"In the second quarter, we grew organic ASV plus professional services by 5.4% year-over-year, delivering adjusted diluted EPS of $4.22 and an adjusted operating margin of 38.3%." - Philip Snow, Chief Executive Officer
FactSet Research Systems Inc (FDS) QQ2 2024 Earnings Analysis: Organic ASV Growth, Margin Expansion, and GenAI-Driven Growth in Financial Data & Analytics
Executive Summary
FactSet delivered a solid QQ2 2024 performance with a focus on margin expansion and strategic AI-driven product initiatives despite a softer top-line environment in some segments. GAAP revenue was $545.9 million, up 6% year over year, while adjusted diluted EPS rose 11% to $4.22 and adjusted operating margin improved by 130 basis points to 38.3%. Organic ASV plus professional services grew 5.4% YoY, and ASV retention held above 95% with client retention near 90%, underscoring a highly sticky, enterprise-oriented subscriber base. The quarter featured robust demand for data solutions and middle-office to front-office integrations, aided by continued investment in GenAI capabilities (FactSet Mercury, Transcript Assistant) and an expanding managed-services footprint. Management signaled a constructive, though cautious, tone for the second half: Q3 is anticipated to be softer, while Q4 is expected to strengthen as AI-enabled workflows gain momentum and macro conditions stabilize. The company maintains guidance at the lower end of its 5-7% ASV growth range for FY2024, reflecting Credit Suisse/UBS-related uncertainty and a one-off wealth cancellation, while preserving a clear path to margin discipline and cash flow generation. Balance-sheet strength remains solid, with cash of $381.7 million and net debt of ~$1.322 billion, and the firm continues to deploy capital toward repurchases and strategic AI investments.
Key Performance Indicators
Revenue
545.95M
QoQ: 0.69% | YoY:5.99%
Gross Profit
290.80M
53.27% margin
QoQ: 0.07% | YoY:6.02%
Operating Income
192.75M
QoQ: 1.96% | YoY:13.89%
Net Income
140.94M
QoQ: -5.13% | YoY:7.10%
EPS
3.70
QoQ: -5.37% | YoY:7.56%
Revenue Trend
Margin Analysis
Key Insights
Revenue (GAAP): $545.945m; YoY growth 5.99%, QoQ growth 0.69% (per earnings metrics). Source: FourQuarters data and earnings metrics.
Revenue / Margin / Cash Flow Overview
- Revenue (GAAP): $545.945m; YoY growth 5.99%, QoQ growth 0.69% (per earnings metrics). Source: FourQuarters data and earnings metrics.
- Gross profit: $290.803m; gross margin 53.27% (0.5327).
- Operating income: $192.753m; operating margin 35.31% (0.3531).
- Net income: $140.940m; net margin 25.82% (0.2582).
- Adjusted metrics: Adjusted EPS $4.22; Adjusted diluted EPS $3.65; Adjusted operating margin 38.3% (up 130 bps YoY).
- EBITDA: $225.517m; EBITDA margin 41.31% (0.4131).
- ASV growth (organic, ex- CS-UBS adjustments): 5.4% YoY; ASV retention > 95%; client retention 90%.
- Customer metrics: >8,000 clients; 75 net new logos; user count 206,478 (down 605 QoQ).
- Geographic mix: Americas +6.5% YoY, Asia Pacific +6.4% YoY, EMEA +4.8% YoY (organic revenue growth by region).
- Cash flow: Net cash provided by operating activities $143.8m; free cash flow $121.9m; net change in cash -$30.1m; cash at end of period $381.7m; capital expenditures $21.9m; investments in property, plant and equipment negative $21.9m.
