Management's Discussion and Analysis of Financial Condition and Results of Operations ("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 •Key Metrics •Results of Operations •Liquidity •Capital Resources •Foreign Currency •Off-Balance Sheet Arrangements •Share Repurchase Program •Contractual Obligations •Dividends •Significant Accounting Policies and Critical Accounting Estimates •New Accounting Pronouncements •Market Trends •Forward-Looking Factors The MD&A should be read in conjunction with our 2019 Form 10-K, Current Reports on Form 8-K and other filings with theSecurities and Exchange Commission , and the consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Executive OverviewFactSet Research Systems Inc. (the "Company" or "FactSet") is a global provider of integrated financial information, analytical applications and industry-leading services for the investment and corporate communities. For over 40 years, global financial professionals have utilized our content and multi-asset class solutions across each stage of the investment process. Our goal is to provide a seamless user experience spanning idea generation, research, portfolio construction, trade execution, performance measurement, risk management, reporting, and portfolio analysis, in which we serve the front, middle, and back offices to drive productivity and improved performance. Our flexible, open data and technology solutions can be implemented both across the investment portfolio lifecycle or as standalone components serving different workflows in the organization. We are focused on growing our business throughout each of our three segments, theAmericas , EMEA (formerly known asEurope ), andAsia Pacific . We primarily deliver insight and information through the workflow solutions of Research,Analytics and Trading , Content and Technology Solutions ("CTS") and Wealth. We currently serve financial professionals, which include portfolio managers, investment research professionals, investment bankers, risk and performance analysts, wealth advisors, and corporate clients. We provide both insights on global market trends and intelligence on companies and industries, as well as capabilities to monitor portfolio risk and performance and to execute trades. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, an open marketplace, digital portals and application programming interfaces ("APIs"). Our revenue is primarily derived from subscriptions to products and services such as workstations, analytics, enterprise data, and research management. Business Strategy As a premier financial solutions provider for the global financial community, we provide workflow solutions and leading analytical applications across the investment lifecycle to create an open and scalable platform. We bring the front, middle and back office together to drive productivity and performance throughout the portfolio lifecycle. Our strategy is focused on growing our business in each of our three segments: theAmericas , EMEA, andAsia Pacific . We believe this geographical strategic alignment helps us better manage our resources and concentrate on markets that demand our products. To execute on our business strategy of broad-based growth across each geographical segment, we continue to look at ways to create value for our clients by offering data, products and analytical applications within our key workflow solutions of Research,Analytics and Trading , CTS and Wealth. 28 -------------------------------------------------------------------------------- Table of Contents Fiscal 2020 Second Quarter in Review Revenue in the second quarter of fiscal 2020 was$369.8 million , an increase of 4.2% from the prior year comparable period, fully attributed to organic revenue growth. Organic revenue excludes the effects of acquisitions and dispositions completed in the last 12 months, changes in foreign currency rates in all periods presented and the deferred revenue fair value adjustments from purchase accounting. Revenue increased across our geographic segments primarily driven by revenue growth in ourAnalytics and Trading , CTS and Wealth workflow solutions, from increased demand for our portfolio analytics solutions, our core and premium data feeds and our traditional and web-based wealth workstations. As ofFebruary 29, 2020 , organic annual subscription value ("organic ASV") plus professional services totaled$1.50 billion , an increase of 4.3% over the prior year comparable period. Although operating income decreased 2.2%, net income and diluted earnings per share ("EPS") increased 4.7% and 5.0%, respectively, compared to the prior year period. This increase in net income and EPS were primarily driven by revenue growth of 4.2% and a decrease in the income tax provision and interest expense. The increase in net income and EPS were partially offset by an increase in operating expenses primarily attributed to increases in computer-related expenses, employee compensation and professional fees on a year-over-year basis. As ofFebruary 29, 2020 , employee count was 9,892, up 3.8% in the past 12 months, due primarily to an increase in net new employees of 5.7% inAsia Pacific and 4.6% in EMEA, partially offset by a net decrease of 1.3% in theAmericas . Of our total employees, 6,240 were located inAsia Pacific , 2,342 were located in theAmericas , and 1,310 were located in EMEA. COVID-19 Update InDecember 2019 , a novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was reported inWuhan, China and has since extensively impacted the global health and economic environment. InJanuary 2020 , theWorld Health Organization ("WHO") declared it a Public Health Emergency of International Concern. OnFebruary 28, 2020 , the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and onMarch 11, 2020 , the WHO characterized COVID-19 as a pandemic. Given the dynamic nature of these circumstances, the full impact of the COVID-19 pandemic on our ongoing business, results of operations and overall financial performance cannot be reasonably estimated at this time. The COVID-19 pandemic may curtail our clients' spending and could lead them to delay or defer purchasing decisions or product and service implementations, or may cause them to cancel or reduce their spending with us, which could materially adversely impact our business, results of operations and overall financial performance. In determining the possible revenue and ASV impact from the COVID-19 pandemic, we are considering the potential delay in decision making causing longer sales cycles (or conversely delayed cancellations from clients); implementation risk due to restrictions on being able to work onsite at our clients' facilities; and possible reduced seasonal hiring at investment banks, which are some of our largest clients, over the summer months. At this time, we anticipate that there may be some level of revenue and ASV weakness due to longer sales cycles and lower client billings. While our revenue, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model, we may experience the the effects of the COVID-19 pandemic on our results of operations and overall financial performance beginning in the third quarter fiscal 2020. Our operations also have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many jurisdictions have imposed a wide range of restrictions on the physical movement of our employees and vendors to limit the spread of COVID-19. If the COVID-19 pandemic has a substantial impact on our employees or vendors attendance or productivity, our operations, including our ability to gather content, may suffer, and in turn our results of operations and overall financial performance may be harmed. Furthermore, if our employees incur substantial medical expenses due to COVID-19, our expenses may increase due to our self-funded employee medical insurance model. We have taken numerous steps, and will continue to take further actions, in our approach to addressing the COVID-19 pandemic. We have implemented our business continuity plans and our incident management team is in place to respond to changes in our environment quickly and effectively. As a result of the COVID-19 pandemic, we instructed employees at many of our offices across the globe (including our corporate headquarters) to work from home on a temporary basis and have implemented travel restrictions. We have also incurred additional expenses in connection with our response to the COVID-19 pandemic, including