FactSet Research Systems Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the FACSET Q1 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, press star 0. I would now like to hand your conference over to your speaker today, Reema Hyder. Go ahead, madam.

Thank you, Marcella, and good morning, everyone. Welcome to FACTSET's first fiscal quarter 2020 earnings call. We join you today from our brand new global headquarters in Norwalk, Connecticut. Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the webcast on the investor relations section of our website at FACTSET.com. The slides will be posted on our website at the conclusion of this call. A replay of today's call will be available via phone and on our website. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit yourself to one question plus a follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on slide two, which explains the risks of forward-looking statements and the use of non-YAC financial measures. Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that would cause actual results to differ materially from these overlooking statements. Our side presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations of the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer, and Helen Shen, Chief Financial Officer. I'd now like to turn the discussion over to Phil Snow.

Thanks, Reema, and good morning, everyone. We begin our fiscal 20 with growth across most of our businesses, and I want to remind everyone that our first quarter is typically the smallest of the year, and it's important to look at half- and full-year performance as more appropriate measures of progress. I'm pleased that we have a healthy pipeline for the first half of our fiscal year, especially against the backdrop of sustained industry pressures. On our last earnings call, we outlined a three-year plan to accelerate the breadth and depth of our investments in targeted areas within contents and technology with the goal of driving higher top-line growth over the long term. Our team has hit the ground running, delivering encouraging early progress in Q1. Within content, our deep sector and private markets efforts are proceeding at pace, and we've hired more sector experts following the launch of our successful banking regulatory data. We're making good progress integrating third-party private markets data into FACTSAS and are expanding our valued street account coverage into new markets. We believe this expansion of coverage will resonate across all of our business lines, particularly research and wealth. Our continued efforts to grow our tech stack are also yielding early results. We've tripled the number of APIs available since the start of the fiscal year and are on track to release more in the second quarter. Our migration to the public cloud is well underway, and we've identified opportunities to reduce our fixed data center costs in the long run. From a product perspective, we are building momentum in analytics with multi-asset class risk, fixed income involved, our new performance measurement product, each showing particular strength. We're also very pleased with our wealth pipeline and the positive response from clients. Finally, we see growing demand for our open solutions. We announced this quarter that FactSet is now available on OpenFin, and we're proud to be the first market data provider to do so. As early adopters of the shift to more open and flexible product access, we believe the wind is on our backs, and we will continue to deliver information to clients where, when, and how they want it. In sales, we've evolved our compensation plan and sharpened our focus on client retention and expansion. These changes include growing our strategic client group, which looks after our top accounts to cover more clients and build upon the strong C-level relationships we have in the industry. We're also expanding our new business and sales engineering teams to capitalize on increasing technology opportunities. While these collective measures will take time to impact our top line as the industry evolves, we're continuing to take proactive steps from a position of strength to ensure continued growth. Looking at ASV in total, ASV professional services grew at 4%. This growth rate reflects a decrease in ASV in the quarter, driven by higher than expected cancellations in research and a decrease in our add-on business where we cross-sell to existing clients. In addition, new business sales increased year over year as we added more clients this quarter. Overall, we see continued cost pressures among institutional asset managers and churn within our banking clients. However, it's important to remember that the large banks are long-standing clients of FACTA, and when they hire later in our fiscal year next summer, we accordingly expect a benefit. This quarter, once again, we saw growth in users from corporate and private equity firms in the area where we're investing. In the Americas, we saw healthy growth in wealth, asset owners, and hedge funds. This was offset by seasonal banking churn in our research business. America has had a tougher comparison versus the first quarter of 2019 when we had larger deals that contributed to higher ASV. We remain optimistic about the Americas as we deepen existing client relationships and capitalize on new business opportunities. In EMEA, we have positive momentum with the buy side with wealth and institutional asset managers. This region is facing some of the same cost pressures we have previously seen in the Americas and uncertainty with regulations and the political environment. Our pipeline looks healthy for the year with institutional asset managers, asset owners, and wealth managers as we see a demand for our analytics solutions. CTS was a main driver of the 10% growth in Asia Pacific as we sold data fees across the region, primarily to local data providers. The opportunity in Asia PAC is with the five-side, driven by risk solutions for asset owners and our analytics offerings for the institutional asset managers, especially for the investment portfolio life cycle. We continue to be bullish about our opportunity in this region, and we're investing appropriately to capitalize on its potential. In the first quarter, we also saw promising growth in wealth, CTS, and analytics. Wealth was the largest contributor as we continued to earn market share in this space. Analytics was another bright spot driven by the strong performance of fixed income and risk products, while CTS continued to see solid demand for core and premium data feeds. Our adjusted operating margin and adjusted EPS came in strong this quarter, and we believe that this year will be more in line with our annual guidance as we continue to execute throughout the year in accordance with our investment plan. In closing, I want to reiterate that our fiscal year is a tale of two halves. Our pipeline is healthy, and we believe that we are on sound footing to deliver on the first half of our fiscal 20 and are well positioned for the year. We have a proven track record of returning consistent long-term value to shareholders, a record that we firmly believe we will continue. It is also increasingly clear that clients are demanding more open, flexible, and efficient technology to help them manage change, an area where we continue to excel. And as we execute our three-year plan, early signs indicate that we are taking a winning path to ensure continued growth through expanded opportunities with existing clients, higher retention, and new business. Let me now turn the call over to Helen,

