FACTSET RESEARCH SYSTEMS INC 10-K

ITEM 1. BUSINESS Business Overview FactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively, 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 (formerly known as U.S.), EMEA (Europe and Africa, formerly known as Europe), and Asia Pacific. Within each of our segments, we primarily deliver insight and information through our four workflow solutions of Research, Analytics and Trading, Content and Technology Solutions ("CTS") and Wealth. We currently serve a wide range of financial professionals, which include but are not limited to 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 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. Corporate History FactSet was founded in 1978 and has been publicly held since 1996. We are dual listed on the New York Stock Exchange ("NYSE") and the NASDAQ Stock Market ("NASDAQ") under the symbol "FDS". Fiscal 2020 marked our 42nd year of operations and while much has changed in both markets and technology, our focus has always been to provide best-in-class products and exceptional client service. 5 Table of Contents The following timeline depicts the Company’s history since our founding in 1978: Business Strategy Current technology trends are leading to a greater demand to deliver a fully digital and integrated client experience. To take advantage of these developments we have focused our innovations and strategic investments in cloud computing, data lakes, APIs and our hosted proprietary data and analytics platform to provide real-time, predictive business intelligence for a seamless client experience. We continue to expand our broad financial content to provide support for our clients' most sophisticated investment strategies, including enhanced data in private markets, industry specific deep sector and environmental, social and governance ("ESG"). As a premier financial solutions provider for the global financial community, we provide workflow solutions and leading analytical applications, powered by cognitive capabilities and robust technology, across the investment portfolio lifecycle. We bring the front, middle and back offices together to drive productivity and performance at every step of the investment process using our open and scalable solutions. Our strategy is focused on growing our business in our three segments: the Americas, EMEA and Asia Pacific. We believe this geographical strategic alignment helps us better manage our resources, direct our solutions and interact with our clients. To execute on our business strategy of broad-based growth, we continue to look at ways to create value for our clients by offering data, products, and analytical applications within our four workflow solutions of Research, Analytics and Trading, CTS and Wealth. Research Research focuses on company analysis, idea generation, and research management. The tools within Research provide solutions to analyze public and private companies, generate ideas and discover opportunities. Research also allows users to monitor the global markets, to gain industry and market insights, and to collaborate on and share information across teams. FactSet 6 Table of Contents combines global coverage, deep history, and transparency with thousands of FactSet-sourced and third-party databases integrated in one flexible platform. Analytics and Trading Analytics and Trading addresses processes around portfolio analytics, risk management and performance measurement and attribution. Analytics and Trading also focuses on client reporting, portfolio construction, trade execution and order management. The applications within Analytics and Trading are modularized and deployed to fulfill both targeted and holistic needs in the front and middle offices. Analytics and Trading integrates our clients’ proprietary data along with FactSet and third-party content to bring actionable insights to the portfolio management process. Analytics and Trading tools are accessible through a variety of mediums, including the FactSet workstation and application programming interfaces. Wealth Wealth is focused on the wealth management industry and creates offerings that enable wealth professionals across an entire enterprise, including home office, advisory, and client engagement. Wealth empowers wealth managers to demonstrate value to clients and prospects while growing and protecting their assets with FactSet’s combined solution set of portfolio analytics, market monitoring tools, multi-asset class research and customized client facing digital solutions. Our research management solutions products enable our wealth management clients to increase collaboration and communication between home office and advisory functions within the firm and deliver consistent and scalable messaging to the clients of the advisor. CTS CTS focuses on delivering content directly to our clients. Clients seamlessly discover, explore, and access organized and connected content via multiple delivery channels. Whether a client needs market, company, or alternative data, our data delivery services provide normalized data through a variety of technologies, such as APIs, cloud infrastructure, database loaders and formats that meet the needs of our clients’ workflows. Our symbology links and aggregates a diverse set of content sources to ensure consistency, transparency, and data integrity across a client’s business. By enabling our clients to utilize their preferred choice of industry standard databases, programming languages, and data visualization tools, we empower them to focus on the core competencies needed to drive their business. FactSet Clients Buy-side Buy-side clients continue to shift increasingly towards multi-asset class investment strategies and FactSet is well-positioned to be a partner of choice in this space. Our ability to provide enterprise-wide solutions to our clients across their entire workflow covering virtually every asset class enables us to compete for greater market share. Buy-side clients primarily include portfolio managers, analysts, traders, wealth managers, performance teams and risk and compliance teams at a variety of firms, such as traditional asset managers, wealth advisors, corporations, hedge funds, insurance companies, plan sponsors and fund of funds. They access our multi-asset-class tools by utilizing our workstations, analytics and trading tools, proprietary content, data feeds, APIs and portfolio services. The buy-side annual subscription value ("ASV") growth rate for fiscal 2020 was 5.4%. Buy-side clients accounted for approximately 84% of our ASV as of August 31, 2020. 