Good day. Thank you for standing by. Welcome to FactSet First Fiscal Quarter 2023 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. I would like to hand the conference over to your host today, Kendra Brown, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to FactSet’s first fiscal quarter 2023 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 risks 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, 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 good morning everyone. Thanks for joining us today. I am pleased to share our first quarter results. We grew organic ASV plus Professional Services by 8.8% year-over-year achieving adjusted diluted EPS of $3.99 and an adjusted operating margin of 38.3%. These results demonstrate our continued momentum coming out of fiscal 2022 and lay a solid foundation for executing on our full year targets. Last year's Q1 ASV growth was a record for us and this quarter's performance is a strong result for what is usually our seasonally lowest revenue quarter. The biggest contributors to this quarter's growth came from banking, asset owners and private equity and venture capital clients, all of which exhibited double digit growth rates. Small and medium sized deals across client types drove ASV growth this quarter. Our investments in content and technology including deep sector private markets, APIs and analytics solutions continue to support client retention rates and expansion. It's important to acknowledge the continued uncertainty in global markets. While conditions have been supportive, we are starting to see a more challenging environment for our clients and we are closely watching for signs indicating a prolonged change in conditions. These signs could include reduced client budgets, elongated sales cycles, material layoffs, and a reduction in new firm creation. However, FactSet has a proven history of stability and growth in volatile markets and we remain confident that our strategy and ability to execute will position us well even in a choppy economic cycle. As we look ahead, we remain focused on building the leading open content and analytics platform, reinforcing our position as an anchor partner for clients, allowing us to grow our share of the addressable market. At the foundation of our strategy is our commitment to further scaling our content refinery.…

Thanks, Phil and hello to everyone on the call. As you've seen from our press release this morning, we reported high single digit organic ASV growth and double digit year-over-year growth in revenue and adjusted diluted EPS. I'll now share more details on our first quarter performance. Consistent with our definition of organic revenues in ASV, we exclude any revenue in ASV associated with CUSIP Global Services when reporting organic related metrics for the 12 months following the acquisition date. We will, however, provide some specifics on CGS, so you can continue to understand its performance as part of FactSet. Beginning March 1, 2023, the first anniversary of the CGS acquisition, it will be included in our organic results as a component of our CGS business. As Kendra noted, a reconciliation of our adjusted metrics to comparable GAAP figures is included at the end of our press release. We grew organic ASV plus Professional Services by 8.8%. As Phil stated earlier, this is a strong start to our fiscal year as compared to our typically lower revenue first quarter. Our performance reflects increased demand for our content and solutions, higher retention and continued expansion. We saw strength in the workstation for banking, key client wins with our Enterprise solutions and our subscription-based ASV continued to support value-based pricing. GAAP revenue increased by 18.9% to $505 million for the first quarter. Organic revenue, which excludes any impact from foreign exchange and acquisitions, increased 8.3% to $460 million. Growth was driven primarily by CGS and our Analytics & Trading and Research & Advisory solutions. All regions saw notable growth. From our geographic segments on an organic basis revenue growth for the Americas was at 7.6%. EMEA grew at 7.2% and Asia Pacific came in at 14.9%. All regions primarily benefited from increases…

Thank you. [Operator Instructions] And our first question comes from the line of Manav Patnaik with Barclays. Your line is open. Please go ahead.

Thank you. Good morning. Linda, you gave us kind of the, what to expect from margins. I guess looking forward, I was just wondering, was there, is there any cadence for ASV throughout the year based on what you see in the pipeline or is there any seasonality to pricing perhaps that we should keep in mind?

Sure, Manav. Let me talk a little bit about margin and our expectations and then I'll let Phil go back on ASV and pricing, if that's okay. So to set the stage on margin for the first quarter, we had 570 basis points of margin expansion on, excuse me, 470 basis points of margin expansion as compared to last year, and about half of that has come from CUSIP. In looking forward, as we get past March 1st we will have lapsed CUSIP, so we won't have that additive margin increase from CUSIP. The rest of the margin increase came from the organic business which is great, and it is performing well. If we look at our cost buckets Manav, a couple of things that we note here. Our third party data costs are doing very nicely and in fact have moved down. Our real estate costs have moved down as well. Our tech costs are up, but we've had a good re-planning of our cloud strategy, which will result in $7 million of savings this year. So the big bucket to watch here is our people expenses. So we've got to keep a close eye on headcount and on compensation. So we will look forward to staying within our adjusted operating margin guidance of 34% to 35% for the year. But as we said in the script, we expect that margins might be lower for the next three quarters of this year, than they've been for the first quarter. So I hope that answers the margin question. Sorry to go a bit backward, but Phil can now handle ASV and price.