- Balance sheet and leverage: total assets $3.991b; total liabilities $2.189b; total stockholders’ equity $1.801b; total debt $1.704b; gross debt to capitalization ~48.6%; net debt $1.322b; gross leverage 1.8x; plan to repay term loan by 2Q FY2025.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
545.95M
5.99%
0.69%
Gross Profit
290.80M
6.02%
0.07%
Operating Income
192.75M
13.89%
1.96%
Net Income
140.94M
7.10%
-5.13%
EPS
3.70
7.56%
-5.37%
Key Financial Ratios
currentRatio
1.79
grossProfitMargin
53.3%
operatingProfitMargin
35.3%
netProfitMargin
25.8%
returnOnAssets
3.53%
returnOnEquity
7.82%
debtEquityRatio
0.95
operatingCashFlowPerShare
$3.77
freeCashFlowPerShare
$3.2
dividendPayoutRatio
26.3%
priceToBookRatio
9.78
priceEarningsRatio
31.26
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights from QQ2 2024 earnings call:
- Strategy and AI focus: Generative AI is a core growth vector, with GenAI copilots for portfolio managers and analysts; Mercury (conversational data insights) in beta; Transcript Assistant launched and expanding coverage and comparisons alongside Mercury integration. Quote: “Transcript Assistant, our GenAI-powered chatbot, is in full release as announced last week.”
- Pipeline and deal activity: Healthier H2 pipeline vs H1 with higher deal volume; seven- and six-figure deals in the pipeline; more competitive displacement activity leveraging total cost of ownership (TCO) arguments. Quote: “we do have a healthy H2 pipeline... six and seven-figure deals… up year-over-year, I’d say, almost sort of 5% in terms of total numbers.”
- Margin discipline and cost control: Q2 adjusted OPM expanded to 38.3% with technology spend rising in support of AI initiatives; real estate footprint rightsized; bonuses normalized with restructuring charges taken; expectation of margin moderation in H2 toward the mid-point of the guidance. Quote: “Adjusted operating margin improved by 130 basis points to 38.3%… We expect arithmetically something closer to 35% for the back half of the year.”
- Managed services and ecosystem strategy: Growing managed services as clients outsource middle-office workflows; industry cost-cutting appears stabilizing with pockets of recovery; emphasis on reducing TCO to win large, long-duration contracts. Quote: “Our managed services business is growing as our clients outsource more of their middle office workflows to FactSet.”
In the second quarter, we grew organic ASV plus professional services by 5.4% year-over-year, delivering adjusted diluted EPS of $4.22 and an adjusted operating margin of 38.3%.
— Philip Snow, Chief Executive Officer
We're seeing a healthier pipeline in H2 versus H1. We're seeing higher deal volume. The makeup is about half coming from buy side, 20% in dealmakers or banking, 20% wealth and the rest in partnerships.
— Helen Shan, Chief Revenue Officer
Forward Guidance
Outlook and risk assessment:
- FY2024 ASV growth guidance remains at the lower end of 5%-7%, reflecting softer near-term top-line dynamics and the Credit Suisse/UBS integration impact. Management noted that the ASV reduction related to Credit Suisse is not reflected in Q2 results and that the full-year guidance assumes a conservative view of that reduction. The firm expects Q3 to be softer and Q4 to improve as macro conditions stabilize and enterprise AI initiatives gain traction.
- Revenue trajectory and market timing: Management highlighted a constructive H2 pipeline with seven-figure deals and a greater emphasis on data solutions, middle office, and GenAI-enabled front-office capabilities. The timing of a tangible uplift from AI-enabled products will likely lag periods of pipeline visibility and client procurement cycles. The guidance accounts for a lag between AI product readiness and commercial momentum.
- Capital markets and rate environment: Management cited macro uncertainty around rate cuts, with the Fed’s near-term actions potentially affecting deal timing. They noted that rate cuts could provide a tailwind later in the year, but they did not bake in a rapid rebound into guidance, citing a lag in macro-to-revenue translation. The June rate-cut probability and global macro signals are evolving, and investors should monitor policy shifts, IPO activity, and bank capital markets activity for incremental guidance.
