FACTSET RESEARCH SYSTEMS INC 10-K

ITEM 7. 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 Item 8. Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. For a similar detailed discussion comparing fiscal 2021 and 2020, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report on Form 10-K for the year ended August 31, 2021. 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 of this Annual Report on Form 10-K. 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 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 that drives 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 to deliver a differentiated advantage for our clients’ success. For over 40 years, the FactSet platform has delivered expansive data, sophisticated analytics and flexible technology used by global financial professionals to power their critical investment workflows. As of August 31, 2022, we had more than 7,500 clients comprised of approximately 180,000 investment professionals, including asset managers, bankers, wealth managers, asset owners, channel partners, hedge funds, corporate users, private equity and venture capital professionals. Our on- and off-platform solutions span the investment lifecycle to include investment research, portfolio construction and analysis, trade execution, performance measurement, risk management and reporting. Our revenues are primarily derived from subscriptions to our multi-asset class data and solutions powered by our content refinery. Our products and services include workstations, portfolio analytics and enterprise solutions. We provide financial data and market intelligence on securities, companies, industries and people to enable our clients to research investment ideas, as well as to analyze, monitor and manage their portfolios. We combine dedicated client service with open and flexible technology offerings, including a configurable desktop and mobile platform, comprehensive data feeds, cloud-based digital solutions and APIs. Our CGS business supports security master files relied on by the investment industry for critical front, middle and back office functions. We drive our business based on our detailed understanding of our clients’ workflows, which helps us to solve their most complex challenges. We provide them with an open digital platform, connected and reliable data, next-generation workflow solutions and highly committed service specialists. We operate our business through three segments: the Americas, EMEA and Asia Pacific. Refer to Note 18, Segment Information , in the Notes to the Consolidated Financial Statements included in Part II, Item 8. of this Annual Report on Form 10-K for further discussion. For each of our segments, we execute our strategy through our three workflow solutions: Research & Advisory; Analytics & Trading; and CTS. 21 Table of Contents Business Strategy As the needs of our clients evolve, they seek personalized and connected data, tools for multi-asset class investing and reduced costs. Clients are also seeking cloud-based solutions, open and flexible systems and increased efficiencies to support their digital transformations. Our strategy is to build the leading open content and analytics platform to deliver differentiated advantages for our clients’ success. To execute this strategy, we plan on: • Growing our digital platform : We are scaling up our content refinery to offer a comprehensive and connected inventory of industry, proprietary and third-party data for the financial community. This data includes granular data for key industry verticals, private companies, wealth management, real-time data, and environmental, social and governance data ("ESG"). We are driving personalized workflow solutions for financial professionals, including asset managers, bankers, wealth managers, asset owners, channel partners, hedge funds, corporate users and private equity and venture capital professionals. We offer an open ecosystem with solutions and content that is accessible and flexible through a myriad of delivery methods. Our goal is to deliver cloud-based data and analytics to our clients, enabling them to more efficiently manage their workflows. • Delivering execution excellence : We are building an agile organization that accelerates product creation and content collection. We offer new products designed for delivery via the cloud, making them highly efficient for our clients. We will continue to employ technology to accelerate the pace of content collection and drive expertise in complex data sets such as private companies, ESG and deep sector. Additionally, we are improving our price realization through consistent packaging and internal governance. • Driving a growth mindset : To drive sustainable growth, we are recruiting, training and empowering a diverse and operationally efficient workforce. As a performance-based culture, we are investing in talent that can create leading technological solutions and efficiently execute our strategy. We use partnerships and acquisitions to accelerate our growth in strategic areas. Our strategy centers on relentless focus on our clients and their FactSet experience. We aim to be a trusted partner and service provider, offering personalized digital products powered by cognitive computing to research ideas and uncover relevant insights. Additionally, we continually evaluate business opportunities such as partnerships and acquisitions to increase our capabilities and competitive differentiation. We are focused on growing our global business through 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 Year in Review Revenues for the fiscal year 2022 was $1.8 billion, an increase of 15.9% from the prior year. Revenues increased across our operating segments, primarily in the Americas, followed by EMEA and Asia Pacific, supported by increased revenues from each of our workflow solutions, mainly in CTS, followed by Research & Advisory and Analytics and Trading and our annual price increase. Organic revenues contributed to 9.8% of the growth during fiscal 2022, compared with the prior year period. Refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Non-GAAP Financial Measures of this Annual Report on Form 10-K for a reconciliation between revenues and organic revenues. As of August 31, 2022, organic annual subscription value ("Organic ASV") plus Professional Services totaled $1.8 billion, an increase of 9.3% over the prior year. Organic ASV increased across all our segments, with the majority of the increase related to the Americas, followed by EMEA and Asia Pacific, supported by increases in our workflow solutions, mainly Research & Advisory and Analytics & Trading, followed by CTS. Refer to Part II, Item 7. Management's Discussion and Analysis of 22 Table of Contents Financial Condition and Results of Operations, Annual Subscription Value of this Annual Report on Form 10-K for the definitions of Organic ASV and Organic ASV plus Professional Services. Operating income for the fiscal year 2022 increased 0.3%, compared with the prior year period. Operating margin decreased in fiscal 2022 to 25.8%, compared with 29.8% for fiscal 2021. Operating margin decreased primarily due to impairment charges related to vacating certain leased office space and higher amortization of intangible assets, primarily from the CGS acquisition, partially offset by growth in revenues and lower employee compensation expense, when expressed as a percentage of revenue. Diluted earnings per share ("EPS") decreased 1.1% compared with the prior year. Our clients and users reached new highs of 7,538 and 179,982, respectively, in fiscal 2022. We returned $144.6 million to stockholders in the form of share repurchases and dividends paid during fiscal 2022. As of August 31, 2022, our employee count was 11,203, up 2.9% in the past 12 months, due primarily to an increase in net new employees of 4.5% in Asia Pacific and 2.1% in EMEA, partially offset by a decrease of 1.6% in the Americas. We garnered multiple awards in 2022, with honors spanning multiple workflows, including research, risk, performance, trading and wealth management. We were recognized by over thirty industry awards and rankings reports, including winning four categories in WatersTechnology’s 2022 Inside Market Data & Inside Reference Data awards, Snowflake Marketplace Partner of the Year and Waters Rankings 2022 Best Data Analytic Provider. CUSIP Global Services Acquisition On December 24, 2021, we entered into a definitive agreement to acquire CGS, previously operated by S&P Global Inc. on behalf of the American Bankers Association ("ABA"), for $1.932 billion in cash, inclusive of working capital adjustments. 