Great. Hey Manav, thanks for the question. Yes, so for the rest of the year at least what we're looking at today, we're still looking more positive for Q2 and Q3 and Q4 than we were this time last year. Some of that is definitely supported by price. As we, as I indicated on the last call we said we were going to go out at more than a 4% price increase and conversations are going well with clients. Clearly they're all going through their own introspection about trying to figure out what's happening in the markets and budgets and I believe are getting finalized now. So we'll have more visibility, but it's hard to argue, frankly, with the amount of investment FactSet has put into our platform over the last few years. So we've got great relationships with clients. Conversations are going well. We do believe that we'll be successful in executing on the price increase. And there's a lot going on in the markets right now. I'm cautiously optimistic. Our strategy is a good one and we'll get more information, particularly as we head into January in terms of what the rest of the year looks like. We have better visibility on Q2 and Q3 and as you know, Q4 is such a big quarter for us. We need a bit more information in terms of how that's going to play out.

Sure, yes. So the sell side continues to accelerate. That may surprise some of you, but we're really healthy there. So we're not as exposed to capital markets as some other companies. And most of our users, as you know, are in investment banking. And in the conversations I've been having, it doesn't feel like the banks are laying off massive amounts of staff in investment banking. Maybe they're hoping for a soft landing here and within like the next six months or so, M&A activity will pick up. But I'm, again, I'm optimistic there that we'll be able to hang in particularly in that part of the banks. And as you pointed out, we've begun to diversify our solutions for the sell side. So I just took a look at this for the next six months, and it looks like we have a very good CTS pipeline on the sell side. So we're now going in and being able to take out the value that we create and integrate it into client systems for their back and middle offices. And this is a theme I would say across most client types is that the data that our clients want to see, they want to see consistency, right, in terms of the workstations they're using, whatever interfaces and the data that's going through the systems, and we're beginning to benefit from that particularly on the sell side.

Got it. Thank you.

Yes.

Thank you and one moment for our next question. And our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open. Please go ahead.

Thanks so much. I also wanted to ask one on sell side really, really strong over the last six quarters, and I know last quarter you had called out upsell, and so I wanted to see if there were any sort of solutions that were particularly in demand. I know you just called out the CTS pipeline, but just anything that is just different now that you're able to upsell to sell side versus historically or things that they're demanding more than normal?

Most of it seats Toni. So I think what you're seeing there is the investment that we've made in deep sector and private markets. So those new or newer content sets for FactSet that are getting expanded out are allowing us to get into maybe different parts of the bank, more users than we might have historically and just give us a good competitive advantage. So that's really helping with renewals and it's helping us gain new users of the banks.

Yep. Okay, great. And, and Phil, you mentioned a couple times the uncertain environment and starting to see this more challenging environment for clients. Is it the hiring that's sort of driving your comments there or is it this like slower to pull the trigger slower sales cycle? I guess what are the things that are really going on there?

Yes, a bit of both. So we're going to I imagine see less hiring on the buy side. We're also within institutional asset management, I should say, and for the larger transformations clients are going through, we're not, we're not seeing a lot of this yet, but I imagine that some of them may be deciding to pause some of these transformations that they're going to go through. I don't think it's negotiable with them. They have to go through these transformations, so we're confident that the solutions we're providing are the right ones. But it could be as they're trying to figure out their own futures they may be pausing on some of these larger deals.

Very helpful, thank you.

Thank you and one moment for our next question. And our next question comes from the line of Andrew Nicholas with William Blair. Your line is open, please go ahead.

Hi, good morning. Thanks for taking my questions. I first wanted to just follow up on Toni's question and just ask if you're seeing any difference in terms of kind of end market health on a regional basis. There was obviously some disparate growth between the different regions, but just curious if your comments are pretty uniform across geographies or if there's anything to call out on a region by region basis?

I think they're pretty uniform Andrew. Europe did have an exceptionally strong quarter this quarter, but as I look out into the next six months, there are different puts and takes there by region. Asia looks a little bit stronger frankly, for the next six months maybe than the Americas and EMEA, but I wouldn't say that there's any one region that's dramatically different than others. In terms of where we might see more effects from recession, I would imagine that Europe just generally might get hit harder than other regions. But we haven't, we don't see a lot of impact from that yet.

Got it. Thank you. And then for my follow up, I wanted to ask about the digital strategy, if, you know I know you hired a new CTO, Kate Stepp half the year ago, wondering if there are any major takeaways from her involvement with the strategy. Sounds like you're restructuring the cloud budget and that's going to result in some cost savings. Any more color on what's happening under the hood there that would be great. Thank you.

Linda's been spending a lot of time with Kate.