costs related to enabling our employees to support our clients while working remotely. These additional expenses were not material to our second quarter fiscal 2020 results. We also are working closely with our clients to support them as they implement their own contingency plans, helping them access our products and services remotely. We have increased our support desk resources to manage increased volumes and have extended additional web IDs to clients in need of immediate remote access to financial data. 29 -------------------------------------------------------------------------------- Table of Contents We believe that implementing cost reduction efforts will help us mitigate the impact that reduced revenues may have on our fiscal 2020 operating income. We are considering reducing expenses through such methods as reduction of discretionary spending including travel and entertainment; tighter management of headcount spending, with a focus on our most critical areas and hiring in lower cost locations; and reduction in variable third-party content costs in a manner consistent with client demand. Refer to "Risk Factors" for further discussion of the impact of the COVID-19 pandemic on our business. Key Metrics The following is a review of our key metrics: As of and
for the
Three Months
Ended
(in thousands, except client and user counts and per share data) February 29, 2020 February 28, 2019 Change Revenue $ 369.8 $ 354.9 4.2 % Operating income $ 106.3 $ 108.7 (2.2) % Net income $ 88.7 $ 84.7 4.7 % Diluted EPS $ 2.30 $ 2.19 5.0 % Clients 5,688 5,405 5.2 % Users 128,896 122,063 5.6 %
The table below provides a reconciliation of ASV to organic ASV:
As of (in millions) February 29, 2020 February 28, 2019 Change As reported ASV(1)$ 1,479.6 $ 1,419.5 Currency impact to ASV (0.5) - Organic ASV(2)$ 1,479.1 $ 1,419.5 4.2 % (1)ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients and excludes professional service fees, which are not subscription-based. The professional service fees are$24.5 million and$21.9 million as ofFebruary 29, 2020 andFebruary 28, 2019 , respectively. (2)Organic ASV excludes ASV from acquisitions and dispositions completed within the last 12 months, the effects of foreign currency movements on the current year period and professional services. Organic Annual Subscription Value Growth Organic ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients, excludes ASV from acquisitions and dispositions completed within the last 12 months, the effects of foreign currency movements on the current year period and professional services. With proper notice provided to us, our clients can add to, delete portions of, or terminate service, subject to certain contractual limitations. As ofFebruary 29, 2020 , our organic ASV totaled$1.48 billion , up 4.2% over the prior year comparable period. As ofFebruary 29, 2020 , organic ASV plus professional services was$1.50 billion , an increase of 4.3%, compared to the prior year period. The increase in year-over-year organic ASV was due to growth across all of our geographic segments from increased sales of products and solutions to new and existing clients, with the majority of the ASV increase related to theAmericas , which also benefited from our annual price increase for most clients in this segment, followed by growth in EMEA andAsia Pacific , partially offset by increased cancellations compared to the prior year period. The increase in ASV from our workflow solutions was primarily driven byAnalytics and Trading , CTS and Wealth. The ASV increase inAnalytics and Trading was mainly due to increased sales for our performance and risk products and our portfolio analytics solutions. The increase in ASV from CTS was primarily driven by increased sales in core and premium data feeds while the ASV increase in Wealth was mainly due to increased traditional and web-based workstation sales. As ofFebruary 29, 2020 , organic ASV from theAmericas was$925.6 million , an increase of 3.9% from the prior year period. Organic ASV from EMEA was$407.8 million as ofFebruary 29, 2020 , an increase of 3.8% compared to the prior year period. Asia Pacific ASV was$145.7 million as ofFebruary 29, 2020 , an increase of 7.2%, compared to the prior year period. Combined EMEA and Asia Pacific ASV represented 37.4% of total ASV as ofFebruary 29, 2020 , consistent with 37.3% in the prior year period. 30 -------------------------------------------------------------------------------- Table of Contents ASV increased in theAmericas as ofFebruary 29, 2020 , compared to the prior year period, primarily fromAnalytics and Trading , CTS, and Wealth, along with our annual price increase in the region, partially offset by increased cancellations compared to the prior year period. As ofFebruary 29, 2020 , ASV increased inAsia Pacific mainly due toAnalytics and Trading , CTS and Research. The ASV increase in EMEA was primarily driven byAnalytics and Trading and CTS, as well as decreased cancellations in the region compared to the prior year period. Buy-side and sell-side ASV growth rates for the second quarter of fiscal 2020 were 4.5% and 2.9%, respectively, compared to the prior year period. Buy-side clients account for 84.1% of ASV, which include traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. The remaining portion of ASV is derived from sell-side firms that perform M&A advisory work, capital markets services and equity research. Client and User Additions Our total client count was 5,688 as ofFebruary 29, 2020 , representing a net increase of 283 or 5.2% in the last 12 months. The increase was primarily due to an increase in corporate and wealth management clients. As ofFebruary 29, 2020 , there were 128,896 professionals using FactSet, representing a net increase of 6,833 or 5.6% in the last 12 months, driven primarily by traditional and web-based workstation sales. ASV retention for the periods endingFebruary 29, 2020 andFebruary 28, 2019 exceeded 95%. Client retention was 89% for the period endedFebruary 29, 2020 , compared to retention of 91% in the prior year period. Client retention was lower primarily due to continued cost pressures among institutional asset managers and hedge funds. As ofFebruary 29, 2020 , our largest individual client accounted for less than 3% of total subscriptions and annual subscriptions from our ten largest clients did not surpass 14% of total client subscriptions. Returning Value to Stockholders OnFebruary 18, 2020 , our Board of Directors approved a regular quarterly dividend of$0.72 per share. The cash dividend of$27.1 million was paid onMarch 19, 2020 to common stockholders of record at the close of business onFebruary 28, 2020 . We repurchased 267,500 shares of common stock for$74.2 million during the second quarter of fiscal 2020 under our existing share repurchase program. For the six months endedFebruary 29, 2020 , we returned$213.0 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we returned$374.1 million to stockholders in the form of share repurchases and dividends. As ofFebruary 29, 2020 ,$80.0 million remains available for future share repurchases under the existing share repurchase program. OnMarch 24, 2020 , our Board of Directors approved a$220.0 million increase to the existing share repurchase program. Subsequent to this expansion,$300.0 million is available for future share repurchases. Capital Expenditures Capital expenditures in the second quarter of fiscal 2020 were$25.1 million , compared to$12.0 million a year ago. Capital expenditures of$7.1 million , or 28%, were primarily related to investment in technology. The remainder of our capital expenditures was primarily for the build-out of our new corporate headquarters inNorwalk, Connecticut and office space inIndia . 31 -------------------------------------------------------------------------------- Table of Contents Results of Operations For an understanding of the significant factors that influenced our performance for the three and six months endedFebruary 29, 2020 andFebruary 28, 2019 , the following discussion should be read in conjunction with the consolidated financial statements and related notes presented in this Quarterly Report on Form 10-Q. Three Months Ended Six Months Ended February 29, February 28, Change February 29, February 28, Change (in thousands, except per share data) 2020 2019 2020 2019 Revenue$ 369,780 $ 354,895 4.2 %$ 736,438 $ 706,535 4.2 % Cost of services$ 176,218 $ 165,108 6.7 %$ 341,175 $ 331,884 2.8 % Selling, general and administrative$ 87,305 $ 81,099 7.7 %$ 175,820 $ 165,424 6.3 % Operating income$ 106,257 $ 108,688 (2.2) %$ 219,443 $ 209,227 4.9 % Net income$ 88,686 $ 84,702 4.7 %$ 182,643 $ 168,998 8.1 % Diluted earnings per common share$ 2.30 $ 2.19 5.0 %$ 4.73 $ 4.37 8.2 % Diluted weighted average common shares 38,576 38,619 38,582 38,714