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. Sell-side FactSet delivers comprehensive solutions to sell-side clients including workstation, proprietary and third-party content, productivity tools for Microsoft® Office, web and mobile, and research management solutions for research authoring and publishing. Our focus remains on expanding the depth of content offered and increasing workflow efficiency for our sell-side clients, primarily including investment bankers and private equity and research analysts. The sell-side ASV growth rate for fiscal 2020 was 4.6%. Sell-side clients accounted for approximately 16% of our ASV as of August 31, 2020. 7 Table of Contents Client and User Additions Our total client count as of August 31, 2020 was 5,875, representing a net increase of 301 or 5.4% in the last 12 months. The net increase was primarily due to an increase in corporate and wealth management clients, partially offset by a decrease in institutional asset management clients. As of August 31, 2020 there were 133,051 professionals using FactSet, representing a net increase of 6,229 or 4.9% in the last 12 months, driven primarily by wealth management and corporate professionals. Annual client retention was greater than 95% of ASV for the period ended August 31, 2020 and August 31, 2019. When expressed as a percentage of clients, annual retention increased to approximately 90% for the period ended August 31, 2020, compared to approximately 89% for the period ended August 31, 2019. Organic ASV Growth Organic ASV growth 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 August 31, 2020, our organic ASV totaled $1.53 billion, up 5.2% over the prior year comparable period. The majority of the ASV increase was in the Americas, followed by increased sales in EMEA and Asia Pacific, 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, mainly driven by an increase in Analytics and Trading, followed by CTS and Wealth. The following chart provides a snapshot of FactSet’s historic organic ASV growth: Financial Information on Geographic Areas Operating segments are defined as components of an enterprise that have the following characteristics: (i) it engages in business activities from which it may earn revenues and incur expenses, (ii) its operating results are regularly reviewed by the company’s chief operating decision maker ("CODM") for resource allocation decisions and performance assessment, and (iii) its discrete financial information is available. FactSet's Chief Executive Officer functions as our CODM. 8 Table of Contents Our operating segments are aligned with how the Company, including our CODM, manages the business and the geographic markets in which we serve, with a primary focus on providing integrated global financial and economic information. Our internal financial reporting structure is based on three reportable segments, the Americas, EMEA and Asia Pacific. Within each of our segments, we primarily deliver insight and information through our four workflow solutions of Research, Analytics and Trading, CTS and Wealth. These workflow solutions provide global financial and economic information to investment managers, investment banks and other financial services professionals. The Americas segment serves our clients throughout North, Central, and South America, with offices in 12 states throughout the United States ("U.S."), including our corporate headquarters in Norwalk, Connecticut, and an office in both Brazil and Canada. The EMEA segment serves our clients in countries in Europe and Africa and maintains office locations in Bulgaria, England, France, Germany, Italy, Latvia, Luxembourg, the Netherlands, South Africa, Spain, and Switzerland. The Asia Pacific segment serves our clients in countries in Asia and Australia and includes office locations in Australia, UAE (Dubai), China, Hong Kong, India, Japan, the Philippines, and Singapore. Segment revenue reflects sales to our clients based on their respective geographic locations. Each segment records compensation expense (including stock-based compensation), depreciation of furniture and fixtures, amortization of lease right-of-use ("ROU") assets , leasehold improvements and intangible assets, as well as 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 content collection centers, located in India, the Philippines, and Latvia, benefit all our operating segments, and thus the expenses incurred at these locations are allocated to each segment based on a percentage of revenue. Refer to Note 18, Segment Information in the Notes to the Company’s Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for financial information, including revenues, operating income and long-lived assets for each of our segments. The following charts depict revenue related to our reportable segments. ( in millions) Talent We have built a collaborative culture that recognizes and rewards innovation and offers employees a variety of opportunities and experiences. Our employees are critical to our success and are the reason we continue to execute at a high level. We believe our continued focus on