Yes. First of all, Andrew, Kate has been with the company for quite a number of years, so she has changed position, but she's not a new hire. What we did was we sat down and we looked at the cloud budget and we concluded that not everything needs to be on the cloud. So we have kicked up our CapEx, as I said in the housekeeping and we are looking to move a few items back into data centers. We've had to buy some new servers, things like that. But we think the long-term balance for the company is better with some on-premises computing core capability as well as cloud capability. So we've rebalanced that over the next five years we'll save $20 million. With that change, we'll save $7 million this year, which is very helpful. But again, it's just a rebalancing of what we're doing with the cloud versus on-premise computing. And Kate has been very helpful as we've thought through what we want to do with the technology budget. So hope that helps you.

Yes, thank you very much.

Thank you, and one moment for our next question and our next question. And our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Your line is open. Please go ahead.

Hi, this is John filling for Ashish. Thanks for taking my question. Maybe just quickly on the people cost, it seems like head count is up around 7% over the last 12 months, really focusing Content & Analytics, Trading & Sales, could you maybe talk about any potential benefits you're seeing on just hiring technology talent as well as just the people bucket as a whole? Thanks,

Yes, I'll start and I'm sure Linda will have some comments. So this is a great market for talent, frankly and we've been very successful at hiring who we wanted to hire over the last few months and attrition has come down. So Linda and I am watching this day to day. We want to be careful that we're not running hot here, but it -- but we do have an opportunity here to continue to upgrade our talent and lean in and continue to invest. So we're hopeful, right, that we don't have to kind of slam on the brakes too hard here from a talent standpoint. But as we've done in previous cycles, if you're able to keep investing and not go through too much pain on the people side, it definitely helps you in the long run.

Yes, as Phil said John, we're watching headcount day by day. It's very important that we get that right and not run too hot. As Phil said, our attrition has come down very nicely. Some of that is the result of the market being a little bit more employer friendly and some of the moves we made in our compensation last year to make sure that we're rewarding our people and our high performers appropriately. So we got that right. You're right, we have increased headcount quarter-over-quarter for the first quarter. About 65% of that headcount is in centers of excellence, so our lower cost locations. And we've been very careful about bringing on that headcount largely to support our deep sector effort, which we've talked about before, to help with the sales effort and to assist with analytics and trading. So, so far so good, but the trends are attrition down and hiring has to be sized accordingly to make sure we don't get out over our skis. But we are seeing a much healthier retention picture than we did at this time last year which is a really nice thing. So hope that gives you a bit more clarity.

Yes, that's great color, thank you. And maybe quickly, could you just talk about the wealth pipeline and maybe if there's been any change in tone around client conversations as well as the sales cycle?

Yes, the wealth pipeline continues to be healthy. We have a good mix of larger deals that we continue to work. And now in terms of markets, that's one of the markets where we just feel like in the long run we've got just such a great opportunity and more tailwinds.

Okay, thanks.

Thank you, and one moment for our next question. And our next question comes from the line of Alex Kramm with UBS. Your line is open. Please go ahead.

Yes, hey. Hello everyone. Just coming back to what you're seeing in different client segments or regional, can you also expand your comments on the pricing side, is it pretty uniform? Any sort of pushback you're getting? One of the things that we've heard, for example, is in Europe with all the FX changes year-over-year asking them for more in dollar terms, when the currency has devalued so much over the last year is increasingly harder. So just curious if there's anything you would call on, on pricing by customer set or region? Thanks.

Yes, nothing I'd call out yet, Alex. So similar to last year, not a lot of conversations have reached my desk, which is a good sign in terms of how the conversations are going. And as I've said it's very hard for clients to argue with the value that FactSet has put into the product. So my sense is that clients are understanding this. Everyone is seeing it everywhere in terms of inflation and we're coming in, I believe, at a very moderate place relative to what clients may be seeing from other providers, which gives us a great opportunity to capture more market share. We've certainly gotten some inbound opportunities as a result of that for sure.

Oh, that's helpful, thank you. And then maybe just one follow up on the wealth side, and this may be too much in the weeds, but you called out in your press release Model Center launch, which I think was at the beginning of November. Sounds to me like when I look at what you're describing here, that this is something very much like a shelf, like something like an investment does -- has for example. So my question is a, can you talk about the revenue model in that business? Again, it's obviously very early days, but then is this a sign of you really expanding the scope of the workflows you want to order -- offer the wealth segment versus just obviously repurposing facts at terminal or other services to wealth, but really getting deeper into that end market? And then maybe talk about some of the things you envision yourself doing that you're not doing today.