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 believe that the CGS acquisition will significantly expand our critical role in the global capital markets. Revenues from CGS are recognized based on geographic business activities in accordance with how our operating segments are currently aligned. CGS functions as part of CTS. The purchase price for the CGS acquisition was financed from the net proceeds of the issuance of the Senior Notes and borrowings under the 2022 Credit Facilities. Refer to Note 6, Acquisitions and Note 12, Debt for more information on these defined terms as well as our acquisition of CGS, the Senior Notes and the 2022 Credit Facilities. COVID-19 Update A novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was first reported in December 2019, with the World Health Organization characterizing COVID-19 as a pandemic on March 11, 2020. In r esponse 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 during fiscal 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 re-opened our offices globally with a focus on safety, while acting consistently with applicable local regulations. As of August 31, 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. 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, 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. 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 23 Table of Contents expense reductions will continue going forward, including incurring less travel and entertainment spending than we did pre-pandemic. We also reassessed our real estate footprint in light of these new work arrangements and have exited office space that we believe will no longer be necessary. For the year ended as of August 31, 2022, we recognized $62.2 million in impairment charges related to vacating certain leased office space to resize our real estate footprint for the hybrid work environment. While we will continue to evaluate our real estate needs, we expect that this initiative is largely complete, and we do not currently anticipate additional similar ly-sized real estate impairment charges as part of the reduction of our real estate footprint. Refer to Part I, Item 1. Business, Human Capital Management, How We Work and Item 1A. Risk Factors, Operational Risks of this Annual Report on Form 10-K for further discussion of the potential impact of the COVID-19 pandemic on our business. Ukraine/Russia Conflict As the ongoing military conflict between Russia and Ukraine continues, 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. We have discontinued all commercial operations and delivery of products and services to clients inside Russia; have terminated all contracts with vendors in Russia; and have suspended all new business, trials and prospecting activities in Russia. Total revenues associated with clients in Russia were not material to our consolidated financial results, and termination of Russian vendors has not had 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 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 ready to respond in the event of any 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, annualized over the past 12 months. – "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 August 31, 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 August 31, 2022 As reported ASV plus Professional Services (1) $ 2,002.1 Currency impact (2) 5.1 Acquisition ASV (3) (170.2) Organic ASV plus Professional Services $ 1,837.0 Organic ASV plus Professional Services growth rate 9.3 % (1) Includes $24.0 million in Professional Services as of August 31, 2022. (2) The impact from foreign currency movements. (3) Acquired ASV from acquisitions completed within the last 12 months. As of August 31, 2022, Organic ASV plus Professional Services was $1.8 billion, an increase of 9.3% compared with August 31, 2021. The increase in year-over-year Organic ASV was largely attributable to increased sales to existing clients, followed by new client sales and existing client price increases, partially offset by existing client cancellations. 24 Table of Contents 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 and Analytics & Trading, followed by CTS. Sales increased in Research & Advisory mainly due to higher demand for our workstations. Sales increased in Analytics & Trading mainly from our performance and reporting products, portfolio analytics solutions and portfolio and benchmark services. CTS sales increased primarily due to purchases of company financial data, such as fundamentals, estimates and ownership, along with data management solutions to empower data connectivity. Segment ASV As of August 31, 2022, ASV from the Americas represented 64% of total ASV and was $1,262.4 million, an increase from $1,039.4 million as of August 31, 2021. Americas Organic ASV increased to $1,135.3 million as of August 31, 2022, a 9.3% increase compared with August 31, 2021. As of August 31, 2022, ASV from EMEA equaled 26% of total ASV and was $515.3 million, an increase from $450.0 million as of August 31, 2021. EMEA Organic ASV increased to $486.0 million as of August 31, 2022, an 8.4% increase compared with August 31, 2021. As of August 31, 2022, ASV from Asia Pacific comprised 10% of total ASV and was $200.4 million, an increase from $174.7 million as of August 31, 2021. Asia Pacific Organic ASV increased to $191.7 million as of August 31, 2022, a 12.0% increase compared with August 31, 2021. The increased Organic ASV in the Americas was primarily driven by increased sales of Research & Advisory and Analytics & Trading. The EMEA organic ASV increase was mainly driven by higher sales of Research & Advisory, Analytics & Trading and CTS. The Asia Pacific organic ASV increase was primarily due to increased sales of Analytics & Trading and Research & Advisory. Buy-side and Sell-side Organic ASV Growth The buy-side and sell-side Organic ASV growth rates at August 31, 2022, compared with August 31, 2021, were 8.5% and 13.8%, respectively. Buy-side clients account for approximately 83% 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 and for the Year Ended August 31, 2022 2021 Change Clients (1) 7,538 6,453 16.8 % Users 179,982 160,932 11.8 % (1) The client count includes clients with ASV of $10,000 and above. Our total client count was 7,538 as of August 31, 2022, a net increase of 16.8%, or 1,085 clients in the last 12 months, mainly due to an increase in corporate clients, wealth management clients, and private equity and venture capital firms. We believe this increase is primarily due to our continued focus on our on- and off-platform workflow-focused solutions, connected content and client-focused services. As of August 31, 2022, there were 179,982 professionals using FactSet, representing a net increase of 11.8%, or 19,050 users, in the last 12 months, primarily driven by an increase in wealth advisory professionals from our wealth management clients, as well as an increase in sell-side users from our banking clients. The increase in users was mainly due to new wealth management clients, improvement in our client retention and increased new hiring at our banking clients. Annual ASV retention was greater than 95% of ASV for the period ended August 31, 2022 and August 31, 2021. When expressed as a percentage of clients, annual retention was approximately 92% for the period ended August 31, 2022, an improvement from approximately 91% for the period ended August 31, 2021. 