FACTSET RESEARCH : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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 the Securities and Exchange Commission, and
the consolidated financial statements and related notes included in this
Quarterly Report on Form 10-Q.
Executive Overview
FactSet 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, the Americas, EMEA (formerly known as Europe), and
Asia 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: the Americas, EMEA, and Asia 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.
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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 our Analytics 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 of
February 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 of February 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% in Asia
Pacific and 4.6% in EMEA, partially offset by a net decrease of 1.3% in the
Americas. Of our total employees, 6,240 were located in Asia Pacific, 2,342 were
located in the Americas, and 1,310 were located in EMEA.
COVID-19 Update
In December 2019, a novel strain of coronavirus, now known as COVID-19
("COVID-19"), was reported in Wuhan, China and has since extensively impacted
the global health and economic environment. In January 2020, the World Health
Organization ("WHO") declared it a Public Health Emergency of International
Concern. On February 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 on March 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.
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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 of February 29, 2020 and February 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 of February 29, 2020, our organic ASV totaled $1.48
billion, up 4.2% over the prior year comparable period. As of February 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 the Americas,
which also benefited from our annual price increase for most clients in this
segment, followed by growth in EMEA and Asia Pacific, partially offset by
increased cancellations compared to the prior year period. The increase in ASV
from our workflow solutions was primarily driven by Analytics and Trading, CTS
and Wealth. The ASV increase in Analytics 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 of February 29, 2020, organic ASV from the Americas was $925.6 million, an
increase of 3.9% from the prior year period. Organic ASV from EMEA was $407.8
million as of February 29, 2020, an increase of 3.8% compared to the prior year
period. Asia Pacific ASV was $145.7 million as of February 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 of February 29, 2020, consistent with 37.3% in
the prior year period.
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ASV increased in the Americas as of February 29, 2020, compared to the prior
year period, primarily from Analytics 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 of February 29, 2020, ASV
increased in Asia Pacific mainly due to Analytics and Trading, CTS and Research.
The ASV increase in EMEA was primarily driven by Analytics 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 of February 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 of February 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 ending February 29, 2020 and February 28, 2019
exceeded 95%. Client retention was 89% for the period ended February 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 of February 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
On February 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 on
March 19, 2020 to common stockholders of record at the close of business on
February 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 ended February 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 of February 29, 2020, $80.0 million
remains available for future share repurchases under the existing share
repurchase program.

On March 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 in Norwalk, Connecticut and office space in India.
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Results of Operations
For an understanding of the significant factors that influenced our performance
for the three and six months ended February 29, 2020 and February 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 ended February 29, 2020 compared to three months ended February 28,
2019
Revenue for the three months ended February 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 ended February 29, 2020 compared to
the prior year period, with the majority of the increase in revenue driven by
the Americas, which also benefited from our annual price increase for the
majority of our clients in the region, partially offset by cancellations.

Six months ended February 29, 2020 compared to six months ended February 28,
2019
Revenue for the six months ended February 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 ended February 29, 2020 compared to the
prior year period, with the increase in revenue primarily related to the
Americas, 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 ended February 29, 2020 compared to three months ended February 28,
2019
Revenue from our Americas segment increased 4.2% to $232.7 million during the
three months ended February 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 in Analytics and Trading, CTS and
Wealth, along with our annual price increase for the majority of the Americas'
clients, partially offset by cancellations. Organic revenue in the Americas
increased 4.2% compared to the same period a year ago. Revenue from our Americas
operations accounted for 62.9% of our consolidated revenue during the second
quarter of fiscal 2020 and 2019.

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EMEA revenue increased 3.2% to $102.1 million during the three months ended
February 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 in Analytics and Trading and CTS, partially offset by
cancellations. The EMEA organic revenue growth rate was 3.1% for the three
months ended February 29, 2020, compared to the same period a year ago.

Asia Pacific revenue increased 7.0% to $34.9 million during the three months
ended February 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 the Analytics and Trading, CTS and Research
workflows, partially offset by cancellations. Asia Pacific organic revenue
increased 7.0% for the three months ended February 29, 2020, compared to the
same period a year ago.