Thank you, Phil, and good morning. It is great to be here with all of you. We begin our fiscal 2020 with a solid operating performance, 10% earnings growth, and an operating margin that continues to reflect the productivity and efficiency improvements made throughout 2019. While we are at the beginning of our three-year investment plan, we are on pace as we start to ramp up hiring and spend. I will now walk us through the specifics of the quarter's results. Gap in organic revenue increased by 4% to $367 million and $368 million respectively. Growth was driven primarily by wealth, CTS, and analytics. For our geographic segments over the last 12 months, America's revenue grew 4% and international revenue grew 5% organically. America is benefited from increases in wealth, analytics, and CTS. international revenue was largely driven by analytics and data. Gap operating expenses for the first quarter totaled $253 million, a 1% growth over the previous year. With revenues growing faster than expenses, our gap margin increased 230 basis points to 31%. Adjusted operating margins increased to 34%, a 240 basis point improvement versus last year. As a percentage of revenue, the expense improvement came largely from our cost of services, which was 240 basis points lower than last year on a GAAP basis. On an adjusted basis, the improvement was 210 basis points. Contributing factors include decreases in employee compensation, reflecting the continued mixed shift from high to low cost locations, as well as lower contractor fees. This benefit was partially offset by an increase in computer-related expenses, as we continue to upgrade our technology stack. SG&A expenses expressed as a percentage of revenue grew 10 basis points over the prior year period on a GAAP basis. On an adjusted basis, we saw an improvement of 30 basis points. This result is driven primarily by expense reduction in travel and entertainment, professional fees, and lower bad debt expense, and partially offset by higher employee compensation and higher rent expense associated with our move to the new headquarters. We have been improving our operating margin over the past four quarters, reflecting our efforts to maintain discipline, expense management, and to both grow and sustain productivity gains through our planned workforce mix. We are pleased with the progress that we have made, as it has given us the ability to redeploy capital back into the business and the key areas of content and technology. On the last earnings call, we provided financial targets for FY22. To recap, our investments filled incrementally at $15 million per year in each of the next three years, totaling an additional $45 million in the FY22 expense rate. As we noted, we expect our ASV growth rate to be in the high single digits, adjusted EPS growth at 10% plus, and an adjusted operating margin at 33% plus, and FY22. We've begun to execute on these projects as Phil noted earlier. The spend will be building over the course of the year. For fiscal year 2020, the majority of the cost will be people related. We expect the level of expense to ramp up more heavily weighted in the second half of the year as we build up the resources and capabilities. We believe we will be in line with our FY20 guidance of 31.5 to 32.5% in operating margin given the phasing of the incremental investment. We remain confident in our investment strategy and plan. Moving on, our tax rate for the quarter was 13.6%. This rate included a few one-time items related to finalization of prior year tax returns and a change in tax rate in one of our foreign jurisdictions. Excluding one-time adjustments, our quarterly tax rate would have been 17.3%. Please keep in mind that when we provided annual guidance for fiscal 2020, We did not include any one-time adjustments in the tax rate. GAAP EPS increased 12%, $2.43 this quarter, versus $2.17 in the first quarter of 2019, primarily attributable to higher revenue and improved margins. Adjusted diluted EPS grew 10% to $2.58. For reconciliation of our adjustments, the GAAP EPS is disclosed at the end of our questions. Free cash flow, which we define as cash generated from operations, less capital spending, was $69 million for the quarter, an increase of 88% over the same period last year. The improvement was primarily due to higher net income, an increase in cash collections, and the timing of payables, partially offset by higher capital expenditures. As noted on past calls, our capex is higher this year due to planned investments in technology, as well as new office space buildups. some of our locations where existing leases have neared expiration. Last quarter, we looked to update our annual ASV retention metric. Upon further review, we have determined that the current methodology is aligned with our client retention metric and remains an accurate measure of ASV retention. For the first quarter, our annual ASV retention continues to be over 95%. We are also pleased to report that our client retention, the number of clients we retained over the last 12 months, remained at 89%, and our client count grew 6% year over year. Looking at our share repurchase program for the first quarter, we repurchased 343,000 shares for $84 million at an average share price of $246 per share. Over the last 12 months, we have returned approximately $345 million to our investors in the form of dividends and share repurchase. We remain committed to creating long-term value for our shareholders and plan to repurchase shares at a steady pace in line with last year. The improvement in operating results over the course of fiscal year 2019 and the first quarter of this year reflect our progress in operational discipline and in the sustainability of the productivity game. We believe our plan to invest in more comprehensive and integrated content and in digital technology will fuel future top-line growth, which in turn is key to long-term value for our clients, employees, and our shareholders. With that, we are now ready for your questions. Marcella, over to you.

