FACTSET RESEARCH SYSTEMS, INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Consolidated
Financial Statements and related notes included in this Quarterly Report on Form
10-Q, our Annual Report on Form 10-K for the fiscal year ended August 31, 2021 ,
our Current Reports on Form 8-K and our other filings with the Securities and
Exchange Commission . This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed below. Factors that could cause such differences include, but
are not limited to, those identified below and those discussed in Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended August 31, 2021 .
Our MD&A is designed to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results. Our MD&A is presented in the following sections:
•Executive Overview
•Annual Subscription Value ("ASV")
•Client and User Additions
•Employee Headcount
•Results of Operations
•Non-GAAP Financial Measures
•Liquidity and Capital Resources
•Off-Balance Sheet Arrangements
•Foreign Currency
•Critical Accounting Policies and Estimates
•New Accounting Pronouncements
Executive Overview
FactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively,
"we," "our," "us," the "Company" or "FactSet") is a global financial data and
analytics company with open and flexible technology and a purpose to drive the
investment community to see more, think bigger, and do their best work. Our
strategy is to become the leading open content and financial analytics platform
in the industry that delivers differentiated advantage for our clients' success.
For over 40 years, the FactSet platform has delivered expansive data,
sophisticated analytics, and flexible technology that global financial
professionals need to power their critical investment workflows. Over 162,000
investment professionals including asset managers, asset owners, bankers, wealth
managers, corporate users, private equity and venture capital professionals, and
others use our personalized solutions to identify opportunities, explore ideas,
and gain a competitive advantage. Our solutions span investment research,
portfolio construction and analysis, trade execution, performance measurement,
risk management, and reporting across the investment lifecycle.
We provide financial data and market intelligence on securities, companies,
industries and people to enable our clients to research investment ideas, as
well as offering them the capabilities to analyze, monitor and manage their
portfolios. We combine dedicated client service with open and flexible
technology offerings, such as a configurable desktop and mobile platform,
comprehensive data feeds, cloud-based digital solutions, and application
programming interfaces ("APIs"). Our revenues are primarily derived from
subscriptions to our products and services such as workstations, portfolio
analytics, and market data.
We advance our industry by comprehensively understanding our clients' workflows,
solving their most complex challenges, and helping them achieve their goals. By
providing them with the leading open content and analytics platform, an
expansive universe of concorded data they can trust, next-generation workflow
support designed to help them grow and see their next best action, and the
industry's most committed service specialists, FactSet puts our clients in a
position to outperform.
We are focused on growing our business through three reportable segments
("segments"): the Americas , EMEA and Asia Pacific . Refer to Note 16, Segment
Information, in the Notes to the Consolidated Financial Statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Within each of our segments, we primarily deliver insight and information
through our three workflows: Research & Advisory Solutions; Analytics & Trading
Solutions; and Content & Technology Solutions ("CTS").
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Business Strategy
Client needs and market dynamics continue to evolve at an accelerated pace with
an increasing demand for differentiated, personalized, and connected data, an
ongoing shift to multi-asset class investing, and cost rationalization as the
shift from active to passive investing continues. Clients are seeking new
cloud-based solutions that enable self-service and automation, open and flexible
systems, and increased efficiencies when integrating and managing data as part
of their own broader digital transformations.
FactSet's strategy focuses on building the leading open content and analytics
platform that delivers differentiated advantages for our clients' success, in
keeping with our purpose of enabling the investment community to see more, think
bigger and do their best work. We want to be the trusted partner of choice for
clients, to anticipate their needs and provide them with the most innovative
solutions to make them more efficient. This includes transforming the way our
clients discover, decide, and act on an opportunity using our digital platform;
purposefully increasing our pace and speed to market by streamlining how we
work; and investing in our future workforce. To execute on our strategy, we plan
on the following:
•Growing our digital platform: Scaling up our content refinery by providing the
most comprehensive and connected inventory of industry, proprietary, and
third-party data for the financial community, including granular data for key
industry verticals, private companies, wealth, and environmental social and
governance ("ESG"). Driving next-generation workflow solutions by creating
personalized and integrated solutions to streamline workflows which includes
solutions for asset managers, asset owners, sell side, wealth and corporate
clients. Our goal is to deliver tangible efficiencies to our clients by
connecting data and analytics with a cloud based eco-system, enabling them to
manage work more effectively through an integrated investment lifecycle.
•Delivering execution excellence: Building a more agile and digital first-minded
organization that increases the speed of our product creation and go-to-market
strategy. To capitalize on market trends and give our clients innovative tools,
we plan to release new products built on a cloud-based digital foundation as
well as migrating our existing data and applications to the cloud. Additionally,
we expect to rationalize our existing product portfolio to reinvest in higher
return products.