making employee engagement a top priority will help us provide high quality insights and information to clients globally. We continuously cultivate a diverse and inclusive environment that promotes empowerment and engagement, which is key to our ability to attract, retain, and develop talent. We strive to achieve this successfully with various activities, including an annual global employee engagement survey. We share survey results with all employees to highlight areas that employees believe are strengths of the Company and reflect on areas where employees feel improvement may be needed. Each year, executive leadership focuses on key areas for improvement based upon the survey results and compiles initiatives to actively resolve or invest in improvements in a transparent manner. Progress on these initiatives is tracked and we survey employees again, to ensure that the actions taken addressed the underlying issues and to promote an environment of continuous improvement. 9 Table of Contents FactSet works diligently to create and nourish a culture which engages employees through direct responsibility, by distributing leadership decision-making and providing opportunities for employees to help shape the Company’s strategic vision. We challenge our employees to make an impact regarding position responsibilities and their career growth by providing them multiple opportunities to make a positive impact. As of August 31, 2020, our employee headcount was 10,484, an increase of 8.3% in the last twelve months. Our employee workforce is located globally in 48 office locations in 22 countries. Of our total employees, 6,643 (63%) were located in Asia Pacific, 2,477 (24%) in the Americas and 1,364 (13%) in EMEA. In order to optimize productivity, we have invested in expanding our footprint and talent pool in India and the Philippines, where we now have a combined workforce of approximately 6,400 employees. Functionally, 22% of our employees are in Sales and Client Solutions; 31% are in Technology & Product Development; 43% are in Content Operations; and 4% are in Corporate Support. As of August 31, 2020 and August 31, 2019, 420 and 430 FactSet employees, respectively, were represented by mandatory works councils within certain French and German subsidiaries. No other employees are represented by collective bargaining agreements. Third-Party Content We aggregate content from thousands of third-party data suppliers, news sources, exchanges, brokers and contributors into our dedicated managed database, which our clients access through our flexible delivery platforms to perform their analysis. We license content from premier providers of major global exchanges and data providers. We seek to maintain contractual relationships with a minimum of two content providers for each major type of financial data, though certain data sets on which we rely have a limited number of suppliers. We make every effort to assure that, where reasonable, alternative sources are available. We are not dependent on any one third-party data supplier in order to meet the needs of our clients. We have entered into third-party content agreements of varying lengths, which in some cases can be terminated on one year’s notice, at predefined dates, and in other cases on shorter notice. No single vendor or data supplier represented more than 10% of FactSet's total data costs during fiscal 2020, with the exception for one vendor, which is a supplier of risk models and portfolio optimizer data to FactSet and represented 11% of FactSet’s data costs in fiscal 2020. Data Centers Our business is dependent on our ability to process substantial volumes of data and transactions rapidly and efficiently on our networks and systems. Our global technology infrastructure supports our operations and is designed to facilitate the reliable and efficient processing and delivery of data and analytics to our clients. Our data centers contain multiple layers of redundancy to enhance system performance, including maintaining, processing and storing data at multiple data centers. User connections are load balanced between data centers. In the event of a site failure, equipment problem or localized disaster, the remaining centers have the capacity to handle the additional load. We continue to be focused on maintaining a global technological infrastructure that allows us to support our growing business. We continue to operate fully redundant data centers in both Virginia and New Jersey in the U.S. that can handle our entire client capacity. In addition, we are migrating select systems and applications to diverse cloud computing regions utilizing premier, market-leading cloud providers. The Competitive Landscape We are a part of the financial information services industry, providing financial data and workflow solutions to the global investment community. This competitive market is comprised of both large, well-capitalized companies and smaller, niche firms including market data suppliers, news and information providers and many third party content providers that supply us with financial information included in FactSet's products. Our largest competitors are Bloomberg L.P., Refinitiv (formerly part of Thomson Reuters), and S&P Global Market Intelligence. Other competitors and competitive products include online database suppliers and integrators and their applications, such as BlackRock Solutions, Morningstar Inc. and MSCI Inc. Many of these firms provide products or services similar to our own offerings. We believe there are high barriers to entry and we expect it would be difficult for another vendor to quickly replicate the extensive data we currently offer. Through our in-depth analytics and client service, we believe we can offer clients a more comprehensive solution with one of the broadest sets of functionalities delivered through a