FactSet Research Systems Inc. (FDS) Q3 2022 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by and welcome to FactSet's Third Fiscal Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker host, Kendra Brown, Head of Investor Relations.

Thank you and good morning, everyone. Welcome to FactSet's third fiscal quarter 2022 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com. The slides will be posted on our website at the conclusion of this call. A replay of today’s call will be available via phone and on our website. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question plus one follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risk of forward-looking statement 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, reconciliation to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer, and Linda Huber, Chief Financial Officer. I will now turn the discussion over to Phil Snow.

Thank you, Kendra, and hello, everyone. Thanks for joining us today. I am pleased to share our strong third quarter results as we delivered another exceptional quarter with double-digit ASP growth. As we enter our fiscal fourth quarter of 2022, we are building on our momentum and are well positioned for the year-end. Given this outlook, we are guiding to the high end of our previously discussed financial ranges, except for the tax rate, which will be at the low end of the range. Linda will speak more about this in a moment. Our organic ASV plus professional services growth accelerated to 10% in the third quarter, with strength across all workflow solutions and regions. Growth was primarily driven by analytics with success globally from asset managers and asset owners as well as large partnership wins and increased demand from wealth management firms. Our sales and client-facing teams continue to outperform, increasing the pace of our top line progress. We saw acceleration in year-over-year growth from all client types, reflecting our success in building the leading open content and analytics platform. We once again saw the continuation of double-digit growth in banking, wealth, hedge funds, corporate clients, partners and private equity and venture capital funds. Stronger retention and accelerated expansion drove demand for our content and digital solutions for existing clients. And for new business, growth was driven by our workstation with solid performance in the Americas and EMEA and continued small and medium wins across all regions. Adjusted EPS increased 38% from the prior year period given our ASV growth and disciplined expense management. Our third quarter adjusted operating margin also expanded 500 basis points year-over-year to 36.6%. About two thirds of this margin expansion came from the addition of CUSIP Global Services, or CGS, while the remaining one third came from our core business. Our fourth quarter pipeline continues to look strong, providing a tailwind for the remainder of fiscal 2022. Our third quarter performance is the result of intense focus on the strategic initiatives we showcased at Investor Day scaling our content refinery, delivering next-generation workflow solutions and enhancing the client experience with an open platform and hyper personalization. These key differentiators drive top line growth, and enable us to capture more of the addressable market. FactSet's open platform powers the portfolio life cycle with market-leading solutions. Our portfolio analytics and trading products for the front and middle office drive broad-based growth on the buy side. Ongoing investment in the front office is paying dividends as the momentum and acceleration of our front office capabilities continues to grow. These multi-asset class portfolio analytics continue to see healthy client demand, thanks to our differentiating buy-side attribution and risk capabilities. Our content refinery is driving growth in Content and Technology Solutions, or CTS, our off-platform business. As you may recall from Investor Day, this business delivers proprietary and third-party content to clients in several ways, including data feeds, APIs or increasingly, the cloud. FactSet suite of off-platform solutions offers our clients the flexibility to decide where and how they will consume their data and our ability to concord or connect data is a real differentiator. As clients increasingly want to consume data programmatically, we're expanding our robust suite of data management and workflow solutions. CUSIP Global Services, a CTS business component is a great example of this expansion. I'm pleased with the performance of the CGS team, its integration with FactSet has gone very well. Together, our teams are working to expand the business, focusing on private companies, ESG, digital assets and issuance trends, and these opportunities are promising, but several will take time, so it's still early days. Linda will discuss CGS' performance in more detail later in the call. In the current volatile market, our investments in content and workflow solutions put us in a resilient position. Our clients clearly recognize the value of our diverse product portfolio, and we are committed to increasing the pace of these investments for the next few years. We will continue to invest in our content refinery, building on our offerings in ESG, deep sector, real-time, private markets and wealth. And as we discussed at Investor Day, our investments drive client demand and will be a driver of growth in the years to come. Looking across our regions, we saw broad-based acceleration across all our markets. The Americas continues to be the biggest contributor to growth with organic ASV growth accelerating to 10.1%. This was driven by research and advisory with the workstation driving new business, especially among corporates, Expansion was driven largely by wins at wealth clients. In EMEA, ASV growth accelerated to 8.3%. Workstation sales drove growth with asset managers and banks. We saw increased ASV capture in the region due to the international price increase better price realization and workstation expansion. New business also contributed to growth, driven by increased workstation sales within wealth funds. Asia Pacific's performance remained strong with ASV growth at 14.3%, driven by demand from asset managers and asset owners. We saw higher retention and expansion among existing clients across many countries, both CTS and analytics contributed to growth with higher expansion with asset owners and asset managers, respectively. In summary, I'm very pleased with our third quarter performance. We continue to invest in our business and platform, which is paying off, giving us good momentum as we head into the fourth quarter. Looking ahead, we are confident in our strategy and ability to navigate volatile markets. We remain committed to the medium-term outlook we shared at Investor Day of 8% to 9% ASV growth, 11% to 13% EPS growth and 35% to 36% adjusted operating margin. FactSet has a proven history of growth in volatile markets. Our subscription-based model provides stability and fosters client retention. We're prepared for potential downturn scenarios with specific levers to reduce our spending if necessary, even as we continue to invest in our business, which Linda will discuss in more detail. Ultimately, our open platform, content refinery and personalized workflow solutions will continue to set us apart. Underpinning all our efforts is our incredible team. Our culture is a key differentiator in this competitive environment, and we're committed to attracting, retaining and developing top talent. Like many of you, our leadership team has increased our in-person interactions. It's been great to meet with clients again, have visitors in our offices and engage with FactSetters face-to-face. We provide flexibility for our employees with our hybrid work model, which has been very well received, and I'm proud of the work our team does every day to deliver on our goals and constantly improve our products. I will now turn it over to Linda to take you through the specifics of our Q3 performance.