•Driving a growth mindset: Recruiting, training and empowering a diverse and
operationally efficient workforce to drive sustainable growth. To drive a more
performance-based culture, we are investing in talent who can create leading
technological solutions, efficiently execute our go-to-market strategy and
achieve our growth targets.
At the center of our strategy is the relentless focus on our clients and their
FactSet experience. We want to be a trusted partner and service provider,
offering hyper-personalized digital products for clients to research ideas,
uncover relevant insights, and leverage cognitive computing to help get the most
out of their data and analytics. Additionally, we continually evaluate business
opportunities such as acquisitions and partnerships to help us expand our
capabilities and competitive differentiators across the investment portfolio
lifecycle.
We are focused on growing our global business in three segments: the Americas ,
EMEA and Asia Pacific . We believe this geographical strategic alignment helps us
better manage our resources, target our solutions and interact with our clients.
We further execute on our growth strategy by offering data, products, and
analytical applications within our three workflow solutions: Research &
Advisory; Analytics & Trading ; and CTS.
Fiscal 2022 First Quarter in Review
Revenues in the first quarter of fiscal 2022 were $424.7 million , an increase of
9.4% from the prior year period. Revenues increased across each of our
geographic segments, primarily in the Americas , followed by EMEA and Asia
Pacific , supported by increased revenues in all our workflow solutions, mainly
in Research & Advisory; followed by Analytics & Trading and CTS. Organic
revenues contributed to 9.1% of the growth during the first quarter of fiscal
2022, compared with the prior year period. Organic revenues exclude the effects
of acquisitions and dispositions completed in the last 12 months, the impacts of
foreign currency movements on the current year period and the amortization of
deferred revenues fair value adjustments from purchase accounting. Refer to
Non-GAAP Financial Measures in Part I, Item 2 of this Quarterly Report on Form
10-Q for a reconciliation between revenues and organic revenues.
As of November 30, 2021 , organic annual subscription value ("Organic ASV") plus
Professional Services totaled $1.70 billion , an increase of 8.9% over
November 30, 2020 . Organic ASV increased across all our segments with the
majority of the increase
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related to the Americas , followed by EMEA and Asia Pacific . Refer to Annual
Subscription Value in Part I, Item 2 of this Quarterly Report on Form 10-Q for
the definitions of Organic ASV and Organic ASV plus Professional Services.
Operating income grew 1.3% and diluted earnings per share ("EPS") increased 6.5%
for the three months ended November 30, 2021 compared with the prior year
period. Operating margin decreased to 28.9% during the three months ended
November 30, 2021 compared with 31.2% in the prior year period. This decrease in
operating margin on a year-over-year basis was primarily due to increased
computer-related expenses and amortization of intangible assets, partially
offset by growth in our revenues.
COVID-19 Update
A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first
reported in December 2019 , and it has since extensively impacted the global
health and economic environment, with the World Health Organization
characterizing COVID-19 as a pandemic on March 11, 2020 . In response to the
COVID-19 pandemic, we implemented a business continuity plan with a dedicated
incident management team to respond quickly and provide ongoing guidance so that
we could continue offering our clients uninterrupted products, services and
support while also protecting our employees. We believe these actions have been
successful and that the pandemic, and our responses, have not significantly
affected our financial results for the three months ended November 30, 2021 .
At the outset of the pandemic, we required the vast majority of our employees at
our offices across the globe (including our corporate headquarters) to work
remotely and implemented global travel restrictions for our employees. Since
that time, we have begun to re-open many of our offices globally, utilizing a
three-phased approach to provide flexibility for employees wishing to work from
our offices with a focus on social distancing and safety while acting
consistently with applicable local regulations. We anticipate that the ability
to open offices will vary significantly from region to region based on a number
of factors, including the availability of COVID-19 vaccines and the spread of
COVID-19 variants, including the rapid spread of the recent omicron variant. We
have worked with local organizations to procure vaccines for our employees and
encouraged them to get vaccinated. Our offices will not re-open fully until
local authorities permit us to do so and our own criteria and conditions to
ensure employee health and safety are satisfied.
As of November 30, 2021 , there have been minimal interruptions in our ability to
provide our products, services and support to our clients. Working remotely has
had relatively little impact on the productivity of our employees, including our
ability to gather content. We continue to work closely with our clients to
provide consistent access to our products and services and have remained
flexible to achieve client priorities.
Based on our success working in a remote environment during the COVID-19
pandemic, we have implemented a new work standard under which employees in many
of our locations, where permitted by local laws and regulations, and where the
role permits, will have the opportunity to choose between different work
arrangements. These include working either in a hybrid arrangement, where an
employee can split time between working from the office and working from a
pre-approved remote location, or a fully remote arrangement, where an employee
can work entirely from a pre-approved remote location.