Revenue
Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 Revenue for the three months endedFebruary 29, 2020 was$369.8 million , an increase of 4.2%, consistent with the organic revenue increase of 4.2%, compared to the prior year period. The increase in revenue was due to growth across all our operating segments for the three months endedFebruary 29, 2020 compared to the prior year period, with the majority of the increase in revenue driven by theAmericas , which also benefited from our annual price increase for the majority of our clients in the region, partially offset by cancellations. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 Revenue for the six months endedFebruary 29, 2020 was$736.4 million , an increase of 4.2%, comparable with the organic revenue increase of 4.2%, over the same period a year ago. The increase in revenue was due to growth across all our operating segments for the six months endedFebruary 29, 2020 compared to the prior year period, with the increase in revenue primarily related to theAmericas , which also benefited from our annual price increase for the majority of our clients in the region during the second quarter of fiscal 2020, partially offset by cancellations. Revenue by Operating Segment Three Months Ended Six Months Ended February 29, February 28, Change February 29, February 28, Change (in thousands) 2020 2019 2020 2019 Americas$ 232,731 $ 223,315 4.2 %$ 464,061 $ 445,518 4.2 % % of revenue 62.9 % 62.9 % 63.0 % 63.1 % EMEA$ 102,105 $ 98,933 3.2 %$ 202,936 $ 196,698 3.2 % Asia Pacific 34,944 32,647 7.0 % 69,441 64,319 8.0 % International$ 137,049 $ 131,580 4.2 %$ 272,377 $ 261,017 4.4 % % of revenue 37.1 % 37.1 % 37.0 % 36.9 % Consolidated$ 369,780 $ 354,895 4.2 %$ 736,438 $ 706,535 4.2 % Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 Revenue from ourAmericas segment increased 4.2% to$232.7 million during the three months endedFebruary 29, 2020 , compared to$223.3 million from the same period a year ago. This revenue growth was due mainly to increased sales of products and solutions to clients primarily inAnalytics and Trading , CTS and Wealth, along with our annual price increase for the majority of theAmericas' clients, partially offset by cancellations. Organic revenue in theAmericas increased 4.2% compared to the same period a year ago. Revenue from ourAmericas operations accounted for 62.9% of our consolidated revenue during the second quarter of fiscal 2020 and 2019. 32 -------------------------------------------------------------------------------- Table of Contents EMEA revenue increased 3.2% to$102.1 million during the three months endedFebruary 29, 2020 , compared to$98.9 million from the same period a year ago. This revenue growth was mainly due to increased sales of products and solutions to clients primarily inAnalytics and Trading and CTS, partially offset by cancellations. The EMEA organic revenue growth rate was 3.1% for the three months endedFebruary 29, 2020 , compared to the same period a year ago.Asia Pacific revenue increased 7.0% to$34.9 million during the three months endedFebruary 29, 2020 , compared to$32.6 million from the same period a year ago. This revenue growth was due mainly to increased sales of products and solutions to clients primarily in theAnalytics and Trading , CTS and Research workflows, partially offset by cancellations.Asia Pacific organic revenue increased 7.0% for the three months endedFebruary 29, 2020 , compared to the same period a year ago. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 Revenue from ourAmericas segment increased 4.2% to$464.1 million during the six months endedFebruary 29, 2020 , compared to $$445.5 million from the same period a year ago. This revenue growth was due mainly to increased sales of products and solutions to clients primarily inAnalytics and Trading , CTS and Wealth, partially offset by cancellations. Organic revenue in theAmericas increased 4.2% compared to the same period a year ago. Revenue from ourAmericas operations accounted for 63.0% of our consolidated revenue for the six months endedFebruary 29, 2020 , compared to 63.1% in the prior year period. EMEA revenue increased 3.2% to$202.9 million during the six months endedFebruary 29, 2020 , compared to$196.7 million from the same period a year ago. This revenue growth was due mainly to increased sales of products and solutions to clients primarily inAnalytics and Trading and CTS, partially offset by cancellations. The EMEA organic revenue growth rate was 3.0% for the six months endedFebruary 29, 2020 , compared to the same period a year ago.Asia Pacific revenue increased 8.0% to$69.4 million during the six months endedFebruary 29, 2020 , compared to$64.3 million from the same period a year ago. This revenue growth was due mainly to increased sales of products and solutions to clients primarily in theAnalytics and Trading , CTS and Research workflows, partially offset by cancellations.Asia Pacific organic revenue increased 8.0% for the six months endedFebruary 29, 2020 , compared to the same period a year ago. Revenue by Workflow Solution Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 The revenue growth of 4.2% across our operating segments for the three months endedFebruary 29, 2020 compared to the same period a year ago was primarily driven byAnalytics and Trading , CTS, and Wealth, along with our annual price increase for the majority of ourAmericas' clients. Revenue growth fromAnalytics and Trading was primarily due to increased sales of portfolio analytics solutions and performance and risk products. The growth in CTS was driven mainly by increased sales of core and premium data feeds. Wealth also experienced growth mainly due to higher sales of our traditional and web-based workstation product. Offsetting these positive growth factors were increased cancellations compared to the prior year period, resulting from continued industry-wide cost pressures and firm consolidations. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 The revenue growth of 4.2% across our operating segments for the six months endedFebruary 29, 2020 compared to the same period a year ago was primarily driven byAnalytics and Trading , CTS and Wealth, along with our annual price increase during the second quarter of fiscal 2020 for the majority of ourAmericas' clients. Revenue growth fromAnalytics and Trading was mainly due to increased sales of portfolio analytics solutions and performance and risk products. CTS revenue growth was driven mainly by increased sales of core and premium data feeds. The revenue growth from Wealth was primarily due to higher sales of our traditional and web-based workstation product. Offsetting these positive growth factors were increased cancellations compared to the prior year period, resulting from continued industry-wide cost pressures and firm consolidations. 33 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Three Months Ended Six Months Ended February 29, February 28, Change February 29, February 28, Change (in thousands) 2020 2019 2020 2019 Cost of services$ 176,218 $ 165,108 6.7 %$ 341,175 $ 331,884 2.8 % Selling, general and administrative 87,305 81,099 7.7 % 175,820 165,424 6.3 % Total operating expenses$ 263,523 $ 246,207 7.0 %$ 516,995 $ 497,308 4.0 % Operating Income$ 106,257 $ 108,688 (2.2) %$ 219,443 $ 209,227 4.9 % Operating Margin 28.7 % 30.6 % 29.8 % 29.6 % Cost of Services Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 For the three months endedFebruary 29, 2020 , cost of services increased 6.7% to$176.2 million compared to$165.1 million in the same period a year ago, primarily due to an increase in computer-related expenses and compensation costs. Cost of services, when expressed as a percentage of revenue, was 47.7% during the second quarter of fiscal 2020, an increase of 110 basis points compared to the same period a year ago. This increase was primarily due to an increase in computer-related expenses, partially offset by a reduction in compensation costs, when expressed as a percentage of revenue. Computer-related expenses, as a percentage of revenue, increased 240 basis points, primarily driven by increased technology investments including cloud-based hosting and licensed software arrangements. Employee compensation, when expressed as a percentage of revenue, decreased 30 basis points in the second quarter of fiscal 2020, compared to the same period a year ago. This decrease in employee compensation was primarily driven by revenue growth outpacing the growth of employee compensation, partially offset by higher annual base salaries and a net employee headcount increase, with the majority of the compensation included in cost of services focused in lower cost locations. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 For the six months endedFebruary 29, 2020 , cost of services increased 2.8% to$341.2 million compared to$331.9 million in the same period a year ago, primarily due to an increase in computer-related expenses. Cost of services, when expressed as a percentage of revenue, was 46.3% for the six months endedFebruary 29, 2020 , a decrease of 60 basis points compared to the same period a year ago. This decrease was primarily driven by revenue growth outpacing the growth of employee compensation on a year-over-year basis, as well as a decrease in compensation costs and client communication costs, partially offset by an increase in computer-related expenses and employee compensation, when expressed as a percentage of revenue. Employee compensation, when expressed as a percentage of revenue, decreased 130 basis points primarily driven by revenue growth outpacing the growth of cost of services, partially offset by a net headcount increase of 363 employees, with the majority of the compensation included in cost of services and focused mainly in lower cost locations. The employee compensation decrease was also partially offset by higher annual base salaries and related benefits. Client communication costs decreased 30 basis points, when expressed as a percentage of revenue due to a reduction in client hosting expenses. Computer-related expenses, as a percentage of revenue, increased 150 basis points primarily driven by increased costs from cloud-based hosting and licensed software arrangements. Selling, General and Administrative Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 For the three months endedFebruary 29, 2020 , SG&A expenses increased 7.7% to$87.3 million , compared to$81.1 million for the same period a year ago, primarily due to an increase in professional fees, the timing of certain non-income related tax credits and an increase in compensation costs, partially offset by a reduction in travel expenses and a decrease in bad debt expense. SG&A expenses, expressed as a percentage of revenue, were 23.6% during the second quarter of fiscal 2020, an increase of 80 basis points over the prior year period. When expressed as a percentage of revenue, this increase was primarily driven by an increase in professional fees and the timing of certain non-income related tax credits, partially offset by a reduction in travel expenses and bad debt expense. 34 -------------------------------------------------------------------------------- Table of Contents Professional fees, when expressed as a percentage of revenue, increased 100 basis points to support our three-year content and technology investment plan. The timing of certain non-income related tax credits resulted in an increase of 40 basis points, when expressed as a percentage of revenue. Travel expenses decreased 60 basis points, compared to the prior year period, due to an internal focus on cost discipline measures. Bad debt decreased 50 basis points, compared to the prior year period, when expressed as a percentage of revenue. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 For the six months endedFebruary 29, 2020 , SG&A expenses increased 6.3% to$175.8 million , compared to$165.4 million for the same period a year ago, primarily due to an increase in employee compensation, professional fees and the timing of certain non-income related tax credits, partially offset by a decrease in bad debt expense and travel expenses. SG&A expenses, expressed as a percentage of revenue, were 23.9% for the six months endedFebruary 29, 2020 , an increase of 50 basis points over the prior year period. When expressed as a percentage of revenue, this increase was primarily driven by growth across the SG&A drivers outpacing the growth of revenue, an increase in professional fees and the timing of certain non-income related tax credits, partially offset by a decrease in bad debt expense and travel expenses. Professional fees, when expressed as a percentage of revenue, increased 60 basis points to support our three-year content and technology investment plan. Travel expenses decreased 50 basis points, compared to the prior year period, due to an internal focus on cost discipline measures. Bad debt decreased 60 basis points, over the prior year period. Operating Income and Operating Margin Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 Operating income decreased 2.2% to$106.3 million for the three months endedFebruary 29, 2020 compared to$108.7 million in the prior year period. Operating income decreased due to an increase in computer-related expenses, employee compensation, professional fees, and the timing of certain non-income related tax credits, partially offset by an increase in revenue, a decrease in travel expenses and bad debt expense. Operating margin decreased to 28.7% during the second quarter of fiscal 2020 compared to 30.6% in the prior year period. The decrease in operating margin on a year-over-year basis was primarily due to increased computer-related expenses, professional fees and the timing of certain non-income related tax credits, when expressed as a percentage of revenue. These reductions in operating margin were partially offset by revenue growth, and reductions in travel expenses, bad debt expense and employee compensation, when expressed as a percentage of revenue. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 Operating income increased 4.9% to$219.4 million for the six months endedFebruary 29, 2020 compared to$209.2 million in the prior year period. Operating income increased due to increased revenue and a reduction in bad debt expense and travel expenses, partially offset by an increase in computer-related expenses, compensation expense, and professional fees. Operating margin increased to 29.8% for the six months endedFebruary 29, 2020 compared to 29.6% in the prior year period. The increase in operating margin on a year-over-year basis was primarily due to revenue growth and a reduction in employee compensation, bad debt expense, travel expenses, and client communication costs, partially offset by an increase in computer-related expenses and professional fees, when expressed as a percentage of revenue. Operating Income by Segment Three Months Ended Six Months Ended February 29, February 28, Change February 29, February 28, Change (in thousands) 2020 2019 2020 2019 Americas$ 41,310 $ 45,696 (9.6) %$ 90,933 $ 89,537 1.6 % EMEA 42,664 43,248 (1.4) % 83,882 82,337 1.9 % Asia Pacific 22,283 19,744 12.9 % 44,628 37,353 19.5 % Total Operating Income$ 106,257 $ 108,688 (2.2) %$ 219,443 $ 209,227 4.9 % 35
