FACTSET RESEARCH SYSTEMS INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 and analysis, trade execution, performance measurement, risk management, and reporting, 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 an organization. We are focused on growing our business through 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, portfolio 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. 29 Table of Content s Fiscal 2020 Third Quarter in Review Revenue in the third quarter of fiscal 2020 was $374.1 million, an increase of 2.6% 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 Analytics and Trading, followed by CTS and Wealth. The revenue growth was driven by increased demand for our risk management, portfolio analytics and reporting solutions, core and premium data feeds, and traditional and web-based wealth workstations. As of May 31, 2020, organic annual subscription value ("organic ASV") plus professional services totaled $1.52 billion, an increase of 5.0% over the prior year comparable period. 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 and 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. Operating income grew 3.8% and diluted earnings per share ("EPS") increased 11.0% compared to the prior year period. This increase in operating income was primarily driven by revenue growth of 2.6% and a decrease in non-compensatory employee related expenses mainly due to restrictions and impacts related to the COVID-19 pandemic. This operating income increase was partially offset by an increase in computer-related expenses on a year-over-year basis, primarily driven by increased technology investments including cloud-based hosting and licensed software arrangements. Additionally, EPS benefited from a reduction in the income tax provision, interest expense and diluted weighted average shares outstanding, compared to the prior year period. As of May 31, 2020, our employee count was 10,065, up 7.5% in the past 12 months, due primarily to an increase in net new employees of 9.0% in Asia Pacific, 6.7% in EMEA, and 3.9% in the Americas. Of our total employees, 6,372 were located in Asia Pacific, 2,367 were located in the Americas, and 1,326 were located in EMEA. COVID-19 Update A novel strain of coronavirus, now known as COVID-19 (“COVID-19”), was first reported in December 2019, and it has since extensively impacted the global health and economic environment, with the World Health Organization characterizing COVID-19 as a pandemic on March 11, 2020. The COVID-19 virus has spread to nearly all regions in the world, creating significant uncertainties and disruption in the global economy. We are closely monitoring pandemic-related developments, and our highest priority is the health and safety of our employees, clients, vendors and stakeholders. We have taken, and continue to take, numerous steps to address the COVID-19 pandemic. We have implemented a business continuity plan with a dedicated incident management team to respond quickly and effectively to changes in our environment to continue offering our clients uninterrupted products, services and support while also protecting our employees. We will continue to coordinate our COVID-19 response based on guidance from global health organizations, relevant governments and pandemic response best practices. We have required the vast majority of our employees at our offices across the globe (including our corporate headquarters) to work remotely on a temporary basis and have implemented global travel restrictions for our employees. Nearly all our employees are currently working remotely. We believe our transition to remote working has been successful and has not significantly affected our financial results for the three or nine months ended May 31, 2020. We are planning to re-open many of our offices during fiscal 2021, utilizing a three-phased approach to provide flexibility for employees with a focus on social distancing and safety. Our offices will not re-open until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied. There can be no assurances as to when we re-open our offices or that there will be no negative impacts arising from the return to the office environment. As of May 31, 2020, there has been minimal interruptions in our ability to provide our products, services and support to our clients. Working remotely has had relatively little impact on the productivity of our employees, including our ability to gather content. We continue to work closely with our clients to provide consistent access to our products and services and have remained flexible to achieve client priorities as many implement their own contingency plans. We have increased our support desk resources to manage increased volumes and have extended additional web IDs to our clients in need of immediate remote access to financial data. 30 Table of Content s Our revenue, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model. To date, we have not seen the COVID-19 pandemic having a material impact on our revenue or ASV, although we anticipate that there may be some level of revenue and ASV weakness going forward due to longer sales cycles and lower incremental client billings. The COVID-19 pandemic could curtail our clients’ spending and 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. 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. We have incurred, and expect to continue to incur, additional expenses in response to the COVID-19 pandemic, including costs to enable our employees to support our clients while working remotely. These additional expenses were not material to our third quarter fiscal 2020 results, and reductions in discretionary spending, particularly travel and entertainment, have more than offset these increased expenses. We believe that implementing additional cost reduction efforts will help us mitigate the impact that any reduced revenues may have on our future operating income. We may consider reducing expenses further through such methods as reduction of discretionary spending, including travel and entertainment; tighter management of headcount spending; and reduction in variable third-party content costs in a manner consistent with client demand. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law to address the economic impact of the COVID-19 pandemic. We continue to monitor any effects that may result from the CARES Act and other similar legislation or actions in geographies in which our business operates. 