Thank you, Phil, and hello to everyone on the call. As you've seen from our press release this morning, we are pleased to report continued acceleration in our top line with double-digit growth year-over-year in revenues, organic ASV and adjusted diluted EPS. I'll now share some more details on our third quarter performance. Consistent with our definition of organic revenues and ASV, we will exclude any revenue and ASV associated with CGS when reporting organic-related metrics for the 12 months following the acquisition date. We will, however, provide some specifics on CGS so you can track its initial performance as part of FactSet. As Kendra previously noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew third quarter organic ASV plus professional services at 10% year-over-year. This acceleration reflects disciplined execution of our sales pipeline and pricing plans. In addition, investments in content and workstation functionality continue to support both retention and better price realization. For example, our third quarter international price increase contributed $10 million in ASV, an increase of $3 million or 30% from last year. Third quarter GAAP revenue increased by 22% from the prior year period to $489 million. Organic revenue, which excludes any impact from foreign exchange, acquisitions during the last 12 months and deferred revenue amortization, increased 10% to $442 million over the prior year period. Growth was driven by our research and advisory and analytics solutions as well as by the acquisition of CUSIP Global Services. All regions saw robust growth, benefiting from acceleration in all 3 workflow solutions. For our geographic segments, organic revenue growth over the prior year period for the Americas was 7%, EMEA at 13% and Asia Pacific at 24%. Turning now to expenses; GAAP operating expenses grew 39% year-over-year to $392 million impacted by several charges incurred during the period. First, as previously discussed, we have been resizing our real estate footprint to match our hybrid work model. This quarter, we recognized $49 million in impairment charges. While we will continue to evaluate our real estate needs, this initiative is largely complete. We do not anticipate similarly sized real estate impairment charges in the quarters to come. Also in the third quarter, we incurred $12 million in onetime acquisition costs related to the CGS acquisition. In addition, we recognized $13 million in acquisition-related intangible asset amortization during the quarter. Going forward, this intangible asset amortization will be a recurring charge. Given these charges, our GAAP operating margin decreased by 956 basis points to 19.9% compared to the prior period. Adjusted operating margin increased by 500 basis points to 36.6% compared to the prior year, exceeding our guidance on this measure driven by lower compensation expenses, lower tech and content costs and lower facilities expenses. As a percentage of revenue, our cost of sales was 582 basis points lower than last year on a GAAP basis and 792 basis points lower on an adjusted basis. This decrease was primarily due to lower employee compensation and lower technology and content-related expenses, including our ongoing shift to the public cloud. When expressed as a percentage of revenue, SG&A was 536 basis points higher year-over-year on a GAAP basis and 292 basis points higher on an adjusted basis. The primary drivers of the increase include CGS acquisition costs, increased employee compensation expense and higher bonus accrual. Moving on to tax. Our tax rate for the quarter was 12.2% compared to last year's rate of 11.9%. This was primarily due to lower projected levels of income before income taxes and a tax provision reduction related to the lower rate compared with the 3 months ended May 31, 2021. GAAP EPS decreased 26% to $1.93 this quarter versus $2.62 in the prior year primarily due to real estate impairment charges, acquisition expenses and higher interest expenses, partially offset by higher revenues. Adjusted diluted EPS grew 38.2% from the prior year to $3.76, largely driven by revenue growth, margin expansion and a lower tax rate. Adjusted EBITDA increased to $173 million up 30% year-over-year. And finally, free cash flow, which we define as cash generated from operations less capital spending, was $177 million for the quarter, an increase of 45% over the same period last year. A key driver for our increased cash flow is the acquisition of CGS, which has performed well since closing on March 1. Speaking of the CGS acquisition, we are now 100 days in, and CGS is tracking ahead of plan on all fronts. Its financial performance was robust in Q3, with both sales and margins exceeding expectations. As we discussed on our second quarter earnings call, we're on track to realize $5 million in ASV in fiscal 2022 from CGS. It is a resilient business with steady top line and good cash flow even in a potential market downturn. While CGS' issuance fees are more sensitive to market activity, these fees make up only 15% of CGS' revenue. Functional integration of the CGS operation is well along, and we now expect to exit our transition services agreement ahead of schedule. Our ASV retention for the third quarter remained greater than 95%. We grew the total number of clients by 19% compared to the prior year, driven by the addition of more corporate and wealth clients. user count increased by more than 2,000 since last quarter, thanks to an increase in research and advisory users. Year-over-year, user count grew by 12% and our client retention remains at 92% year-over-year, reflecting the strength of our subscription revenue model. Turning now to our balance sheet. On March 1, we issued our inaugural investment-grade senior notes. These notes comprised $500 million of 2.9% 5-year senior notes and $500 million of 3.45% 10-year senior notes. At the same time, we entered into a new credit agreement, updating our term and revolving credit facilities. We're pleased that our fixed rate senior notes are well priced, given recently increasing interest rates. In addition, as you may recall, we've hedged 80% of our total debt from floating rate exposure for 24 months, largely protecting us against rising interest rates. And as we have said before, we're proud of our investment-grade ratings. In the third quarter, we made a planned prepayment of $125 million on our term loan, bringing our gross leverage ratio down to 3.5x from the initial 3.9x level when we acquired CGS. We expect to make three more payments of $125 million in each of the next three quarters, enabling us to reach our gross leverage target of 2x to 2.5x in the second half of fiscal 2023. During this time, while we may continue minor share repurchases to offset the dilutive impact of stock option grants. We do not intend to resume our share repurchase program until at least mid-2023. Lastly, we'd like to remind investors that we increased our regular quarterly dividend in the third quarter for the 23rd consecutive year of dividend increases. The increase was 8.5% for a per share dividend of $0.89. Next, I'd like to discuss planning for our downturn playbook scenario. First off, it's important to note that FactSet remains committed to top line growth supported by our investment plans. We would expect to maintain these investment plans even under a downside scenario. As Phil mentioned, historically, FactSet has fared well in volatile markets as our subscription business model provides stability even in challenging times. With more than 40 years of consecutive revenue growth, we've successfully navigated several down cycles. We significantly outperformed the S&P 500 on revenue, operating income and EPS in 2007, 2008 and 2009. In fact, in 2008 and 2009, FactSet EPS was positive, while S&P 500 EPS was double-digit negative. That said, its sound financial practice to be prepared for all scenarios. As part of this planning, we've identified 2% to 3% of our $1.2 billion in operating expenses or $24 million to $36 million that we could potentially reduce to maintain margins in the event of a severe downturn. First, if we experience lower ASV, our bonus pool would adjust accordingly per our preestablished performance targets providing the largest share of expense reductions. Lower ASV would also proportionately reduce variable third-party data and content costs. Lastly, we could potentially reduce T&E expenses through virtual engagement. This is a planning exercise we will undertake quarterly in order to rebalance resources given prevailing market conditions. To confirm this exercise is just scenario planning. As we look to end our fiscal year on August 31, FactSet is on track for a strong finish. Given our performance this quarter and robust pipeline, we reaffirm our previously communicated guidance for fiscal 2022. We expect growth at the upper end of the previously provided ranges for most of the metrics in our annual outlook. The exception would be the effective tax rate, which is expected to fall at the lower end of the previously communicated range. As a reminder, CGS is not included in our organic ASV guidance. However, as we discussed earlier in the call, we expect CGS to contribute approximately $5 million in ASV in fiscal 2022. All in all, we are encouraged by the demand for our content and workflow solutions. Our investments continue to drive growth in our digital platform. Our sales team continues to provide excellent execution, and we're continuing to improve our price realization. Although there is uncertainty in the macro environment, we believe our diverse product portfolio and stable financial position will serve us well for the longer term. With that, we're now ready to take your questions. Operator?