25 Table of Contents Employee Headcount As of August 31, 2022, our employee headcount was 11,203, an increase of 2.9% compared with 10,892 employees as of August 31, 2021. This growth in headcount was due to an increase in net new employees of 4.5% in Asia Pacific and 2.1% in EMEA, partially offset by a decrease of 1.6% in the Americas. At August 31, 2022, 7,401 employees were located in Asia Pacific, 2,400 in the Americas and 1,402 in EMEA. Results of Operations For an understanding of the significant factors that influenced our performance during fiscal 2022 and 2021, the following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8. of this Annual Report on Form 10-K. The following table summarizes the results of operations for the periods described: Years ended August 31, (in thousands, except share and per share data) 2022 2021 $ Change % Change Revenues $ 1,843,892 $ 1,591,445 $ 252,447 15.9 % Cost of services 871,106 786,400 84,706 10.8 % Selling, general and administrative 433,032 331,004 102,028 30.8 % Asset impairments 64,272 — 64,272 N/M Operating income $ 475,482 $ 474,041 $ 1,441 0.3 % Net income $ 396,917 $ 399,590 $ (2,673) (0.7) % Diluted weighted average common shares 38,736 38,570 Diluted earnings per common share $ 10.25 $ 10.36 $ (0.11) (1.1) % Revenues Revenues in fiscal 2022 was $1.8 billion, an increase of 15.9% compared to the prior year. This increase in revenues was largely attributed to increased sales to existing clients, new client sales and existing client price increases, partially offset by existing client cancellations. Revenues increased across all our segments, primarily from the Americas, followed by EMEA and Asia Pacific, driven by increased revenues in all our workflow solutions, mainly in CTS, followed by Research & Advisory and Analytics & Trading, compared with the prior year. Organic revenues increased to $1.7 billion for the fiscal year ended 2022, a 9.8% increase over the prior year period. Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Non-GAAP Financial Measures of this Annual Report on Form 10-K for further discussion on organic revenues. The growth in revenues of 15.9% was reflective of organic revenues growth of 9.8% and a 6.6% increase primarily due to the impact of acquisition-related revenues, partially offset by a 0.5% decrease from foreign currency exchange rate fluctuations. 26 Table of Contents Revenues by Segment The following table summarizes our revenues by segment for the periods described: Years ended August 31, (in thousands) 2022 2021 $ Change % Change Americas $ 1,173,946 $ 1,008,046 $ 165,900 16.5 % % of revenues 63.7 % 63.3 % EMEA $ 484,279 $ 427,700 $ 56,579 13.2 % % of revenues 26.3 % 26.9 % Asia Pacific $ 185,667 $ 155,699 $ 29,968 19.2 % % of revenues 10.0 % 9.8 % Consolidated Revenues $ 1,843,892 $ 1,591,445 $ 252,447 15.9 % Americas revenues increased 16.5% to $1,173.9 million in fiscal 2022, compared with $1,008.0 million from the same period a year ago. The increased revenues were mainly due to increased sales in all of our workflow solutions, primarily in CTS, followed by Research & Advisory and Analytics & Trading. The revenues growth of 16.5% was due to organic revenues growth of 8.6% and a 7.9% increase due to the impact of acquisition-related revenues. EMEA revenues increased 13.2% to $484.3 million in fiscal 2022, compared with $427.7 million from the same period in the prior year. This revenues growth was mainly due to increased sales in all of our workflow solutions, primarily in CTS, followed by Research & Advisory and Analytics & Trading. The EMEA revenues growth of 13.2% was driven by organic revenues growth of 10.0% and a 4.2% increase due to the impact of acquisition-related revenues, partially offset by a 1.0% decrease from foreign currency exchange rate fluctuations. Asia Pacific revenues increased 19.2% to $185.7 million in fiscal 2022, compared with $155.7 million from the same period in the prior year. This revenues growth was mainly due to increased sales in all of our workflow solutions, primarily in CTS, followed by Research & Advisory and Analytics & Trading. The Asia Pacific revenues growth of 19.2% was due mainly to organic revenues growth of 17.2% and a 4.3% increase in acquisition-related revenues, partially offset by a 2.3% decrease from foreign currency exchange rate fluctuations. Revenues by Workflow Solution The growth in revenues of 15.9% for fiscal 2022, compared with the same period a year ago, was due to growth in revenues across our segments supported by increased revenues from our workflow solutions, primarily from CTS, followed by Research & Advisory and Analytics & Trading. The increase in CTS revenues was driven mainly by CUSIP related data licensing and issuance revenues and sales of company financial data, such as fundamentals, estimates and ownership. The increase in Research & Advisory revenues 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. Operating Expenses Principal Operating Costs and Expenses Cost of services is mainly comprised of employee compensation costs and also includes costs primarily related to data costs, computer-related expenses, amortization of identifiable intangible assets, royalty fees, client-related communication costs and computer depreciation. Selling, general and administrative (" SG&A") consist primarily of employee compensation costs and also includes expenses related to occupancy costs, professional fees, depreciation of furniture and fixtures, amortization of leasehold improvements, travel and entertainment expenses, marketing costs, non-compensatory employee expenses, internal communication costs and bad debt expense. Employee compensation costs are a major component of both our cost of services and SG&A. These expenses primarily include costs related to salaries, incentive compensation and sales commissions, stock-based compensation, benefits, employment taxes, and any applicable restructuring costs. 27 Table of Contents We assign employee compensation costs between costs of services and SG&A based on the roles and activities associated with each employee. We categorize employees within the content collection, consulting, product development, software and systems engineering groups as cost of services personnel. Employees included in our sales department and those that serve in various other support departments, including marketing, business development, finance, legal, human resources and administrative services, are classified as SG&A. Asset impairments consist primarily of expenses recognized when the carrying amount of an asset exceeds its fair value. The following table summarizes the components of our total operating expenses and operating margin for the periods described: (in thousands) Years ended August 31, 2022 2021 $ Change % Change Cost of services $ 871,106 $ 786,400 $ 84,706 10.8 % SG&A 433,032 331,004 102,028 30.8 % Asset impairments 64,272 — $ 64,272 N/M Total operating expenses $ 1,368,410 $ 1,117,404 $ 251,006 22.5 % Operating income $ 475,482 $ 474,041 $ 1,441 0.3 % Operating Margin 25.8 % 29.8 % (13.4) % Cost of S ervices Cost of services increased 10.8% to $871.1 million in fiscal 2022 compared with $786.4 million in the same period a year ago, primarily due to an increase in amortization of intangible assets, computer-related expenses, royalty fees, data costs and employee compensation expense. Cost of services, when expressed as a percentage of revenues, was 47.2% during fiscal 2022, a decrease of 220 basis points over the prior year period. This decrease was primarily due to lower employee compensation costs, computer depreciation and data costs, partially offset by higher amortization of intangible assets, royalty fees and computer-related expenses. • Employee compensation costs decreased 430 basis points primarily due to a reduction in salaries related to a shift from high to low cost locations, an increase in stock-based compensation expense and an increase in year-over-year variable compensation, partially offset by a net increase in employee headcount of 120 employees • Computer depreciation expense decreased by 40 basis points as certain network equipment was fully depreciated during fiscal 2022, with less replacement equipment needed due to our migration to cloud-based hosting services. • Data costs decreased by 30 basis points due to revenue growth outpacing the cost of content. • Amortization of intangible assets increased 140 basis points mainly due to increased amortization related to acquired intangible assets, primarily from the CGS acquisition, and increased amortization from capitalized internal-use software. • Royalty fees increased cost of services 90 basis points due to contracts acquired in connection with the acquisition of CGS. • Computer-related expenses increased 60 basis points due to increased spend from our migration to cloud-based hosting services and licensed software arrangements. Selling, General and Administrative SG&A expenses increased 30.8% to $433.0 million during fiscal 2022, compared with $331.0 million from the same period a year ago, primarily due to higher employee compensation expense and professional fees. SG&A expenses, expressed as a percentage of revenues, were 23.5% in fiscal 2022, an increase of 270 basis points over the prior year period. This increase was primarily due to higher professional fees and employee compensation expense. • Professional fees increased 80 basis points, primarily driven by costs incurred in connection with the acquisition of CGS. • Employee compensation expense increased 70 basis points, primarily due to increased variable compensation, a net increase in SG&A employee headcount of 191, increased stock-based compensation expense and higher annual base salaries. 