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 Change (in thousands, except client and user counts and per share data) May 31, 2020 May 31, 2019 Revenue $ 374.1 $ 364.5 2.6 % Operating income $ 121.6 $ 117.2 3.8 % Net income $ 101.2 $ 92.3 9.7 % Diluted EPS $ 2.63 $ 2.37 11.0 % Clients 5,743 5,455 5.3 % Users 131,095 122,951 6.6 % The table below provides a reconciliation of ASV to organic ASV: As of Change (in millions) May 31, 2020 May 31, 2019 As reported ASV (1) $ 1,493.8 $ 1,423.0 Currency impact to ASV (0.1) — Organic ASV (2) $ 1,493.7 $ 1,423.0 5.0 % (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 $23.1 million as of May 31, 2020 and May 31, 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. 31 Table of Content s 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 and 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 May 31, 2020, our organic ASV totaled $1.49 billion, up 5.0% over the prior year comparable period. As of May 31, 2020, organic ASV plus professional services was $1.52 billion, an increase of 5.0% 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. The majority of the ASV increase related to the Americas, followed by growth in Asia Pacific and EMEA, as well as the benefit from our annual price increase, partially offset by cancellations. The increase in ASV was driven by growth in all our workflow solutions, primarily from an increase in Analytics and Trading and CTS, followed by Wealth and Research. The ASV increase in Analytics and Trading was mainly due to increased sales for our risk management, portfolio analytics and reporting solutions. The increase in ASV from CTS was primarily driven by increased sales in premium and core data feeds, while the ASV increase in Wealth was mainly due to increased traditional and web-based workstation sales. The ASV increase in Research was mainly due to price increases from the existing client base. As of May 31, 2020, ASV from the Americas was $931.5 million, an increase of 5.0% from the prior year period. ASV from EMEA was $411.9 million as of May 31, 2020, an increase of 3.7% compared to the prior year period. Asia Pacific ASV was $150.4 million as of May 31, 2020, an increase of 8.9% compared to the prior year period. Combined EMEA and Asia Pacific ASV represented 37.6% of total ASV as of May 31, 2020, consistent with the prior year period. ASV in the Americas as of May 31, 2020, increased compared to the prior year period, primarily from Analytics and Trading, CTS and Wealth, as well as the benefit from our annual price increase, partially offset by cancellations. As of May 31, 2020, ASV increased in Asia Pacific mainly due to Analytics and Trading, Research, CTS, and the benefit from our annual price increase. The ASV increase in EMEA was primarily driven by Analytics and Trading, CTS and the benefit from our annual price increase, as well as decreased cancellations in the region compared to the prior year period. Buy-side and sell-side organic ASV growth rates for the third quarter of fiscal 2020 were 4.8% and 5.6%, respectively, compared to the prior year period. Buy-side clients account for 84% of organic ASV, which include traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. The remainder of our organic 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 5,743 as of May 31, 2020, representing a net increase of 288 or 5.3% in the last 12 months. The increase was primarily due to an increase in corporate and wealth management clients. As of May 31, 2020, there were 131,095 professionals using FactSet, representing a net increase of 8,144 or 6.6% in the last 12 months, driven primarily by wealth management, corporate, and banking clients. ASV retention for the periods ending May 31, 2020 and May 31, 2019 exceeded 95%. Client retention was 89% for the period ended May 31, 2020, compared to retention of 90% in the prior year period. Client retention was lower primarily due to continued cost pressures among institutional asset managers and sell-side clients. As of May 31, 2020, our largest individual client accounted for just above 2.5% of total subscriptions, and annual subscriptions from our ten largest clients did not surpass 15% of total client subscriptions. Returning Value to Stockholders On May 5, 2020, FactSet’s Board of Directors approved a 7% increase in the regular quarterly dividend from $0.72 to $0.77 per share. The cash dividend of $29.0 million was paid on June 18, 2020 to common stockholders of record at the close of business on May 29, 2020. We repurchased 46,636 shares of common stock for $12.4 million during the third quarter of fiscal 2020 under our existing share repurchase program. For the nine months ended May 31, 2020, we returned $252.4 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we returned $341.8 million to stockholders in the form of share repurchases and dividends. On March 24, 2020, our Board of Directors approved a $220.0 million increase to the existing share repurchase program. As a result of this expansion, $287.6 million is available for future share repurchases as of May 31, 2020. 32 Table of Content s Capital Expenditures Capital expenditures in the third quarter of fiscal 2020 were $11.0 million, compared to $11.4 million in the prior year period. Capital expenditures of $5.9 million, or 54%, were related to facilities investments, primarily for the build-out of our new corporate headquarters in Norwalk, Connecticut and office space in the Philippines. The remainder of our capital expenditures, $5.1 million, was primarily related to investment in technology and development costs related to internal-use software. Results of Operations For an understanding of the significant factors that influenced our performance for the three and nine months ended May 31, 2020 and May 31, 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 May 31, Nine Months Ended May 31, (in thousands, except per share data) 2020 2019 Change 2020 2019 Change Revenue $ 374,083 $ 364,533 2.6 % $ 1,110,521 $ 1,071,068 3.7 % Cost of services $ 170,703 $ 163,832 4.2 % $ 511,878 $ 495,716 3.3 % Selling, general and administrative $ 81,740 $ 83,461 (2.1) % $ 257,560 $ 248,885 3.5 % Operating income $ 121,640 $ 117,240 3.8 % $ 341,083 $ 326,467 4.5 % Net income $ 101,216 $ 92,265 9.7 % $ 283,859 $ 261,263 8.6 % Diluted earnings per common share $ 2.63 $ 2.37 11.0 % $ 7.36 $ 6.73 9.4 % Diluted weighted average common shares 38,481 38,993 38,548 38,807 Revenue Three months ended May 31, 2020 compared to three months ended May 31, 2019 Revenue for the three months ended May 31, 2020 was $374.1 million, an increase of 2.6%, consistent with the organic revenue increase of 2.6% compared to the prior year period. The increase in revenue was due to growth across all our operating segments for the three months ended May 31, 2020 compared to the prior year period, with the majority of the increase in revenue driven by the Americas, as well as the benefit from our annual price increase, partially offset by cancellations. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 Revenue for the nine months ended May 31, 2020 was $1,110.5 million, an increase of 3.7%, comparable with the organic revenue increase of 3.6% over the same period a year ago. The increase in revenue was due to growth across all our operating segments for the nine months ended May 31, 2020 compared to the prior year period, with the increase in revenue primarily related to the Americas and the benefit from our annual price increase, partially offset by cancellations. Revenue by Operating Segment Three Months Ended May 31, Nine Months Ended May 31, (in thousands) 2020 2019 Change 2020 2019 Change Americas $ 230,992 $ 226,961 1.8 % $ 695,053 $ 672,479 3.4 % % of revenue 61.7 % 62.3 % 62.6 % 62.8 % EMEA $ 105,420 $ 102,499 2.8 % $ 308,355 $ 299,197 3.1 % % of revenue 28.2 % 28.1 % 27.8 % 27.9 % Asia Pacific $ 37,671 $ 35,073 7.4 % $ 107,113 $ 99,392 7.8 % % of revenue 10.1 % 9.6 % 9.6 % 9.3 % Consolidated $ 374,083 $ 364,533 2.6 % $ 1,110,521 $ 1,071,068 3.7 % Three months ended May 31, 2020 compared to three months ended May 31, 2019 Revenue from our Americas segment increased 1.8% to $231.0 million during the three months ended May 31, 2020, compared to $227.0 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, followed by CTS and Wealth, along with the benefit from our annual price increase, partially offset by cancellations. Organic revenue in the Americas also increased 1.8% compared to the same period a year ago. Revenue from our Americas operations accounted for 61.7% of our consolidated revenue for the three months ended May 31, 2020 compared to 62.3% in the prior year period. 33 Table of Content s EMEA revenue increased 2.8% to $105.4 million during the three months ended May 31, 2020, compared to $102.5 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 3.0% for the three months ended May 31, 2020, compared to the same period a year ago. Foreign currency exchange rate fluctuations decreased our EMEA revenue growth rate by 20 basis points. Asia Pacific revenue increased 7.4% to $37.7 million during the three months ended May 31, 2020, compared to $35.1 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 Research, partially offset by cancellations. Asia Pacific organic revenue increased 7.0% for the three months ended May 31, 2020, compared to the same period a year ago. Foreign currency exchange rate fluctuations increased our Asia Pacific revenue growth rate by 40 basis points. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 Revenue from our Americas segment increased 3.4% to $695.1 million during the nine months ended May 31, 2020, compared to $672.5 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 3.3% compared to the same period a year ago. Revenue from our Americas operations accounted for 62.6% of our consolidated revenue for the nine months ended May 31, 2020, compared to 62.8% in the prior year period. EMEA revenue increased 3.1% to $308.4 million during the nine months ended May 31, 2020, compared to $299.2 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 nine months ended May 31, 2020, compared to the same period a year ago. Foreign currency exchange rate fluctuations decreased our EMEA revenue growth rate by 10 basis points. Asia Pacific revenue increased 7.8% to $107.1 million during the nine months ended May 31, 2020, compared to $99.4 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 Research, partially offset by cancellations. Asia Pacific organic revenue increased 7.6% for the nine months ended May 31, 2020, compared to the same period a year ago. Foreign currency exchange rate fluctuations increased our Asia Pacific revenue growth rate by 20 basis points. Revenue by Workflow Solution Three months ended May 31, 2020 compared to three months ended May 31, 2019 The revenue growth of 2.6% across our operating segments for the three months ended May 31, 2020 compared to the same period a year ago was primarily driven by Analytics and Trading, CTS, and Wealth, along with the benefit from our annual price increase. Revenue growth from Analytics and Trading was primarily due to increased demand for our risk management, portfolio analytics and reporting solutions. 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 cancellations resulting from continued industry-wide cost pressures and firm consolidations. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 The revenue growth of 3.7% across our operating segments for the nine months ended May 31, 2020 compared to the same period a year ago was primarily driven by Analytics and Trading, CTS, and Wealth, along with the benefit from our annual price increase. Revenue growth from Analytics and Trading was mainly due to increased sales of risk and portfolio analytics 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 cancellations resulting from continued industry-wide cost pressures and firm consolidations. 34 Table of Content s Operating Expenses Three Months Ended May 31, Nine Months Ended May 31, (in thousands) 2020 2019 Change 2020 2019 Change Cost of services $ 170,703 $ 163,832 4.2 % $ 511,878 $ 495,716 3.3 % Selling, general and administrative 81,740 83,461 (2.1) % 257,560 248,885 3.5 % Total operating expenses $ 252,443 $ 247,293 2.1 % $ 769,438 $ 744,601 3.3 % Operating Income $ 121,640 $ 117,240 3.8 % $ 341,083 $ 326,467 4.5 % Operating Margin 32.5 % 32.2 % 30.7 % 30.5 % Cost of Services Three months ended May 31, 2020 compared to three months ended May 31, 2019 For the three months ended May 31, 2020, cost of services increased 4.2% to $170.7 million compared to $163.8 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 45.6% during the third quarter of fiscal 2020, an increase of 70 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 120 basis points, primarily driven by increased technology investments including cloud-based hosting and licensed software arrangements. Employee compensation expense, when expressed as a percentage of revenue, decreased 50 basis points in the third quarter of fiscal 2020, compared to the same period a year ago. This decrease in employee compensation expense was primarily driven by higher capitalization of compensation costs related to development of our internal-use software projects, as well as a shift in headcount distribution from higher to lower cost locations. This employee compensation expense decrease was partially offset by higher annual base salaries, a net increase in employee headcount, with the majority of the compensation from new employee headcount included in cost of services, and a higher vacation accrual expense. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 For the nine months ended May 31, 2020, cost of services increased 3.3% to $511.9 million compared to $495.7 million in the same period a year ago, primarily due to an increase in computer-related expenses and stock-based compensation. Cost of services, when expressed as a percentage of revenue, was 46.1% for the nine months ended May 31, 2020, a decrease of 20 basis points compared to the same period a year ago. This decrease was primarily driven by a reduction in employee compensation, partially offset by higher computer-related expenses, when expressed as a percentage of revenue. Employee compensation expense, when expressed as a percentage of revenue, decreased 110 basis points, primarily driven by higher capitalization of compensation costs related to development of our internal-use software projects, as well as a shift in headcount distribution from higher to lower cost locations. This employee compensation expense decrease was partially offset by higher annual base salaries, a net increase in employee headcount of 699 employees, with the majority of the compensation from new employee headcount included in cost of services, and higher vacation accrual expense. Computer-related expenses, when expressed as a percentage of revenue, increased 120 basis points, primarily driven by increased technology investments including cloud-based hosting and licensed software arrangements. Selling, General and Administrative Three months ended May 31, 2020 compared to three months ended May 31, 2019 For the three months ended May 31, 2020, SG&A expenses decreased 2.1% to $81.7 million, compared to $83.5 million for the same period a year ago, primarily due to a decrease in non-compensatory employee related expenses, partially offset by an increase in compensation expense. SG&A expenses, expressed as a percentage of revenue, were 21.9% during the third quarter of fiscal 2020, a decrease of 100 basis points over the prior year period. When expressed as a percentage of revenue, this decrease was primarily driven by a decrease in non-compensatory employee related expenses and bad debt expense, partially offset by an increase in employee compensation expense including stock-based compensation. 35 Table of Content s Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, when expressed as a percentage of revenue, decreased 170 basis points mainly due to restrictions and impacts related to the COVID-19 pandemic. Bad debt decreased 40 basis points, compared to the prior year period, when expressed as a percentage of revenue. Employee compensation expense, including stock-based compensation, increased 80 basis points, when expressed as a percentage of revenue, due to higher annual base salaries, a net increase in employee headcount, higher vacation accrual expense, and incremental employee-based stock grants. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 For the nine months ended May 31, 2020, SG&A expenses increased 3.5% to $257.6 million, compared to $248.9 million for the same period a year ago, primarily due to an increase in employee compensation, professional fees, the effects of foreign currency fluctuations, and occupancy costs, partially offset by a decrease in non-compensatory employee related expenses and bad debt expense. SG&A expenses, expressed as a percentage of revenue, were 23.2% for the nine months ended May 31, 2020, consistent with the prior year period. An increase in professional fees and employee compensation expense, partially offset by a decrease in non-compensatory employee related expenses and bad debt expense, attributed to the consistent year over year SG&A costs, when expressed as a percentage of revenue. Professional fees, when expressed as a percentage of revenue, increased 40 basis points in support of our technology plan and business transformation activities. Employee compensation expense, when expressed as a percentage of revenue, increased 30 basis points, primarily driven by higher annual base salaries, a net increase in employee headcount and higher vacation accrual expense. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, when expressed as a percentage of revenue, decreased 90 basis points mainly due to restrictions and impacts related to the COVID-19 pandemic. Bad debt decreased 50 basis points compared to the prior year period when expressed as a percentage of revenue. Operating Income and Operating Margin Three months ended May 31, 2020 compared to three months ended May 31, 2019 Operating income increased 3.8% to $121.6 million for the three months ended May 31, 2020 compared to $117.2 million in the prior year period. Operating income increased due to higher revenue and a reduction in non-compensatory employee related expenses, partially offset by an increase in computer-related expenses and employee compensation expense compared to the prior year period. The impact of foreign currency increased operating income by $1.5 million year over year. Operating margin increased to 32.5% during the third quarter of fiscal 2020 compared to 32.2% in the prior year period. The increase in operating margin on a year-over-year basis was primarily due to a decrease in non-compensatory employee related expenses and bad debt expense, partially offset by an increase in computer-related expenses and employee compensation expense including stock-based compensation, when expressed as a percentage of revenue. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 Operating income increased 4.5% to $341.1 million for the nine months ended May 31, 2020 compared to $326.5 million in the prior year period. Operating income increased due to increased revenue and a reduction in non-compensatory employee related expenses and bad debt expense, partially offset by an increase in computer-related expenses, employee compensation expense including stock-based compensation, and professional fees. The impact of foreign currency increased operating income by $2.7 million year over year. Operating margin increased to 30.7% for the nine months ended May 31, 2020 compared to 30.5% 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 non-compensatory employee related costs, employee compensation expense and bad debt expense, 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 May 31, Nine Months Ended May 31, (in thousands) 2020 2019 Change 2020 2019 Change Americas $ 54,019 $ 51,012 5.9 % $ 144,952 $ 140,549 3.1 % EMEA 43,638 44,793 (2.6) % 127,520 127,130 0.3 % Asia Pacific 23,983 21,435 11.9 % 68,611 58,788 16.7 % Total Operating Income $ 121,640 $ 117,240 3.8 % $ 341,083 $ 326,467 4.5 % 36 Table of Content s Our operating segments are aligned with how we manage the business, the geographic markets we serve, and how our 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 May 31, 2020 compared to three months ended May 31, 2019 Americas operating income increased 5.9% to $54.0 million during the three months ended May 31, 2020 compared to $51.0 million in the same period a year ago. The increase in Americas operating income was primarily due to revenue growth of 1.8%, inclusive of our annual price increase, a decrease in non-compensatory employee related expenses, and a decrease in employee compensation expense, partially offset by an increase in computer-related expenses. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased mainly due to restrictions and impacts related to the COVID-19 pandemic. Employee compensation expense decreased mainly due to higher capitalization of compensation costs related to development of our internal-use software projects. This decrease in employee compensation expense was partially offset by annual base salary increases year-over-year, a net increase in employee headcount, higher vacation accrual expense and incremental employee-based stock grants. Computer-related expenses increased primarily due to increased technology investments including costs from cloud-based hosting and licensed software arrangements. EMEA operating income decreased 2.6% to $43.6 million during the three months ended May 31, 2020 compared to $44.8 million in the same period a year ago. The decrease in EMEA operating income was primarily due to an increase in employee compensation expense partially offset by revenue growth of 2.8%, inclusive of our annual price increase. The impact of foreign currency increased operating income by $1.5 million year over year. Employee compensation expense increased due to higher vacation accrual expense, a net increase in employee headcount and annual base salary increases year-over-year. Asia Pacific operating income increased 11.9% to $24.0 million during the three months ended May 31, 2020, compared to $21.4 million in the same period a year ago. The increase in the Asia Pacific operating income was mainly due to revenue growth of 7.4%, inclusive of our annual price increase, and a decrease in non-compensatory employee related expenses, partially offset by an increase in employee compensation expense. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased mainly due to restrictions and impacts related to the COVID-19 pandemic. Employee compensation expense increased mainly due to a net increase in employee headcount and annual base salary increases year-over-year. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 Americas operating income increased 3.1% to $145.0 million during the nine months ended May 31, 2020 compared to $140.5 million in the same period a year ago. The increase in Americas operating income was primarily due to revenue growth of 3.4%, inclusive of our annual price increase, and decreases in bad debt expense, non-compensatory employee related costs, and employee compensation expense, partially offset by an increase in computer-related expenses and professional fees. Non-compensatory employee related expenses, inclusive of travel, entertainment and office expenses, decreased mainly due to restrictions and impacts related to the COVID-19 pandemic. Employee compensation expense decreased mainly due to higher capitalization of compensation costs related to development of our internal-use software projects. This decrease in employee compensation expense was partially offset by higher annual base salaries, a net increase in employee headcount of 3.9% over the past 12 months, higher vacation accrual expense and incremental employee-based stock grants. Computer-related expenses increased primarily due to increased technology investments including costs from cloud-based hosting and licensed software arrangements. Professional fees increased to support our technology investment plan and business transformation activities. EMEA operating income increased 0.3% to $127.5 million during the nine months ended May 31, 2020 compared to $127.1 million in the same period a year ago. The increase in EMEA operating income was primarily due to revenue growth of 3.1%, inclusive of our annual price increase, partially offset by an increase in employee compensation expense. The impact of foreign currency increased operating income by $4.8 million year over year. Employee compensation increased primarily due to higher vacation accrual expense, a net increase in employee headcount of 6.7% over the past 12 months and annual base salary increases year-over-year. 37 Table of Content s Asia Pacific operating income increased 16.7% to $68.6 million during the nine months ended May 31, 2020, compared to $58.8 million in the same period a year ago. The increase in Asia Pacific operating income was mainly due to revenue growth of 7.8%, inclusive of our annual price increase, partially offset by an increase in employee compensation expense and occupancy costs. The impact of foreign currency decreased operating income by $2.3 million year over year. Employee compensation expense increased as a result of a 9.0% increase in our Asia Pacific workforce in the last 12 months and annual base salary increases year-over-year. Occupancy costs increased mainly due to facility costs in the Philippines. Income Taxes, Net Income and Diluted Earnings per Share Three Months Ended May 31, Nine Months