Yes, it is absolutely a sign of that Alex and consistent across the other firm types that we're servicing. So FactSet is continuing to push beyond being just a workstation company. We've gone way beyond that already. But we're giving a lot of thought to within each client type what adjacencies can we get into and as we open up the platform and work with other partners, what more can we do for clients? Wealth, wealth is a relatively newer firm type for us, so there's a lot more, I think, room for us to expand than some other firm types where we're more well established. That's probably a good follow-up with Kendra later in terms of the detail on the Model. There's probably a little too much detail for this call and if you want to have a follow-up with our wealth team, I’m sure they’d be very happy to talk to you about what they’re doing there.

All right, sounds good. Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of George Tong with Goldman Sachs. Your line is open. Please go ahead.

Hi, thanks. Good morning. You noticed that clients are pausing on larger deals. Are there any large deals coming up for renewal this fiscal year or any competitive large RFPs that you’re involved in?

There are, I mean, hey George, thanks for the question. There are deals like that every year. So I think this year and Kendra can or Linda can get into this later if we need to. But I believe there are less large renewals this year than we might have seen in previous years. So there are definitely a couple. And there are a couple of very interesting deals that we’re working on that are larger in Q2 and Q3 and Q4 for this year, some sell-side related, some partner deals.

Got it. And secondly, you mentioned you’re seeing longer sales cycles, a little bit slower hiring. Can you talk a bit about what you’re seeing with overall client enterprise budgets, the direction that those are moving in?

Yes. So I said these are things that we’re watching out for. We’re not seeing a lot of them yet, right? So there are indications that it may be happening. And again, we’re -- I don’t know if you saw that Financial Times article, which was a good one, that came out a few weeks ago, but it was an article I think it was idle asset managers pull a money into technology platforms and really speaks to the investment that a lot of the -- a lot of asset managers are having to make to be competitive. And this plays really well into FactSet’s hands in terms of all the work that we’ve done on the PLC, all the work we’ve done to open the platform, all the work that we’re doing with partners in the space, some of which we’ve been public about, some of which we haven’t. So these transformations are not going to stop. Then clients are not going to completely cancel these. It’s just a question of the pace at which they go. But overall, I’m very optimistic about our position in the marketplace for these deals and our ability to execute.

Great, very helpful. Thank you.

Thank you and one moment for our next question. And our next question comes from the line of Craig Huber with Huber Research. Your line is open. Please go ahead.

Yes, good morning. First question, can you just comment some more on the marketplace, the traditional buy-side out there? Just talk a little more specifically about the pressure points maybe that might be building there for the longer potential sales cycles? Just what’s going on with that traditional part of your legacy business? I’ll start there.

Yes. So overall, it’s pretty healthy, Craig. So we -- there’s less hiring than there was last year, but I don’t believe it’s down significantly. The buy-side number that you see in our press release has a lot of components to it. So maybe it’s helpful to sort of go through that so everyone understands what we’re looking at. The two firm types where we’re seeing the most headwinds now and less revenue than last year are corporates. So we did add a number of corporates this year. They make up a good part of the new firm creation for the quarter, but it’s a lot less than it was in the prior year. And we had a really lumpy quarter with partners. So that’s some of what -- that’s what’s in the buy-side number that you’re seeing. Above that, I would say that institutional asset management, hedge funds and wealth are all kind of a little bit less than last year or on par with last year in terms of what we’re seeing in the environment. And on the plus side, asset owners are doing exceptionally well. So asset owners typically have a much longer view, and we’re crushing it in asset owners versus last year. That’s very encouraging in terms of the work that we’re doing there on the PLC and working with partners. And we’re seeing great adoption of multi-asset class solutions from the asset owners, and we’re seeing positive signs on the fixed income side. So -- but hopefully, that’s helpful in terms of thinking about the overall buy-side number that we give you.

Okay. And then, Linda, if I could ask on the cost side of things, I’m scratching my head a little bit here. Your fiscal fourth quarter costs were meaningfully higher than the third quarter costs or the quarter. You guys just finished here by roughly $30 million if you take out the various onetime items and stuff. I know you’ve called out last time we spoke on this at about, say an extra $6 million or so was incentive compensation in August quarter versus the May quarter, but then the total cost here in the November quarter in a good way fell back down to the May levels and stuff from last year and stuff. The lumpiness here of the cost, maybe you could just talk about that, maybe just a little more specific about how we should think model out the costs for the rest of the year versus this lower number in the first quarter? Thank you.