At this time, I'd like to remind everyone, in order to ask a question, please press star and the number 1 on your telephone keypad. Your first question comes from the line of Peter Hackman from VA Davidson & Co. Your line is open.

Good morning. Thanks for taking my question. So just trying to make sure I'm understanding correctly, I mean, significant upside, maybe the spending didn't ramp as quickly as expected. But does your guidance then imply that we should see negative adjusted earnings for share growth in the back half to 20? And how do you then – Think about, you know, I know we've had the 2022, but how do you think about that transitioning that into the first couple quarters of 21?

Hi. Thanks for your question, Helen. So, no, I don't – what we're essentially going to be doing, because we believe we'll still end up with the same amount of spend for the year, is that as it ramps up, we'll still be within that range, and then at that run rate, We'll continue to see that through the first two quarters of 21. Let me just give a little bit more color. Most of the expense for this year are much more people-related, so it takes time to ramp up. I would say if you look over the phasing of the year, it's roughly, let's call it 30% will be in the first half and the balance in the second half. And then the technology spend is more in the latter half of the three-year investment plan. So it'll be a little bit slow at the gate because it takes time to hire, but we don't expect that to be an issue as we think about the guidance we've given for the year.

Okay, that's helpful. And then just while I have, you haven't talked too much about portware and the company's efforts in trading.

Yeah, hey, Peter. It's still snow. So, yes, we're seeing very positive momentum in the trading space over the last few quarters. And a lot of that is attributed to, I think, the integration now of the EMS capabilities within core FAXF. And we're also seeing good momentum with our OMS offering as well. So just to remind everyone, we have execution capabilities. We have auto management capabilities. and we've integrated those now into a portfolio management platform, which is also beginning to gain some traction. So these are not big numbers right now, but the trend is positive, and we're very excited about that part of our analytics suite.

Great. Thank you very much.

Sure. Your next question comes from the line of Manav Patnew from Barclays. Your line is open.

Thank you. My first question is just, you know, these cancellations that you called out this quarter, were they contemplated in your full-year guidance? And I was just hoping if you could just maybe give us a little bit more color on, you know, how much of the guidance is, you know, assuming that you win a bunch of contracts over the course of the year.

Hey, Manav, it's Phil. So I think the cancellations that we called out in Q1 were was a little bit more of an expected cancellations within the sell side across banking as well as research. And very often that's difficult to predict given the numbers are pretty large and you're never sure sort of coming out of the hiring and into Q1 what that's going to look like. And I think when we look at Q1, you know, it's typically a smaller quarter for us, as I said in my script. We did go back, you know, $2 or $3 million earlier. this quarter, but if you go back even a couple of years into fiscal 2018, that was a fairly small quarter for us as well. So, you know, when we look out for the rest of the half, you know, it's significantly weighted. That's a Q2. And when we look at the pipeline versus the pipeline last year, we feel very good about, you know, our opportunities as we head into the second quarter.

Got it. And then maybe just your comments on growth and wealth. What were the drivers there? Was it just the ramp of the BAML contract, or was it a lot of single wins here and there? I'm just curious if you could give a little bit more color there.

