant increase, but on the sell side, certainly improving M&A activity would indicate that, you know, we will see some, you know, upward movement in budgets there.

But I think to add to what Goran just said, even if the budgets are relatively flat, it's still early days here, so we're obviously talking with clients as they end out their calendar year, fiscal years. We are seeing a shift more into tech budgets. That's one. And we are doing more and having discussions with the CTOs.

So the Gen AI products, what that helps us do is change whom we're speaking with as well, and the sale changes along with that. The other point around market share gain, I think that's exactly right. Goran already spoke to the point around having higher RFPs and trials. That is, in some cases, clients who are looking now to rethink whom their providers are, and that puts us in a very favorable spot as we try to win new business.

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

Hi. Thanks. Good morning. As you look across your different client segments, on a relative basis, can you talk about which you expect to show the most improvement going into the second half of the year and which may perhaps show lesser improvement in performance?

Hey, George. Maybe I'll just go back to some of my earlier comments. So, you know, I talked about, you know, some of the PEVC and hedge funds. So the smaller parts of FactSet, but I think it's showing very strong signs of growth this year.

The wealth space we've spoken about, which is bigger, and we continue to feel that we'll see that do well. You know, the two bigger chunks which have more uncertainty around, honestly, right, the banking business and the rest of the buy side, sorry, beyond hedge funds. So in banking, you know, I think we showed at Investor Day a graph that was very popular with many of you, which showed how FactSet's ASV and revenue kind of have a lag to the revenues that the banks generate. So if that comes through, and, you know, there's more hiring, more banking activity, and greater adoption of our AI products as we move through the year, I'm optimistic about the sell side.

Again, the piece about business, which has been under the most pressure for a long time, is the buy side that's leveraged to active management. So that's a little bit more uncertain. As I mentioned earlier, you know, the team's done a great job of building the pipeline and closing the gap we had versus the pipeline last year. So hopefully, that helps you in terms of stack ranking those of your model.

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

Hi. Thanks for squeezing me back in. I just want to ask you a little bit about the pickup you said in the last six weeks that you're seeing. It seems to be like a noticeable pickup in terms of decision-making with the clients.

And do you think that that has something to do specifically with the fact that efforts in the product that is resonating more? Would you think that might have to do with just more optimism after, let's say, the presidential elections? Because the last six weeks seem to be very coincidental, like, right around the presidential elections, things seem to pick up. And just, you know, in general, are you seeing anything in terms of administrative picks that be, you know, positive or negative for the industry or for FactSet on its own?

You can just address those items. Thank you.

Stop, Shlomo. I'm going in reverse order. So I just think in terms of the election and having it behind us, obviously, the bankers that we speak to are excited. They think it's, you know, the environment's going to be good for M&A activity.

And I think just potentially having less regulatory burden on the different, you know, clients out there. Obviously, frees up time and, you know, to do other stuff, which would help us. So Goran, do you want to maybe address the rest of Shlomo's question?

Yes. Shlomo, I think, you know, part of it, I would attribute, you know, I think we have also put things in place to increase, you know, client-facing activities. You know, making sure that, you know, we're increasing reach-outs and things of that nature. The optimism in the market, you know, there are certainly, you know, I think we certainly see better optimism in the market.

I see a more optimistic, you know, sales force around me every day. So I think that's all part of it. So I think it's a combination of things. We are certainly doing everything that we can to improve the pipeline and do as much as we can to improve our results for the rest of the year.

And even the market is feeling a little bit more optimistic than it did three months ago.

Great. Okay. Well, thank you all for such great questions and for joining us today. In closing, I'm pleased with the solid performance we delivered to start off fiscal 2025. While the current market environment remains uncertain, I'm encouraged by the conversations we're having with our largest clients and look forward to executing on the robust pipeline of opportunities in front of us to accelerate growth year over year.

I'm proud of the progress we are making on strategic priorities we outlined at Investor Day. These efforts are already taking root and give us confidence that FactSet is well-positioned to deliver on our medium-term outlook. And I want to conclude by thanking all the FactSetters around the world for their continued great work and efforts. Happy holidays to everyone.

We look forward to speaking with you again next quarter. Operator, that ends today's call.

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