Yes. Thanks for that, Craig. And your observations are correct. In the fourth quarter, we really worked hard to ensure that we had compensation right. So you saw a couple of things. You saw a merit pool, which was stronger than usual to deal with inflationary adjustments in a number of countries and the U.S. You also saw bonuses, which were quite fulsome because we had a very strong FY 2022. And then you saw that we also worked harder on equity, and equity-based compensation moved up as well in FY 2022. So the goal there while we were running strong, was to make sure we had a compensation picture correct for our employees coming off the great resignation. So as we move forward into this year, we’re watching our costs very carefully. The entire situation has shifted, Craig, to one of conservatism around costs. I talked about our three buckets that are going well and are nicely controlled. I think the place where we watch here very closely is our people bucket, which includes both headcount and compensation costs. So we’re watching those very, very carefully, as Phil said. A couple of things to notice on the revenue side for the first quarter. Last year, we had a record ASV level in Q1 that was about $17 million. This year, we’re running at about half of that. So the timing change matters to us in terms of how the revenue comes through later in the year. So that makes my job just that much more exciting to make sure that we’re managing correctly for the margin. So we’re doing that. The other thing, Craig, to take a look at is the dollar had been very strong. Recently, the dollar has been retracing about one-third of that strength. So we have to be careful on the impacts of the later ASV, on timing and the conversion to revenue. And then we also have to be careful on what’s happening with FX, which has been unusually bouncy as we have moved through the last couple of quarters. So hope that helps, but we’ve got an eagle eye on those cost buckets and we did pretty nicely managing them in the first quarter. I’m happy to have the 38.3% margin in the bank, and that will help us as we move through the rest of the year. So prudence is the name of the game here. Hope that helps.

Yes that's good. Thanks guys.

Thank you. And one moment for our next question. And our next question comes from the line of Faiza Alwy with Deutsche Bank. Your line is open. Please…

Yes, hi. Good morning. So I wanted to ask about the competitive environment. Over the last several years, my perception is that you’ve gained share as some of your competitors have been busy integrating deals, and you’ve been investing. But it looks like there’s now, new products that they’re rolling out. So I’m curious as we head into a potentially more challenging environment, how would you characterize your competitive positioning across your various products?

Hi Faiza, thanks for the question. I’d characterize it as being exceptionally strong. If you just start with the FactSet workstation, all of the investments we’ve made in content are in there as well as we’ve really upgraded a lot of the applications that our clients use in terms of ease of use, searchability, alerting clients. So you see that reflected, frankly, in our workstation numbers across a number of firm types, and that’s grown significantly over the last five years. On the analytics front, we continue to do great things with the portfolio life cycle and work with asset servicers and other partners in the space to go in and really be the core of -- or anchor partner for our clients in terms of what they want to achieve from the back, middle to front offices. So that -- there’s a lot of runway for that, frankly. The market is looking for accretive solutions. They’re looking for companies that are ahead in terms of technology and innovation, and FactSet checks all those boxes. And on the CTS front, we’ve done a lot to expand that product suite. One of the things we’re very excited about is real time. That’s a pretty small piece of CTS today, but there’s billions of dollars of market share out there on the real-time space. You might have seen that we made a recent investment in BMLL, which is a very good tick history product, which you need to do -- you need to complement real time. So this is an area of great opportunities. So there’s just more and more ways we can help our clients. And the investment we’ve made over the last three years and continue to invest really put us in good stead. And I’d be remiss not to sort of mention the FactSet relationships that we have with our clients. Many of our clients are trusted partners. They’ve been with us for a long time. And this is the type of environment, frankly, where they need help. And we’ve been there for them in the past, and we’ll be there for them in the future. So I feel as good, frankly, is about our competitive position as I have in almost my entire 10-year at FactSet.

Great, thanks for that. And then just as a follow-up, I wanted to ask about capital allocation and the interest expense guide that you provided, Linda. Just want to confirm, are you assuming sort of no further debt pay down? Because I think you raised the interest expense guide, and I understand that rates are a little bit higher, but I feel like you’ve also been paying down debt, so I just wanted to clarify sort of any assumptions behind that guide?

Yes. Faiza, I think we've mentioned this a bit in the script. So let’s talk about our leverage levels and go back and think about that. So when we purchased CUSIP, our gross leverage level went up to 3.9 times. We’ve made a number of pay downs of $125 million basically per quarter. Now our gross leverage ratio is 2.7 times. We’re looking to get back within what would be considered typical for our level of investment grade rating, which is 2.5 times to 2 times. So we have one more payment to make, which is what is anticipated to get inside that leverage level. And then we may not continue at the exact same pace of pay down prepayment on that term loan as we had done before. At that point, we’re going to speak to the rating agencies, be clear to resume our share buybacks and we’ll think about what we want to do with that. The remaining Board authorization, I want to be crystal clear here, authorization is $181 million. That doesn’t mean that’s what we’re going to spend. That means that’s what the authorization is, so you can note that. And we’re going to think about what we want to do with this after we have those conversations. So the interest expense presumes all those things that I had mentioned. And if we do get back into the share repurchase market, please note that’s going to be back-end loaded and it won’t move the average share count all that much for FY 2023 as a whole. It will be helpful as we move into FY 2024. So hope that, that gives you all the detail that you need, Faiza.