28 Table of Contents • Occupancy costs decreased 60 basis points mainly driven by vacating leased office space resulting in the recognition of asset impairment charges of our lease right-of-use ("ROU") asset during fiscal 2022. This impairment accelerated the recognition of lease expense, thereby reducing occupancy costs recorded over the remaining lease terms. Asset Impairments Asset impairments incurred during fiscal 2022 were $64.3 million, or 3.5% when expressed as a percentage of revenues. This asset impairment charge included $62.2 million related to our lease ROU assets and property, equipment and leasehold improvements associated with vacating certain leased office space to resize our real estate footprint for the hybrid work environment. We fully impaired our lease ROU assets for locations we vacated, with no intention to sublease. For locations we intend to sublease, we recognized an impairment when the estimated fair value of the lease ROU asset was less than its carrying value. Substantially all the property, equipment and leasehold improvements associated with the vacated lease office space was fully impaired as there are no expected future cash flows for these items. Operating Income and Operating Margin Operating income increased 0.3% to $475.5 million in fiscal 2022, compared with $474.0 million in the prior year. This increase was primarily due to growth in revenues of 15.9%, largely offset by higher operating expenses due mainly to impairment charges related to vacating certain leased office space and higher employee compensation expense, amortization of intangible assets, computer-related expenses, professional fees and data costs. Foreign currency exchange rate fluctuations, net of hedge activity, decreased operating income by $3.1 million. Operating margin decreased in fiscal 2022 to 25.8%, compared with 29.8% for fiscal 2021. Operating margin decreased primarily due to impairment charges related to vacating certain leased office space and higher amortization of intangible assets, royalty fees, professional fees and computer-related expenses, when expressed as a percentage of revenues, partially offset by growth in revenues and lower employee compensation expense, occupancy costs, computer depreciation and data costs, when expressed as a percentage of revenues. Operating Income by Segment Our internal financial reporting structure is based on three segments: the Americas; EMEA; and Asia Pacific. Refer to Note 18, Segment Information , for further discussion regarding our segments. The following table summarizes our operating income by segment for the periods described: Years ended August 31, (in thousands) 2022 2021 $ Change % Change Americas $ 159,140 $ 218,180 $ (59,040) (27.1) % EMEA 196,231 159,704 36,527 22.9 % Asia Pacific 120,111 96,157 $ 23,954 24.9 % Total Operating Income $ 475,482 $ 474,041 $ 1,441 0.3 % Americas Americas operating income decreased 27.1% to $159.1 million during fiscal 2022, compared with $218.2 million from the prior year. This decrease is primarily due to asset impairments, higher employee compensation expense, amortization of intangible assets, computer-related expenses, professional fees, and royalty fees, partially offset by growth in revenues of 16.5%. • Asset impairments include $62.2 million related to our lease ROU assets and property, equipment and leasehold improvements associated with vacating certain leased office space to resize our real estate footprint for the hybrid work environment. • Employee compensation expense increased primarily due to increased variable compensation, higher stock compensation expense and an increase in annual base salary, partially offset by a decrease in net employee headcount of 39. • Amortization of intangible assets primarily increased due to amortization related to acquired intangible assets primarily from the CGS acquisition and increased amortization from capitalized internal-use software. • 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 connection with the acquisition of CGS. • Royalty fees increased due to contracts acquired in connection with the acquisition of CGS. 29 Table of Contents EMEA EMEA operating income increased 22.9% to $196.2 million during fiscal 2022, compared with $159.7 million from the prior year. This increase was primarily due to growth in revenues of 13.2%, a decrease in amortization of intangible assets and a decrease in bad debt expense, partially offset by asset impairments. Amortization of intangible assets decreased as certain acquired intangible assets were fully amortized during fiscal 2022. The asset impairments related to vacating certain leased office space to resize our real estate footprint for the hybrid work environment and impacted both our lease ROU assets and property, equipment and leasehold improvements balances. Asia Pacific Asia Pacific operating income increased 24.9% to $120.1 million during fiscal 2022, compared with $96.2 million from the prior year. The increase in Asia Pacific operating income was mainly due to growth in revenues of 19.2%, partially offset by an increase in employee compensation expense. Employee compensation expense increased mainly due to higher annual base salaries due to a net increase in employee headcount of 321 and increased variable compensation. Income Taxes Years ended August 31, (in thousands) 2022 2021 $ Change % Change Income before income taxes $ 443,594 $ 467,617 (24,023) (5.1) % Provision for income taxes $ 46,677 $ 68,027 $ (21,350) (31.4) % Effective tax rate 10.5 % 14.5 % (27.7) % Our effective tax rate is based on recurring factors and non-recurring events, including the taxation of foreign income. Our effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other non-recurring events that may not be predictable. Our effective tax rate is lower than the applicable U.S. corporate income tax rate for fiscal 2022 driven mainly by research and development ("R&D") tax credits, a foreign derived intangible income ("FDII") deduction and a tax benefit from the exercise of stock options. The fiscal 2022 provision for income taxes decreased 31.4% to $46.7 million, compared with $68.0 million in fiscal 2021. This decrease was primarily driven by lower pretax income and $11.7 million in higher tax benefits from the exercise of stock options for fiscal 2022, compared with the prior year period. Net Income and Diluted Earnings per Share Years ended August 31, (in thousands, except for per share data) 2022 2021 $ Change % Change Net income $ 396,917 $ 399,590 $ (2,673.0) (0.7) % Diluted weighted average common shares 38,736 38,570 $ 166 0.4 % Diluted earnings per common share $ 10.25 $ 10.36 $ (0.11) (1.1) % Net income decreased 0.7% to $396.9 million and diluted EPS decreased 1.1% to $10.25 for fiscal 2022, compared with fiscal 2021. Net income and diluted EPS decreased primarily due to an increase in operating expenses and interest expense related to our debt refinancing, partially offset by higher revenues and a reduction in the provision for income taxes, compared with the prior year period. Diluted EPS also decreased due to a 0.2 million increase in our diluted weighted average shares outstanding. 