[Operator Instructions] Now our first question coming from the line of Manav Patnaik with Barclays. Your line is open.

Thank you. Good morning. My first question is just around the guidance. Given the current quarter numbers in the momentum thus far, it sounds like you should be able to very comfortably touch the high end or even beat the guidance. So just curious as to why perhaps you didn't change or raise those numbers? Are you starting to see any feedback from your clients, perhaps just given the macro slowdown if that's flowing through to them and I just was looking for some commentary there?

Thanks for the question. It's Phil. So I'll kick off here, and I'm sure Linda will have a few additional comments. So yes, in terms of the fourth quarter pipeline, we're definitely confident in the range that we guided to in the last quarter and the high end of that range. So it's a very high-quality pipeline. I would say in terms of what's in there. We're seeing very good strength on the buy side, and analytics has had a very good few quarters in a row here. So we're seeing good strength and visibility on the buy side. With banking, obviously, there was a very good uplift last year from sell-side hiring. We're anticipating good sell-side hiring, maybe not as high as last year, but it's certainly, I think, more positive versus previous years. So in terms of the top line, that's what we see going out at least today. And I'll allow Linda here to kind of get into a little bit more of the other pieces of guidance

Manav, we feel really good about where we are. The swing factor here is really the tax rate as we go into the fourth quarter. We've got a couple of discrete items that may swing either way. In fact, we may end up doing better as we get through the end of the fourth quarter. But given the market conditions right now and the way the market is bouncing around, I think it's prudent to be confident, but not cocky. And so we thought that this was the best way to go. But thank you for pointing that out.