Yes, thank you Linda.

Thank you. And one moment for our next question. And our next question comes from the line of Kevin McVeigh with Credit Suisse. Your line is open. Please go ahead.

Great, thanks so much. I just want to circle back. On the downturn playbook you were very helpful. Of the $24 million to $36 million, can you tell us how much you’ve implemented? Like is it one-third? And then the $7 million this year is obviously incremental that, Linda. Is that right? I just want to make sure -- I think you are clear, I just want to make sure I heard the comment right.

Yes. I think it’d be good, Kevin, to think about sort of the midpoint of that amount. And I think it’d be fair to say we’ve probably implemented about one-third. We’re taking a close look at what we want to do with T&E because, obviously, the top line is paramount here, and we’ve got to get that right. So we’re looking at some of the other things that we need to do mostly around people. We’re being extremely cautious on new hires, as we had said and we’ll see what happens with the bonus line. It’s too hard -- too difficult to tell at the end of the first quarter how that will lay out. Just to be clear, the bonus line, we are expecting, as I had said in the housekeeping section, about $100 million. We have booked about 24 for the first quarter. Generally, that number is ramped up a bit as we move through the year. So maybe you go from 24 to 26 in the fourth quarter if things play out the way that they have in previous years. That’s a question mark. So we’ll think about what happens with that. If we don’t do as well as we expect and the center point of our guidance matches what our bonus targets are, there’s -- it’s all very clear cut. If we come in light, perhaps our bonus line comes down by $10 million, which would save about another one-third. But it’s way too early to talk about that right now. So the solution is to make sure we’ve got it right in terms of the pace of hiring, keep that focus on the technology budget. And we’re going to take another pass through our real estate footprint, probably as we get towards the fourth quarter. Any change we make in that real estate footprint, though, the expense saves will be something we’ll see in FY 2024. For the most part, it will come in later in fiscal year 2023, so not going to be of too much help to us in that bucket. But as I said before, eagle eye on all these buckets, and we’ve got to support growing the top line. Our second and third quarter pipelines look even better than last year, as Phil had said. Just want to reemphasize that. So mainly, we’ve had a bit of a timing shift. So we’re dealing with that and making sure we’re matching the costs accordingly. So I hope that’s helpful, Kevin.

Very, very helpful. And then just a quick follow-up. I know you talked about the centers of excellence. Is there any way to think about how the kind of the current employee footprint is today and where you think that can get to over time?

Hi Kevin, it’s Phil. So if you are talking about where the talent is located?

Yes.

Yes. So the last few years have been very interesting, right, from a talent standpoint. We’ve learned a lot. We’ve taken the approach of having a hybrid work environment, which is why Linda is talking to you about real estate expense. So we do have more options globally. We have very good centers of excellence in India and the Philippines. Those continue to crank. But as we move forward, we want to make sure that we’re -- we have the very best talent we can globally and that we’re exploring all of our opportunities there. So we’ve made some moves actually to make it possible for us to hire employees in more locations if we needed to and that’s a piece of work that we’re in the middle of right now.

Very helpful. Thank you.

Yep, you’re welcome.

Thank you. And one moment for our next question. And our next question comes from the line of Stephanie Moore with Jefferies. Your line is open. Please go ahead.

Hi, this is Hans Hoffman on for Stephanie. So for my first question, given you guys sort of noted sort of a more challenging environment, could you just update us on what you’re seeing in terms of client cancellation trends?

Well, so far it’s been okay and we’re just being cautious as we go into the year, and clients are finalizing their budgets. You can see in the press release that we’re net positive on users, and we’re net positive on funds. So we’re continuing to grow our business. The numbers are down from last year in terms of absolute numbers, but we’re not seeing, like a lot of panic out there in the client base, and we’re seeing that we’re very competitive. So we’re -- I want to emphasize that these are signs we’re looking for. We’re managing our business well, but we’re – we feel really good about our ability to execute no matter what the market environment is and FactSet has a strong history of that as you well know.

Got it, that’s helpful. And then just for my follow-up, could you just talk a bit about where you sort of see the biggest opportunity in the sort of next stage of investment in technology and content?