desktop or mobile user interface or through a standardized or bespoke data feed as well as an API. In addition, our applications, including our client support and service offerings, are entrenched in the workflow of many financial professionals given the downloadable functionality, instant data refresh and portfolio analysis/screening capabilities offered. We are entrusted with significant amounts of our clients' own 10 Table of Contents proprietary data, including portfolio holdings. As a result, we believe our products are central to our clients’ investment analysis and decision-making. Intellectual Property We have registered trademarks and copyrights for many of our products and services and will continue to evaluate the registration of additional trademarks and copyrights as appropriate. We enter into confidentiality agreements with our employees, clients, data suppliers and vendors. We seek to protect our workflow solutions, documentation and other written materials under trade secret, copyright and patent laws. While we do not believe we are dependent on any one of our intellectual property rights, we do rely on the combination of intellectual property rights and other measures to protect our proprietary rights. Despite these efforts, existing intellectual property laws may afford only limited protection. Research and Product Development Costs A key aspect of our growth strategy is to offer new solutions and enhance our existing products and applications by making them faster with more reliable data. We strive to rapidly adopt new technology that can improve our products and services. At FactSet we do not have a separate research and product development department, but rather our product development and engineering departments work closely with our strategists, product managers, sales and other client-facing specialists to identify areas of improvement to provide increased value to our clients. Research and product development costs include the salary and benefits for our product development, software engineering and technical support staff working on these initiatives. These costs are expensed as incurred within our cost of services as employee compensation. We intend to continue to invest in the development of new products and enhancements that will allow us to respond quickly to market changes and efficiently meet the needs of our clients. We incurred research and product development costs of $224.0 million, $214.7 million and $217.1 million during fiscal years 2020, 2019 and 2018, respectively. Government Regulation FactSet is subject to reporting requirements, disclosure obligations and other recordkeeping requirements of the Securities and Exchange Commission ("SEC") and the various local authorities that regulate each location in which we operate. The Company’s P.A.N. Securities, LP, is a member of the Financial Industry Regulatory Authority, Inc. and is a registered broker-dealer under Section 15 of the Securities Exchange Act of 1934. P.A.N. Securities, LP, as a registered broker-dealer, is subject to Rule 15c3-1 under the Securities Exchange Act of 1934, which requires that the Company maintain minimum net capital requirements. The Company claims exemption under Rule 15c3-3(k)(2)(i). Corporate Contact Information FactSet was founded as a Delaware corporation in 1978, and its principal executive office is in Norwalk, Connecticut. Mailing address of the Company’s headquarters: 45 Glover Avenue Norwalk, CT 06850 Telephone number: +1 (203) 810-1000 Website address: www.factset.com Available Information Through the Investor Relations section of FactSet’s website (https://investor.factset.com), we make available the following filings as soon as practicable after they are electronically filed with, or furnished to, the SEC: the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements for the annual stockholder meetings, Reports on Forms 3, 4 and 5, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available free of charge. Additionally, we broadcast live our quarterly earnings calls via the investor relations section of our website. We also provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. The contents of this website section are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document the Company files with the SEC and any reference to this section of our website is intended to be inactive textual references only. In addition, the FactSet Code of Business Conduct and Ethics is posted in the Investor Relations section of the Company’s website. The same information is available in print to any stockholder who submits a written request to the Company’s Investor Relations department. Any amendments to or waivers of such code that are required to be publicly disclosed by the applicable 11 Table of Contents exchange rules or the SEC will be posted on our website. The Corporate Governance Guidelines and the charters of each of the committees of the Company’s Board of Directors, including the Audit Committee, Compensation and Talent Committee, and Nominating and Corporate Governance Committee, are available on the Investor Relations section of our website. The same information is available in print, free of charge, to any stockholder who submits a written request to our Investor Relations department. Executive Officers of the Registrant The following table shows FactSet’s current executive officers: Name of Officer Age Office Held with the Company Officer Since F. Philip Snow 56 Chief Executive Officer 2014 Helen L. Shan 53 Executive Vice President and Chief Financial Officer 2018 Goran Skoko 59 Executive Vice President, Managing Director EMEA and Asia Pacific, Head of Wealth Solutions 2019 Gene D. Fernandez 53 Executive Vice President, Chief Technology and Product Officer 2017 Rachel R. Stern 55 Executive Vice President, Chief Legal Officer, Global