-------------------------------------------------------------------------------- Table of Contents Our operating segments are aligned with how we manage the business, the geographic markets we serve, and how the chief operating decision maker ("CODM") assesses performance. Our internal financial reporting structure is based on three reportable segments, theAmericas , EMEA andAsia Pacific , which we believe helps us better manage the business and view the markets we serve. Sales, consulting, data collection, product development and software engineering are the primary functional groups within each segment. Each segment records its respective compensation expense, including stock-based compensation, amortization of intangible assets, depreciation of furniture and fixtures, amortization of leasehold improvements, communication costs, professional fees, rent expense, travel, office and other direct expenses. Expenditures associated with our data centers, third-party data costs and corporate headquarters charges are recorded by theAmericas segment and are not allocated to the other segments. The centers of excellence, located inIndia andthe Philippines , primarily focus on content collection that benefit all our segments. The expenses incurred at these locations are allocated to each segment based on a percentage of revenue. Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 Americas operating income decreased 9.6% to$41.3 million during the three months endedFebruary 29, 2020 compared to$45.7 million in the same period a year ago. The decrease inAmericas operating income was primarily due to an increase in computer-related expenses and professional fees, partially offset by revenue growth of 4.2%, which includes our annual price increase for most clients in this segment, and a reduction in bad debt expense. Computer-related expenses increased year-over-year primarily due to increased technology investments including costs from cloud-based hosting and licensed software arrangements. Professional fees increased to support our three-year content and technology investment plan. EMEA operating income decreased 1.4% to$42.7 million during the three months endedFebruary 29, 2020 compared to$43.2 million in the same period a year ago. The decrease in EMEA operating income was primarily due to an increase in employee compensation partially offset by revenue growth of 3.2%. Employee compensation increased primarily due to a net headcount increase of 4.6% over the past 12 months, annual base salary increases year-over-year and severance charges.Asia Pacific operating income increased 12.9% to$22.3 million during the three months endedFebruary 29, 2020 , compared to$19.7 million in the same period a year ago. The increase in theAsia Pacific operating income was mainly due to revenue growth of 7.0%, partially offset by an increase in employee compensation. The increase in employee compensation was primarily due to a net headcount increase of 5.7% in ourAsia Pacific workforce in the last 12 months and annual base salary increases year-over-year. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 Americas operating income increased 1.6% to$90.9 million during the six months endedFebruary 29, 2020 compared to$89.5 million in the same period a year ago. The increase inAmericas operating income was primarily due to revenue growth of 4.2%, which includes our annual price increase for most clients in this region, a decrease in employee compensation and bad debt expense, partially offset by an increase in computer-related expenses and professional fees. Employee compensation decreased primarily due to a net reduction in headcount of 1.3% over the past 12 months, partially offset by annual base salary increases year-over-year. Computer-related expenses increased year-over-year primarily due to increased technology investments including costs from cloud-based hosting and licensed software arrangements. Professional fees increased mainly related to support our three-year content and technology investment plan. EMEA operating income increased 1.9% to$83.9 million during the six months endedFebruary 29, 2020 compared to$82.3 million in the same period a year ago. The increase in the EMEA operating income was primarily due to revenue growth of 3.2%, partially offset by an increase in employee compensation expense. Employee compensation increased primarily due to a net headcount increase of 4.6% over the past 12 months and annual base salary increases year-over-year.Asia Pacific operating income increased 19.5% to$44.6 million during the six months endedFebruary 29, 2020 , compared to$37.4 million in the same period a year ago. The increase in theAsia Pacific operating income was mainly due to revenue growth of 8.0%, partially offset by an increase in compensation expense. Employee compensation increased as a result of a 5.7% increase in ourAsia Pacific workforce in the last 12 months and annual base salary increases year-over-year. 36 -------------------------------------------------------------------------------- Table of Contents Income Taxes, Net Income and Diluted Earnings per Share Three Months Ended Six Months Ended February 29, February 28, February 29, February 28,
(in thousands, except for per Change Change share data) 2020 2019 2020 2019 Provision for income taxes$ 14,423 $ 19,647
(26.6) %$ 29,207 $ 31,294 (6.7) % Net income$ 88,686 $ 84,702 4.7 %$ 182,643 $ 168,998 8.1 % Diluted earnings per common share$ 2.30 $ 2.19 5.0 %$ 4.73 $ 4.37 8.2 % Income Taxes Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 For the three months endedFebruary 29, 2020 , the provision for income taxes was$14.4 million , a decrease of 26.6% from the same period a year ago. The provision decreased due primarily to a higher windfall tax benefit from stock-based compensation of$4.7 million for the three months endedFebruary 29, 2020 ,$2.4 million income tax expense from the settlement with a tax authority recognized during the three months endedFebruary 28, 2019 , partially offset by a$1.1 million benefit from the revision of the one-time transition tax on accumulated earnings and profits of foreign subsidiaries permitted by theU.S. Tax Cuts and Jobs Act ("TCJA") recognized during the three months endedFebruary 28, 2019 . Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 For the six months endedFebruary 29, 2020 , the provision for income taxes was$29.2 million , a decrease of 6.7% from the same period a year ago. The provision decreased mainly due to higher net tax benefits, partially offset by higher operating income for the six months endedFebruary 29, 2020 compared to the prior year period. The net increase in tax benefits of$10.6 million for the six months endedFebruary 29, 2020 compared to$6.6 million for the prior year period, was primarily driven by an income tax expense from the settlement with a tax authority during the six months endedFebruary 28, 2019 , coupled with benefits recognized during the six months endedFebruary 29, 2020 from finalizing prior years' tax returns, remeasurement of a foreign net deferred tax position due to changes in the jurisdiction's tax rate and higher windfall tax benefits from stock-based compensation. The reduction in the provision was partially offset by the benefit from the revision of the one-time transition tax on accumulated earnings and profits of foreign subsidiaries permitted by the TCJA recognized during the six months endedFebruary 28, 2019 . Net Income and Diluted Earnings per Share Three months endedFebruary 29, 2020 compared to three months endedFebruary 28, 2019 Net income increased 4.7% to$88.7 million and diluted earnings per share ("EPS") increased 5.0% to$2.30 for the three months endedFebruary 29, 2020 , compared to the same period a year ago. Net income and diluted EPS increased primarily due to revenue growth, a decrease in the income tax provision and interest expense, partially offset by an increase in operating expenses on a year-over-year basis. Six months endedFebruary 29, 2020 compared to six months endedFebruary 28, 2019 Net income increased 8.1% to 182.6 million and diluted EPS increased 8.2% to$4.73 for the six months endedFebruary 29, 2020 , compared to the same period a year ago. Net income and diluted EPS increased primarily due to revenue growth outpacing the growth of operating expenses, a decrease in the income tax provision and interest expense, on a year-over-year basis. Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures including organic revenue, adjusted operating margin, adjusted net income and adjusted diluted earnings per share. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are show in the tables below. These non-GAAP financial measures should not be considered in isolation from, as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently that we do, limiting the usefulness of those measures for comparative purposes. 37 -------------------------------------------------------------------------------- Table of Contents Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures and the information they provide are useful in viewing our performance using the same tools that management uses to gauge progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance. The table below provides an unaudited reconciliation of revenue to organic revenue. Three Months Ended February 29, February 28, (In thousands) 2020 2019 Change Revenue$ 369,780 $ 354,895 4.2 % Deferred revenue fair value adjustment(1) 1,188 1,299 Currency impact 20 Organic revenue$ 370,988 $ 356,194 4.2 %
(1)Deferred revenue fair value adjustments from purchase accounting.
