FACTSET RESEARCH SYSTEMS INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Consolidated Financial Statements and related notes included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, our Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause such differences include, but are not limited to, those identified below and those discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended August 31, 2021. Our 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 • Annual Subscription Value ("ASV") • Client and User Additions • Employee Headcount • Results of Operations • Non-GAAP Financial Measures • Liquidity and Capital Resources • Off-Balance Sheet Arrangements • Foreign Currency • Critical Accounting Policies and Estimates • New Accounting Pronouncements Executive Overview FactSet Research Systems Inc. and its wholly-owned subsidiaries (collectively, "we," "our," "us," the "Company" or "FactSet") is a global financial data and analytics company with an open and flexible digital platform which focuses on driving the investment community to see more, think bigger, and do its best work. Our strategy is to build the leading open content and analytics platform that delivers a differentiated advantage for our clients’ success. For over 40 years, the FactSet platform has delivered expansive data, sophisticated analytics, and flexible technology that global financial professionals need to power their critical investment workflows. More than 171,000 investment professionals including asset managers, asset owners, bankers, wealth managers, corporate users, private equity and venture capital professionals, and others use our personalized solutions to identify opportunities, explore ideas, and gain a competitive advantage. Our solutions span investment research, portfolio construction and analysis, trade execution, performance measurement, risk management, and reporting across the investment lifecycle. We provide financial data and market intelligence on securities, companies, industries and people to enable our clients to research investment ideas, as well as offering them the capabilities to analyze, monitor and manage their portfolios. We combine dedicated client service with open and flexible technology offerings, such as a configurable desktop and mobile platform, comprehensive data feeds, cloud-based digital solutions, and application programming interfaces ("APIs"). Our revenues are primarily derived from subscriptions to our products and services such as workstations, portfolio analytics, and market data. We advance our industry by comprehensively understanding our clients’ workflows, solving their most complex challenges, and helping them achieve their goals. By providing them with the leading open content and analytics platform, an expansive universe of concorded data they can trust, next-generation workflow support designed to help them grow and see their next best action, and the industry’s most committed service specialists, we put our clients in a position to outperform. We are focused on growing our business through three reportable segments ("segments"): the Americas, EMEA and Asia Pacific. Refer to Note 16, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion. Within each of our segments, we deliver insight and information through our three workflows: Research & Advisory Solutions; Analytics & Trading Solutions; and Content & Technology Solutions ("CTS"). 33 Table of Contents Business Strategy Client needs and market dynamics continue to evolve at an accelerated pace with an increasing demand for differentiated, personalized, and connected data, an ongoing shift to multi-asset class investing, and cost rationalization as the shift from active to passive investing continues. Clients are seeking new cloud-based solutions that enable self-service and automation, open and flexible systems, and increased efficiencies when integrating and managing data as part of their own broader digital transformations. FactSet’s strategy focuses on building the leading open content and analytics platform that delivers differentiated advantages for our clients’ success, in keeping with our purpose of enabling the investment community to see more, think bigger and do their best work. We want to be the trusted partner of choice for clients, to anticipate their needs and provide them with the most innovative solutions to make them more efficient. This includes transforming the way our clients discover, decide, and act on an opportunity using our digital platform; purposefully increasing our pace and speed to market by streamlining how we work; and investing in our future workforce. To execute on our strategy, we plan on the following: • Growing our digital platform : Scaling up our content refinery by providing the most comprehensive and connected inventory of industry, proprietary, and third-party data for the financial community, including granular data for key industry verticals, private companies, wealth, and environmental social and governance ("ESG"). Driving next-generation workflow solutions by creating personalized and integrated solutions to streamline workflows which includes solutions for asset managers, asset owners, sell side, wealth and corporate clients. Our goal is to deliver tangible efficiencies to our clients by connecting data and analytics with a cloud based eco-system, enabling them to manage work more effectively through an integrated investment lifecycle. • Delivering execution excellence : Building a more agile and digital first-minded organization that increases the speed of our product creation and go-to-market strategy. To capitalize on market trends and give our clients innovative tools, we plan to release new products built on a cloud-based digital foundation as well as migrating our existing data and applications to the cloud. Additionally, we expect to rationalize our existing product portfolio to reinvest in higher return products. • Driving a growth mindset : Recruiting, training and empowering a diverse and operationally efficient workforce to drive sustainable growth. To drive a more performance-based culture, we are investing in talent who can create leading technological solutions, efficiently execute our go-to-market strategy and achieve our growth targets. At the center of our strategy is the relentless focus on our clients and their FactSet experience. We want to be a trusted partner and service provider, offering hyper-personalized digital products for clients to research ideas, uncover relevant insights, and leverage cognitive computing to help get the most out of their data and analytics. Additionally, we continually evaluate business opportunities such as acquisitions and partnerships to help us expand our capabilities and competitive differentiators across the investment portfolio lifecycle. We are focused on growing our global business in three segments: the Americas, EMEA and Asia Pacific. We believe this geographical strategic alignment helps us better manage our resources, target our solutions and interact with our clients. We further execute on our growth strategy by offering data, products, and analytical applications within our three workflow solutions: Research & Advisory; Analytics & Trading; and CTS. Fiscal 2022 Second Quarter in Review Revenues in the second quarter of fiscal 2022 were $431.1 million, an increase of 10.0% from the prior year period. Revenues increased across each of our geographic segments, primarily in the Americas, followed by EMEA and Asia Pacific, supported by increased revenues in all our workflow solutions, mainly in Research & Advisory, followed by Analytics & Trading and CTS. Organic revenues contributed to 9.9% of the growth during the second quarter of fiscal 2022, compared with the prior year period. Organic revenues exclude the effects of acquisitions and dispositions completed in the last 12 months, the impacts of foreign currency movements on the current year period and the amortization of deferred revenues' fair value adjustments from purchase accounting. Refer to Non-GAAP Financial Measures in Part I, Item 2 of this Quarterly Report on Form 10-Q for a reconciliation between revenues and organic revenues. As of February 28, 2022, organic annual subscription value ("Organic ASV") plus Professional Services totaled $1.74 billion, an increase of 9.4% over February 28, 2021. Organic ASV increased across all our segments with