Head of Strategic Resources and Secretary 2009 Robert J. Robie 42 Executive Vice President, Head of Analytics and Trading Solutions 2018 Daniel Viens 63 Senior Vice President, Chief Human Resources Officer 2018 F. Philip Snow – Chief Executive Officer . Mr. Snow was named Chief Executive Officer effective July 1, 2015. Prior to that, Mr. Snow held the title of President. He began his career at FactSet in 1996 as a Consultant, before moving to Asia to hold positions in the Tokyo and Sydney offices. Following his move back to the U.S. in 2000, Mr. Snow held various sales leadership roles prior to assuming the role of Senior Vice President, Director of U.S. Investment Management Sales in 2013. Mr. Snow received a Bachelor of Arts in Chemistry from the University of California at Berkeley and a Master of International Management from the Thunderbird School of Global Management. He has earned the right to use the Chartered Financial Analyst designation. Helen L. Shan – Executive Vice President and Chief Financial Officer. Ms. Shan joined FactSet in September 2018 from Marsh and McLennan Companies, where she was CFO for Mercer, a professional services firm. In her current role, she is responsible for activities related to accounting, finance, corporate development and strategy. Preceding her tenure as the CFO for Mercer, Ms. Shan served as the Vice President and Treasurer for Marsh and McLennan Companies, with additional prior experience in the same position with Pitney Bowes Inc. and served as a Managing Director in investment banking at J.P. Morgan. In September 2018, Ms. Shan joined the Board of Directors of EPAM Systems Inc., a global provider of digital platform engineering and software development services. Ms. Shan holds dual degrees with a Bachelor of Science and a Bachelor of Applied Science from the University of Pennsylvania’s Wharton School of Business and School of Applied Science and Engineering. Ms. Shan also has a Master of Business Administration from Cornell University’s SC Johnson College of Business. Goran Skoko – Executive Vice President, Managing Director EMEA and Asia Pacific, Head of Wealth Solutions. Mr. Skoko joined FactSet in 2004 as a Senior Product developer and has held a number of positions of increased responsibility. In his current role, Mr. Skoko is responsible for providing direction to address the product and content needs for EMEA and Asia Pacific clients while also focusing on increased deployment and building community within the wealth management space. Prior to FactSet, he spent 16 years in various engineering and product management roles at Thomson Financial. Mr. Skoko earned his B.S. in Physics and Computer Science from Fordham University. Gene D. Fernandez – Executive Vice President, Chief Technology and Product Officer. Mr. Fernandez joined FactSet in November 2017 from J.P. Morgan, where he served as the Chief Technology Officer, New Product Development. In this role, he developed the strategy and built the engineering function responsible for new product innovation. During a decade at J.P. Morgan, Mr. Fernandez held various other roles, including Chief Technology Officer for Client Technology and Research and Banking Information Technology. Prior to J.P. Morgan, he worked at Credit Suisse and Merrill Lynch. Mr. Fernandez received a Bachelor of Science in Computer Science and Economics from Rutgers University. 12 Table of Contents Rachel R. Stern – Executive Vice President, Chief Legal Officer, Global Head of Strategic Resources and Secretary. Ms. Stern joined FactSet in January 2001 as General Counsel. In addition to her role in the Legal Department, Ms. Stern is also responsible for Compliance, Facilities Management and Real Estate Planning and the administration of our offices in Hyderabad, Manila and Riga. Ms. Stern is admitted to practice in New York, Washington D.C., and as House Counsel in Connecticut. Ms. Stern received a Bachelor of Arts from Yale University, a Master of Arts from the University of London and a Juris Doctor from the University of Pennsylvania Law School. Robert J. Robie – Executive Vice President, Head of Analytics and Trading Solutions. Mr. Robie joined FactSet in July 2000 as a Product Sales Specialist. In his current role, he oversees strategy, research, development and engineering for Analytics and Trading platforms. During his tenure at FactSet, Mr. Robie has held several positions of increased responsibility, including Senior Director of Analytics and Director of Global Fixed Income. Although Mr. Robie joined FactSet in 2000, he did work at BTN Partners from 2004 through 2005 in their quantitative portfolio management and performance division, before returning to continue his career with FactSet. Mr. Robie holds a Bachelor of Arts in Economics and Fine Arts from Beloit College. Daniel Viens – Senior Vice President, Chief Human Resources Officer. Mr. Viens joined FactSet in September 1998 as a Vice President, Director of Human Resources and has held several leadership positions of increased responsibility in Human Resources. Prior to joining FactSet, Mr. Viens was a Director of Human Resources for First Data Solutions and Donnelly Marketing (a former company of Dun & Bradstreet), where he developed significant Human Resources acumen. Mr. Viens graduated from Boston University, and holds both a Master's Degree from Eastern Illinois University in Clinical Psychology and a Master of Business Administration from Columbia University. Additional Information Additional information with respect to FactSet’s business is included in the following pages and is incorporated herein by reference: Page(s) Five-Year Summary of Selected Financial Data 25 Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Quantitative and Qualitative Disclosures about Market Risk 45 Notes to the Consolidated Financial Statements 57