38
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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 EndedFebruary 29 , February
28,
(In thousands, except per share data) 2020(1) 2019(2) Change Operating income$ 106,257 $ 108,688 (2.2) % Intangible asset amortization 5,143 5,839 Deferred revenue fair value adjustment 1,188 1,299 Other items 5,334 2,417 Adjusted operating income$ 117,922 $ 118,243 (0.3) % Adjusted operating margin 31.8 % 33.2 % Net income$ 88,686 $ 84,702 4.7 % Intangible asset amortization(3) 4,183
4,742
Deferred revenue fair value adjustment(4) 966 1,055 Other items(5) 4,513 1,718 Income tax items - 1,381 Adjusted net income$ 98,348 $ 93,598 5.1 % Diluted earnings per common share$ 2.30 $ 2.19 5.0 % Intangible asset amortization 0.11
0.12
Deferred revenue fair value adjustment 0.03 0.03 Other items 0.11 0.04 Income tax items - 0.04
Adjusted diluted earnings per common share
38,576
38,619
(1)Operating income, net income and diluted EPS in the second quarter of fiscal 2020 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items primarily related to severance, stock-based compensation acceleration, professional fees related to our ongoing three-year content and technology investment plan and facilities costs. (2)Operating income, net income and diluted EPS in the second quarter of fiscal 2019 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) severance, stock-based compensation expense and occupancy costs. Net income and diluted EPS in the second quarter of fiscal 2019 were also primarily adjusted to exclude a settlement with a tax authority partially offset by income tax benefits primarily related to the TCJA. (3)The intangible asset amortization was recorded net of a tax impact of$1.0 million in the second quarter of fiscal 2020, compared to$1.1 million for the second quarter of fiscal 2019. (4)The deferred revenue fair value adjustment was recorded net of a tax impact of$0.2 million for both the second quarter of fiscal 2020 and 2019. (5)The other items were recorded net of a tax impact of$0.8 million for the second quarter of fiscal 2020, compared to$0.5 million for the second quarter of 2019. 39 -------------------------------------------------------------------------------- Table of Contents Liquidity The table below, for the periods indicated, provides selected cash flow information: Six Months Ended February 29, February 28, (in thousands) 2020 2019
Net cash provided by operating activities
(51,899) (21,482) Free cash flow(2)$ 143,561 $ 124,072
Net cash used in investing activities(1)
218,335 (1)Capital expenditures are included in net cash used in investing activities during each fiscal period reported. (2)Free cash flow is defined as cash provided by operating activities, less capital expenditures. Cash and cash equivalents aggregated to$343.5 million as ofFebruary 29, 2020 , compared to$359.8 million as ofAugust 31, 2019 . Our cash and cash equivalents decreased$16.3 million during the first six months of fiscal 2020, primarily due to$158.6 million in share repurchases,$54.4 million in dividend payments, and$51.9 million of capital expenditures. These cash outflows were partially offset by cash inflows of$195.5 million of net cash provided by operating activities, and$50.5 million in proceeds from the exercise of employee stock options. Net cash used in investing activities was$49.9 million in the first six months of fiscal 2020, representing a$30.6 million increase from the same period a year ago. This increase was due primarily to$30.4 million of higher capital expenditures. Net cash used by financing activities was$164.1 million in the first six months of fiscal 2020, representing a$48.2 million increase in cash used by financing activities from the same period a year ago. The increase was primarily due to a$47.9 million increase in share purchases, and a$5.9 million increase in dividend payments, partially offset by a$7.1 million increase in proceeds from employee stock plans. As ofFebruary 29, 2020 , our total Cash and cash equivalents worldwide was$343.5 million . The total available cash and cash equivalents within theAmericas was$83.4 million , within EMEA was$208.4 million (predominantly within theUK ,France , andGermany ) and the remaining$51.7 million was held inAsia Pacific . As ofFebruary 29, 2020 , we have borrowed$575.0 million of the available$750.0 million provided under our 2019 revolving credit facility, resulting in$175.0 million available for additional borrowings. The 2019 Credit Agreement between FactSet, as the borrower, andPNC Bank, National Association ("PNC"), as the administrative agent and lender (the "2019 Credit Agreement") also allows us, subject to certain requirements, to arrange for additional borrowings with an aggregate amount up to$500.0 million . Refer to Capital Resources - Capital Needs - Long Term Debt for additional information on the 2019 Credit Agreement. We believe our liquidity (including cash on hand, cash from operating activities, other cash flows that we expect to generate and availability under our existing credit facilities) within each geographic segment will be sufficient to meet our short-term and long-term operating requirements, as they occur, including working capital needs, capital expenditures, dividend payments, stock repurchases, growth objectives and other financing activities. In addition, we expect existing foreign cash and cash equivalents and cash flows from operations to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as capital expenditures, for at least the next 12 months, and thereafter, for the foreseeable future. Free cash flow generated in the six months endedFebruary 29, 2020 was$143.6 million , an increase of 15.7% compared to a year ago. Free cash flow was generated from$195.5 million of net cash provided by operating activities, less$51.9 million in capital expenditures. Free cash flow increased$19.5 million year-over-year due to a$49.9 million increase in operating cash flows partially offset by higher capital expenditures for the build-out of new and existing office space for some of our locations and increased investments in technology compared to the prior year period. 40 -------------------------------------------------------------------------------- Table of Contents Capital Resources Capital Expenditures Capital expenditures were$25.1 million in the second quarter of fiscal 2020, compared to$12.0 million in the prior year period. Capital expenditures of$7.1 million , or 28%, were primarily related to investment in technology. The remainder of our capital expenditures were primarily for the build-out of our new corporate headquarters inNorwalk, Connecticut and office space inIndia . Capital expenditures were$51.9 million during the first six months of fiscal 2020, compared to$21.5 million in the same period a year ago. Capital expenditures of$14.8 million , or 29%, were primarily related to investment in technology. The remainder of our capital expenditures was primarily for the build-out of new corporate headquarters inNorwalk, Connecticut and office space inIndia . Capital Needs Long-Term Debt 2019 Credit Agreement OnMarch 29, 2019 , we entered into the 2019 Credit Agreement with PNC, 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 ofMarch 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 ofFebruary 29, 2020 , 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 currently at 0.10% 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 atFebruary 29, 2020 andAugust 31 . 2019. The principal balance is payable in full on the maturity date. The fair value of our long-term debt was$575.0 million as ofFebruary 29, 2020 , which we believe approximates the carrying amount as the terms and interest rate approximate market rates given its floating interest rate basis. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid, currently at 0.875%. For the three months endedFebruary 29, 2020 andFebruary 28, 2019 we recorded interest expense of$3.8 million and$5.1 million , respectively, on our outstanding debt amounts. For the six months endedFebruary 29, 2020 andFebruary 28, 2019 we recorded interest expense of$8.0 million and$9.9 million , respectively, on our outstanding debt amounts. The weighted average interest rate on amounts outstanding under our credit facilities was 2.76% and 3.35% for the year to date endedFebruary 29, 2020 andAugust 31, 2019 , respectively. Interest on the loan outstanding is payable quarterly, in arrears, and on the maturity date. During fiscal 2019, we incurred approximately$0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as loan origination fees and are amortized into interest expense ratably over the term of the 2019 Credit Agreement. The 2019 Credit Agreement contains covenants and requirements restricting certain 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 ofFebruary 29, 2020 . Letters of Credit From time to time, we are required to obtain letters of credit in the ordinary course of business. Approximately$2.9 million of standby letters of credit have been issued in connection with our leased office spaces as ofFebruary 29, 2020 . These standby letters of credit utilize the same covenants included in the 2019 Credit Agreement. Refer to Note 14, Debt, of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q for more information on these covenants. 