Got it. And just in terms of pipeline, like maybe more on the product side, I think last recession, like you pointed out, you guys grew through it, but I think you were a smaller company, a lot more share, et cetera, to be had. Can you just talk about the product pipeline and how that might help you do the same thing in the event we do go through a slowdown?

Sure. Yes, happy to do that. And Yes. I mean, we've lived through these and many of our sales leaders and specialty sales leaders have been through these types of cycles. So we're very experienced here. And the really good news is we have more product and ways to help clients than ever before. So it's a very good story to go into a client and really talk to them about what it is they're facing and what problems we can solve for them. And sometimes it's to our benefit because it really brings people to the table sometimes a little bit sooner than they might have traditionally done that. So I would probably put this into 3 camps or 3 categories, Manav. The first is the portfolio life cycle for the buy side is really getting some good traction here. The analytics team has had significant acceleration over the last year, and we're seeing strength come through in risk our quant products. So we now have programmatic access to the platform, and that's been very well received. And our trading products have done very well as well. And when there's increased volatility in the markets, that's certainly helpful. And that's just bolstered by like the excellent performance of the performance and the reporting parts of that business. So analytics is firing on all cylinders. And because we're a more open platform now when we plug it in more places, it really just puts us in a great position on the buy side. And I think that open theme is important as well. So not just for the buy side, but for all kinds of clients. We're finding ways that we can integrate with CRMs, for example, and other pieces of our clients' workflows. So I recently had a bunch of visits with clients, and it feels a little different, frankly, than 2 years ago. They're really understanding our story now and seeing the differentiators that we bring to the table. And it's very exciting to be in those conversations with CTOs and CIOs at some of our largest clients. And then just the workstation. I think we've got a kind of a renaissance in the work station, that's how I like to think about it. We really have good momentum here, and we're growing our business across a lot of different firm types. So it's very broad-based. And lastly, the investments that we've made in content are really paying off. Deep sector has already paid off but we're beginning to see private markets and ESG come through, and we're also investing in real time. So there's so many weapons that we have now for our salespeople to go out there and help our clients. And what I'm encouraged by is across every business line we have, and it's across every region and it's across every firm type. So we're very well distributed here in terms of our opportunity. I think better prepared than ever for any sort of downturn in the market.

And our next question coming from the line of Toni Kaplan with Morgan Stanley.

Just continuing on the downturn theme. Hoping you could remind us how professional services act during downturns. And now you have the non-subscription part of CUSIP, it's under 15% of that business. Could you just remind us what's in there and how discretionary, I guess, that is? That's my first question.

Sure, Toni. Yes, so it's a small piece of FactSet, and most of the professional services that we offer are really to implement our analytics suite, which, as I just mentioned, is having very good momentum here. So we didn't really have a big professional services team during the last downturn, which was, I think, a little over 10 years ago. But I anticipate that we'll have the people we need to implement these products, and I wouldn't imagine that that's a headwind for us at all. Linda, I don't know if you've got any additional.

To follow up on your question on CUSIP, Toni, the 15% of revenues that comes from the assignment of new CUSIP numbers for new securities, you're correct about that. That is not recurring revenue. The other 85% of CUSIP revenues are, in fact, recurring. So if we do have a bit of a slowdown in capital markets activity, we may see a slight trending down of that 15% of CUSIPs revenues. But I'm not sure that you're going to notice that overall in the total mix of the company, and we would expect that, that would just be if capital markets do take a downturn. So again, that piece is pretty minor as well.

Yes, makes sense. I wanted to ask on the expense side. So Linda, you mentioned the real estate opportunities are sort of largely done. I know you're looking into third-party data costs for savings as well. Is that ahead of us? Or is that complete? And just overall, how should we think about normalized operating margins just post the real estate savings, headcount savings, all of that?