the majority of the increase 34 Table of Contents related to the Americas, followed by EMEA and Asia Pacific. Refer to Annual Subscription Value in Part I, Item 2 of this Quarterly Report on Form 10-Q for the definitions of Organic ASV and Organic ASV plus Professional Services. Operating income grew 6.2% and diluted earnings per share ("EPS") increased 13.6% for the three months ended February 28, 2022 compared with the prior year period. Operating margin decreased to 28.6% during the three months ended February 28, 2022 compared with 29.6% in the prior year period. This decrease in operating margin on a year-over-year basis was primarily due to impairment charges related to vacating certain leased office space and higher professional fees driven by costs incurred in preparation for the acquisition of CUSIP Global Services (“CGS"), partially offset by growth in revenues and lower costs related to employee compensation and computer depreciation, when expressed as a percentage of revenue. CUSIP Global Services Acquisition On December 27, 2021, we entered into a definitive agreement to acquire CGS, previously operated by S&P Global Inc. on behalf of the American Bankers Association, for $1.925 billion in cash, subject to a working capital adjustment. The acquisition was completed on March 1, 2022. CGS manages a database of 60 different data elements uniquely identifying more than 50 million global financial instruments. It is the foundation for security master files relied on by critical front, middle and back-office functions. CGS is the exclusive provider of Committee on Uniform Security Identification Procedures ("CUSIP") and CUSIP International Number System ("CINS") identifiers globally and also acts as the official numbering agency for International Securities Identification Number ("ISIN") identifiers in the United States. We anticipate that the CGS acquisition will significantly expand our critical role in the global capital markets. Revenue from CGS will be recognized based on geographic business activities in accordance with how our operating segments are currently aligned. CGS will function as part of CTS. The purchase price for the CGS acquisition was financed from the net proceeds of the issuance of the Notes and borrowings under the 2022 Credit Agreement. In connection with the entry into the 2022 Credit Agreement, on March 1, 2022, we entered into the 2022 Swap Agreement and repaid in full and terminated the 2019 Credit Agreement and the 2020 Swap Agreement . Refer to Note 17, Subsequent Events , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these defined terms, our acquisition of CGS, the issuance of the Notes, the 2022 Credit Agreement and the 2022 Swap Agreement. 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. In response to the COVID-19 pandemic, we implemented a business continuity plan with a dedicated incident management team to respond quickly and provide ongoing guidance so that we could continue offering our clients uninterrupted products, services and support while also protecting our employees. We believe these actions have been successful and that the pandemic, and our responses, have not significantly affected our financial results for the three months ended February 28, 2022. At the outset of the pandemic, we required the vast majority of our employees at our offices across the globe (including our corporate headquarters) to work remotely and implemented global travel restrictions for our employees. Since that time, we have begun to re-open many of our offices globally with a focus on safety, while acting consistently with applicable local regulations. We anticipate that the ability to open offices will vary significantly from region to region based on a number of factors, including the availability of COVID-19 vaccines and the spread of COVID-19 variants. Our offices will not re-open fully until local authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied. As of February 28, 2022, there have 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. Based on our success working in a remote environment during the COVID-19 pandemic, we have implemented a new work standard under which employees in many of our locations, where permitted by local laws and regulations, and where the role permits, will have the opportunity to choose between different work arrangements. These include working in a hybrid arrangement, where an employee can split time between working from the office and working from a pre-approved remote location, or a fully remote arrangement, where an employee can work entirely from a pre-approved remote location. 35 Table of Contents Our revenues, earnings, and ASV are relatively stable and predictable as a result of our subscription-based business model. To date, the COVID-19 pandemic has not had a material negative impact on our revenues, earnings or ASV. As we continue to work in remote and hybrid environments, reductions in discretionary spending, particularly travel and entertainment, have more than offset any related increased expenses. Given our transition to our new work standard, we anticipate that many of these expense reductions will continue going forward, including incurring less travel and entertainment spending than we did pre-pandemic. We also are reassessing our real estate footprint to better reflect these new work arrangements and seeking to reduce our spending on office space that will no longer be necessary. Refer to Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended August 31, 2021 for further discussion of the potential impact of the COVID-19 pandemic on our business. Ukraine/Russia Conflict As the Russian invasion of Ukraine continues to evolve, we are closely monitoring the current and potential impact on our business, our people, and our clients. We have taken all necessary steps to ensure compliance with all applicable regulatory restrictions on international trade and financial transactions. On March 18, 2022, we announced that we are discontinuing all commercial operations and delivery of products and services to clients inside Russia. In addition, we have identified all active vendors in Russia and are terminating our contracts with them. We have suspended all new business, trials, and prospecting activities in Russia. Total revenues associated with clients in Russia are not material to our consolidated financial results, and we anticipate termination of Russian vendors will not have a material impact on our business or client relationships. We have no offices in Russia or Ukraine, and none of our employees or contractors has been directly impacted by the crisis. We are monitoring the regional and global ramifications of the unfolding events in the area, are in close contact with our office in Latvia, and are reviewing our business continuity plans to ensure that we are prepared in the event this office is impacted. Our cybersecurity teams are on high alert and ready to respond in the event of an attempted systems compromise. Annual Subscription Value ("ASV") We believe ASV reflects our ability to grow recurring revenues and generate positive cash flow and is the key indicator of the successful execution of our business strategy. – "ASV" at any point in time represents our forward-looking revenues for the next 12 months from all subscription services currently being supplied to clients, excluding revenues from Professional Services. – "Organic ASV" at any point in time equals our ASV excluding ASV from acquisitions and dispositions completed within the last 12 months and the effects of foreign currency movements on the current year period. – "Professional Services" are revenues derived from project-based consulting and implementation. – "Organic ASV plus Professional Services" at any point in time equals the sum of Organic ASV and Professional Services. Organic ASV plus Professional Services The following table presents the calculation of Organic ASV plus Professional Services as of February 28, 2022. With proper notice provided as contractually required, our clients can add to, delete portions of, or terminate service, subject to certain limitations. (in millions) As of February 28, 2022 As reported ASV plus Professional Services (1) $ 1,750.2 Currency impact (2) 0.9 Acquisition ASV (3) (7.2) Organic ASV plus Professional Services $ 1,743.9 Organic ASV plus Professional Services growth rate 9.4 % (1) Includes $24.2 million in Professional Services as of February 28, 2022. (2) The impact from foreign currency movements. (3) Acquired ASV from acquisitions completed within the last 12 months. 