Our revenues, earnings, and ASV are relatively stable and predictable as a
result of our subscription-based business model. To date, the COVID-19 pandemic
has not had a material negative impact on our revenues, earnings or ASV. We
incurred additional expenses at the start of the COVID-19 pandemic, particularly
relating to equipment to enable our employees to support our clients while
working remotely. As we have continued to work in remote and hybrid
environments, reductions in discretionary spending, particularly travel and
entertainment, have more than offset any related increased expenses. Given our
transition to our new work standard, we anticipate that many of these expense
reductions will continue going forward, including incurring less travel and
entertainment spending than we did pre-pandemic. We recently polled our
employees on optimal work arrangements and, consistent with what we have seen in
the market, the majority of our employees have indicated that they will work in
a hybrid or a remote environment; accordingly, we are reassessing our real
estate footprint to better reflect these new work arrangements and seeking to
reduce our spending on office space that will no longer be necessary.
Refer to Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal
year ended August 31, 2021 for further discussion of the potential impact of the
COVID-19 pandemic on our business.
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Annual Subscription Value ("ASV")
We believe ASV reflects our ability to grow recurring revenues and generate positive cash flow and is the key indicator of the successful execution of our business strategy.
-"ASV" at any point in time represents our forward-looking revenues for the next 12 months from all subscription services currently being supplied to clients, excluding revenues from Professional Services. -"Organic ASV" at any point in time equals our ASV excluding ASV from acquisitions and dispositions completed within the last 12 months and the effects of foreign currency movements on the current year period. -"Professional Services" are revenues derived from project-based consulting and implementation. -"Organic ASV plus Professional Services" at any point in time equals the sum of Organic ASV and Professional Services. Organic ASV plus Professional Services The following table presents the calculation of Organic ASV plus Professional Services as ofNovember 30, 2021 . With proper notice provided as contractually required, our clients can add to, delete portions of, or terminate service, subject to certain limitations. (in millions) As ofNovember 30 ,
2021
As reported ASV plus Professional Services(1) $ 1,706.3 Currency impact(2) 2.7 Acquisition ASV(3) (7.9) Organic ASV plus Professional Services $
1,701.1
Organic ASV plus Professional Services growth rate
8.9 %
(1)Includes
As ofNovember 30, 2021 , Organic ASV plus Professional Services was$1.70 billion , an increase of 8.9% compared withNovember 30, 2020 . The increase in year-over-year Organic ASV was largely attributed to existing clients, inclusive of price increases, followed by new client sales, partially offset by existing client cancellations. Organic ASV increased across all our geographic segments with the majority of the increase related to theAmericas , followed by EMEA andAsia Pacific . This increase was driven by additional sales in our workflow solutions, primarily in Research & Advisory, followed byAnalytics & Trading and CTS. Sales increased inAnalytics & Trading mainly from our portfolio analytics, performance and reporting, risk and quantitative and front office solutions. CTS sales increased primarily due to company financial data, such as fundamentals and estimates, along with data management solutions to empower data connectivity. Sales increased in Research & Advisory mainly due to higher demand for our workstations. Segment ASV As ofNovember 30, 2021 , ASV from theAmericas was$1,054.9 million , representing 62.7% of total ASV, an increase from$958.5 million as ofNovember 30, 2020 . Americas Organic ASV increased to$1,048.2 million as ofNovember 30, 2021 , a 9.4% increase compared withNovember 30, 2020 . As ofNovember 30, 2021 , ASV from EMEA was$452.0 million , representing 26.9% of total ASV, an increase from$422.0 million as ofNovember 30, 2020 . EMEA Organic ASV increased to$453.4 million as ofNovember 30, 2021 , a 7.2% increase compared withNovember 30, 2020 . As ofNovember 30, 2021 , Asia Pacific ASV was$175.4 million , representing 10.4% of total ASV, an increase from$156.5 million as ofNovember 30, 2020 . Asia Pacific Organic ASV increased to$176.2 million as ofNovember 30, 2021 , a 13.6% increase compared withNovember 30, 2020 . The increase in Organic ASV across all our segments was largely attributed to increased sales to existing clients, inclusive of price increases, followed by new client sales, partially offset by existing client cancellations. Organic ASV increased in the 31 -------------------------------------------------------------------------------- Table of ContentsAmericas primarily due to higher sales in Research & Advisory, followed byAnalytics & Trading . EMEA Organic ASV increased due to higher sales across all three workflow solutions: Research & Advisory, CTS andAnalytics & Trading . The increase in Asia Pacific Organic ASV was mainly driven by higher sales in Research & Advisory. Buy-side and Sell-side Organic ASV Growth Buy-side and sell-side Organic ASV growth rates atNovember 30, 2021 , compared withNovember 30, 2020 , were 8.5% and 13.2%, respectively. Buy-side clients account for approximately 83% of our Organic ASV, consistent with the prior year period, and primarily include asset managers, asset owners, wealth managers, hedge