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 revenues, 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 30 Table of Contents 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. Organic revenues exclude revenue related to acquisitions and dispositions completed in the last 12 months, the amortization of deferred revenues' fair value adjustments from purchase accounting related to acquisitions prior to fiscal 2022, and the impacts of foreign currency movements on the current year period. Acquisitions during fiscal 2022 were accounted for in accordance with our adoption of ASU No. 2021-08; as such, the deferred revenues did not include a fair value adjustment. Refer to Note 2, Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on ASU No. 2021-08. The table below provides an unaudited reconciliation of revenues to adjusted revenues and organic revenues. Twelve Months Ended August 31, (In thousands) 2022 2021 $ Change % Change Revenues $ 1,843,892 $ 1,591,445 $ 252,447 15.9 % Deferred revenues fair value adjustment (1) 25 539 (514) (95.4) % Adjusted revenues 1,843,917 1,591,984 251,933 15.8 % Acquired revenues (2) (103,723) — (103,723) Currency impact (3) 7,898 — 7,898 Organic revenues $ 1,748,092 $ 1,591,984 $ 156,108 9.8 % (1) The amortization effect of the purchase accounting adjustment related to the fair value of acquired deferred revenues. Acquisitions during fiscal 2022 were accounted for in accordance with our adoption of ASU No. 2021-08; as such, the deferred revenues did not include a fair value adjustment. (2) Revenues from acquisitions completed within the last 12 months. (3) The impact from foreign currency movements over the past 12 months. 31 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. Twelve Months Ended August 31, (In thousands, except per share data) 2022 2021 Change Operating income $ 475,482 $ 474,041 0.3 % Deferred revenues fair value adjustment 25 539 Real estate charges 62,205 716 Intangible asset amortization 49,122 23,257 Business acquisition costs 20,608 — Restructuring / severance 9,975 5,028 Contingent Liability 3,610 — Transformation costs 3,368 14,113 Adjusted operating income $ 624,395 $ 517,694 20.6 % Operating margin 25.8 % 29.8 % Adjusted operating margin (1) 33.9 % 32.5 % Net income $ 396,917 $ 399,590 (0.7) % Deferred revenues fair value adjustment 22 456 Real estate charges 54,789 606 Intangible asset amortization 43,266 19,672 Business acquisition costs 18,151 — Restructuring / severance 8,786 4,253 Contingent Liability 3,180 — Transformation costs 2,967 11,938 Income tax items (7,799) (4,466) Adjusted net income (3) $ 520,279 $ 432,049 20.4 % Net income $ 396,917 $ 399,590 Interest expense 35,697 8,200 Income taxes 46,677 68,027 Depreciation and amortization expense 86,683 64,476 EBITDA $ 565,974 $ 540,293 4.8 % Real estate charges 62,205 — Adjusted EBITDA (2) $ 628,179 $ 540,293 16.3 % Diluted earnings per common share $ 10.25 $ 10.36 (1.1) % Deferred revenues fair value adjustment — 0.01 Real estate charges 1.41 0.02 Intangible asset amortization 1.11 0.51 Business acquisition costs 0.47 — Restructuring / severance 0.23 0.11 Contingent Liability 0.08 — Transformation costs 0.08 0.31 Income tax items (0.20) (0.12) Adjusted diluted earnings per common share (3) $ 13.43 $ 11.20 19.9 % Weighted average common shares (Diluted) 38,736 38,570 32 Table of Contents (1) Adjusted operating margin is calculated as adjusted operating income divided by adjusted revenues as shown in the organic revenue table above. (2) Adjusted EBITDA is calculated as the sum of EBITDA and non-recurring, non-cash charges. (3) For purposes of calculating adjusted net income and adjusted diluted earnings per share, adjustments were taxed at the annual effective tax rates of 12.3% for fiscal 2022 and 17.8% for fiscal 2021. Liquidity and Capital Resources Our cash flows provided by operating activities, existing cash and cash equivalents, supplemented with our long-term debt borrowings, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations. Generally, some or all of the remaining available cash flow has been used 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 sources of liquidity, including the available capacity under our existing revolving credit facility and 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 2022 Credit Agreement On March 1, 2022, we entered into a credit agreement (the "2022 Credit Agreement") which provides for a senior unsecured term loan credit facility in an aggregate principal amount of $1.0 billion (the "2022 Term Facility") and a senior unsecured revolving credit facility in an aggregate principal amount of $500.0 million (the "2022 Revolving Facility" and, together with the 2022 Term Facility, the "2022 Credit Facilities"). The 2022 Term Facility matures on March 1, 2025, and the 2022 Revolving Facility matures on March 1, 2027. The 2022 Revolving Facility allows for the availability of up to $100.0 million in the form of letters of credit and up to $50.0 million in the form of swingline loans. We may seek additional commitments under the 2022 Revolving Facility from lenders or other financial institutions up to an aggregate principal amount of $750.0 million. On March 1, 2022, we borrowed $1.0 billion under the 2022 Term Facility and $250.0 million of the available $500.0 million under the 2022 Revolving Facility. We are required to pay a commitment fee on the daily unused amount of the 2022 Revolving Facility using a pricing grid, which remained at 0.125% through August 31, 2022. The commitment fee can fluctuate between 0.10% and 0.25% per annum based upon our senior unsecured non-credit enhanced long-term debt rating and our total leverage ratio. We used these borrowings, along with the net proceeds from the issuance of the Senior Notes (as defined below) and cash on hand, to finance the consideration for the CGS acquisition, to repay borrowings under the 2019 Credit Agreement (as defined below) and to pay related transaction fees, costs and expenses. During the third quarter of 2022, we incurred approximately $9.5 million in debt issuance costs related to the 2022 Credit Facilities. Debt issuance costs are presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the related debt liability. Debt issuance costs are amortized to Interest expense, net in the Consolidated Statements of Income over the contractual term of the debt on a straight-line basis, which approximates the effective interest method. Loans under the 2022 Term Facility are subject to scheduled amortization payments on the last day of each fiscal quarter, commencing with August 31, 2022 and ending on the last such day to occur prior to the maturity date. Each amortization payment is equal to 1.25% of the original principal amount of the 2022 Term Facility. Any remaining outstanding principal will be repaid in full on March 1, 2025, the maturity date of the 2022 Term Facility. The 2022 Credit Facilities are not otherwise subject to any mandatory prepayments. We may voluntarily prepay loans under the 2022 Credit Facilities at any time without premium or penalty. Prepayments of the 2022 Term Facility shall be applied to reduce the subsequent scheduled amortization payments in direct order of maturity. During fiscal 2022, we repaid $250.0 million under the 2022 Term Facility, inclusive of voluntary prepayments of $237.5 million. The 2022 Credit Agreement provides that loans denominated in U.S. dollars, at our option, will bear interest at either (i) the one-month Term SOFR (with a 0.1% credit spread adjustment and subject to a "zero" floor), (ii) the Daily Simple SOFR (with a 0.1% credit spread adjustment and subject to a "zero" floor) or (iii) an alternate base rate. Under the 2022 Credit Agreement, loans denominated in Pounds Sterling will bear interest at the Daily SONIA (subject to a "zero" floor) and loans denominated in Euros will bear interest at the EURIBOR (subject to a "zero" floor), in each case, plus an applicable interest rate margin. The 33 Table of Contents interest rate margin will fluctuate based upon our senior unsecured non-credit enhanced long-term debt rating and our total leverage ratio. For fiscal 2022, the outstanding borrowings under the 2022 Credit Facilities bore interest at rates equal to the applicable one-month Term SOFR rate plus a 1.1% spread (comprised of a 1.0% interest rate margin based on a debt leverage pricing grid plus 0.1% credit spread adjustment). The spread remained consistent through August 31, 2022. The 2022 Credit Agreement contains usual and customary event of