36 Table of Contents As of February 28, 2022, Organic ASV plus Professional Services was $1.74 billion, an increase of 9.4% compared with February 28, 2021. The increase in year-over-year Organic ASV was largely attributed to existing clients, followed by new client sales, and price increases, partially offset by existing client cancellations. Organic ASV increased across all our geographic segments with the majority of the increase related to the Americas, followed by EMEA and Asia Pacific. This increase was driven by additional sales in our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS. Sales increased in Research & Advisory mainly due to higher demand for our workstations. Sales increased in Analytics & Trading mainly from our portfolio analytics solutions and performance and reporting products. C TS sales increased primarily due to company financial data, such as fundamentals and estimates, along with data management solutions to empower data connectivity. Segment ASV As of February 28, 2022, ASV from the Americas represented 62.9% of total ASV and was $1,085.6 million, an increase from $985.2 million as of February 28, 2021. Americas Organic ASV increased to $1,079.3 million as of February 28, 2022, a 9.6% increase compared with February 28, 2021. As of February 28, 2022, ASV from EMEA was $459.9 million, representing 26.6% of total ASV, an increase from $427.6 million as of February 28, 2021. EMEA Organic ASV increased to $459.6 million as of February 28, 2022, a 7.8% increase compared with February 28, 2021. As of February 28, 2022, Asia Pacific ASV was $180.5 million, representing 10.5% of total ASV, an increase from $159.8 million as of February 28, 2021. Asia Pacific Organic ASV increased to $180.9 million as of February 28, 2022, a 14.3% increase compared with February 28, 2021. The increase in Organic ASV across all our segments was largely attributed to increased sales to existing clients, followed by new client sales and price increases, partially offset by existing client cancellations. Organic ASV increased in the Americas primarily due to higher sales in Research & Advisory, followed by Analytics & Trading. EMEA Organic ASV increased due to higher sales in Research & Advisory, followed by CTS and Analytics & Trading. The increase in Asia Pacific Organic ASV was mainly driven by higher sales in Research & Advisory, followed by Analytics & Trading and CTS. Buy-side and Sell-side Organic ASV Growth Buy-side and sell-side Organic ASV growth rates at February 28, 2022, compared with February 28, 2021, were 8.8% and 12.9%, respectively. Buy-side clients account for approximately 84% of our Organic ASV, consistent with the prior year period, and primarily include asset managers, wealth managers, asset owners, channel partners, hedge funds, and corporate firms. The remainder of our Organic ASV is derived from sell-side firms, and primarily include broker-dealers, banking and advisory, private equity and venture capital firms. Client and User Additions The table below presents our total clients and users: As of February 28, 2022 As of February 28, 2021 Change Clients (1) 7,172 6,103 17.5 % Users 171,341 153,355 11.7 % (1) The client count includes clients with ASV of $10,000 and above. Our total client count was 7,172 as of February 28, 2022, a net increase of 17.5%, or 1,069 clients, in the last 12 months, mainly due to an increase in corporate and wealth management clients. As part of our long-term growth strategy, we continue to focus on expanding and cultivating relationships with our existing client base through our on- and off-platform workflow-focused solutions, connected content and client-focused services. As of February 28, 2022, there were 171,341 professionals using FactSet, representing a net increase of 11.7%, or 17,986 users, in the last 12 months, driven primarily by an increase of banking and private equity and venture capital clients from the sell-side and asset managers, corporate and wealth management clients from the buy-side. The increase in users was mainly due to the addition of new clients and increased new hiring at our banking clients. 37 Table of Contents Annual client retention was greater than 95% of ASV for the period ended February 28, 2022, consistent with the prior year period. When expressed as a percentage of clients, annual retention was approximately 92% for the period ended February 28, 2022, an improvement from approximately 90% for the period ended February 28, 2021. Employee Headcount As of February 28, 2022, our employee headcount was 10,784, up 1.2% in the past 12 months from 10,660, due primarily to an increase in net new employees of 5.2% in Asia Pacific, partially offset by a decrease of 9.0% in the Americas and 0.1% in EMEA. Of our total employee headcount at February 28, 2022, 7,147 were located in Asia Pacific, 2,265 were located in the Americas, and 1,372 were located in EMEA. Results of Operations For an understanding of the significant factors that influenced our performance for the three and six months ended February 28, 2022 and February 28, 2021, 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. The following table summarizes the results of operations for the periods described: Three Months Ended Six Months Ended February 28, % Change February 28, % Change (in thousands, except per share data) 2022 2021 2022 2021 Revenues $ 431,119 $ 391,788 10.0 % $ 855,844 $ 779,993 9.7 % Cost of services $ 199,395 $ 195,523 2.0 % $ 406,544 $ 383,611 6.0 % Selling, general and administrative $ 108,376 $ 80,132 35.2 % $ 203,291 $ 159,219 27.7 % Operating income $ 123,348 $ 116,133 6.2 % $ 246,009 $ 237,163 3.7 % Net income $ 109,938 $ 96,643 13.8 % $ 217,585 $ 197,849 10.0 % Diluted earnings per common share $ 2.84 $ 2.50 13.6 % $ 5.63 $ 5.12 10.0 % Diluted weighted average common shares 38,761 38,620 38,628 38,658 Revenues Three months ended February 28, 2022 compared with three months ended February 28, 2021 Revenues for the three months ended February 28, 2022 were $431.1 million, an increase of 10.0%. The increase in revenues were largely attributed to increased sales to existing clients, inclusive of price increases, followed by new client sales, partially offset by existing client cancellations. Revenues increased across all our geographic segments, primarily from the Americas, followed by EMEA and Asia Pacific, driven by increased revenues in all of our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS, compared with the prior year. Organic revenues increased to $430.8 million for the three months ended February 28, 2022, a 9.9% increase over the prior year period. The 10.0% increase in revenues was composed of growth in organic revenues of 9.9% and a 50 basis point increase from deferred revenues fair value adjustments from purchase accounting and acquisition-related revenues, partially offset by a 40 basis point decrease from foreign currency exchange rate fluctuations. Six months ended February 28, 2022 compared with six months ended February 28, 2021 Revenues for the six months ended February 28, 2022 was $855.8 million, an increase of 9.7%. The increase in revenues were largely attributed to increased sales to existing clients, inclusive of price increases, followed by new client sales, partially offset by existing client cancellations. Revenues increased across all our geographic segments, primarily from the Americas, followed by EMEA and Asia Pacific driven by increased revenues in all of our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS, compared with the prior year. Organic revenues increased to $853.9 million for the six months ended February 28, 2022, a 9.4% increase over the prior year period. The revenue growth of 9.7% was reflective of organic revenue growth of 9.4%, a 60 basis point increase from deferred revenue fair value adjustments from purchase accounting and acquisition-related revenue, partially offset by a 30 basis point decrease from foreign currency exchange rate fluctuations. 