funds, corporate firms and channel partners. The remainder of our Organic ASV is derived from sell-side firms, and primarily include broker-dealers, banking and advisory, private equity and venture capital firms. Client and User Additions The table below presents our total clients and users: As of November 30, 2021 As of November 30, 2020 Change Clients(1) 6,759 5,939 13.8 % Users(2) 162,161 146,696 10.5 % (1)The client count includes clients with ASV of$10,000 and above. (2)In the second quarter of fiscal 2021, we revised our user count methodology to include users across all our products, including workstations,StreetAccount and other workflow solutions. The prior year user count was adjusted to reflect this change for comparison purposes. Our total client count was 6,759 as ofNovember 30, 2021 , a net increase of 13.8%, or 820 clients, in the last 12 months, mainly due to an increase in corporate and wealth management clients. The client count increase was mainly driven by demand for our integrated content and workflow solutions which are further enhanced by our continued investment in product innovation. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our existing client base through sales of workstations, applications, services and content. As ofNovember 30, 2021 , there were 162,161 professionals using FactSet, representing a net increase of 10.5%, or 15,465 users, in the last 12 months, driven primarily by an increase in our wealth management clients, sell-side users from our banking clients and asset managers from the buy-side. The increase in users was mainly due to the addition of new users, improvement in our client retention, and increased new hiring at our banking clients. Annual client retention was greater than 95% of ASV for the period endedNovember 30, 2021 , consistent with the prior year period. When expressed as a percentage of clients, annual retention was approximately 91.7% for the period endedNovember 30, 2021 , an improvement from approximately 90.1% for the period endedNovember 30, 2020 . Employee Headcount As ofNovember 30, 2021 , our employee headcount was 10,898, up 2.6% in the past 12 months, due primarily to an increase in net new employees of 6.7% inAsia Pacific , partially offset by a decrease of 6.5% in theAmericas and 1.2% in EMEA. Of our total employee headcount atNovember 30, 2021 , 7,190 were located inAsia Pacific , 2,343 were located in theAmericas , and 1,365 were located in EMEA. Excluding acquisitions made over the last twelve months, headcount grew by 1.8% year over year, primarily driven by increased hiring in our content and technology organizations. 32 -------------------------------------------------------------------------------- Table of Contents Results of Operations For an understanding of the significant factors that influenced our performance for the three months endedNovember 30, 2021 andNovember 30, 2020 , the following discussion should be read in conjunction with the Consolidated Financial Statements and related notes presented in this Quarterly Report on Form 10-Q. The following table summarizes the results of operations for the periods described: Three Months Ended November 30, $ Change % Change (in thousands, except per share data) 2021 2020 Revenues$ 424,725 $ 388,206 $ 36,519 9.4 % Cost of services$ 207,149 $ 188,088 $ 19,061 10.1 % Selling, general and administrative$ 94,915 $ 79,087 $ 15,828 20.0 % Operating income$ 122,661 $ 121,031 $ 1,630 1.3 % Net income$ 107,647 $ 101,206 $ 6,441 6.4 % Diluted earnings per common share$ 2.79 $ 2.62 $ 0.17 6.5 % Diluted weighted average common shares 38,641 38,697
Revenues
Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 Revenues for the three months endedNovember 30, 2021 were$424.7 million , an increase of 9.4%. The increase in revenues were largely attributed to increased sales to existing clients, inclusive of price increases, followed by new client sales, partially offset by existing client cancellations. Revenues increased across all our geographic segments, primarily from theAmericas , followed by EMEA andAsia Pacific , driven by increased revenues in all of our workflow solutions, Research & Advisory, followed byAnalytics & Trading and CTS, compared with the prior year. Organic revenues increased to$423.2 million for the three months endedNovember 30, 2021 , a 9.1% increase over the prior year period. The 9.4% increase in revenues was composed of growth in organic revenues of 9.1% and a 50 basis point increase from deferred revenues fair value adjustments from purchase accounting and acquisition-related revenues, partially offset by a 20 basis point decrease from foreign currency exchange rate fluctuations. Revenues by Segment Three Months Ended November 30, $ Change % Change (in thousands) 2021 2020 Americas$ 266,913 $ 244,337 $ 22,576 9.2 % % of revenues 62.8 % 62.9 % EMEA$ 115,003 $ 105,777 $ 9,226 8.7 % % of revenues 27.1 % 27.2 % Asia Pacific$ 42,809 $ 38,092 $ 4,717 12.4 % % of revenues 10.1 % 9.8 % Consolidated$ 424,725 $ 388,206 $ 36,519 9.4 % 33
-------------------------------------------------------------------------------- Table of Contents Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 Americas Revenues from ourAmericas segment increased 9.2% to$266.9 million during the three months endedNovember 30, 2021 , compared with$244.3 million from the same period a year ago. The increased revenues were driven by increased sales in all of our workflow solutions, primarily in Research & Advisory, followed byAnalytics & Trading and CTS. The growth in revenues of 9.2% was reflective of increased organic revenues of 8.5% and a 70 basis point increase from deferred revenues fair value adjustments from purchase accounting and acquisition-related revenues.