Six months ended February 29, 2020 compared to six months ended February 28,
2019
Revenue from our Americas segment increased 4.2% to $464.1 million during the
six months ended February 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 in Analytics and Trading, CTS and
Wealth, partially offset by cancellations. Organic revenue in the Americas
increased 4.2% compared to the same period a year ago. Revenue from our Americas
operations accounted for 63.0% of our consolidated revenue for the six months
ended February 29, 2020, compared to 63.1% in the prior year period.

EMEA revenue increased 3.2% to $202.9 million during the six months ended
February 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 in Analytics and Trading and CTS, partially offset by
cancellations. The EMEA organic revenue growth rate was 3.0% for the six months
ended February 29, 2020, compared to the same period a year ago.

Asia Pacific revenue increased 8.0% to $69.4 million during the six months ended
February 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 the Analytics and Trading, CTS and Research workflows,
partially offset by cancellations. Asia Pacific organic revenue increased 8.0%
for the six months ended February 29, 2020, compared to the same period a year
ago.

Revenue by Workflow Solution
Three months ended February 29, 2020 compared to three months ended February 28,
2019
The revenue growth of 4.2% across our operating segments for the three months
ended February 29, 2020 compared to the same period a year ago was primarily
driven by Analytics and Trading, CTS, and Wealth, along with our annual price
increase for the majority of our Americas' clients. Revenue growth from
Analytics 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 ended February 29, 2020 compared to six months ended February 28,
2019
The revenue growth of 4.2% across our operating segments for the six months
ended February 29, 2020 compared to the same period a year ago was primarily
driven by Analytics and Trading, CTS and Wealth, along with our annual price
increase during the second quarter of fiscal 2020 for the majority of our
Americas' clients. Revenue growth from Analytics 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.

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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 ended February 29, 2020 compared to three months ended February 28,
2019
For the three months ended February 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 ended February 29, 2020 compared to six months ended February 28,
2019
For the six months ended February 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 ended
February 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 ended February 29, 2020 compared to three months ended February 28,
2019
For the three months ended February 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.
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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 ended February 29, 2020 compared to six months ended February 28,
2019
For the six months ended February 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 ended February 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 ended February 29, 2020 compared to three months ended February 28,
2019
Operating income decreased 2.2% to $106.3 million for the three months ended
February 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 ended February 29, 2020 compared to six months ended February 28,
2019
Operating income increased 4.9% to $219.4 million for the six months ended
February 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 ended February 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  %


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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, the Americas, EMEA and Asia 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 the Americas segment and are not allocated to the other
segments. The centers of excellence, located in India and the 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 ended February 29, 2020 compared to three months ended February 28,
2019Americas operating income decreased 9.6% to $41.3 million during the three
months ended February 29, 2020 compared to $45.7 million in the same period a
year ago. The decrease in Americas 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
ended February 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 ended February 29, 2020, compared to $19.7 million in the same period a
year ago. The increase in the Asia 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 our Asia Pacific workforce in the last 12 months
and annual base salary increases year-over-year.
Six months ended February 29, 2020 compared to six months ended February 28,
2019Americas operating income increased 1.6% to $90.9 million during the six months
ended February 29, 2020 compared to $89.5 million in the same period a year ago.
The increase in Americas 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
ended February 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 ended February 29, 2020, compared to $37.4 million in the same period a
year ago. The increase in the Asia 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 our Asia
Pacific workforce in the last 12 months and annual base salary increases
year-over-year.
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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 ended February 29, 2020 compared to three months ended February 28,
2019
For the three months ended February 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 ended February 29,
2020, $2.4 million income tax expense from the settlement with a tax authority
recognized during the three months ended February 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 the U.S.
Tax Cuts and Jobs Act ("TCJA") recognized during the three months ended
February 28, 2019.
Six months ended February 29, 2020 compared to six months ended February 28,
2019
For the six months ended February 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 ended February 29, 2020 compared to the
prior year period. The net increase in tax benefits of $10.6 million for the six
months ended February 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 ended February 28, 2019, coupled with
benefits recognized during the six months ended February 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 ended February 28, 2019.

