EPS of $4.09 increased by 17.9% from previous year
Gross margin of 55.3%
Net income of 158.14M
"We are harnessing the power of gen AI to build cutting edge solutions and capture market share." - Philip Snow
FactSet Research Systems Inc (FDS) QQ3 2024 Results – Solid 5% organic ASV growth, margin expansion, and AI-driven product momentum in a cautious end-market environment
Executive Summary
FactSet Research Systems delivered a solid QQ3 2024, marked by 5% organic ASV growth and a margin expansion that drove adjusted operating margin to 39.4% (up 340 bps YoY). The quarter featured abovethe-line metrics including GAAP revenue of $553 million, adjusted diluted EPS of $4.37, and EBITDA of $240 million, underpinned by strong cash flow: net cash provided by operating activities of $238 million and free cash flow of $217 million. Despite a slower end-market backdrop—layered with the UBS-Credit Suisse consolidation headwind that dampened ASV growth by roughly 30 bps QoQ—the company raised full-year guidance on operating margin and EPS, signaling ongoing discipline in cost management and a deliberate investment stance in AI-enabled data and front-/middle-office workflows.
Management commentary underscored three strategic pillars driving the multi-year growth thesis: (1) expanding market data and real-time capabilities with cloud-based infrastructure and deeper sector content; (2) enhancing client workflows spanning front-, middle-, and back-office through products like PM Hub, Portfolio Commentary, and Mercury; and (3) accelerating generative AI initiatives with incremental ASV expected in fiscal 2025. Management also highlighted a durable balance sheet and strong free cash flow generation, which supports continued capital allocation to dividends and buybacks, while funding key AI investments. The operating environment remains cautious, but management projects a path to sustainable, mid-single-digit ASV growth for the near term balanced against productivity gains and higher-margin product adoption.
Key Performance Indicators
Revenue
552.71M
QoQ: 1.24% | YoY:4.32%
Gross Profit
305.72M
55.31% margin
QoQ: 5.13% | YoY:6.11%
Operating Income
201.97M
QoQ: 4.78% | YoY:17.45%
Net Income
158.14M
QoQ: 12.20% | YoY:17.43%
EPS
4.15
QoQ: 12.16% | YoY:17.90%
Revenue Trend
Margin Analysis
Key Insights
Revenue (GAAP): $553.0 million for Q3'24, up 4% YoY; QoQ not disclosed in press release, but YoY delta is supported by 4Q commentary and transcript data (revenue run-rate framed by annual guidance).
Revenue and profitability
- Revenue (GAAP): $553.0 million for Q3'24, up 4% YoY; QoQ not disclosed in press release, but YoY delta is supported by 4Q commentary and transcript data (revenue run-rate framed by annual guidance).
- Gross profit: $305.7 million; gross margin 55.3%.
- EBITDA: $247.6 million; EBITDA margin 44.8%.
- Operating income: $202.0 million; operating margin 36.5%.
- Net income: $158.1 million; net margin 28.6%.
- EPS (diluted): $4.09 GAAP; $4.37 adjusted (YoY EPS growth 17.9%); adjusted EPS beat due to mix and margin expansion.
- Weighted average shares: 38.089 million (basic); 38.64 million (diluted).
- Liquidity and cash flow:
- Net cash provided by operating activities: $238.2 million.
- Free cash flow: $216.9 million (defined as cash from operations less capex).
- Cash balance at end of period: $453.1 million; beginning: $381.7 million.
- Capex: $21.3 million; dividends paid: $37.2 million; share repurchases: $60.0 million (135,150 shares at $442.12).
- Balance sheet and leverage:
- Total debt: $1.641 billion; net debt: $1.189 billion; gross leverage ~1.7x.
- Total current assets: $858.3 million; total assets: $4.040 billion; total liabilities and equity: $4.040 billion.
- Segments and geography: Americas ASV growth 5.7% YoY; EMEA 4.4%; Asia Pacific 6.1% (organic ASV growth). Client base: 8,029 clients, 9 net new logos; user base >208,000; ASV retention >95%; client retention around 90%.
- Guidance and outlook:
- Fiscal 2024: organic ASV plus professional services growth of 4.8% midpoint; revenue guidance $2.18–$2.19 billion.
- Margin guidance: GAAP operating margin 33.7–34.0% (up ~100 bps); adjusted operating margin 37.0–37.5% (up 70–80 bps); adjusted EPS guidance raised by $0.40 to $16.00–$16.40.
- Tax rate guidance unchanged at 16.5%–17.5%.