Ended May 31, (in thousands, except for per share data) 2020 2019 Change 2020 2019 Change Provision for income taxes $ 17,924 $ 21,119 (15.1) % $ 47,131 $ 52,413 (10.1) % Net income $ 101,216 $ 92,265 9.7 % $ 283,859 $ 261,263 8.6 % Diluted earnings per common share $ 2.63 $ 2.37 11.0 % $ 7.36 $ 6.73 9.4 % Income Taxes Three months ended May 31, 2020 compared to three months ended May 31, 2019 For the three months ended May 31, 2020, the provision for income taxes was $17.9 million, compared to $21.1 million from the same period a year ago. The provision decreased due mainly to a lower effective tax rate as of May 31, 2020 compared to the same period a year ago, primarily driven by higher research and development ("R&D") tax credits and a higher foreign-derived intangible income ("FDII") deduction, coupled with the effect of applying the lower effective tax rate to the first half of fiscal 2020. The three months ended May 31, 2019 included a $5.8 million income tax expense from finalizing the prior year’s tax returns with no similar event for the three months ended May 31, 2020. The decrease to the provision was partially offset by increased income tax expense from higher operating income for the three months ended May 31, 2020 compared to the prior year period and $3.3 million in higher windfall tax benefits from stock-based compensation recognized during the three months ended May 31, 2019 compared to the three months ended May 31, 2020. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 For the nine months ended May 31, 2020, the provision for income taxes was $47.1 million, compared to $52.4 million from the same period a year ago. The provision decreased due mainly to a lower effective tax rate as of May 31, 2020 compared to the same period a year ago, primarily driven by higher R&D tax credits and a higher FDII deduction, coupled with the effect of applying the lower effective tax rate to the first half of fiscal 2020. The nine months ended May 31, 2019 included a $5.8 million tax expense from finalizing the prior year’s tax returns with no similar event for the nine months ended May 31, 2020. The decrease to the provision was partially offset by increased income tax expense from higher operating income for the nine months ended May 31, 2020 compared to the prior year period. The decrease to the provision was also offset by $3.3 million in higher windfall tax benefits from stock-based compensation recognized during the nine months ended May 31, 2019 compared to the nine months ended May 31, 2020 and an income tax benefit from the revision of the one-time transition tax permitted by the U.S. Tax Cuts and Jobs Act recognized during the nine months ended May 31, 2019. Net Income and Diluted Earnings per Share Three months ended May 31, 2020 compared to three months ended May 31, 2019 Net income increased 9.7% to $101.2 million and diluted earnings per share ("EPS") increased 11.0% to $2.63 for the three months ended May 31, 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 reduced interest expense on a year-over-year basis. Interest expense decreased compared to the prior year period primarily due to a reduction in the LIBOR rate. Diluted EPS also benefited from a 0.5 million share reduction in our diluted weighted average shares outstanding, compared to the same period a year ago, mainly due to share repurchases, partially offset by the impact from stock option exercises. Nine months ended May 31, 2020 compared to nine months ended May 31, 2019 Net income increased 8.6% to 283.9 million and diluted EPS increased 9.4% to $7.36 for the nine months ended May 31, 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 reduced interest expense on a year-over-year basis. Interest expense decreased compared to the prior year period, primarily due to a reduction in the LIBOR rate. Diluted EPS also benefited from a 0.3 million share reduction in our diluted weighted average shares outstanding, compared to the same period a year ago, mainly due to share repurchases, partially offset by the impact from stock option exercises. 38 Table of Content s 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. 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 May 31, (In thousands) 2020 2019 Change Revenue $ 374,083 $ 364,533 2.6 % Deferred revenue fair value adjustment (1) 1,169 1,274 Currency impact 84 — Organic revenue $ 375,336 $ 365,807 2.6 % (1) Deferred revenue fair value adjustment from purchase accounting. 39 Table of Content s 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 May 31, (In thousands, except per share data) 2020 (1) 2019 (2) Change Operating income $ 121,640 $ 117,240 3.8 % Intangible asset amortization 5,107 5,928 Deferred revenue fair value adjustment 1,169 1,274 Other items 5,464 (1,647) Adjusted operating income $ 133,380 $ 122,795 8.6 % Adjusted operating margin 35.5 % 34.0 % Net income $ 101,216 $ 92,265 9.7 % Intangible asset amortization (3) 4,204 4,797 Deferred revenue fair value adjustment (4) 963 1,031 Other items (5) 4,436 (1,333) Income tax items (734) 5,296 Adjusted net income $ 110,085 $ 102,056 7.9 % Diluted earnings per common share $ 2.63 $ 2.37 11.0 % Intangible asset amortization 0.11 0.12 Deferred revenue fair value adjustment 0.03 0.02 Other items 0.12 (0.03) Income tax items (0.03) 0.14 Adjusted diluted earnings per common share $ 2.86 $ 2.62 9.2 % Weighted average common shares (Diluted) 38,481 38,993 (1) Operating income, net income and diluted EPS in the third 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 professional fees associated with the ongoing content and technology investment plan and facilities costs. (2) Operating income, net income and diluted EPS in the third quarter of fiscal 2019 were adjusted to exclude (i) intangible asset amortization, (ii) deferred revenue fair value adjustments from purchase accounting, and (iii) other items including non-core transaction related revenue, offset by severance, stock-based compensation acceleration, transformation activities and occupancy costs. (3) The intangible asset amortization was recorded net of a tax provision of $0.9 million in the third quarter of fiscal 2020, compared to $1.1 million for the third quarter of fiscal 2019. (4) The deferred revenue fair value adjustment was recorded net of a tax provision of $0.2 million for the third quarters of both fiscal 2020 and 2019. (5) The other items were recorded net of a tax provision of $1.0 million for the third quarter of fiscal 2020, compared to a $0.3 million tax benefit for the third quarter of 2019. 