Net Income and Diluted Earnings per Share
Three months ended February 29, 2020 compared to three months ended February 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 ended February 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 ended February 29, 2020 compared to six months ended February 28,
2019
Net income increased 8.1% to 182.6 million and diluted EPS increased 8.2% to
$4.73 for the six months ended February 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.
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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.

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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
                                              February 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 $ 2.55$ 2.42 5.4 %
Weighted average common shares (Diluted)

           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.
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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 $ 195,460$ 145,554
Capital expenditures(1)

                          (51,899)          (21,482)
Free cash flow(2)                            $   143,561$   124,072

Net cash used in investing activities(1) $ (49,936)$ (19,368)
Net cash used in financing activities $ (164,057)$ (115,819)
Cash and cash equivalents at end of period 343,488

           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 of February 29, 2020,
compared to $359.8 million as of August 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 of February 29, 2020, our total Cash and cash equivalents worldwide was
$343.5 million. The total available cash and cash equivalents within the
Americas was $83.4 million, within EMEA was $208.4 million (predominantly within
the UK, France, and Germany) and the remaining $51.7 million was held in Asia
Pacific.
As of February 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, and PNC 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 ended February 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.
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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 in Norwalk, Connecticut and office space in India.
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 in Norwalk, Connecticut and office space
in India.
Capital Needs
Long-Term Debt
2019 Credit Agreement
On March 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 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 February 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 at February 29, 2020 and August 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 of February 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 ended February 29, 2020 and
February 28, 2019 we recorded interest expense of $3.8 million and $5.1 million,
respectively, on our outstanding debt amounts. For the six months ended
February 29, 2020 and February 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 ended February 29, 2020 and
August 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 of February 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 of February 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.
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Foreign Currency
Foreign Currency Exposure
Certain wholly-owned subsidiaries within the EMEA and Asia Pacific segments
operate under a functional currency different from the U.S. dollar. The
financial statements of these foreign subsidiaries are translated into U.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 the Americas, where approximately 76% of our employees were
located as of February 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 of February 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 of February 29, 2020, the gross notional value of foreign currency forward
contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was
?842.6 billion and Rs1,434.3 billion, respectively. The gross notional value of
foreign currency forward contracts to purchase U.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 ended February 29, 2020, compared to a loss on derivatives of $0.4
million in the same period a year ago. For the six months ended February 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
At February 29, 2020 and August 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 ended February 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 of February 29, 2020, $80.0 million was available
for future share repurchases under the existing share repurchase program.
On March 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 of August 31,
2019, we had total purchase commitments of $69.9 million. There were no material
changes in our purchase commitments during the six months ended February 29,
2020.
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As disclosed earlier in the Capital Resources section of this MD&A, we entered
into the 2019 Credit Agreement on March 29, 2019 and borrowed $575.0 million.
The loan balance of $575.0 million remains outstanding as of February 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
On February 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 on
March 19, 2020, to common stockholders of record at the close of business on
February 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 ended August 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 ended August 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 ended August 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 to Passive 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

On January 31, 2020, the UK formally left the European Union when the UK-EU
Withdrawal Agreement became effective. Under the Withdrawal Agreement, a
transition period began and will run until December 31, 2020. During this
transition period, many existing arrangements will remain in place. The UK 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 on January 31, 2020, which sets out
the overall understanding on the framework for the future UK-EU relationship and
provides the basis for UK-EU negotiations. The UK and the EU are currently
negotiating a UK-EU free trade deal and the terms of their future relationship.
The deadline for these negotiations is the expiry of the
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transition period. At this time, we cannot predict the impact that the future
UK-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 the European 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 in January 2018. We continue to monitor the impact in the European
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 the Securities 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 of U.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 ended
August 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 on September 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 ended August 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.
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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.

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