EMEA
EMEA revenues increased 8.7% to$115.0 million during the three months endedNovember 30, 2021 , compared with$105.8 million from the same period a year ago. This increase was driven by increased sales in all of our workflow solutions, mainly in Research & Advisory, followed byAnalytics & Trading and CTS. The growth in revenues of 8.7% was reflective of increased organic revenues of 8.8%, partially offset by a 10 basis point decrease from foreign currency exchange rate fluctuations.Asia Pacific Asia Pacific revenues increased 12.4% to$42.8 million during the three months endedNovember 30, 2021 , compared with$38.1 million from the same period a year ago. This increase was driven by increased sales across all our workflow solutions. The 12.4% growth in revenues was reflective of increased organic revenues of 13.7%, partially offset by a 130 basis point decrease from foreign currency exchange rate fluctuations. Revenues by Workflow Solution Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 The growth in revenues of 9.4% across our segments was driven by increased revenues from all of our workflow solutions, primarily from sales of Research & Advisory, followed byAnalytics & Trading and CTS, for the three months endedNovember 30, 2021 , compared with the same period a year ago. The increase in Research & Advisory was driven mainly by higher demand for our workstations. The increase in revenues fromAnalytics & Trading was primarily due to increased demand for our portfolio analytics, performance and reporting and front office solutions. The increase in CTS revenues was driven mainly due to increased sales of company financial data, such as fundamentals and estimates, along with data management solutions. Operating Expenses Three Months Ended November 30, $ Change % Change (in thousands) 2021 2020 Cost of services$ 207,149 $ 188,088 $ 19,061 10.1 % Selling, general and administrative 94,915 79,087 15,828 20.0 % Total operating expenses$ 302,064 $ 267,175 $ 34,889 13.1 % Operating income$ 122,661 $ 121,031 $ 1,630 1.3 % Operating margin 28.9 % 31.2 % Cost of Services Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 Cost of services increased 10.1% to$207.1 million for the three months endedNovember 30, 2021 , compared with$188.1 million in the same period a year ago, primarily due to an increase in computer-related expenses and employee compensation expense. Cost of services, when expressed as a percentage of revenues, was 48.8% for the three months endedNovember 30, 2021 , an increase of 30 basis points compared with the same period a year ago. This increase was primarily due to higher computer-related expenses and intangible asset amortization, partially offset by employee compensation expense. Computer-related 34 -------------------------------------------------------------------------------- Table of Contents expenses increased 160 basis points, primarily driven by increased technology investments related to our migration to cloud-based hosting services and licensed software arrangements. Intangible asset amortization increased 50 basis points mainly due to a higher investment in capitalized internal-use software that has been placed in service. Employee compensation expense decreased 120 basis points due primarily to both growth in revenues outpacing the growth of compensation expense and a decrease related to a shift of employment from high to low cost locations, despite a net increase in employee headcount of 205, partially offset by the impact of a one-time restructuring charge to drive organizational realignment and higher annual base salaries. Selling, General and Administrative Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 Selling, general and administrative ("SG&A") expenses increased 20.0% to$94.9 million for the three months endedNovember 30, 2021 , compared with$79.1 million for the same period a year ago, primarily due to an increase in employee compensation expense. SG&A expenses, when expressed as a percentage of revenues, were 22.3% for the three months endedNovember 30, 2021 , an increase of 200 basis points over the prior year period. This increase was primarily due to charges related to vacating certain leased office space and higher employee compensation expense, net of stock-based compensation. The charges related to vacating certain leased office space inNew York City and resulted in a 90 basis point increase in SG&A expenses. Employee compensation expense, net of stock-based compensation, increased SG&A expenses by 70 basis points primarily due to increased variable compensation expense, higher annual base salaries, an increase in net employee headcount of 71 employees, and the impact of a one-time restructuring charge to drive organizational realignment, partially offset by the accelerated recognition of expense associated with certain retirement provisions in our employee equity award plan incurred in the prior year period. Operating Income and Operating Margin Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 Operating income increased 1.3% to$122.7 million for the three months endedNovember 30, 2021 compared with$121.0 million in the prior year. Operating income increased primarily due to higher revenues, partially offset by higher employee compensation expense, computer-related costs and charges related to vacating certain leased office space inNew York City . Foreign currency exchange rate fluctuations, net of hedge activity decreased operating income by$4.3 million . Operating margin decreased to 28.9% during the three months endedNovember 30, 2021 compared with 31.2% in the prior year period. Operating margin decreased mainly due to higher computer-related costs, charges related to vacating certain leased office space inNew York City and amortization of intangible assets, partially offset by lower employee compensation expense, net of stock-based compensation, as a percentage of revenues. Operating Income by Segment