38 Table of Contents Revenues by Segment Three Months Ended Six Months Ended February 28, % Change February 28, % Change (in thousands) 2022 2021 2022 2021 Americas $ 273,659 $ 247,991 10.4 % $ 540,572 $ 492,327 9.8 % % of revenues 63.5 % 63.3 % 63.2 % 63.1 % EMEA $ 114,591 $ 105,493 8.6 % $ 229,594 $ 211,270 8.7 % % of revenues 26.6 % 26.9 % 26.8 % 27.1 % Asia Pacific $ 42,869 $ 38,304 11.9 % $ 85,678 $ 76,396 12.1 % % of revenues 9.9 % 9.8 % 10.0 % 9.8 % Consolidated $ 431,119 $ 391,788 10.0 % $ 855,844 $ 779,993 9.7 % Three months ended February 28, 2022 compared with three months ended February 28, 2021 Americas Revenues from our Americas segment increased 10.4% to $273.7 million during the three months ended February 28, 2022, compared with $248.0 million from the same period a year ago. The increased revenues were driven by higher sales in all of our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS. The growth in revenues of 10.4% was reflective of increased organic revenues of 10.3% and a 10 basis point increase related to deferred revenues fair value adjustments from purchase accounting and acquisition-related revenues. EMEA Revenues from our EMEA segment increased 8.6% to $114.6 million during the three months ended February 28, 2022, compared with $105.5 million from the same period a year ago. The increased revenues were driven by higher sales in all of our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS. The growth in revenues of 8.6% was reflective of increased organic revenues of 9.5%, partially offset by a 90 basis point decrease related to foreign currency exchange rate fluctuations. Asia Pacific Revenues from our Asia Pacific segment increased 11.9% to $42.9 million during the three months ended February 28, 2022, compared with $38.3 million from the same period a year ago. The increased revenues were driven by increased sales across all of our workflow solutions of Analytics & Trading, Research & Advisory and CTS. The growth in revenues of 11.9% was reflective of increased organic revenues of 13.7%, partially offset by a 180 basis point decrease related to foreign currency exchange rate fluctuations. Six months ended February 28, 2022 compared with six months ended February 28, 2021 Americas Revenues from our Americas segment increased 9.8% to $540.6 million during the six months ended February 28, 2022, compared with $492.3 million from the same period a year ago. The increased revenues were driven by higher sales in all of our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS. The revenues growth of 9.8% was due to organic revenue growth of 9.6% and a 20 basis point increase from deferred revenue fair value adjustments from purchase accounting and acquisition-related revenue. EMEA Revenues from our EMEA segment increased 8.7% to $229.6 million during the six months ended February 28, 2022, compared with $211.3 million from the same period a year ago. The increased revenues were driven by higher sales in all of our workflow solutions, primarily in Research & Advisory, followed by Analytics & Trading and CTS. The revenues growth of 8.7% was driven by organic revenue growth of 9.1% and a 10 basis point increase from deferred revenue fair value adjustments from purchase accounting, partially offset by a 50 basis point decrease from foreign currency exchange rate fluctuations. 39 Table of Contents Asia Pacific Revenues from our Asia Pacific segment increased 12.1% to $85.7 million during the six months ended February 28, 2022, compared with $76.4 million from the same period a year ago. The increased revenues were driven by higher sales across all of our workflow solutions of Analytics & Trading, Research & Advisory and CTS. The revenues growth of 12.1% was due mainly to organic revenues growth of 13.7%, partially offset by a 160 basis point decrease from foreign currency exchange rate fluctuations. Revenues by Workflow Solution Three months ended February 28, 2022 compared with three months ended February 28, 2021 The growth in revenues of 10.0% across our segments was driven by increased revenues from all of our workflow solutions, primarily from sales of Research & Advisory, followed by Analytics & Trading and CTS, for the three months ended February 28, 2022, compared with the same period a year ago. The increase in Research & Advisory was driven mainly by higher demand for our workstations. The increase in revenues from Analytics & Trading was primarily due to increased demand for our performance and reporting products and portfolio analytics solutions. The increase in CTS revenues was driven mainly by increased sales of company financial data, such as fundamentals and estimates, along with data management solutions. Six months ended February 28, 2022 compared with six months ended February 28, 2021 The revenues growth of 9.7% across our segments for the six months ended February 28, 2022 compared with the same period a year ago was primarily driven by increased sales of Research & Advisory, followed by Analytics & Trading and CTS. The increase in Research & Advisory was driven mainly by higher demand for our workstations. The increase in Analytics & Trading revenues was mainly due to increased sales of our performance and reporting products and portfolio analytics solutions. The increase in CTS revenues was driven mainly by increased sales of core and premium content sets, specifically related to company financial data and data management solutions. Operating Expenses Three Months Ended Six Months Ended February 28, February 28, % Change (in thousands) 2022 2021 % Change 2022 2021 Cost of services $ 199,395 $ 195,523 2.0 % $ 406,544 $ 383,611 6.0 % Selling, general and administrative 108,376 80,132 35.2 % 203,291 159,219 27.7 % Total operating expenses $ 307,771 $ 275,655 11.7 % $ 609,835 $ 542,830 12.3 % Operating income $ 123,348 $ 116,133 6.2 % $ 246,009 $ 237,163 3.7 % Operating margin 28.6 % 29.6 % 28.7 % 30.4 % Cost of Services Three months ended February 28, 2022 compared with three months ended February 28, 2021 Cost of services increased 2.0% to $199.4 million for the three months ended February 28, 2022, compared with $195.5 million in the same period a year ago, primarily due to an increase in employee compensation expense, computer-related expenses and amortization of intangible assets, partially offset by computer depreciation. Cost of services, when expressed as a percentage of revenues, was 46.3% for the three months ended February 28, 2022, a decrease of 370 basis points compared with the same period a year ago. This decrease was primarily due to lower employee compensation expense and lower computer depreciation expenses as a percentage of revenue. Employee compensation expense decreased 260 basis points due primarily to growth in revenues outpacing the growth of employee compensation expense and a shift in headcount distribution from higher to lower cost locations, partially offset by higher base salaries, a net increase in employee headcount of 51 and higher stock-based compensation expense. Computer depreciation expenses decreased 30 basis points, primarily driven by fully depreciated network-related equipment that is not being replaced due to our migration to cloud-based hosting services. 40 Table of Contents Six months ended February 28, 2022 compared with six months ended February 28, 2021 For the six months ended February 28, 2022, cost of services increased 6.0% to $406.5 million compared with $383.6 million in the same period a year ago, primarily due to an increase in computer-related expenses, employee compensation expense, including stock-based compensation, amortization of intangible assets and data costs. Cost of services, when expressed as a percentage of revenues, was 47.5% for the six months ended February 28, 2022, a decrease of 170 basis points compared with the same period a year ago. This decrease was primarily driven by lower employee compensation expense, partially offset by higher computer-related expenses and amortization of intangible assets as a percentage of revenue. Employee compensation expense decreased 200 basis points, primarily due to growth in revenues outpacing the growth of employee compensation expense and a shift in headcount distribution from higher to lower cost locations. This decrease in employee compensation was partially offset by a one-time restructuring charge to drive organizational realignment, higher stock-based compensation expense and annual base salaries, and a net increase in employee headcount of 51. Computer-related expenses increased 70 basis points primarily due to increased spend from our migration to cloud-based hosting services and licensed software