default provisions for facilities of this type, which are subject to usual and customary grace periods and materiality thresholds. If an event of default occurs under the 2022 Credit Agreement, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings immediately due and payable. Refer to Note 12, Debt for further discussion of the 2022 Credit Agreement. Senior Notes On March 1, 2022 we completed a public offering of $500.0 million aggregate principal amount of 2.900% Senior Notes due March 1, 2027 (the “2027 Notes”) and $500.0 million aggregate principal amount of 3.450% Senior Notes due March 1, 2032 (the “2032 Notes” and, together with the 2027 Notes, the “Senior Notes”). The Senior Notes were issued pursuant to an indenture, dated as of March 1, 2022, by and between us and U.S. Bank Trust Company, National Association, as trustee (the "Trustee"), as supplemented by the supplemental indenture, dated as of March 1, 2022, between us and the Trustee (the "Supplemental Indenture"). The Senior Notes were issued at an aggregate discount of $2.8 million, and during the third quarter of 2022 we incurred approximately $9.1 million in debt issuance costs related to the Senior Notes. Debt discounts and debt issuance costs are presented in the Consolidated Balance Sheets as a net direct deduction from the carrying amount of the related debt liability. The debt discounts and debt issuance costs are amortized to Interest expense, net in the Consolidated Statements of Income over the contractual term of the debt, leveraging the effective interest method. The 2027 Notes and the 2032 Notes will mature on March 1, 2027 and March 1, 2032, respectively. Interest on the Senior Notes is payable semiannually in arrears on March 1 and September 1 of each year, beginning September 1, 2022. We may redeem the Senior Notes, in whole or in part, at any time at specified redemption prices, plus any accrued and unpaid interest. The Senior Notes are unsecured unsubordinated obligations, and will be effectively subordinated to any of our existing and future secured obligations, to the extent of the value of the assets securing such obligations. Upon the occurrence of a change of control triggering event (as defined in the Supplemental Indenture), we must offer to repurchase the Senior Notes at 101% of their principal amount, plus any accrued and unpaid interest. 2022 Swap Agreement On March 1, 2022, we entered into the 2022 Swap Agreement to hedge a portion of our outstanding floating SOFR rate debt with a fixed interest rate of 1.162%. Refer to Note 5, Derivative Instruments in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K, for defined terms and more information on the 2022 Swap Agreement. 2019 Credit Agreement On March 29, 2019, we entered into a credit agreement, as the borrower, with PNC Bank, National Association ("PNC"), as the administrative agent and lender (the "2019 Credit Agreement"), which provided for a $750.0 million revolving credit facility (the "2019 Revolving Credit Facility"). We borrowed $575.0 million of the available $750.0 million provided by the 2019 Revolving Credit Facility. Borrowings under the 2019 Revolving Credit Facility bore interest on the outstanding principal amount at a rate equal to the daily LIBOR plus a spread using a debt leverage pricing grid. Interest on the amounts outstanding under the 2019 Revolving Credit Facility was payable quarterly, in arrears, and on the maturity date. During fiscal 2019, we incurred approximately $0.9 million in debt issuance costs related to the 2019 Credit Agreement. These costs were capitalized as debt issuance costs and were amortized into Interest expense, net in the Consolidated Statements of Income ratably over the term of the 2019 Credit Agreement. 34 Table of Contents The 2019 Credit Agreement contained covenants and requirements restricting certain of our activities, which were usual and customary for this type of loan. In addition, the 2019 Credit Agreement required 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. As of March 1, 2022, we repaid in full and terminated the 2019 Credit Agreement. Refer to Note 12, Debt in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for more information on the termination. Uses of Liquidity Returning Value to Shareholders We returned $144.6 million and $382.6 million to stockholders in the form of share repurchases and dividends paid during fiscal 2022 and 2021, respectively. Dividends During fiscal 2022 and 2021, we paid dividends of $125.9 million and $117.9 million, respectively. Our dividends per share increased 8.5% during fiscal 2022 compared to fiscal 2021, which marked the 23rd consecutive year we have increased dividends, highlighting our continued commitment to returning value to stockholders. Future cash dividends will depend on our earnings, capital requirements, financial condition and other factors considered relevant by us and is subject to final determination by our Board of Directors. Share Repurchase Program As of August 31, 2022, a total of $181.3 million remained authorized for future share repurchases under our share repurchase program. There is no defined number of shares to be repurchased over a specified timeframe through the life of the program. We may repurchase shares of our common stock under the program from time-to-time in the open market and privately negotiated transactions, subject to market conditions. For the year ended August 31, 2022, we repurchased 46,200 shares for $18.6 million compared with 797,385 shares for $264.7 million for the year ended August 31, 2021. Beginning in the second quarter of fiscal 2022, we suspended our share repurchase program until 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 due 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 Facilities. Refer to Note 12, Debt for more information on the 2022 Credit Facilities. Capital Expenditures For the year ended August 31, 2022, capital expenditures decreased by 16.6% to $51.2 million, compared with $61.3 million during the same period a year ago. Capital expenditures decreased primarily due to costs incurred for the build-out of our office space in the Philippines during the year ended August 31, 2021, partially offset by higher expenditures related to peripherals for our office space in India during the year ended August 31, 2022. Acquisitions During fiscal 2022 and 2021, we completed acquisitions of several businesses, with the most significant cash flows related to the acquisitions of CGS, Cobalt Software, Inc. ("Cobalt") and Truvalue Labs, Inc. ("TVL"). CUSIP Global Services On March 1, 2022, we completed the acquisition of CGS, previously operated by S&P Global Inc. on behalf of the ABA, for a cash purchase price of $1.932 billion, inclusive of working capital adjustments. 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 and as a substitute number agency for more than 35 other countries. We believe that the CGS acquisition will significantly expand our critical role in the global capital markets. 35 Table of Contents Cobalt Software, Inc. 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 and inclusive of working capital adjustments. 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. Truvalue Labs, Inc. 