- Key factors to monitor: (1) Credit Suisse/UBS transition dynamics and any ASV adjustments, (2) progression of large seven-figure deals and cross-segment migrations to platform solutions, (3) GenAI product adoption and monetization (Mercury, Transcript Assistant, banker automation tools), (4) ongoing cost controls and technology spend (cloud and capitalization) and (5) macro improvements in capital markets and banking activity. Overall, the combination of a healthier H2 pipeline and disciplined cost management supports a constructive, but cautious, outlook.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FDS Focus
53.27%
35.30%
7.82%
31.26%
DNB
37.30%
9.79%
-0.49%
-60.29%
MCO
68.10%
43.50%
14.60%
34.80%
MSCI
75.50%
54.40%
-36.30%
35.52%
ICE
70.10%
39.10%
2.37%
31.04%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Base-case view: FactSet remains well-positioned to monetize AI-enabled workflows and enterprise solutions, supported by a sticky customer base and a strong pipeline for H2. The company should benefit from higher-value front-to-back-office integration, data and analytics depth, and cost discipline. Near-term visibility is tempered by Credit Suisse/UBS dynamics and macro uncertainty, but long-term demand drivers in GenAI-enhanced platforms and managed services offer meaningful uplift. Valuation remains premium given growth expectations (P/E around 31x, P/S ~32x, P/FCF ~145x), but the combination of margin resilience, cash flow generation, and AI-enabled product momentum supports a constructive stance for patient, long-term investors. Key catalysts include accelerated AI product adoption, stronger Q4 performance relative to Q3, and successful monetization of GenAI tools across segments.
Key Investment Factors
Growth Potential
GenAI-enabled product and platform strategies (Mercury, Transcript Assistant) offer a meaningful long-term uplift through higher-front-to-back-office integration, stronger data workflows, and expanded use-cases across banking, wealth, and asset management. Managed services and outsourcing of middle-to-back-office workflows present a scalable cross-sell opportunity; data solutions and middle-office strengths underpin cross-segment expansions and improved client lock-in. The shift toward enterprise solutions and TCO-driven displacements can sustain longer-tenor deals and improve retention with higher net-new logo contributions.
Profitability Risk
Credit Suisse/UBS-related ASV reductions present near-term uncertainty; macro headwinds may delay large platform deals; pricing pressure on new business amid competitive dynamics; reliance on large, multi-year contracts introduces concentration risk; GenAI monetization requires successful productization and client uptake; regulatory and data privacy risks associated with AI-enabled tools.
Financial Position
Healthy liquidity with cash of $381.7m and net debt of approximately $1.322b; leverage at ~1.8x and a plan to repay the term loan by 2Q FY2025; robust free cash flow generation ($121.9m in QQ2) supports buybacks and dividends; capital allocation remains shareholder-friendly with $52.3m in quarterly buybacks and a remaining $188m available for repurchases in H2 FY2024.
SWOT Analysis
Strengths
Sticky, high-value data and analytics platform with broad client base (>8,000 clients) and >95% ASV retention.
Strong product roadmap in GenAI, with early-stage traction from Mercury and Transcript Assistant, plus integration capabilities across front-, middle-, and back-office workflows.
Healthy cash flow and balance sheet, modest leverage (~1.8x) with a clear plan to deleverage and strengthen capital allocation.
Displacement capability and strong TCO narrative that supports competitive wins in enterprise deals.
Weaknesses
Pricing pressure on new business and some modest deceleration in top-line growth in certain regions/sites.
Higher technology and cloud costs tied to GenAI investments could pressure near-term margins if revenue growth does not accelerate.
Revenue growth is exposed to macro volatility and the timing of large seven-figure deals.
Opportunities
Expanding managed services and off-platform solutions to capture outsourcing demand in middle/back-office workflows.
Deeper penetration in wealth and data solutions, with new workflows such as prospecting and proposal generation driving cross-sell.
AI-driven productivity gains could lower cost-to-serve, enabling higher margin expansion and potential scale benefits.
Threats
Credit Suisse/UBS-related ASV reductions and broader balance-sheet adjustments could dampen near-term growth.
Macro environment and rate outlook uncertainty could delay capital-market-related demand and wallet share.
Intense competition on pricing for new logos and potential product commoditization in data/analytics.
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