Linda Huber: Yes. Hi, Faiza. Yes, we are thinking through what it means to have at the midpoint a $15 million reduction in revenue. So obviously, we would like to offset that and it is our intention to hold adjusted operating margin where we said at about 36.5% midpoint. So we’ve got to adjust our expenses. We’ve talked about taking a charge which we will have more details on in the second quarter earnings call. So that’s at the half year mark if you will. So we’re shooting for about $30 million in cost cuts and we’re looking at $10ish or so million dollars of cost cuts. The first thing you do is look at your variable costs. The easiest one is T&Es. We’re looking at sort of a $1 million to $2 million of a cut there. Professional services is another one we’re looking at.
Call that $3 million to $4 million. So call that bucket sort of $5 million in total. And then we’re looking also at our bonus calculations. So, we’ve just taken our guidance down a bit, and we would expect that our bonus pool will come down a bit as well, maybe about $5-ish million, but we don’t know until we get to the end of the year. So that would be about a total of $10 million. And then we’ve talked about a $10 million to $15 million charge, which would probably lean more toward personnel and headcount reduction thoughts. We’re working through that right now. We have not made any final decisions on that. And of course, that process has to be handled very, very carefully with an eye toward holding our investment funding, which is incredibly important to us, particularly given AI, which we’ll be talking about in a bit.
But we want to make sure that we bring our expenses back into line with our revenues. Now if you look at our buckets, we had talked before about if you look at our third-party data costs, they’re up a bit in the first quarter, because we lapped a really good audit release last year, but those will be about flat for this year. And if you look at our real estate costs, we’ve taken pretty close to $90 million in charges to right size our real estate footprint. So on that one, those costs will actually be flat to down a bit year-over-year. Technology costs are going up. We’ve talked a lot about that. This is a technology company and three big drivers for the tech costs, amortization coming through because we’re building more of our software as we’ve talked about, also more cloud expense and also more third-party software purchases.
Footnote there on cloud expense, please watch that carefully. If Kristi and the team are successful with what they’re trying to do for AI, cloud expense may go up. We have to watch that carefully, but that’s an important area of investment for us, so we’ll keep our eyes on that, which leaves people, which is about 65% of our expense base. So we’re going to have to make sure we’ve got everyone in the right place for what we’re trying to do going forward. And I think that probably would provide about enough detail. In terms of the ramp for expenses, we put up $338 million for the first quarter. We would expect that to jump up to the neighborhood of $350 million for the second quarter, and then as a result of the charge sort of flatten out through the rest of the year.
And yes, our margin tends to be a bit higher in the first quarter. We would see it might come off a bit as we move through the year, so the sort of normal trend that you see at FactSet. So that’s a lot of information. I hope that’s helpful and really appreciate your question, Faiza.
Faiza Alwy: Thank you, Linda. That’s very helpful.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Manav Patnaik from Barclays.
Manav Patnaik: Thank you. I just want to follow-up on kind of the macro discussion. Usually when you have these times of cost pressures, budget pressures, et cetera, there’s a lot of talk around vendor consolidation as well. So I was just hoping, are you seeing any opportunities in terms of, you know, maybe winning business from the lower end or maybe there’s some M&A opportunities, you know, because of that? Just hoping you could address that.
Phil Snow: Oh yes, hey Manav, thanks for the question, it’s Phil. We certainly are seeing opportunity. So as we go through these periods of market uncertainty, it’s always a great opportunity for FactSet to work with our clients, who typically want to do more with us and trust us. So that’s become an even more sophisticated conversation as our product suite has expanded. And just in the last few weeks, I’ve heard a couple of very encouraging situations where it just feels like there’s more of a top-down push now at the bigger clients to really save, to drive cost savings in our direction. So that is encouraging to me. I think at some firms, there was still a bit of choice given to users, but we are an anchor partner of choice for our clients based on our strategy and our open platform.
Our investments in generative AI and our approach there is landing really well. So I just feel more optimistic than I have in a long time about the long-term prospects of FactSet and our competitive position. I’m happy to go through this firm type by firm type, either on the call today or some other time with you. But overall, I think it’s just a timing thing for us and getting through this period of uncertainty in the markets and I think them are in really good shape.
Helen Shan: Maybe I can just add a little bit, Manav, just along with Phil just said. So like he was talking about, clients are going through right-sizing exercises. That’s been happening for several quarters and most clients, their budgets are more flat. But what they’re being asked is to provide more sophisticated tools and reporting to their clients. And yet they have not enough people or dollars or their current technology and processes, some of which can be internal, just can’t scale. And that’s why we’re so well positioned on that front. And that’s why also from an open platform perspective you can do replacement pieces, not need the entire pieces — entire workflow replaced, but pieces. And that’s worked into our advantage as well. So that really goes to what Phil was just talking about which is there’s a lot of good activity and timing is really the question of how complex they are.