40 Table of Content s Liquidity The table below, for the periods indicated, provides selected cash flow information: Nine Months Ended May 31, (in thousands) 2020 2019 Net cash provided by operating activities $ 346,413 $ 305,324 Capital expenditures (1) (62,909) (32,906) Free cash flow $ 283,504 $ 272,418 Net cash used in investing activities (1) $ (61,446) $ (29,543) Net cash used in financing activities $ (188,712) $ (156,038) Cash and cash equivalents at end of period 457,707 323,960 (1) Capital expenditures are included in net cash used in investing activities during each fiscal period reported. Cash and cash equivalents aggregated to $457.7 million as of May 31, 2020, compared to $359.8 million as of August 31, 2019. Our cash and cash equivalents increased $97.9 million during the first nine months of fiscal 2020, primarily due to cash inflows of $346.4 million of net cash provided by operating activities and $65.3 million in proceeds from the exercise of employee stock options, partially offset by cash outflows of $171.0 million in share repurchases, $81.4 million in dividend payments, and $62.9 million of capital expenditures. Net cash used in investing activities was $61.4 million in the first nine months of fiscal 2020, representing a $31.9 million increase from the same period a year ago. This increase was due primarily to $30.0 million of higher capital expenditures. Net cash used by financing activities was $188.7 million in the first nine months of fiscal 2020, representing a $32.7 million increase in cash used by financing activities from the same period a year ago. The increase was primarily due to a $12.7 million increase in share purchases and a $5.7 million increase in dividend payments, partially offset by a $13.6 million decrease in proceeds from employee stock plans. As of May 31, 2020, our total Cash and cash equivalents worldwide was $457.7 million. The total available cash and cash equivalents within the Americas was $235.8 million, within EMEA was $171.1 million (predominantly within the UK, France, and Germany) and the remaining $50.8 million was held in Asia Pacific. As of May 31, 2020, we have borrowed $575.0 million of the available $750.0 million provided under our 2019 revolving credit facility which we entered into on March 29, 2019, 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. We have not observed any significant client loss, deterioration in the collectability of receivables, reduction in liquidity, or decline in subscription renewal rates as a result of the COVID-19 pandemic. While the COVID-19 pandemic did not have a material impact on our financial results or cash flows for the three and nine months ended May 31, 2020, our future business and cash flows may be adversely affected. The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response and assessing potential impacts to our financial position, including our balance sheet and liquidity position. However, the COVID-19 pandemic has caused disruption in the capital markets, and could adversely affect our ability to access these markets on acceptable terms or at all and/or increase our cost of borrowing should we desire to access additional capital. 41 Table of Content s Free cash flow generated in the nine months ended May 31, 2020 was $283.5 million, an increase of 4.1% compared to a year ago. Free cash flow was generated from $346.4 million of net cash provided by operating activities, less $62.9 million in capital expenditures. Free cash flow increased $11.1 million year-over-year due to a $41.1 million increase in operating cash flows primarily due to higher net income, partially offset by the timing of income tax payments. This increase was 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. Capital Resources Capital Expenditures Capital expenditures in the third quarter of fiscal 2020 were $11.0 million, compared to $11.4 million in the prior year period. Capital expenditures of $5.9 million, or 54%, were related to facilities investments, primarily for the build-out of our new corporate headquarters in Norwalk, Connecticut and office space in the Philippines. The remainder of our capital expenditures, $5.1 million, was primarily related to investment in technology and development costs related to internal-use software. Capital expenditures during the first nine months of fiscal 2020 were $62.9 million, compared to $32.9 million in the same period a year ago. Capital expenditures of $40.7 million, or 65%, were related to facilities investments, primarily for the build-out of our new corporate headquarters in Norwalk, Connecticut and office space in India and the Philippines. The remainder of our capital expenditures, $22.2 million, was primarily related to investment in technology and development costs related to internal-use software. 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 May 31, 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 which was 0.10% as of May 31, 2020. This fee is based on the daily amount by which the available balance in the 2019 Revolving Credit Facility exceeds the borrowed amount. All outstanding loan amounts are reported as Long-term debt within the Consolidated Balance Sheets at May 31, 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 May 31, 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 LIBOR rate plus a spread using a debt leverage pricing grid, which was 0.875% as of May 31, 2020. The variable rate of interest on our long-term debt can expose us to interest rate volatility due to changes in the LIBOR rate. To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $287.5 million to hedge the variable interest rate obligation on a portion of our outstanding balance under the 2019 Revolving Credit Facility. Under the terms of the interest rate swap agreement, we will pay interest at a fixed rate of 0.7995% and receive variable interest payments based on the same one-month LIBOR rate utilized to calculate the interest expense from the 2019 Revolving Credit Facility. The interest rate swap agreement matures on March 28, 2024. For the three months ended May 31, 2020 and May 31, 2019, we recorded interest expense of $2.9 million and $5.2 million, respectively, on our outstanding debt amounts. For the nine months ended May 31, 2020 and May 31, 2019, we recorded interest expense of $10.9 million and $15.1 million, respectively, on our outstanding debt amounts. Including the effects of the interest rate swap agreement, the weighted average interest rate on amounts outstanding under our credit facilities was 2.47% for the nine months ended May 31, 2020. The weighted average interest rate for the fiscal year ended 2019 was 3.35%. Interest on the loan outstanding is payable quarterly, in arrears, and on the maturity date. 42 Table of Content s As the terms for the interest rate swap agreement align with the 2019 Revolving Credit Facility, we do not expect any hedge ineffectiveness. We have designated and accounted for this instrument as a cash flow hedge with the unrealized gains or losses on the interest rate swap agreement recorded in AOCL in the Consolidated Balance Sheets. 