41 -------------------------------------------------------------------------------- Table of Contents Foreign Currency Foreign Currency Exposure Certain wholly-owned subsidiaries within the EMEA andAsia Pacific segments operate under a functional currency different from theU.S. dollar. The financial statements of these foreign subsidiaries are translated intoU.S. dollars using period-end rates of exchange for assets and liabilities and average exchange rates for revenue and expenses. Translation gains and losses that arise from translating assets, liabilities, revenue and expenses of foreign operations are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity. Our foreign currency exchange exposure is related to our operating expenses in countries outside theAmericas , where approximately 76% of our employees were located as ofFebruary 29, 2020 . During the second quarter of fiscal 2020, foreign currency movements increased operating income by$0.2 million , compared to a$4.0 million increase to operating income a year ago. During the first six months of fiscal 2020, foreign currency movements increased operating income by$1.2 million , compared to a increase in operating income of$5.6 million in the same period a year ago. As ofFebruary 29, 2020 , we maintained foreign currency forward contracts to hedge a portion of our British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures. We entered into a series of forward contracts to mitigate our currency exposure ranging from 25% to 63% over their respective hedged periods. The current foreign currency forward contracts are set to mature at various points between the fourth quarter of fiscal 2020 through the first quarter of fiscal 2021. As ofFebruary 29, 2020 , the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees withU.S. dollars was ?842.6 billion andRs1,434.3 billion , respectively. The gross notional value of foreign currency forward contracts to purchaseU.S. dollars with Euros and British Pound Sterling was €20.5 million and £16.5 million, respectively. A loss on derivatives of$0.3 million was recorded into operating income for the three months endedFebruary 29, 2020 , compared to a loss on derivatives of$0.4 million in the same period a year ago. For the six months endedFebruary 29, 2020 , a loss on derivatives of$1.1 million was recorded into operating income, compared to a loss on derivatives of$0.8 million in the prior year period. Off-Balance Sheet Arrangements AtFebruary 29, 2020 andAugust 31, 2019 , we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing, other debt arrangements, or other contractually limited purposes. Share Repurchase Program Repurchases of shares of our common stock are made from time to time in the open market and privately negotiated transactions, subject to market conditions. In the second quarter of fiscal 2020, we repurchased 267,500 shares for$74.2 million under our existing share repurchase program compared to 214,945 shares for$44.1 million in the same period a year ago. During the first six months of fiscal 2020, we repurchased 610,500 shares for$158.6 million compared to 489,945 shares for$104.6 million in the prior year comparable period. For the six months endedFebruary 29, 2020 , we have returned$213.0 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we have returned$374.1 million to stockholders in the form of share repurchases and dividends. As ofFebruary 29, 2020 ,$80.0 million was available for future share repurchases under the existing share repurchase program. OnMarch 24, 2020 , our Board of Directors approved a$220.0 million increase to the existing share repurchase program. Subsequent to this expansion,$300.0 million is available for future share repurchases. Contractual Obligations Fluctuations in our operating results, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments, as well as necessary capital expenditures to support growth of our operations will impact our liquidity and cash flows in future periods. 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, 2019 , we had total purchase commitments of$69.9 million . There were no material changes in our purchase commitments during the six months endedFebruary 29, 2020 . 42 -------------------------------------------------------------------------------- Table of Contents As disclosed earlier in the Capital Resources section of this MD&A, we entered into the 2019 Credit Agreement onMarch 29, 2019 and borrowed$575.0 million . The loan balance of$575.0 million remains outstanding as ofFebruary 29, 2020 . Refer to the Capital Resources section of the MD&A for a discussion on our Long-term debt borrowings. There were no other significant changes to our contractual obligations during the first six months of fiscal 2020. Dividends OnFebruary 18, 2020 , our Board of Directors approved a regular quarterly dividend of$0.72 per share. The cash dividend of$27.1 million was paid onMarch 19, 2020 , to common stockholders of record at the close of business onFebruary 28, 2020 . Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to final determination by our Board of Directors. Significant Accounting Policies and Critical Accounting Estimates We describe our significant accounting policies in Note 3, Summary of Significant Accounting Policies, of the notes to our consolidated financial statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 . The accounting policies used in preparing our consolidated financial statements for the first six months of fiscal 2020 are applied consistently with those described in our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 , with the exception of the accounting guidance adopted in the first quarter of fiscal 2020 related to leases accounting. Refer to Note 15, Leases, of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further details on the adoption of the new lease standard. We discuss our critical accounting estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 . There were no significant changes in our accounting policies or critical accounting estimates during the first six months of fiscal 2020. New Accounting Pronouncements See Note 3, Recent Accounting Pronouncements, in the notes to the consolidated financial statements for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include herein by reference. Market Trends In the ordinary course of business, we are exposed to financial risks involving the volatility of equity markets as well as foreign currency and interest rate fluctuations. Shift from Active toPassive Investment Management Approximately 84.1% of our ASV is derived from our investment management clients. The prosperity of these clients is tied to equity assets under management. An equity market decline not only depresses assets under management but also could cause a significant increase in redemption requests to move money out of equities and into other asset classes. Moreover, a shift from active investment management to passive investment management can result in lower demand for our services. Our investment banking clients that provide M&A advisory work, capital markets services and equity research, account for approximately 15.9% of our ASV. A significant portion of this revenue relates to services deployed by large, bulge-bracket banks. Credit continues to impact many of the large banking clients due to the amount of leverage deployed in past operations. Our clients could also encounter similar issues. A lack of confidence in the global banking system could cause declines in M&A funded by debt. Additional uncertainty, consolidation and business failures in the global investment banking sector could adversely affect our financial results and future growth. Regardless, the size of banks in general is shrinking as they deleverage their balance sheets and adjust their expense bases to future revenue opportunities. Our revenue may decline if banks, including those involved in merger activity, significantly reduce headcount in the areas of corporate M&A, capital markets and equity research to compensate for the challenges faced in the current economic environment.