Sure. On real estate, you're correct, Toni, we're pretty much through this. We've reduced our real estate footprint overall by something close to 40%, which works really well with our hybrid model. We have said at Investor Day, savings that come off of that are going to take some time to materialize as we have to still consider the leases that we have. So we're looking at $10 million to $14 million of reinvestable funds over 3 years. So perhaps not quite as much as you would think. On the margin front, we're incredibly happy with the margin progress that we've made. 500 basis points is a lot. 2/3 of that comes from CUSIP, the other 1/3 from the base business. So it's important to note the base business is doing well also. On the second bucket of personnel costs, we noticed that we came out about where we had expected this quarter. Salaries are a little bit lighter because it has been challenging to fill all of the open positions that we have, but our bonus accrual is higher because we've done well. So we did $31 million of bonus accrual in the third quarter. In the first and second quarter, we were at about $21 million and $22 million. So we're running $75 million through 3 quarters, and you should expect that the fourth quarter would probably be an average of those 3, so $25 million, $26 million. So we're looking at what we expect to be potentially even $100 million bonus pool this year. So that is heftier than what we've done in previous years. So bonus pool upside kind of offset the salary line running a little bit light. On third-party data costs, this is a tricky one. We are in inflationary times. We've worked quite hard on this, and we will continue with our procurement group to negotiate effectively. I think we would see this line moving up sort of 3-ish percent, maybe a little bit more. This one, we're going to have to watch and we'll have more information for you. But we have looked to beef up the procurement activity to make sure that we've got that right. And technologies come in about where we had expected. We expect technology costs will move up, though, as we said, great success with the cloud with our clients, which has resulted in greater cost for greater utilization. And we're building more of our own software. So amortization continues to move up as a trend. But basically, we've handled the acquisition expenses for CUSIP. Those have come through. And the trends are looking pretty good. You had seen the margin guidance over the longer term, the margin goals of 35% to 36% adjusted and we feel like we're making very good progress on that. So I hope that is a fulsome answer to all your questions, Toni.

Our next question coming from the line of Ashish Sabadra with RBC Capital Markets.

So my first question, I wanted to focus on the comment around that large partnership win that was highlighted upfront, as well as pension and wins at wealth clients. I was wondering if you could provide further color on those -- both of those, just the pipeline for further partnership as well as pipeline for wealth management.

Absolutely, Ashish. Yes, we have a very strong partnerships business. And as our platform has become more open, and we have more to offer from our content refinery, it gives us a good opportunity to distribute what we have on the shelves through different ways. So we did have a very nice deal in Europe that was driven by a lot of our core content. So that was a big contributor to Europe's growth and CTS' growth this quarter. And on the wealth side, it's very well distributed. So I think quarter after quarter, you see the new logos and the increase in our workstations wealth is usually on the leaderboard there, if not at the top of it. And there's just a steady pipeline of larger deals that we're just systematically knocking our way through. So it's hard to sort of scrape a ton of these over in any given year, just how long those contracts are and how big a decision it is for some of those firms. But I have every confidence in the world in our wealth team. They're doing exceptionally well. We're really killing it within the space that we're focused on, and we do think there's a greater opportunity in wealth to capture more of the wealth advisers workflow as we look forward.

That's great color. And Linda, thanks for providing the detailed color around incentive comp and details around real estate savings. But I just wanted to drill down further on the guidance piece. If I look at the implied fourth quarter guidance, that implies a significant moderation of margins in the fourth quarter. And so I was wondering, is there any particular puts and takes that we need to be cognizant of for the fourth quarter? Or is that just, as you mentioned earlier, just conservatism baked into given the economic environment?

Well, I think it would be fair to say, Ashish, that we are being conservative given the economic environment that is fair. A couple of things to think about if we are able to hire more heavily in the fourth quarter, you may see some increase in the salary line. That would be something to keep an eye on. And again, the accrual will be a bit higher in the fourth quarter for the bonus pool, which is an important thing as well, given that the company is performing really well. The guidance, again, turns on what happens with the tax line. And again, we've got a couple of discrete items that we're keeping an eye on. And it is possible that we may find ourselves with higher EPS, but we're going to have to watch that and we're going to have to see. So I hope that is helpful to you.

Our next question coming from the line of Alex Kramm with UBS.

Hello. Just want to come back to the pipeline comments that you made earlier and I guess the unchanged guide for ASV. So I think you mentioned earlier, yes, maybe the sell side is a little bit softer. But obviously, you're still pointing towards a pretty big step down year-over-year in the fourth quarter. So my question here is, is there something about seasonality that has changed? I think I've had some discussions with you guys that maybe you changed the -- well, I think you've changed some of the sales incentive structure a little bit. So just wondering if that has perhaps pulled forward some sales into earlier quarters than you're actually trying to smooth out the seasonality a little bit. So maybe you can just talk about this a little bit, not -- so we're not surprised that maybe the quarters are just a little bit different than they were historically.

Thank, Alex. Yes. So I think there is something to the second part of your question there. So I did -- I've had conversations with Helen. I think Helen and Linda have really teamed up to make sure that we have incentives there for the salespeople earlier in the year. And obviously, if we can get the ASV in early, it means good things, right, for all the other financial metrics. So we're certainly trying to do that and not have a lot of chips on the river basically on the last quarter of the of the year. And this is going to be a strong fourth quarter for us, particularly, I think, if you compare it to years prior to last year, we did get a very strong uplift in Q4 towards -- within the last month of last year. And it's a little hard to predict whether or not that's going to happen again. And a lot of that did come from banking. So we see strength in banking, but it's hard to say that we're going to get the same effect that we had last year. So that's how I would characterize both parts of your question.