Our internal financial reporting structure is based on three reportable segments: theAmericas ; EMEA; andAsia Pacific . Refer to Note 16, Segment Information, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our segments. Three Months Ended November 30, $ Change % Change (in thousands) 2021 2020 Americas$ 55,498 $ 56,376 $ (878) (1.6) % EMEA 40,654 40,634 20 - % Asia Pacific 26,509 24,021 2,488 10.4 % Total Operating Income$ 122,661 $ 121,031 $ 1,630 1.3 % AmericasAmericas operating income decreased 1.6% to$55.5 million during the three months endedNovember 30, 2021 , compared with$56.4 million in the same period a year ago. This decrease in operating income was due to higher employee compensation expense and computer-related expenses, charges related to vacating certain leased office space inNew York City , and higher amortization of intangible assets, partially offset by growth in revenues of 9.2%. Employee compensation expense increased 35 -------------------------------------------------------------------------------- Table of Contents mainly due to the impact of a one-time restructuring charge to drive organizational realignment, higher variable compensation and annual base salaries, partially offset by a net decrease in employee headcount of 162. Computer-related expenses increased primarily due to increased technology investments related to our migration to cloud-based hosting services and licensed software arrangements. Amortization of intangible assets increased due to increases in capitalized internal use software that has been placed in service. EMEA EMEA operating income was$40.7 million during the three months endedNovember 30, 2021 , consistent with the$40.6 million recognized during the same period a year ago. The EMEA operating income was primarily due higher data costs and higher employee compensation expense, partially offset by growth in revenues of 8.7% and collection of previously reserved receivables. Data costs increased due to a non-recurring charge for certain data content. Employee compensation expense increased mainly due to a one-time restructuring charge to drive organizational realignment and higher annual base salaries, partially offset by a net decrease in employee headcount of 16.Asia Pacific Asia Pacific operating income increased 10.4% to$26.5 million during the three months endedNovember 30, 2021 , compared with$24.0 million in the same period a year ago. This increase in operating income was mainly due to growth in revenues of 12.4%, partially offset by higher employee compensation expense. Employee compensation expense increased mainly due to higher annual base salaries and a net increase in employee headcount of 454. Income Taxes, Net Income and Diluted Earnings per Share Three Months Ended November 30, $ Change % Change (in thousands, except for per share data) 2021 2020 Provision for income taxes$ 12,283 $ 19,026 $ (6,743) (35.4) % Net income$ 107,647 $ 101,206 $ 6,441 6.4 % Diluted earnings per common share$ 2.79 $ 2.62 $
0.17 6.5 %
Income Taxes Our effective tax rate is lower than the applicableU.S. corporate income tax rate for the three months endedNovember 30, 2021 , driven mainly by research and development ("R&D") tax credits and a foreign derived intangible income ("FDII") deduction. Our effective tax rate for the three months endedNovember 30, 2021 is further reduced by windfall tax benefits associated with the employee exercise of stock options. Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 For the three months endedNovember 30, 2021 , the provision for income taxes was$12.3 million , compared with$19.0 million for the same period a year ago. The provision decreased mainly due to$6.9 million in higher windfall tax benefits during the three months endedNovember 30, 2021 , compared with the prior year period. Net Income and Diluted Earnings per Share Three months endedNovember 30, 2021 compared with three months endedNovember 30, 2020 Net income increased 6.4% to$107.6 million and diluted earnings per share ("EPS") increased 6.5% to$2.79 for the three months endedNovember 30, 2021 , compared with the same period a year ago. Net income and diluted EPS increased primarily due to a decrease in the provision for income taxes. Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"), we use non-GAAP financial measures including organic revenue, adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are show in the tables below. These non-GAAP financial measures should not be considered in isolation from, as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other 36 -------------------------------------------------------------------------------- Table of Contents companies may calculate similarly titled non-GAAP financial measures differently that we do, limiting the usefulness of those measures for comparative purposes. Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures, and the information they provide, are useful in viewing our performance using the same tools that management uses to gauge progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance. The table below provides an unaudited reconciliation of revenues to adjusted revenues and organic revenues. Three Months Ended November 30, $ Change % Change (In thousands) 2021 2020 Revenues$ 424,725 $ 388,206 $ 36,519 9.4 % Deferred revenues fair value adjustment(1) 86 60 26 Adjusted revenues 424,811 388,266 36,545 9.4 % Acquired revenues(2) (2,267) (375) (1,892) Currency impact(3) 609 - 609 Organic revenues$ 423,153 $ 387,891 $ 35,262 9.1 % (1)The amortization effect of the purchase accounting adjustment on the fair value of acquired deferred revenues. (2)Revenues from acquisitions completed within the last 12 months. (3)The impact from foreign currency movements over the past 12 months. 37
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Table of Contents The table below provides an unaudited reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS.