arrangements. Amortization of intangible assets increased 30 basis points mainly due to continued investment in capitalized internal-use software, with more assets placed in service. Selling, General and Administrative Three months ended February 28, 2022 compared with three months ended February 28, 2021 Selling, general and administrative ("SG&A") expenses increased 35.2% to $108.4 million for the three months ended February 28, 2022, compared with $80.1 million for the same period a year ago, primarily due to impairment charges related to vacating certain leased office space and higher employee compensation expense and professional fees. SG&A expenses, when expressed as a percentage of revenues, were 25.1% for the three months ended February 28, 2022, an increase of 470 basis points over the prior year period. This increase was primarily due to impairment charges related to vacating certain leased office space, higher professional fees and higher employee compensation expense as a percentage of revenue. The impairment charges resulted in a 240 basis point increase to SG&A expenses driven mainly by impairments to our lease right-of-use ("ROU") assets and Property, equipment and leasehold improvements associated with vacating certain leased office space. Professional fees increased 90 basis points, primarily driven by costs incurred in preparation for the acquisition of CGS. Employee compensation expense increased 70 basis points primarily due to a net increase in employee headcount of 73, higher annual base salaries and increased variable compensation. Six months ended February 28, 2022 compared with six months ended February 28, 2021 For the six months ended February 28, 2022, SG&A expenses increased 27.7% to $203.3 million, compared with $159.2 million for the same period a year ago, primarily due to an increase in employee compensation expense, impairment charges related to vacating certain leased office space and higher professional fees. SG&A expenses, expressed as a percentage of revenues, was 23.8% for the six months ended February 28, 2022, an increase of 330 basis points over the prior year period. This increase was primarily driven by impairment charges related to vacating certain leased property, higher employee compensation expense and increased professional fees as a percentage of revenue. The impairment charges resulted in a 90 basis point increase to SG&A expenses driven mainly by impairments to our lease ROU assets and Property, equipment and leasehold improvements associated with vacating certain leased office space. Employee compensation expense increased 70 basis points, primarily due to higher annual base salaries, a net increase in employee headcount of 73, and increased year-over-year variable compensation. Professional fees increased 50 basis points, primarily driven by costs incurred in preparation for the acquisition of CGS. Operating Income and Operating Margin Three months ended February 28, 2022 compared with three months ended February 28, 2021 Operating income increased 6.2% to $123.3 million for the three months ended February 28, 2022, compared with $116.1 million in the prior year. Operating income increased primarily due to growth in revenues of 10.0%, partially offset by impairment charges related to vacating certain leased office space, an increase in employee compensation expense and higher professional fees driven by costs incurred in preparation for the acquisition of CGS. Foreign currency exchange rate fluctuations, net of hedge activity decreased operating income by $1.2 million. 41 Table of Contents Operating margin decreased to 28.6% during the three months ended February 28, 2022, compared with 29.6% in the prior year period. Operating margin decreased mainly due to impairment charges related to vacating certain leased office space, professional fees driven by costs incurred in preparation for the acquisition of CGS, partially offset by growth in revenues and lower costs related to employee compensation and computer depreciation. Six months ended February 28, 2022 compared with six months ended February 28, 2021 Operating income increased 3.7% to $246.0 million for the six months ended February 28, 2022 compared with $237.2 million in the prior year period. Operating income increased primarily due to growth in revenues of 9.7%, partially offset by increases in employee compensation expense, impairment charges related to vacating certain leased office space and increases in computer-related expenses, professional fees, amortization of intangible assets and data costs. Foreign currency exchange rate fluctuations, net of hedge activity decreased operating income by $5.4 million. Operating margin decreased to 28.7% for the six months ended February 28, 2022, compared with 30.4% in the prior year period. Operating margin decreased primarily due to impairment charges related to vacating certain leased property, computer-related expenses, professional fees and amortization of intangibles, partially offset by lower employee compensation expense. Operating Income by Segment Our internal financial reporting structure is based on three reportable segments: the Americas; EMEA; and Asia Pacific. Refer to Note 16, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our segments. Three Months Ended Six Months Ended February 28, % Change February 28, % Change (in thousands) 2022 2021 2022 2021 Americas $ 48,903 $ 53,614 (8.8) % $ 104,401 $ 109,989 (5.1) % EMEA 45,944 40,290 14.0 % 86,598 80,924 7.0 % Asia Pacific 28,501 22,229 28.2 % 55,010 46,250 18.9 % Total Operating Income $ 123,348 $ 116,133 6.2 % $ 246,009 $ 237,163 3.7 % Three months ended February 28, 2022 compared with three months ended February 28, 2021 Americas Americas operating income decreased 8.8% to $48.9 million during the three months ended February 28, 2022, compared with $53.6 million in the same period a year ago. This decrease in operating income was due to impairment charges related to vacating certain leased office space, higher employee compensation expense and professional fees, partially offset by growth in revenues of 10.4%. The impairment charges related mainly to our lease right-of-use ("ROU") assets and Property, equipment and leasehold improvements associated with vacating certain leased office space. Employee compensation expense increased mainly due to higher stock compensation expense and increased variable compensation, partially offset by a net decrease in employee headcount of 225. Professional fees increased primarily due to costs incurred in preparation for the acquisition of CGS. EMEA EMEA operating income increased 14.0% to $45.9 million during the three months ended February 28, 2022, compared with $40.3 million recognized during the same period a year ago. The increase in EMEA operating income was due to growth in revenues of 8.6%, partially offset by higher employee compensation expense and an increase in our accounts receivable reserves. Employee compensation expense increased mainly due to increased variable compensation. Asia Pacific Asia Pacific operating income increased 28.2% to $28.5 million during the three months ended February 28, 2022, compared with $22.2 million in the same period a year ago. This increase in operating income was mainly due to growth in revenues of 42 Table of Contents 11.9%, partially offset by higher employee compensation expense. Employee compensation expense increased mainly due to higher annual base salaries, a net increase in employee headcount of 351 and increased variable compensation. Six months ended February 28, 2022 compared with six months ended February 28, 2021 Americas Americas operating income decreased 5.1% to $104.4 million during the six months ended February 28, 2022, compared with $110.0 million in the same period a year ago. This decrease in operating income was due to higher employee compensation expense, impairment charges related to vacating certain leased office space, higher computer-related expenses, professional fees and amortization of intangible assets, partially offset by growth in revenues of 9.8%. Employee compensation expense increased primarily due to the impact of a one-time restructuring charge to drive organizational realignment, higher stock compensation expense and increased variable compensation expense, partially offset by a net decrease in employee headcount of 225. The impairment charges related mainly to our