There’s a great opportunity given that we’ve opened up the platform. So we’ve done some press releases about partnerships we have, but really taking all of the components of FactSet and going in and being the anchor partner for the very largest firms is a big opportunity. When you look at the buy-side institutional asset management, we’re doing very well in what we call our premier book. So our premier book also extends to the sell-side, but it’s close to our top 100 clients. And that client base is doing actually very well on a relative basis to last year. So some of the weakness that we might see has to do more with smaller firms in the middle markets, and I think less small firms getting created or potentially some firms going out of business. But overall, within the clients that are much larger where we have a big percentage of our ASV and a big percentage of our opportunity, we’re seeing very positive signs there.

No one has asked us about the CUSIP business to this point in the call, and I want to make sure that we’re clear that we also see opportunity coming from the CUSIP business. It’s not technology exactly as the last questioner had asked. But let me just point out some interesting points on CUSIP. So we’re very happy with the acquisition. We’re very happy with the team and we’re very happy with our relationship with the American Bankers Association, which is going great. We were just down to see them a few weeks ago. So CUSIP’s growth of $48 million contributed in revenue in Q1, about $42 million of that from subscriptions and the rest from the issuance business, about $6 million, which is a little bit slower, but still really good growth in the things you don’t think about like municipal bond issuances and also certificates of deposits, which have grown very dramatically as interest rates continue to grow on those types of investments for individuals. o done very well with that. Overall, 7.6% growth, and we’re very pleased with that. We see more growth opportunities coming from CUSIP. The retention grew about -- contributed about two-thirds of that growth and new logos, about one-third of that growth. Now we – as we’ve said before, we see very good opportunities in a couple of areas: one is expanding CUSIP to the private markets; second would be expanding CUSIP to the leveraged markets; and third, potentially as different packages of the ESG, for example, carbon credits are traded, we see growth there. So CUSIP has done a really good job for us. We will lap it, as we said, the 1st of March. We come off our technical services agreement. The only blip there with CUSIP is the days sales outstanding. That has extended a bit. And as we move into the lapping on March 1, we are going to tighten up on those days sales outstanding. So hope that’s helpful to everyone, our biggest acquisition to date and we’re pleased with its performance. We have one more quarter where we will give you the details on CUSIP. After that it is subsumed in the CTS business, as we said. So with that, I may have front-run some of Shlomo’s questions, but maybe we can move on.

One moment for our next question. And our next question is from Shlomo Rosenbaum with Stifel. Your line is open. Please go ahead.

Thank you. Yes, Linda, you absolutely did front-run the AR DSO question. I was going to ask you about that coming back up again. But I want to shift to just a little bit. Historically, the sell-side has been a lot more volatile in downturns than the buy-side. Is there any difference in the combination or the composition of what’s in the sell-side right now that would lead you to believe that the case would not be the same if we end up in some of the banks just decide not to hang on to people the same way? Is there some way that you would think that we wouldn’t start to go – or start to see there be more of a drag on the growth as opposed to being a positive for the growth?

If there are large layoffs Shlomo, in investment banking, that certainly would affect us, but the – as I mentioned earlier, right, the CTS business, we’re beginning to sell more than just workstations to the banks. So that’s a very positive sign that there’s other things we can sell them in terms of workflows and other departments we can go into. And again, the investment that we’ve made in content for deep sector and private markets just put us in a much stronger position and potentially open up new users for us. The other thing that I haven’t spoken about that’s in the sell-side number is our private equity and venture capital firm type. So that’s not massive, but it is growing very quickly. And over time, I expect it to be a meaningful contributor. So that is definitely something to keep an eye on. We called it out this quarter as being one of the drivers of the quarter. And as I look out into the next six months, it’s private equity, venture capital firms, the sell side and asset owners that look the strongest. So I think the PEVC and the CTS piece, in particular, are just a couple of things that will be hedged if those – if big layoffs do occur in investment banking.

Shlomo, just a couple of things to note. The M&A pipeline is still very strong. So there might be some interest to making sure headcounts stay pretty fulsome at the investment banks. Also, some of the trimming you’re seeing now, those firms have not engaged in that what would be more normal trimming through the pandemic. So it’s been a couple of years since they did that, and you’re seeing some of that happen. And again, there’s the question of headcount versus compensation for them. So we’ll see what happens next. But analyst classes look to be about the same size. The lesson learned through the pandemic is that those more junior employees are important. They have to be brought on and trained. So just a few more points there that might help you.

Okay, thank you. And then just, I’m trying to make sure I understand the tone, which sounds more conservative with some of the comments that you’ve made about the strong pipelines. Is the cost actions that you took to implement some of the downturn strategy, just looking at the world around you versus what you’re actually seeing happening with your pipeline and with your sales cycles, is that what’s going on? Because it seems like the sales seem to be going pretty well, at least that’s what the narrative sounds like.