Three Months Ended
November 30,
(In thousands, except per share data) 2021 2020 Change
Operating income$ 122,661 $ 121,031 1.3 % Deferred revenues fair value adjustment 86 60 Intangible asset amortization 6,052 5,699 Restructuring / severance 9,028 1,014 Real estate charges 3,695 717 Transformation costs (1) 1,188 4,252 Business acquisition costs - 230 Adjusted operating income$ 142,710 $ 133,003 7.3 % Operating margin 28.9 % 31.2 % Adjusted operating margin(2) 33.6 %
34.3 %
Net income$ 107,647 $ 101,206 6.4 % Deferred revenues fair value adjustment 77 51 Intangible asset amortization 5,419 4,797 Restructuring / severance 8,084 853 Real estate charges 3,309 603 Transformation costs(1) 1,064 3,579 Business acquisition costs - 194 Income tax items (259) - Adjusted net income(3)$ 125,341 $ 111,283 12.6 % Diluted earnings per common share$ 2.79 $ 2.62 6.5 % Deferred revenues fair value adjustment 0.00 0.00 Intangible asset amortization 0.14 0.12 Restructuring / severance 0.21 0.02 Real estate charges 0.09 0.02 Transformation costs(1) 0.03 0.10 Business acquisition costs - 0.00 Income tax items (0.01) -
Adjusted diluted earnings per common share(3)
38,641 38,697
(1)Costs primarily related to professional fees associated with the ongoing
multi-year investment plan.
(2)Adjusted operating margin is calculated as adjusted operating income divided
by adjusted revenues as shown in the organic revenues table above.
(3)For purposes of calculating adjusted net income and adjusted diluted earnings
per share, intangible asset amortization, deferred revenues fair value
adjustments and other items were taxed at the annual effective tax rates of
10.5% for fiscal 2022 and 15.8% for fiscal 2021.
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Liquidity and Capital Resources
Our primary sources of liquidity have been our cash flows generated from our
operations, existing cash and cash equivalents and, when needed, our credit
capacity under our existing credit facility. We use these sources of liquidity
to, among other things, service our existing and future debt obligations, fund
our working capital requirements, capital expenditures, investments,
acquisitions, dividend payments and repurchases of our common stock. Based on
past performance and current expectations, we believe our liquidity, along with
other financing alternatives, will provide us the necessary capital to fund
these transactions and achieve our planned growth for the next 12 months and the
foreseeable future.
Sources of Liquidity
Long-Term Debt
On March 29, 2019 , we entered into a credit agreement with PNC Bank, National
Association ("PNC") (the "2019 Credit Agreement"), which provides for a $750.0
million revolving credit facility (the "2019 Revolving Credit Facility"). We may
request borrowings under the 2019 Revolving Credit Facility until its maturity
date of March 29, 2024 . The 2019 Credit Agreement also allows us, subject to
certain requirements, to arrange for additional borrowings with PNC for an
aggregate amount up to $500.0 million , provided that any such request for
additional borrowings must be in a minimum amount of $25.0 million .
As of November 30, 2021 , we have borrowed $575.0 million of the available $750.0
million provided by the 2019 Revolving Credit Facility, resulting in $175.0
million available to be withdrawn. We are required to pay a commitment fee using
a pricing grid which was 0.10% as of November 30, 2021 . This fee is based on the
daily amount by which the available balance in the 2019 Revolving Credit
Facility exceeds the borrowed amount. All outstanding loan amounts are reported
as Long-term debt within the Consolidated Balance Sheets at November 30, 2021
and August 31, 2021 . The principal balance is payable in full on the maturity
date.