lease right-of-use ("ROU") assets and Property, equipment and leasehold improvements associated with vacating certain leased office space. Computer-related expenses increased primarily due to increased spend from our migration to cloud-based hosting services and licensed software arrangements. Professional fees increased primarily due to costs incurred in preparation for the acquisition of CGS. Amortization of intangible assets increased primarily due to a continued investment in capitalized internal-use software, with more assets placed in service. EMEA EMEA operating income increased 7.0% to $86.6 million during the six months ended February 28, 2022, compared with $80.9 million in the same period a year ago. The increase in EMEA operating income was primarily due to growth in revenues of 8.7%, partially offset by an increase in employee compensation expense and data costs. Employee compensation expense increased mainly due to the impact of a one-time restructuring charge to drive organizational realignment and higher annual base salaries. Data costs increased primarily due to a non-recurring charge for certain data content. Asia Pacific Asia Pacific operating income increased 18.9% to $55.0 million during the six months ended February 28, 2022, compared with $46.3 million in the same period a year ago. The increase in Asia Pacific operating income was mainly due to growth in revenues of 12.1%, partially offset by an increase in employee compensation expense. Employee compensation expense increased mainly due to higher annual base salaries, a net increase in employee headcount of 351 and increased variable compensation. Income Taxes, Net Income and Diluted Earnings per Share Three Months Ended Six Months Ended February 28, % Change February 28, % Change (in thousands, except for per share data) 2022 2021 2022 2021 Provision for income taxes $ 12,018 $ 18,023 (33.3) % $ 24,301 $ 37,049 (34.4) % Net income $ 109,938 $ 96,643 13.8 % $ 217,585 $ 197,849 10.0 % Diluted earnings per common share $ 2.84 $ 2.50 13.6 % $ 5.63 $ 5.12 10.0 % Income Taxes Our effective tax rate is lower than the applicable U.S. corporate income tax rate for the three and six months ended February 28, 2022, driven mainly by research and development ("R&D") tax credits and a foreign derived intangible income ("FDII") deduction. Our effective tax rate for the three and six months ended February 28, 2022 is further reduced by windfall tax benefits associated with the employee exercise of stock options. Three months ended February 28, 2022 compared with three months ended February 28, 2021 For the three months ended February 28, 2022, the provision for income taxes was $12.0 million, compared with $18.0 million for the same period a year ago. The provision decreased mainly due to lower projected levels of income before income taxes, a lower effective tax rate compared to the prior year period and a $4.2 million in higher windfall tax benefits from stock-based compensation, partially offset by higher income before income taxes for the three months ended February 28, 2022, compared with the prior year period. 43 Table of Contents Six months ended February 28, 2022 compared with six months ended February 28, 2021 For the six months ended February 28, 2022, the provision for income taxes was $24.3 million, compared with $37.0 million for the same period a year ago. The provision decreased mainly due to lower projected levels of income before income taxes, a lower effective tax rate compared to the prior year period and $11.2 million in higher windfall tax benefit from stock-based compensation, partially offset by higher income before income taxes during the six months ended February 28, 2022, compared with the prior year period. Net Income and Diluted Earnings per Share Three months ended February 28, 2022 compared with three months ended February 28, 2021 Net income increased 13.8% to $109.9 million and diluted earnings per share ("EPS") increased 13.6% to $2.84 for the three months ended February 28, 2022, compared with the same period a year ago. Net income and diluted EPS increased primarily due to increased operating income and a reduction in the provision for income taxes. Six months ended February 28, 2022 compared with six months ended February 28, 2021 Net income increased 10.0% to $217.6 million and diluted EPS increased 10.0% to $5.63 for the six months ended February 28, 2022, compared with the same period a year ago. Net income and diluted EPS increased primarily due to a decrease in the provision for income taxes and increased operating income. Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), we use non-GAAP financial measures including organic revenue, adjusted operating income, adjusted operating margin, adjusted net income, EBITDA, adjusted EBITDA and adjusted diluted EPS. 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 revenues to adjusted revenues and organic revenues. Three Months Ended February 28, % Change (In thousands) 2022 2021 Revenues $ 431,119 $ 391,788 10.0 % Deferred revenues fair value adjustment (1) (62) 181 Adjusted revenues 431,057 391,969 10.0 % Acquired revenues (2) (1,883) — Currency impact (3) 1,589 — Organic revenues $ 430,763 $ 391,969 9.9 % (1) The amortization effect of the purchase accounting adjustment on the fair value of acquired deferred revenues. (2) Revenues from acquisitions completed within the last 12 months. (3) The impact from foreign currency movements over the past 12 months. 44 Table of Contents The table below provides an unaudited reconciliation of operating income, operating margin, net income and diluted EPS to adjusted operating income, adjusted operating margin, adjusted net income, EBITDA, adjusted EBITDA and adjusted diluted EPS. Three Months Ended February 28, (In thousands, except per share data) 2022 2021 % Change Operating income $ 123,348 $ 116,133 6.2 % Deferred revenues fair value adjustment (62) 181 Intangible asset amortization 6,291 5,914 Real estate charges 9,734 — Business acquisition costs 5,048 — Transformation costs (1) 580 4,654 Restructuring / severance 200 961 Adjusted operating income $ 145,139 $ 127,843 13.5 % Operating margin 28.6 % 29.6 % Adjusted operating margin (2) 33.7 % 32.6 % Net income $ 109,938 $ 96,643 13.8 % Deferred revenues fair value adjustment (55) 148 Intangible asset amortization 5,543 4,843 Real estate charges 8,578 — Business acquisition costs 4,448 — Transformation costs (1) 512 3,813 Restructuring / severance 177 787 Income tax items (2,466) (1,154) Adjusted net income (3) $ 126,675 $ 105,080 20.6 % Net income $ 109,938 $ 96,643 Interest expense, net 1,673 1,815 Income taxes 12,018 18,023 Depreciation and amortization expense 13,395 15,672 EBITDA $ 137,024 $ 132,153 3.7 % Non-recurring non-cash expenses (4) 9,734 — Adjusted EBITDA $ 146,758 $ 132,153 11.1 % Diluted earnings per common share $ 2.84 $ 2.50 13.6 % Deferred revenues fair value adjustment 0.00 0.00 Intangible asset amortization 0.14 0.13 Real estate charges 0.22 — Business acquisition costs 0.11 — Transformation costs (1) 0.01 0.10 Restructuring / severance 0.01 0.02 Income tax items (0.06) (0.03) Adjusted diluted earnings per common share (3) $ 3.27 $ 2.72 20.2 % Weighted average common shares (Diluted) 38,761 38,620 (1) Costs primarily related to professional fees associated with the ongoing multi-year investment plan. 45 Table of Contents (2) Adjusted operating margin is calculated as adjusted operating income divided by adjusted revenues as shown in the organic revenues table above. (3) For purposes of calculating adjusted net income and adjusted diluted earnings per share, intangible asset amortization, deferred revenues fair value adjustments and other items were taxed at the quarterly effective tax rates of 11.9% for fiscal 2022 and 16.9% for fiscal 2021. (4) Costs related to impairment charges of our lease ROU assets and Property, equipment and leasehold improvements associated with vacating certain leased office space. Liquidity and Capital Resources Our primary sources of liquidity have been our cash flows generated from our operations, existing cash and cash equivalents and, when needed, our credit capacity under our existing credit facility. We use these sources of liquidity to, among other things, service our existing and future debt obligations, satisfy our working capital requirements and fund our capital expenditures, investments, acquisitions, dividend payments and repurchases of our common stock. Based on past performance and current expectations, we believe our liquidity, along with other financing alternatives, will provide us the necessary capital to fund these transactions and achieve our planned growth for the next 12 months and the foreseeable future. Sources of Liquidity Long-Term Debt 2019 Credit Agreement On March 29, 2019, we entered into a credit agreement with PNC Bank, National Association ("PNC") (the "2019 Credit Agreement"), which provides for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). The 2019 Revolving Credit Facility allows for borrowings until its maturity date of March 29, 2024. The 2019 Credit Agreement also allows for, subject to certain requirements, additional borrowings with PNC for an aggregate amount up to $500.0 million, provided that any such request for additional borrowings must be in a minimum amount of $25.0 million. As of February 28, 2022, 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 February 28, 2022. 