Great. And then second quick one here. This may be a little bit in the weeds, but one of your large competitors, Bloomberg to name them, I think there's a change happening on July 1 that is creating a little bit of movement. I guess, if I'm characterizing this correctly, I think there are some changes to how people can reuse Bloomberg remotely, which I think during COVID, they were very helpful and now they're turning this off. And from what I understand, a lot of the sell side, in particular, scrambling to find alternatives. So those people who are no longer going to be able to get to those share terminals. So just it sounds to me like that FactSet in particular, has been front and center on this and trying to help a lot of the sell side with that and those could actually be some meaningful new users that maybe you didn't have an opportunity to get before. So again, I know it's a little bit in the weeds, but just wondering if you've seen that if this could actually be a meaningful new kind of competitive win here that we're seeing in the fourth quarter and how meaningful that could be?

Well, we always want to be helpful for our clients is certainly the case. So I wouldn't expect any, I think, big tailwind from that this quarter. But obviously, we're focused on the competitive environment and sometimes it's hand-to-hand combat sort of 1 desk at a time, but we do feel that all the investments we're making, particularly in our workstation now for front office professionals, is becoming differentiating. So I'm very optimistic about our long-term prospects there, Alex.

Our next question coming from the Hamzah Mazari with Jefferies.

My first question is just if you maybe update us on what pricing is trending? I think you had said 3% to 4%, but realization may have been lower. I think that was last quarter. But any changes to the pricing model that you're thinking of in this environment? I know historically, you've talked a little bit about simplifying it, and you've also referenced sort of value-based pricing. So just any thoughts on pricing would be helpful.

Yes. Thanks, Hamzah, a couple of things. So yes, we did set out to capture an additional 100 basis points of pricing this year, and I think we were very successful at that. In addition, all the work that Helen has done with the product teams to simplify our packages is resulting in us capturing a lot more value through that effort. So both of those things have been very positive this year. And clearly, we're in an inflationary environment. So we're thinking carefully about the right balance for our clients next year, but we do believe FactSet is a sticky tool, and we've invested a ton in the product where there's a lot more value in there than there was even 2 years ago. So we do feel like we've got good pricing power going into this environment.

Yes. Hamza, it's Linda. So 4% across the platform, and we've just dealt with our international price increases, as you know, we've kept those consistent internationally and in the U.S. Internationally, we saw $10 million in ASV uplift $3 million of that year-over-year increase or 30%. So price realization has been extremely important for FactSet. As Phil had said, discipline is improving. Our pricing desk has been very helpful to make sure that we don't overly modify various packages that we're showing to clients. And we're really pleased with this effort. We'll have to see what inflation looks like for next year, and we do feel that the value of the products is allowing us to provide that value-based pricing to clients, but pricing discipline has really been very helpful to us and a real tailwind.

Great. That's very helpful. And just my follow-up, I'll turn it over is really around -- I know you talked about the downturn playbook and gave good detail on sort of the cost opportunity. But just looking at it from a revenue standpoint, I guess maybe just frame for us, has your visibility become better in the portfolio as you've moved sort of more to our workflow business relative to historically? Has there been any change in your subscription contracts around cancellation clauses or anything just visibility-wise that whether you have more or less visibility versus history? And I think you referenced some of your customer conversations, maybe you can just remind us what some of those conversations have been what you're hearing from customers, just in terms of the environment.

Sure. Well, I will say the pipeline is very high quality, and we have more and more discipline, I think, in terms of how we do that consistently globally. So -- but I'm not sure that we can ever at least for now, look out more than six months, right? -- with any huge degree of confidence. So that's sort of been consistent in terms of my messaging is usually a couple of quarters out we can predict with a high degree of certainty. We do have a large percentage of our clients, though, under multi- or ASV under multiyear contracts. So that does provide us obviously some visibility there for those clients that are not in the last year of that contract.

Our next question coming from the line of Andrew Nicholas with William Blair.

The first question I wanted to ask was just kind of on upside to your own internal expectations. Obviously, you've raised guidance already this year. Now you're looking to the top end. It looks like there could be some conservatism in that number. I'm just curious what has surprised you positively? What is has more momentum than you had expected? And any other color on exactly what is driving that?

Well, I'm not too surprised. I think we've got a very good team here. We've had a consistent strategy over the last three years. It's just really nice to see it all come through and come through in so many different places. And I'm very encouraged by our workstation growth. I think that -- I think there were a lot of questions probably within the analyst community about whether or not we could continue to capture more desks and overcome the trend from active to passive. So it's just very encouraging and rewarding for the whole team to see the results. So I think that's how I would answer that. We're confident. We've got an engine now that's firing on all cylinders. There's a lot more coming through. So I think we're going into this environment with a lot of confidence and our ability to execute.