Well, one is we’re just taking a long-term view here to sustainable margin expansion. So Linda has I think, come in and really put in a good framework for us. Some of that is just sort of a multiyear effort to make sure that we expand our margin on a reasonable basis. Attrition has come way down because of all of the great actions we took through the year. And people expense is our biggest expense. So I think that’s – the thing we’re keeping an eye on the closest is just making sure that our headcount expense is moving ahead at the right pace. And yes, there’s so much news out there right now about possible recession and layoffs and cost cutting. We’re just – we’re positioned well relative to a lot of other companies just in terms of our business model and our investment, but we just want to make sure that we’re being conservative enough as we get into January when clients will be printing their budgets. We still don’t have great visibility on what the budgets of our clients are going to look like. So that’s the thing that I think will give us a lot more confidence in terms of the numbers that we can project.

Okay, thank you very much.

Yes.

Thank you. And one moment for our next question. And our next question comes from the line of Keith Housum with Northcoast Research. Your line is open Please go ahead.

Thank you. Good morning, Phil and Linda, I appreciate it. In terms of just trying to understand, and I guess going forward, if we do hit more of a downturn, where the risk is greatest for FactSet in terms of customers closing? I noted that PE and VC firms. If I would think we most likely would like to close, you guys are doing very healthy now. So where do you see the business risks of losing customers as we do go into this year downturn?

Well, I think yes, firms that are not being competitive, the smaller firms, there’s risk of firm closure. Hedge funds could be one example. So for hedge funds, I’d sort of put them in the medium middle of the pack here for us in terms of the next six months. The hedge funds seem to be doing okay. That’s another firm type where we’re doing well from a CTS standpoint. And I -- it’s unusual that FactSet loses completely a large asset manager or a bank that’s out there. We have some footprint. So really, for us to win -- and what we’re focused on is just taking market share within those firms. So firm closure doesn’t worry me so much. More of our -- but it’s hard to control that, frankly. More of our focus has to be on the largest accounts that have the largest amount of opportunity for us moving forward.

Great. I appreciate that. And then in terms of your revenue stream, remind me – I know most of it is being reoccurring, but what portion of your revenue is nonrecurring? And how did that do in the quarter versus, I guess, obviously, recurring part?

It’s a very small percentage of our revenue. I mean I think it’s probably less than 2%. It’s something we’re taking a closer look at. And if that would be more helpful to break out, that’s something we’re certainly going to consider moving forward. I think it’d have been a little down. Typically, it’s going to trend with ASV, right? So -- and very much trends with the analytics business. So most of the professional services comes out of the analytics implementations.

Great, thank you. Good luck.

Thanks.

Thank you. And one moment for our next question. And our last question comes from the line of Owen Lau with Oppenheimer. Your line is open. Please go ahead.

Thank you for taking my questions. Could you please give us an update on your ESG initiatives? How should we think about the impact of your ESG initiatives to your revenue and expense this fiscal year? Thank you.

Hey, Owen. So FactSet’s overall, our overarching ESG strategy is just to be an agnostic agent in the ecosystem for our clients. ESG is so fragmented. There’s different focuses region by region globally. And we probably have the best selection of ESG in the market. And we integrate so many other providers. In fact, that adds its value in terms of concording that data so that firms that are creating their own ESG composites don’t have to go through all the pain of managing the data. So building applications on top of that to provide clients their own tools to create their own view, that's primarily what we’re focused on. It’s not a meaningful contributor to ASV today. I think some of it probably doesn’t show up directly as ASV as its own product, but there’s a lot of value that we’ve put into the workstation. So I believe most users that subscribe to a workstation can access whatever ESG products they’re subscribing to in the market. So that’s really where our primary focus is right now.

Got it. That’s it from me. Thank you for taking my questions and happy holidays.

You, too. Yes. So thank you all for joining us today. We’re off to a good start in fiscal 2023. While economic uncertainty persists, we are constantly talking to our clients and are really well prepared to respond to any market environment. I’m confident in our ability to drive continued sustainable growth, and FactSet is a consistent performer with a proven history of successfully navigating volatility. We have a resilient business with an innovative product mix, differentiated content and diverse end markets. And we are only further strengthening our offerings as we continue to invest in our products to enhance our competitive position and the value we deliver to clients. Before wrapping up, I really want to thank all FactSetters globally for their continued high level of execution and engagement and hopefully, everyone at the firm is having fun. I know I am. I think most FactSetters are. We’ve invested, and we have a great culture. So it’s a good place to be right now. Please be well this holiday season. We look forward to speaking with you again next quarter. And in the meantime, feel free to contact Kendra Brown with any additional questions. Operator, this ends today’s call.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.