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 February 28, 2022 and August 31, 2021. The principal balance is payable in full on the maturity date. Borrowings under the loan bear interest on the outstanding principal amount at a rate equal to LIBOR plus a spread using a debt leverage pricing grid, which was 0.875% as of February 28, 2022. The variable rate of interest on the 2019 Revolving Credit Facility creates exposure to interest rate volatility due to changes in LIBOR. 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 pay interest at a fixed rate of 0.7995% and receive variable interest payments based on the same one-month LIBOR utilized to calculate the interest expense from the 2019 Revolving Credit Facility. The interest rate swap agreement matures on March 29, 2024. Including the effects of the interest rate swap agreement, the weighted average interest rate on amounts outstanding under our 2019 Revolving Credit Facility was 1.36% and 1.38% for the six months ended February 28, 2022 and fiscal year ended August 31, 2021, respectively. Interest on the outstanding balance under the 2019 Revolving Credit Facility is payable quarterly, in arrears, and on the maturity date. The 2019 Credit Agreement contains covenants and requirements restricting certain of our activities, which are usual and customary for this type of loan. In addition, the 2019 Credit Agreement requires that we maintain a consolidated net leverage ratio, as measured by total net funded debt/EBITDA (as defined in the 2019 Credit Agreement), below a specified level as of the end of each fiscal quarter. We were in compliance with all the covenants and requirements within the 2019 Credit Agreement as of February 28, 2022. 46 Table of Contents As of March 1, 2022 , we repaid in full and terminated our 2019 Credit Agreement . Refer to Note 17, Subsequent Events for more information on the termination. 2022 Credit Agreement On March 1, 2022, FactSet Research Systems Inc. entered into the 2022 Credit Agreement and concurrently we repaid in full and terminated the 2019 Credit Agreement. On March 1, 2022, we borrowed $1.0 billion under the 2022 Term Facility, and $250.0 million under the 2022 Revolving Facility. Refer to Note 17, Subsequent Events for definition of these terms and more information on the 2022 Credit Agreement. Notes On March 1, 2022, FactSet Research Systems Inc. completed a public offering of $500.0 million aggregate principal amount of 2.900% Senior Notes due 2027 and $500.0 million aggregate principal amount of 3.450% Senior Notes due 2032. Refer to Note 17, Subsequent Events for more information on the Senior Notes. Uses of Liquidity Returning Value to Shareholders For the six months ended February 28, 2022, we returned $80.1 million to stockholders in the form of share repurchases and dividends. Over the last 12 months, we returned $289.9 million to stockholders in the form of share repurchases and dividends. Share Repurchase Program Under our share repurchase program, we may repurchase shares of our common stock from time to time in the open market and privately negotiated transactions, subject to market conditions. Beginning in the second quarter of fiscal 2022, we suspended our share repurchase program through at least the second half of fiscal 2023, with the exception of potential minor repurchases to offset dilution from grants of equity awards or repurchases to satisfy withholding tax obligations du e upon the vesting of stock-based awards. The suspension of our share repurchase program allows us to prioritize the repayment of debt under the 2022 Credit Agreement. Refer to Note 17, Subsequent Events for more information on the 2022 Credit Agreement. As such, for the three months ended February 28, 2022, we did not make any repurchases under our existing share repurchase program, compared to 221,959 shares repurchased for $71.5 million for the three months ended February 28, 2021. During the six months ended February 28, 2022, we repurchased 46,200 shares for $18.6 million under our existing share repurchase program compared with 353,759 shares for $114.6 million in the same period a year ago. As of February 28, 2022, $181.3 million remained available under the share repurchase program for future share repurchases. There is no defined number of shares to be repurchased over a specified timeframe through the life of the share repurchase program. It is expected that share repurchases will be paid using existing and future cash generated by operations. Capital Expenditures For the six months ended February 28, 2022, capital expenditures were $20.5 million, compared with $28.8 million during the same period a year ago, a decrease of $8.2 million. Capital expenditures decreased primarily due to costs incurred for the build-out of our office space in the Philippines during the six months ended February 28, 2021, without a similar expenditure during the six months ended February 28, 2022. Dividends On February 2, 2022, our Board of Directors approved a regular quarterly dividend of $0.82 per share. Dividends of $31.1 million were paid on March 17, 2022 to common stockholders of record at the close of business on February 28, 2022. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and are subject to final determination by our Board of Directors. 47 Table of Contents Acquisitions During fiscal 2022 and 2021, we completed acquisitions of several businesses, with the most significant cash flows related to the acquisitions of Cobalt Software, Inc. ("Cobalt") and Truvalue Labs, Inc. ("TVL"). On March 1, 2022, we completed the acquisition of CGS. On October 12, 2021, we acquired all of the outstanding shares of Cobalt for a purchase price of $50.0 million, net of cash acquired . Cobalt is a leading portfolio monitoring solutions provider for the private capital industry. This acquisition advances our strategy to scale our data and workflow solutions through targeted investments as part of our multi-year investment plan and expands our private markets offering. On November 2, 2020, we acquired all of the outstanding shares of TVL for a purchase price of $41.9 million, net of cash acquired . TVL is a leading provider of ESG information. TVL applies artificial intelligence driven technology to over 100,000 unstructured text sources in multiple languages, including news, trade journals, and non-governmental organizations and industry reports, to provide daily signals that identify positive and negative ESG behavior. The acquisition of TVL further enhances our commitment to providing industry leading access to ESG data across our platforms. Refer to Note 7, Acquisition, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of the Cobalt and TVL acquisitions. Refer to Note 17, Subsequent Events, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our March 1, 2022 acquisition of CGS. Contractual Obligations Purchase obligations represent committed payments due in future periods to our various data vendors and for other goods and services. These purchase commitments are agreements that are enforceable and legally binding on us, and they specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. 