Andrew, I think we would also say the addition of the CUSIP business is very helpful to us. It's come in a bit stronger than we had even expected. You have to keep in mind that this was a little bit of a challenging thing to bring on board. We moved through the acquisition process and looking at CUSIP in sort of an eight-week period, it was a very quick sale process. And the seller did not account for CUSIP as a separate entity. So there are a lot of accounting allocation things and so on that we weren't exactly sure how all of this would lay out. But as we've brought it over, the integration has gone really, really well. and it has performed even a bit better than we had expected as we noted. So very pleased about that. Its margin addition is helpful to us. It allows us to continue a robust investment program and get some other things done. So we're very pleased with that acquisition, which was financed in an attractive way at a great time. So all of that is working together now, and we're just very happy with how we're firing on all cylinders.

Great. That's all helpful. And then maybe for my follow-up, maybe just a bigger picture question. A lot of talk now about kind of a downturn playbook. How the business would perform, how would you expect the competitive marketplace to change any more challenging time for the end market? Do you think that the share gains that you've seen over the past several years are easier to continue getting? Or is it more difficult? Or just kind of any thoughts on how a more challenging backtrack economically for asset managers and your clients might impact your ability to win business relative to others in the space.

Yes. So I saw it on the buy side. So if their assets are down and their revenues are down, of course, they're going to be looking closely at their budgets. But again, it's a good opportunity to proactively talk to them, reeducate them about everything we have, bring them to the table. And there is this ongoing trend, which has been going on now for a while where the larger buy-side firms, in particular, are really looking to consolidate and cut in half the number of content and technology providers they work with. And there's really a very limited number of firms like FactSet. They can go in and offer so much across their workflow. So for us, we welcome this. I think it's a great opportunity for us, and we have a long history of working with clients that really trust us and want to partner with us. So -- we'll go through these cycles. We've been through them before. And I anticipate we'll do very well on a relative basis like we have historically.

Yes, Andrew, we are very focused on what we're able to do for productivity for our clients. And anecdotally, we've heard some of them say that moving to FactSet has provided 20% greater productivity. We're sharpening up our marketing pitch on that just to make sure that we've got that right and we can bring that to the fore for existing clients and potential clients. But the ease of use our products and the elimination of the need to flip back and forth between screens and so on is really a very big help, and we feel a very up-to-date way to conduct business and to handle the workflows. So productivity is really important, and we think we can really be a big driver of that for our clients.

And our next question coming from the line of Craig Huber with Huber Research Partners.

I wanted to focus on the corporate part of your business, the sell-through there and how you're doing it. It seems like it's doing quite well. Maybe you could touch on that, maybe you could tell us with you the growth rates are there. And I'm always curious here what the percentage of overall revenue is. So why don't we start there?

Sure, Craig. Yes, we don't break it out, but it is 1 of our fastest-growing client types. And like wealth, it's typically on the leaderboard in terms of new logos. So we have a very, very strong product for Investor Relations. We also do very well with the M&A or business development groups at our clients. And all of the new investments we're making in content around deep sector private markets. All of this opens up new clients to us and more workflows as well. I already mentioned that we're beginning to very effectively get into the CRM workflows of different types of clients. So this isn't an area that traditionally FactSet is focused on a lot because they typically weren't big wins. But with our investments and all of the efficiency now that we have in terms of our sales for us. It really allows us to do volume, I think, in a way that makes sense for the company. So I have a lot of I feel very optimistic about what we can do in the corporate space and continue that to continue to be the growth driver and a more meaningful part of our business over time.

And then my follow-up question, please. To talk about the client retention rates. Obviously, you have retention rate or a percent of clients 92%. It's very, very high, obviously. It held up quite well as you alluded to back in '08, '09. I'm just curious, given the macro environment, what is your sort of thought on how that might progress here in the coming quarters here, given the macro environment?

It's hard to predict, but we've seen very, very good trends in client retention, and I give a lot of credit to Helen and the sales team in terms of how they've organized and how they've really focused on client success and placed a very heavy emphasis on making sure that our clients are well served. And it's -- if you can retain clients, it really is a very good foundation. So there's a ton of great work that's gone on. I think I saw in one of the analyst reports a question about how we're doing -- reorganizing by firm type where we've done that primarily in the Americas for now. But that's been a very good program, and we've essentially now segmented the sales force in a way where they really just focus by firm type rather than by geography. And that means we understand our clients even better than we did before. So there's multiple efforts going on that are going to help with retention.

And our next question coming from the line of Faiza Alwy with Deutsche Bank.

Linda, I wanted to go back on the 4Q margin guide specifically. Because obviously, you had a really good margin quarter at 36.6%. And your fiscal '22 guide of 34% implies a 4Q margin of around 32%. And I know I was listening very carefully when you were answering prior questions, and I didn't hear anything specific in terms of what might impact margins in 4Q. So I just wanted to give you 1 more opportunity to tell us that you're being conservative.