- Valuation context: stock and earnings multipliers reflect a premium software/data analytics franchise; current P/E around 24.3x; P/BV around 8.15x; P/S around 27.9x; EV/Sales in the mid-60s; indicative of a high-quality, growth-oriented analytics platform with a focus on AI-enabled workflows.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
552.71M
4.32%
1.24%
Gross Profit
305.72M
6.11%
5.13%
Operating Income
201.97M
17.45%
4.78%
Net Income
158.14M
17.43%
12.20%
EPS
4.15
17.90%
12.16%
Key Financial Ratios
currentRatio
1.28
grossProfitMargin
55.3%
operatingProfitMargin
36.5%
netProfitMargin
28.6%
returnOnAssets
3.91%
returnOnEquity
8.37%
debtEquityRatio
0.87
operatingCashFlowPerShare
$6.25
freeCashFlowPerShare
$5.69
dividendPayoutRatio
23.5%
priceToBookRatio
8.15
priceEarningsRatio
24.34
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management insights and quotes by theme
- Strategy and AI momentum
- Philip Snow: “We are harnessing the power of gen AI to build cutting edge solutions and capture market share.” This underscores FactSet’s priority on AI-enhanced workflows and competitive differentiation in both buy- and sell-side segments.
- Phil Snow: “Looking ahead, we have a multi-year strategic investment plan built on three pillars… market data expansion, client workflow, and generative AI.” This establishes a long-horizon framework for growth through product and content expansion.
- Operational execution and margin discipline
- Linda Huber: “Adjusted operating margin improved 340 basis points to 39.4%… driven by a bonus accrual adjustment, a one-time payroll tax adjustment, and lower salary expense.” This highlights the mix of one-time and sustainable drivers behind margin expansion.
- Linda Huber: “Technology costs increased 26% YoY, representing about 9.5% of revenue, while employee expenses fell 8.6% YoY… disciplined cost management is positioning the company for future growth.” This captures the trade-off between AI investments and cost discipline.
- Market conditions and guide de-risking
- Ali van Nes / Linda Huber / Phil Snow: “The UBS-Credit Suisse cancellation contributed about 30 bps to ASV deceleration; the low end of the Q4 ASV range is designed to de-risk the outlook.” Management notes that macro headwinds and client budget tightening are pressuring decision cycles but that Q4 visibility has improved relative to earlier quarters.
- Product wins and pipeline momentum
- Phil Snow: “Portfolio Commentary… generates complete detailed investment performance summaries in about a minute.”
- Phil Snow: PM Hub (Portfolio Manager Hub) with Portfolio Assistant enhances front-to-middle office integration; Mercury streamlines sell-side research workflows; both are positioned to expand client footprint and cross-sell opportunities as markets recover.
- Growth opportunities and market positioning
- George Tong / Helen Shan: Pricing actions in international markets remained ongoing (Q3) with pricing realized in line with expectations; non-U.S. pricing is a lever to balance value delivered with client budgets.
- Management emphasizes real-time data, cloud-based infrastructure, and deep sector analytics as core differentiators in winning multi-year contracts with asset owners, asset managers, and banks.
We are harnessing the power of gen AI to build cutting edge solutions and capture market share.
— Philip Snow
Portfolio commentary… generates complete detailed investment performance summaries in about a minute. PM Hub adds a gen AI back chatbot to tap into our data.
— Philip Snow
Forward Guidance
Outlook and assessment
- Near-term trajectory: Management maintained a cautious but constructive view for Q4 and the full year, with a 4.75% midpoint for the Q4 organic ASV plus professional services growth and a broader 4.0%–5.5% range. The firm expects to finish the year with annual organic ASV plus professional services growth around the 4–5% band, acknowledging ongoing end-market headwinds and longer sales cycles in the banking sector.
- AI-driven growth catalysts: The company reiterated that generative AI initiatives are a multi-year strategic pillar expected to begin delivering incremental ASV in fiscal 2025. Portfolio Commentary and PM Hub have already generated client engagement and demand signals, and an AI data package, a conversational API via FactSet Mercury, and an AI partner program were announced, potentially expanding the developer ecosystem and partner-driven growth.
- Margin and profitability: By design, management has guided for higher margins in 2024 due to disciplined cost control and the benefit of the reduced annual bonus accrual; approximately half of the 540 bps margin improvement in Q3 is expected to be recurring. However, continued higher technology and cloud-related costs tied to AI initiatives present a risk to sustaining the same rate of margin expansion if revenue growth lags.
- Key factors investors should monitor:
- End-market activity and sales cycle dynamics in banking, asset management, and wealth segments; any recovery in capital markets activity could accelerate sell-side ASV and related cross-sell opportunities.