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, 2021, we had total purchase commitments of $191.9 million. During the second quarter of fiscal 2022, we entered into a software subscription agreement with total purchase commitments of approximately $10 million with a contract term of three years. We also have contractual obligations related to our lease liabilities and outstanding debt. Refer to Note 10, Leases and Note 11, Debt for information regarding lease commitments and outstanding debt obligations, respectively. Summary of Cash Flows The table below, for the periods indicated, provides selected cash flow information: Six Months Ended February 28, (in thousands) 2022 2021 $ Change % Change Net cash provided by operating activities $ 194,952 $ 229,936 $ (34,984) (15.2) % Net cash used in investing activities (70,814) (69,748) (1,066) 1.5 % Net cash used by financing activities (26,417) (146,659) 120,242 (82.0) % Effect of exchange rate changes on cash and cash equivalents (6,574) 3,550 (10,124) (285.2) % Net increase in cash and cash equivalents $ 91,147 $ 17,079 $ 74,068 433.7 % Cash and cash equivalents aggregated to $773.0 million as of February 28, 2022, compared with $681.9 million as of August 31, 2021. Our cash and cash equivalents increased $91.1 million during the six months ended February 28, 2022, primarily due to cash provided by operating activities of $195.0 million and proceeds from the exercise of employee stock options of $56.9 million, partially offset by cash outflows from dividend payments of $61.4 million, acquisition of a business of $50.0 million, capital expenditures of $20.5 million and share repurchases of $18.6 million. Our cash and cash equivalents are held in numerous locations throughout the world, with $493.9 million within the Americas, $215.4 million within EMEA (predominantly within the UK and France) and the remaining $63.7 million within Asia Pacific (predominantly within the Philippines and India) as of February 28, 2022. We intend to reinvest substantially all of our accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. 48 Table of Contents Operating For the six months ended February 28, 2022, net cash provided by operating activities was $195.0 million compared with $229.9 million during the same period a year ago, a decrease of $35.0 million. This decrease was primarily driven by the timing of both tax payments in certain jurisdictions and collections of accounts receivable, as well as higher bonus payments, partially offset by higher net income. Investing Net cash used in investing activities was $70.8 million for the six months ended February 28, 2022, representing a $1.1 million increase from the same period a year ago. This increase was driven by higher spend on acquisitions, with a $50.0 million cash purchase price for Cobalt, net of cash acquired, during the six months ended February 28, 2022, compared with a $41.9 million cash purchase price for TVL, net of cash acquired, in the prior year period. The increase in net cash used in investing was further impacted by a reduction of $1.2 million in net proceeds from investments (net of purchases) during the six months ended February 28, 2022 compared to the prior year period, partially offset by a decrease in capital expenditures of $8.2 million for the six months ended February 28, 2022 compared with the prior year period. Financing Net cash used in financing activities was $26.4 million for the six months ended February 28, 2022, representing a $120.2 million favorable change compared with the same period a year ago. This cash flow improvement was mainly driven by a $96.0 million decrease in share repurchases and a $28.4 million increase in proceeds from employee stock plans, partially offset by an increase of $3.3 million in dividend payments. Free Cash Flow We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, leasehold improvements and capitalized internal-use software. We present free cash flow solely as a supplemental disclosure to provide useful information to investors about the amount of cash generated by the business after necessary capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. The following table reconciles our net cash provided by operating activities to free cash flow: Six Months Ended February 28, (in thousands) 2022 2021 Change Net cash provided by operating activities $ 194,952 $ 229,936 $ (34,984) Capital expenditures (1) (20,546) (28,758) 8,212 Free cash flow $ 174,406 $ 201,178 $ (26,772) (1) Capital expenditures are included in net cash used in investing activities during each fiscal period reported and include property, equipment, leasehold improvements and capitalized internal-use software. Free cash flow generated during the six months ended February 28, 2022 was $174.4 million compared with $201.2 million during the same period a year ago, reflecting a 13.3% decrease. This $26.8 million decrease was due to a $35.0 million decrease in operating cash flows, partially offset by an $8.2 million decrease in capital expenditures. Off-Balance Sheet Arrangements At February 28, 2022 and August 31, 2021, 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. 49 Table of Contents Foreign Currency Foreign Currency Exposure We are exposed to foreign currency fluctuations from our international wholly-owned subsidiaries, primarily driven by employee compensation, with 79% of our employee headcount located in foreign locations. The functional currency of these foreign subsidiaries are primarily their respective local currencies. The revenues and expenses of these subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period and the assets and liabilities translated at the rates of exchange on the balance sheet date. The net translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity. During the three months ended February 28, 2022, foreign currency exchange rate fluctuations, net of hedge activity, decreased operating income by $1.2 million, compared with a decrease of $1.4 million to operating income a year ago. During the six months ended February 28, 2022, foreign currency exchange rate fluctuations, net of hedge activity, decreased operating income by $5.4 million, compared with a $0.8 million a decrease to operating income a year ago. To mitigate the foreign currency exposure, we entered into a series of forward contracts to hedge a portion of our British Pound Sterling, Euro, Indian Rupee, and Philippine Peso exposures ranging from 25% to 50% over their respective hedged periods as of February 28, 2022. The current foreign currency forward contracts are set to mature at various points between the third quarter of fiscal 2022 through the first quarter of fiscal 2023. As of February 28, 2022, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S. dollars was ₱0.9 billion and Rs1.7 billion, respectively. The gross notional value of foreign currency forward contracts to purchase Euros and British Pound Sterling with U.S. dollars was €23.0 million and £24.3 million, respectively. A loss on foreign currency forward contracts of $1.0 million was recorded into operating income for the three months ended February 28, 2022, compared with a gain on forward currency forward contracts of $2.1 million in the same period a year ago. For the six months ended February 28, 2022, a loss on forward currency forward contracts of $1.5 million was recorded into operating income, compared with a gain on forward currency forward contracts of $2.9 million in the prior year period. Critical Accounting Policies and Estimates We prepare the Consolidated Financial Statements in conformity with GAAP, which requires us to make certain estimates and apply judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates on historical experience and other assumptions that we believe to be reasonable at the time the Consolidated Financial Statements are prepared and, as such, they may ultimately differ materially from actual results. 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, 2021. The accounting policies used in preparing our Consolidated Financial Statements for the six months ended February 28, 2022 are applied consistently with those described in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021. We discuss our critical accounting estimates in Item 7, 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, 2021. There were no significant changes in our critical accounting estimates during the six months ended February 28, 2022. New Accounting Pronouncements See Note 3, Recent Accounting Pronouncements , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include herein by reference. 50 Table of Contents