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 6, Acquisitions , in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further discussion of the CGS, Cobalt and TVL acquisitions. Contractual Obligations Purchase obligations represent our legally-binding agreements to purchase fixed or minimum quantities at determinable prices. As of August 31, 2022 and 2021, we had total purchase obligations with suppliers of $373.9 million and $191.9 million, respectively. Our total purchase obligations at the end of both fiscal years primarily related to hosting services and data content. Hosting services support our technology investments related to our migration to cloud-based hosting services, the majority of which rely on third-party hosting providers. Data content is an integral component of the value we provide to our clients. Additional commitments relate primarily to third-party software providers. We also have contractual obligations related to our lease liabilities and outstanding debt. Refer to Note 11, Leases and Note 12, 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: Years ended August 31, (in thousands) 2022 2021 $ Change % Change Net cash provided by operating activities $ 538,277 $ 555,226 $ (16,949) (3.1) % Net cash used in investing activities (2,033,675) (135,992) (1,897,683) 1,395.4 % Net cash provided by/(used in) financing activities 1,339,234 (322,711) 1,661,945 (515.0) % Effect of exchange rate changes on cash and cash equivalents (22,428) (263) (22,165) NM Net (decrease) increase in cash and cash equivalents $ (178,592) $ 96,260 $ (274,852) (285.5) % Cash and cash equivalents aggregated to $503.3 million as of August 31, 2022, compared with $681.9 million as of August 31, 2021. Our cash and cash equivalents decreased $178.6 million during the twelve months ended August 31, 2022. This decrease was primarily due to cash outflows of $1,981.6 million for the acquisition of businesses, $825.0 million of debt repayments related to the termination of the 2019 Credit Agreement and partial repayment of the 2022 Term Facility, $125.9 million in dividend payments, $51.2 million of capital expenditures and $18.6 million in share repurchases. These cash outflows were partially offset by inflows of $2,238.4 million from the issuance of new debt related to our 2022 Credit Facilities and Senior Notes, $538.3 million from net cash provided by operating activities and $86.0 million in proceeds from the exercise of employee stock options. Our cash and cash equivalents are held in numerous locations throughout the world, with $221.1 million in the Americas, $199.6 million in EMEA (predominantly in the UK) and the remaining $82.6 million in Asia Pacific (predominantly in the Philippines and India) as of August 31, 2022. We are permanently reinvested in all foreign unremitted earnings, except in jurisdictions where earnings can be repatriated substantially free of tax. 36 Table of Contents Operating For fiscal 2022, net cash provided by operating activities was $538.3 million, compared with $555.2 million for fiscal 2021, a decrease of $16.9 million. This decrease was primarily driven by the timing of tax payments in certain jurisdictions and higher accounts receivable due to increased sales and an increase in days sales outstanding. Investing For fiscal 2022, net cash used in in investing activities was $2,033.7 million, compared with $136.0 million for fiscal 2021, an increase of $1,897.7 million. This increase was primarily driven by higher spend on acquisitions of $1,923.6 million mainly related to the cash purchase of CGS for $1,931.5 million, inclusive of working capital adjustments, and the cash purchase of Cobalt for $50.0 million, net of cash acquired and inclusive of working capital adjustments, during the twelve months ended August 31, 2022, compared with the cash purchase of TVL for $41.9 million, net of cash acquired, in the prior year period. The increase in net cash used in investing was partially offset by a decrease in net purchases of investments (net of proceeds) of $15.7 million and a decrease in capital expenditures of $10.2 million compared with the prior year period. Financing For fiscal 2022, net cash inflow from financing activities was $1,339.2 million, compared with a net cash outflow of $322.7 million for fiscal 2021, an increase of $1,661.9 million. This cash inflow was mainly driven by $2,238.4 million in proceeds received from the 2022 Credit Facilities and Senior Notes, a $246.1 million reduction in repurchases of common stock, and a $21.9 million increase in proceeds from employee stock plans, partially offset by the repayment of $825.0 million of debt related to the termination of the 2019 Credit Agreement and partial repayment of the 2022 Term Facility. 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 believe free cash flow is a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, can be used for strategic opportunities, including returning value to shareholders, investing in our business, making strategic acquisitions, and strengthening the balance sheet. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. The following table reconciles our net cash provided by operating activities to free cash flow: Years ended August 31, (in thousands) 2022 2021 Change Net cash provided by operating activities $ 538,277 $ 555,226 $ (16,949) Capital expenditures (1) (51,156) (61,325) 10,169 Free cash flow $ 487,121 $ 493,901 $ (6,780) (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. During fiscal 2022, we generated free cash flow of $487.1 million, compared with $493.9 million in fiscal 2021. This decrease of $6.8 million was primarily due to a $16.9 million decrease in operating cash flows, partially offset by a $10.2 million decrease in capital expenditures. The operating cash flows decrease was primarily driven by the timing of tax payments in certain jurisdictions and an increase in days sales outstanding. Capital expenditures decreased primarily due to costs incurred for the build-out of our office space in the Philippines during fiscal 2021, partially offset by higher peripherals for our office space primarily in India during fiscal 2022. Off-Balance Sheet Arrangements At August 31, 2022 and 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. 37 Table of Contents Foreign Currency Exposure As we operate globally, we are exposed to the risk that our financial condition, results of operations and cash flows could be impacted by changes in foreign currency exchange rates. To mitigate this foreign currency exposure, we entered into a series of forward contracts to hedge a portion of our foreign currency exposures related to the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso ranging from 25% to 75% over their respective hedged periods as of August 31, 2022. During fiscal 2022, foreign currency exchange rate fluctuations, net of hedge activity, decreased operating income by $3.1 million, compared with a $5.4 million decrease to operating income in the prior year. The current foreign currency forward contracts are set to mature at various points between the first quarter of fiscal 2023 through the fourth quarter of fiscal 2023. A loss on foreign currency forward contracts of $7.9 million was recorded into operating income during fiscal 2022, compared with a gain of $5.0 million in fiscal 2021. The following table summarizes the gross notional value of foreign currency forward contracts to purchase British Pound Sterling, Euros, Indian Rupees and Philippine Pesos with U.S. dollars: August 31, 2022 August 31, 2021 (in thousands) Local Currency Amount Notional Contract Amount (USD) Local Currency Amount Notional Contract Amount (USD) British Pound Sterling £ 44,200 $ 55,567 £ 37,700 $ 51,754 Euro € 37,500 40,679 € 33,800 40,674 Indian Rupee Rs 2,667,928 33,600 Rs 2,585,198 33,800 Philippine Peso ₱ 1,462,060 27,000 ₱ 1,414,928 28,500 Total $ 156,846 $ 154,728 Critical Accounting 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 2, Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K. We disclose the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The critical accounting estimates and judgments that we believe to have the most significant impacts to our Consolidated Financial Statements are described below. Income Taxes We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. Our effective tax rates differ from the statutory rate primarily due to the impact of state taxes, foreign operations, research and development ("R&D") and other tax credits, tax audit settlements, the tax benefit from stock option exercises and the foreign derived intangible income ("FDII") tax deduction. Our provision for income taxes is subject to volatility and could be adversely impacted by numerous factors such as changes in tax laws, regulations, or accounting principles, including accounting for uncertain tax positions or interpretations of them. Significant judgment is required to determine recognition and measurement. Further, as a result of certain ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could adversely affect our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition. 38 Table of Contents To account for unrecognized tax benefits, we first determine whether it is more likely than not (defined as a likelihood of more than 50%) that a tax position will be sustained based on its technical merits as of the reporting date. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. The determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates. There can be no assurance that we will accurately predict the outcomes of these audits, however, we have no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on our results of operations or financial position, beyond current estimates. For this reason and due to ongoing audits by multiple tax authorities, we regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. We do not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months. We accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. This interest is classified as income tax expense in the financial statements. Refer to Note 10, Income Taxes in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information. Stock-based Compensation We measure compensation expense for all stock-based awards made to our employees and board of directors ("non-employees") using the Black-Scholes model or the lattice-binomial-option pricing model to estimate the grant-date fair value. Both models involve certain estimates and subjective assumptions regarding our stock price volatility, the expected life of the award, the term selected for the risk-free rate, and the exp ected dividend yield. The binomial model also incorporates market conditions, vesting restrictions and exercise patterns. Our performance-based equity awards require management to make assumptions regarding the probability of achieving the relevant performance condition, which is reviewed on a quarterly basis. The number of performance-based awards that vest will be predicated on achieving performance levels during the measurement period subsequent to the date of grant. We estimate expected forfeitures of equity awards at the date of grant and recognize compensation expense only for those awards expected to vest. The forfeiture assumption is revised if actual forfeitures differ from those estimates. The assumptions we use to calculate and account for stock-based compensation awards represent management's best estimates, which involve inherent uncertainties. As a result, if we revise our assumptions and estimates, our stock-based compensation expense could differ from amounts recorded. Refer to Note 16 , Stock-Based Compensation in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information. Goodwill and Intangible Assets Goodwill is assigned to one or more reporting units on the date of acquisition. Our reporting units are the same as our reportable segments. Goodwill is not amortized as it is estimated to have an indefinite life. We test our goodwill for impairment annually during the fourth quarter of each fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of any one of our reporting units below its respective carrying amount. We may elect to perform a qualitative analysis for the reporting units to determine whether it is more likely (a likelihood of more than 50%) than not the fair value of the reporting unit is less than its carrying value. In performing a qualitative assessment, we consider such factors as macro-economic conditions, industry and market conditions in which we operate, including the competitive environment and significant changes in demand for our services. We also consider the share price both in absolute terms and in relation to peer companies. If the qualitative analysis indicates that it is more likely than not the fair value of a reporting unit is less than its carrying amount or if we elect not to perform a qualitative analysis, a quantitative analysis is performed to determine whether a goodwill impairment exists. The quantitative goodwill impairment analysis is used to identify potential impairment by comparing the carrying amount of a reporting unit with its fair value, by applying the income approach, utilizing the discounted cash flow method, along with other relevant market information. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any, would be recognized. The loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. 39 Table of Contents Our identifiable intangible assets are classified as an ABA business process, client relationships, software technology, developed technology, acquired databases, data content, and trade names resulting from acquisitions or capitalization of costs related to on-premises internal-use software. We amortize intangible assets over their estimated useful lives, which are evaluated annually to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. Intangible assets are tested for impairment qualitatively on a quarterly basis. An impairment is recognized if the carrying amount is not recoverable and exceeds the fair value of the asset. Recoverability is determined by comparing the carrying amount of the intangible asset to the estimated undiscounted future cash flows expected to be generated by the asset. Significant judgment is involved in determining the assumptions used in estimating future cash flows. If it is determined that the intangible asset is not recoverable, the impairment loss would be calculated based on the excess of the carrying amount of the intangible asset over its fair value. Refer to Note 8, Goodwill and Note 9, Intangible Assets in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further details. Business Combinations We account for business combinations using the purchase method of accounting. The acquisition purchase price is allocated to the underlying identified, tangible and intangible assets and liabilities assumed, based on their respective estimated fair values on the acquisition date. The excess of the purchase consideration over the fair values of the identified assets and liabilities is recorded as goodwill and assigned to one or more reporting units. The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization expense. Determining the fair value of assets acquired and liabilities assumed and the expected useful life, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Acquisition-related expenses and restructuring costs, if any, are recognized separately from the business combination and are expensed as incurred. Long-lived Assets We perform a qualitative review on a quarterly basis of our long-lived assets, comprised of property, equipment and leasehold improvements. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows (undiscounted and excluding interest charges). If the estimated future cash flows are less than the carrying value of the asset, an impairment loss is recognized to the extent that such asset's carrying value exceeds its fair value, based on the most appropriate valuation technique, including discounted cash flows. In determining indicators for impairment, we take various factors into account, including, but not limited to, a significant decline in our expected future cash flows, changes in expected useful life, unanticipated competition, slower growth rates, ongoing maintenance and improvements of the assets, or changes in the usage or operating performance. A significant amount of judgment is involved in determining if an indicator of impairment has occurred and in calculating the inputs to the impairment calculation such as estimates related to future cash flows and asset fair values, forecasting asset useful lives and selecting the discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our estimates and assumptions included in our impairment assessment, we may be exposed to losses that could be material. Refer to Note 7, Property, Equipment and Leasehold Improvements in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for further information. Contingencies We are subject to various legal proceedings, claims and litigation that have arisen in the ordinary course of business, which involve inherent uncertainties. Assessing the probability of loss for such contingencies and determining how to accrue the appropriate liabilities requires judgment. If actual results differ from our assessments, our financial position, results of operations, or cash flows would be affected. New Accounting Pronouncements Refer to Note 2, Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Item 8. of this Annual Report on Form 10-K for a full description of recent accounting pronouncements, including the expected dates of adoption. 40 Table of Contents