Thank you very much, Faiza. We may have, as we said, a bit higher expenditures on hiring and also on bonus. We have guided for the full year. And keep in mind that, that guidance applies to the full year, and we've done quite well in the third quarter. So we do hope that, that continues. And I think it is fair to say that we're trying to be prudent here. We were pleased with what CUSIP provided to us, and we're hopeful that we'll be able to come in ahead of our guidance we're going to have to wait and see. Very much appreciate your appreciation of our having good work done on the margin this quarter. We're keeping a careful eye on our costs. And as long as the ASV continues in the trend that we're seeing, we're quite hopeful. So we will see how the year wraps up.

Great. And then I just wanted to follow up generally on ESG and TruValue. I know there you have a slightly differentiated offering as you provide more of an outside in perspective. So wanted to see if you could share some color on what type of feedback you've received from clients. Is the product offering where you'd like it to be? Or is there more work to be done in terms of integrating the product within the fact set, whether it's workstation or other APIs and maybe how you see the offering evolving over time?

Sure. It's been about 18 months, and I'm very happy with the progress we've made, Pfizer. So yes, it is integrated into the FactSet workstation. That's one thing. We've also done a good job of integrating the majority of the TBL process into the core content platform, and we're extending the coverage of ESG from public markets into private markets. And that's been but undertaking that's beginning to have some real success. So our methodology is different. We think it's differentiating and good, and it requires some education of the clients. But we do have a very good growth rate for that business within CTS. And it's a big piece of our focus as we go into the next 3 years in terms of where we're going to be investing and how we can really bring, I think, more clarity to this for our clients in the marketplace.

Yes. And Faiza, it's Linda. Our data collection efforts have really picked up in pace. And we've been very, very pleased with how that has gone. ESG is one of the heaviest areas of investment. We've just come through our investment decisions. And ESG is where we're directing a good chunk of our investment pool. So lots to do there. Pleased with how it's gone. We've tripled sort of the run rate on ESG coming out of TruValue Labs since we've integrated the acquisition and please watch the space. We're quite excited about it.

Our next question coming from the line of Shlomo Rosenbaum with Stifel.

Phil, just a quick question on what's going on with the equity markets and the decline of all these asset values? Is this impacting your ability to close deals or swing any of the sales cycle of the sales cycle or anything like that? Are you seeing the clients at this point in time reacting in a way that would indicate that maybe things are slowing? Or is it really just kind of they're taking it and just kind of watching it but not really changing their MO right now?

We haven't seen a lot of change, Shlomo. The one from type where I would say we've seen a little bit more of a slowdown is in the hedge funds, which, as you know, is a smaller piece of our business, maybe around 5%. And that's had a pretty good growth rate over the last year or so, and we expect we'll still be able to grow the hedge funds. But that's really the only part, I think, where we've seen any sort of real sign that the sort of delays in decision-making. We don't want to be naive here. We think, obviously, clients are taking a good look at their budgets going into next year. But for all the reasons we outlined on the call already. I think we're in pole position here to make sure that we're there to help them and continue to invest and grow.

Okay. And then just one maybe for Linda, just a little kind of housekeeping thing. Was there a materially high level of AR DSO at CUSIP when it was purchased. There was a commentary around the press release about how ability to make collections in both the core business and in CUSIP. And if I look at the RDSO, it's up both sequentially a little bit year-over-year. And that kind of implies that maybe you bought a business that had a lot of outstanding receivables. I was just wondering if that's something to think about. I'm just trying to think about how to model the free cash flow going forward.

Yes. Shlomo, you get a best student gold star because you have a correct observation. Yes, accounts receivable has popped up by quite a bit. The CUSIP team has done a great job at a lot of things, but we've got to sharpen their pencils there on the accounts receivable collections. So we're well aware of that. And we will make sure that we get to it. But your observation is correct. That's one of the types of things when you acquire a business from another firm, and you're still working with a technical services agreement that we've got to do some work on to get that number down, but very good catch, Schlomo. Thank you.

Okay. Thank you very much.

We wanted to just do a few housekeeping details here just to make sure that everyone is modeling correctly. And I would like to just note that you should take a look at the fourth quarter bonus accrual, which should be as we had said, sort of on average of the 3 quarters now that we've made a heavier accrual in the third quarter. So $26 million, $25 million, something like that would be helpful. Please also note that we've increased our dividend. Sometimes that's not always picked up. And we are going to do some work on our accounts receivable. And I think with that, we've pretty much taken care of everything on the housekeeping front.

Well, thank you all for joining us today. In closing, I want to reiterate how pleased I am with our third quarter performance. We accelerated the top line to double-digit growth with strong momentum as we move into the end of the fiscal year, and we remain confident in our ability to drive sustainable growth through focused expense management and continued investments in our people, product and technology. With over 40 years of continuous growth, FactSet has a proven history of navigating volatile markets successfully. We look forward to speaking with you again next quarter. In the meantime, please call Kendra Brown with additional questions. Operator, this ends today's call.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.