Brexit
OnJanuary 31, 2020 , theUK formally left theEuropean Union when theUK -EU Withdrawal Agreement became effective. Under the Withdrawal Agreement, a transition period began and will run untilDecember 31, 2020 . During this transition period, many existing arrangements will remain in place. TheUK will still follow all the EU's rules and regulations, will remain in the single market and the customs union, and will continue to permit the free movement of people. A political declaration also came into force onJanuary 31, 2020 , which sets out the overall understanding on the framework for the futureUK -EU relationship and provides the basis forUK -EU negotiations. TheUK and the EU are currently negotiating aUK -EU free trade deal and the terms of their future relationship. The deadline for these negotiations is the expiry of the 43 -------------------------------------------------------------------------------- Table of Contents transition period. At this time, we cannot predict the impact that the futureUK -EU arrangements will have on our business, as it will depend on the longer-term outcome of tariff, trade, regulatory and other negotiations. Although the results of these negotiations are currently unknown, it is possible that new terms may adversely affect our operations and financial results. While we evaluate our own risks and uncertainty related to Brexit, we continue to partner with our clients to help them navigate the fluctuating international markets. Markets in Financial Instruments Directive ("MiFID") MiFID II built upon many of the initiatives introduced through MiFID and is intended to help improve the functioning of theEuropean Union single market by achieving a greater consistency of regulatory standards. MiFID originally became effective in 2007 and was enhanced through adoption of MiFID II, which became effective inJanuary 2018 . We continue to monitor the impact in theEuropean Union of MiFID II on the investment process and trade lifecycle, as well as any impact of MiFID II on non-European Union countries. We also continue to review the application of key MiFID II requirements and plan to work with our clients to navigate through them. Forward-Looking Factors Forward-Looking Statements In addition to current and historical information, this Quarterly Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements based on management's current expectations, estimates, forecasts and projections about industries in which we operate and the beliefs and assumptions of management. All statements that address expectations, guidance, outlook or projections about the future, including statements about our strategy for growth, product development, revenue, future financial results, anticipated growth, market position, subscriptions, expected expenditures, trends in our business and financial results, are forward-looking statements. Forward-looking statements may be identified by words like "expects," "believes", "anticipates," "plans," "intends," "estimates", "projects," "should," "indicates," "continues," "may" and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this Quarterly Report on Form 10-Q or in any of our other filings with theSecurities and Exchange Commission , could cause results to differ materially from those stated. These factors include, but are not limited to: the ability to integrate newly acquired companies, clients and businesses; strains on resources as a result of growth, the volatility and stability of global securities markets, including declines in equity or fixed income returns impacting the buying power of investment management clients; the ability to hire and retain qualified personnel; the maintenance of our leading technological position and reputation; failure to maintain or improve our competitive position in the marketplace; fraudulent, misappropriation or unauthorized data access, including cyber-security and privacy breaches; failures or disruptions of telecommunications, data centers, network systems, facilities, or the Internet; uncertainty, consolidation and business failures in the global investment banking industry; the continued shift from active to passive investing, the negotiation of contract terms with vendors, data suppliers and landlords; the retention of clients and the attraction of new ones; the absence ofU.S. or foreign governmental regulation restricting international business; the unfavorable resolution of tax assessments and legal proceedings; the impact of the coronavirus pandemic on our operating results; and legislative and regulatory changes in the environments in which we and our clients operate. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. We intend that all forward-looking statements we make will be subject to safe harbor protection of the federal securities laws as found in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in this MD&A above and those listed in Part 1 Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 . We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Quarterly Report to reflect actual results or future events or circumstances. Business Outlook We provided forward-looking statement for fiscal 2020 onSeptember 26, 2019 . Given the number of risk factors, uncertainties and assumptions discussed in Part 1 Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 , and particularly the ongoing uncertainty surrounding the duration, magnitude, and impact of the novel coronavirus pandemic, actual results may differ materially from these expectations. We currently do not intend to update our forward-looking statements until our next quarterly results announcement, other than in publicly available statements. 44 -------------------------------------------------------------------------------- Table of Contents Fiscal 2020 Expectations: - Organic ASV plus professional services is now expected to increase in the range of$50 million and$75 million over fiscal 2019. The change in the range reflects the current anticipated business impacts resulting from the coronavirus pandemic. - GAAP revenue is expected to be in the range of$1.49 billion and$1.50 billion . - GAAP operating margin is expected to be in the range of 28.5% and 29.5%. - Adjusted operating margin is expected to be in the range of 31.5% and 32.5%. - Annual effective tax rate is expected to be in the range of 17.0% and 17.5%. - GAAP diluted EPS is expected to be in the range of$8.70 and$9.00 . Adjusted diluted EPS is expected to be in the range of$9.85 and$10.15 . Both GAAP operating margin and GAAP diluted EPS guidance do not include certain effects of any non-recurring benefits or charges that may arise in fiscal 2020. 45
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