Borrowings under the loan bear interest on the outstanding principal amount at a
rate equal to LIBOR plus a spread using a debt leverage pricing grid, which was
0.875% as of November 30, 2021 . The variable rate of interest on the 2019
Revolving Credit Facility can expose us to interest rate volatility due to
changes in LIBOR. To mitigate this exposure, on March 5, 2020 , we entered into
an interest rate swap agreement with a notional amount of $287.5 million to
hedge the variable interest rate obligation on a portion of our outstanding
balance under the 2019 Revolving Credit Facility. Under the terms of the
interest rate swap agreement, we will pay interest at a fixed rate of 0.7995%
and receive variable interest payments based on the same one-month LIBOR
utilized to calculate the interest expense from the 2019 Revolving Credit
Facility. The interest rate swap agreement matures on March 29, 2024 .
Including the effects of the interest rate swap agreement, the weighted average
interest rate on amounts outstanding under our 2019 Revolving Credit Facility
was 1.36% and 1.38% for the three months ended November 30, 2021 and fiscal year
ended August 31, 2021 , respectively. Interest on the outstanding balance under
the 2019 Revolving Credit Facility is payable quarterly, in arrears, and on the
maturity date.
The 2019 Credit Agreement contains covenants and requirements restricting
certain of our activities, which are usual and customary for this type of loan.
In addition, the 2019 Credit Agreement requires that we maintain a consolidated
net leverage ratio, as measured by total net funded debt/EBITDA (as defined in
the 2019 Credit Agreement), below a specified level as of the end of each fiscal
quarter. We were in compliance with all the covenants and requirements within
the 2019 Credit Agreement as of November 30, 2021 .
Uses of Liquidity
Returning Value to Shareholders
For the three months ended November 30, 2021 , we returned $49.3 million to
stockholders in the form of share repurchases and dividends. Over the last 12
months, we returned $359.7 million to stockholders in the form of share
repurchases and dividends.
Share Repurchase Program
Under our share repurchase program, we may repurchase shares of our common stock
from time to time in the open market and privately negotiated transactions,
subject to market conditions. In the three months ended November 30, 2021 , we
repurchased
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46,200 shares for
As ofNovember 30, 2021 ,$181.3 million remained available under the share repurchase program for future share repurchases. There is no defined number of shares to be repurchased over a specified timeframe through the life of the share repurchase program. It is expected that share repurchases will be paid using existing and future cash generated by operations. Refer to Note 17, Subsequent Event for more information on our expectations around our share repurchase program for fiscal 2022. Capital Expenditures For the three months endedNovember 30, 2021 , capital expenditures were$8.6 million , compared with$18.3 million during the same period a year ago, a decrease of$9.8 million . Capital expenditures decreased primarily due both to costs incurred for the build-out of our office space inthe Philippines during the three months endedNovember 30, 2020 and a decrease in capitalized internal-use software during the three months endedNovember 30, 2021 , compared with the same period a year ago. Dividends OnNovember 3, 2021 , our Board of Directors approved a regular quarterly dividend of$0.82 per share. Dividends of$31.0 million were paid onDecember 16, 2021 to common stockholders of record at the close of business onNovember 30, 2021 . Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and are subject to final determination by our Board of Directors. Acquisitions During fiscal 2022 and 2021, we completed acquisitions of several businesses, with the most significant cash flows related to the acquisitions ofCobalt Software, Inc. ("Cobalt") andTruvalue Labs, Inc. ("TVL"). OnOctober 12, 2021 , we acquired all of the outstanding shares of Cobalt for a purchase price of$50.0 million , subject to working capital and other adjustments. Cobalt is a leading portfolio monitoring solutions provider for the private capital industry. This acquisition advances our strategy to scale our data and workflow solutions through targeted investments as part of our multi-year investment plan and expand our private markets offering. OnNovember 2, 2020 , we acquired all of the outstanding shares of TVL for a purchase price of$41.9 million , subject to working capital and other adjustments. TVL is a leading provider of ESG information. TVL applies artificial intelligence driven technology to over 100,000 unstructured text sources in multiple languages, including news, trade journals, and non-governmental organizations and industry reports, to provide daily signals that identify positive and negative ESG behavior. The acquisition of TVL further enhances our commitment to providing industry leading access to ESG data across our platforms. Refer to Note 7, Acquisition, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of the Cobalt and TVL acquisitions. Refer to Note 17, Subsequent Event for more information on our proposed acquisition of CUSIPGlobal Services . Contractual Obligations Purchase obligations represent committed payments due in future periods to our various data vendors and for other goods and services. These purchase commitments are agreements that are enforceable and legally binding on us, and they specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here. As ofAugust 31, 2021 , we had total purchase commitments of$191.9 million . There were no significant changes to our contractual obligations during the three months endedNovember 30, 2021 . 40
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