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 May 31, 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 May 31, 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. 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 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 May 31, 2020. During the third quarter of fiscal 2020, foreign currency movements increased operating income by $1.5 million, compared to a $3.0 million increase to operating income a year ago. During the first nine months of fiscal 2020, foreign currency movements increased operating income by $2.7 million, compared to an increase in operating income of $8.6 million in the same period a year ago. As of May 31, 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 50% to 75% 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 May 31, 2020, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱466.8 billion and Rs830.6 billion, respectively. The gross notional value of foreign currency forward contracts to purchase U.S. dollars with Euros and British Pound Sterling was €11.4 million and £9.5 million, respectively. A loss on derivatives of $1.0 million was recorded into operating income for the three months ended May 31, 2020, compared to a loss on derivatives of $0.6 million in the same period a year ago. For the nine months ended May 31, 2020, a loss on derivatives of $2.1 million was recorded into operating income, compared to a loss on derivatives of $1.4 million in the prior year period. Off-Balance Sheet Arrangements At May 31, 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 third quarter of fiscal 2020, we repurchased 46,636 shares for $12.4 million 43 Table of Content s under our existing share repurchase program compared to 175,000 shares for $47.6 million in the same period a year ago. During the first nine months of fiscal 2020, we repurchased 657,136 shares for $171.0 million compared to 664,945 shares for $152.1 million in the prior year comparable period. For the nine months ended May 31, 2020, we have returned $252.4 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we have returned $341.8 million to stockholders in the form of share repurchases and dividends. On March 24, 2020, our Board of Directors approved a $220.0 million increase to the existing share repurchase program. As a result of this expansion, $287.6 million is available for future share repurchases as of May 31, 2020. 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 nine months ended May 31, 2020. 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 May 31, 2020. Refer to the Capital Resources section of the MD&A for a discussion of our Long-term debt borrowings. There were no other significant changes to our contractual obligations during the first nine months of fiscal 2020. Dividends On May 5, 2020, our Board of Directors approved a regular quarterly dividend of $0.77 per share. The $0.05 per share or 7% increase in the amount of our quarterly dividend marked the 15th consecutive year we have increased dividends, highlighting our continued commitment to returning value to shareholders. The cash dividend of $29.0 million was paid on June 18, 2020, to common stockholders of record at the close of business on May 29, 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 nine 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 accounting for leases. 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 nine 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. 44 Table of Content s Shift from Active to Passive Investment Management Approximately 84% of our organic 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 16% of our organic 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. On March 2, 2020 formal UK-EU negotiations on the future relationship commenced. On March 18, 2020, the European Commission published a draft legal agreement for the future EU-UK partnership, covering all areas of the negotiations, including trade and economic cooperation, law enforcement and participation in European Union programs. The UK and the EU are currently in the process of negotiating a UK-EU free trade deal and the terms of their future relationship. Although March negotiations were affected by the COVID-19 pandemic, the EU and the UK resumed the Brexit discussions on April 15, 2020. The deadline for these negotiations is the expiry of the transition period and the UK has consistently made it clear that it will not ask to extend the 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. 45 Table of Content s 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; t he impact of the COVID-19 pandemic on our operating results and our employees' health and safety; 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 an annual outlook for certain key metrics for fiscal 2020 on September 26, 2019 and most recently updated it on June 25, 2020. 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. Fiscal 2020 Expectations: – Organic ASV plus professional services is now expected to increase in the range of $60 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 now expected to be in the range of $1.485 billion and $1.490 billion. – GAAP operating margin is now expected to be in the range of 30.0% and 30.5%. – Adjusted operating margin is now expected to be in the range of 33.0% and 33.5%. – Annual effective tax rate is now expected to be in the range of 15.5% and 16.5%. 46 Table of Content s – GAAP diluted EPS is now expected to be in the range of $9.60 and $9.80. Adjusted diluted EPS is now expected to be in the range of $10.40 and $10.60. 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. 47 Table of Content s