- The rate of AI compute costs and the monetization approach for AI-enabled products (e.g., pricing constructs, capacity usage, and on-platform vs off-platform compute).
- Take-up of deep sector analytics, real-time market data, and early-stage private markets growth (especially private credit) as the company expands content and coverage.
- Execution of the three-pillar strategy (market data, client workflow, generative AI) and their ability to convert pipeline into durable revenue.
- Bottom line: If the AI and front-/middle-office solutions translate into higher retention and larger contract sizes, FactSet could sustain or accelerate ASV growth while continuing to generate robust FCF and a healthy leverage profile. The path to mid-to-long-term upside rests on successful AI monetization, continued product differentiation, and favorable macro conditions that restore faster sales cycles.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FDS Focus
55.31%
36.50%
8.37%
24.34%
DNB
40.20%
10.20%
0.10%
388.82%
MCO
65.70%
40.70%
13.70%
40.37%
MSCI
82.60%
55.40%
-37.40%
40.73%
ICE
54.40%
36.40%
2.41%
35.09%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
FactSet’s QQ3 2024 results demonstrate resilience in a cautious environment, underpinned by solid organic ASV growth, margin improvement, and robust cash generation. The company’s three-pillar AI-enabled growth strategy – expanding market data, enhancing client workflows, and accelerating generative AI initiatives – provides a credible foundation for a multiyear expansion in addressable market and cross-sell opportunities. With 5% organic ASV growth in Q3, nine net new logos, stable retention, and a meaningful pipeline across buy-side, sell-side, and wealth segments, FactSet appears well positioned to translate AI investments into incremental ASV in fiscal 2025 and beyond. Relative valuation shows FactSet trading at a mid-20s P/E with strong FCF conversion; near-term upside hinges on macro stabilization and continued execution of AI-enabled product adoption and client procurement. Monitoring points include AI compute economics, pipeline conversion in large deals, cross-sell success in front-office workflows, and the pace of real-time data/cloud migration adoption.
Key Investment Factors
Growth Potential
Three pillars underpin growth: (1) Market data expansion (deep sector, private markets, real‑time) including cloud-based delivery; (2) Client workflow enhancement (front-to-back-office solutions, banking automation, wealth management workflows) to improve cross-sell and API-enabled integrations; (3) Generative AI initiatives (Portfolio Commentary, PM Hub, Mercury, AI data packages, conversational API) expected to deliver incremental ASV in FY2025 and beyond. Deep sector analytics and private markets capabilities differentiate FactSet in a crowded market and support longer-term client stickiness.
Profitability Risk
Macro volatility and prolonged sales cycles in financials; potential erosion in new logo pricing in select segments; higher-than-expected AI compute costs; competitive intensity in core data and analytics spaces; execution risk in scaling AI-enabled products across large enterprise customers; regulatory and data governance considerations in AI-enabled workflows.
Financial Position
Strong free cash flow generation (FCF $217m in Q3; FY guidance for FCF strength) supports continued shareholder value creation via dividends and buybacks. Debt load remains manageable with gross leverage ~1.7x and a stated plan to repay term loan by FQ2 FY2025. Balanced capital allocation framework underpins resilience in a cyclical environment.
SWOT Analysis
Strengths
Diversified, high-quality financial data and analytics platform with a multi-year recurring revenue base.
Strong operating leverage and cash flow; adjusted operating margin at 39%+ in QQ3 2024; robust free cash flow generation.
High ASV retention (>95%) and solid client retention (~90%), with a large base of 8,029 clients and 208k+ users.
AI-enabled product momentum (Portfolio Commentary, PM Hub, Mercury) and a three-pillar strategic plan driving long-term growth.
Global reach and enterprise-scale footprints across Americas, EMEA, and APAC.
Weaknesses
Cyclical end-market exposure, particularly in banking/capital markets; near-term headwinds from market softness and budget tightness.
Higher technology and cloud-related costs tied to AI investments may pressure near-term margins if growth does not accelerate.
Longer sales cycles in large multi-year deals remain a challenge in a cautious client environment.
Opportunities
AI-led product suite and data platform expansion enabling greater cross-sell across buy-side, sell-side, and wealth segments.
Expansion into real-time data, deep sector analytics, and private markets (including private credit) opportunities.
Front-office workflow enhancements and cloud-based data services to capture market share as clients move to modern infrastructure.
Threats
Continued macro uncertainty and potential erosion of budgets in financial services causing slower deal conversion.
Intense competitive pressure and pricing discipline around new logos; potential pricing erosion in select segments.
Rising compute costs and AI infrastructure requirements could compress margins if not offset by higher ASP or greater efficiency.
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