Yeah, so no. I mean, we're doing very well at BAML. I think that was obviously a great deal for us and was a significant contributor to Q1 of last year. So I think you could have expected some deceleration in this quarter, just given that was a tougher comp. But we've had some very nice wins in wealth at larger firms within the Americas. And we also are doing very well in the middle markets part of wealth. And the pipeline is very healthy. So, you know, there are some larger deals out there for us, which are a little bit more binary. But just going back to the previous question, you know, we're not relying on any, like, massive deals to come within the guidance range that we gave at the end of the year.

All right. Thank you, Dave. Yeah, thanks.

Your next question comes from line of Hamza Mezari from Jefferies. Your line is open.

Hi. This is actually Mario Cordolacci filling in for Hamza. Just kind of wanted to piggyback off the wealth question, and you mentioned that there's some binary wins, and it sounds like you're doing well in the middle market channel. But I'm just wondering, say there's a larger deal and more consolidation in among the wirehouses. Just didn't know how you guys are positioned, and obviously when things as is are, like you said, binary, but how are you positioned, and how do you think you'll fare if there is some consolidation among the much bigger players?

I think we'll fare well. This is a greenfield area for us. It's an area that we're not defending, essentially, right? It's all offense. I think the product that we have is exceptional. We've put a lot of effort into it, A big piece of our investment strategy for the next three years is to just continue to bolster the wealth offering in terms of content and technology. There are some things that we're going to do there, I think, to make the life of the next generation of financial advisors and wealth advisors so much easier. And some of that's integrating our risk capabilities. Some of that's taking cognitive computing to essentially make the life of the wealth advisor and the financial advisor easier. much more efficient. So this is a space we're super excited about. You know, typically when there's consolidation, it means disruption, and there's an opportunity for a newcomer like Saxa to come in and take a crack. So, you know, we're in lots of RFPs. These are big firms. They're long contracts. You know, you don't win them overnight, but we feel exceptional about this piece of our business and the opportunity in front of us.

Great. Just one more and I'll turn it over. So, like you said, there's a lot of white space and wealth and maybe this other part of the business isn't as big of a focus for you, but how much do you think your products lend themselves to, say, commercial banking or insurance? Or maybe you can give us a sense of how much you've explored those markets as well.

So commercial banking is really interesting. We had a pretty good win there. I think it was last year in Asia Pac. That was a lot of seats, admittedly at a lower cost. But our web offering proved very good for that market, and I think we'll continue to explore some opportunities there. We have pretty good business in insurance right now. So what resonates with our insurance clients is our analytics products. You know, we've got a great multi-asset class risk product, which we continue to invest in. And risk is one of the things I talked about in my script. We've got a lot of good momentum in the risk space. The pipeline for risk looks really good, and some of that is at insurance companies.

Great. Thank you. Yep.

Your next question comes from the line of Andrew Nicholas from William Blair. Your line is open.

Hi. Good morning. In terms of the wealth pipeline, it sounds like you're waiting on a few larger decisions. Any color on when you expect those decisions to be made?

Some of them are this fiscal year. You know, some of them are further out.

Okay. And then I was wondering if you could provide an update on momentum and analytics, particularly as it relates to kind of the Salesforce realignment. As that gets further and further in the rearview mirror, just wondering if you could update us on progress with respect to sales momentum.

Yeah, thanks, Andrew. That's a great question. So, Yeah, so fixed income had a very good quarter, and we have a very good strong pipeline for fixed income. And that was one of the areas that we did worse in last year than we hoped. And the movement of the specialists back into the analytics area has really paid off. So we've got some great leadership there. The team's excited. The areas that really are showing very strong momentum are fixed income, risk, Vault, and Vault, to remind everyone, is kind of a combination of the BISAM performance product with traditional PA. That is gaining a lot of momentum. We're having a lot of unit sales with Vault. The APIs within analytics are doing very well. We see a ton of momentum there. And I mentioned we tripled the number of APIs that we had in Q1. So a lot of that are analytics APIs. So all in all, we feel good about analytics. I also mentioned, you know, our momentum there in the trading space. And a lot of these are really the workflow solutions and the portfolio lifecycle. So, you know, we made a bunch of acquisitions three years ago. It has taken us longer than I expected to get those integrated. But I think what we're seeing now and out into the rest of the fiscal year is great momentum there. in those areas, the workflow solutions and helping the larger clients be more efficient from a technology standpoint.

Got it. Thank you. Yep.

Your next question comes from the line of Tony Kaplan from Morgan Stanley. Your line is open.

Thanks very much. I wanted to ask another question on the research cancels. Was it related to firms getting out of equities or banking or consolidation or firms closing or competitive losses or just any sort of extra color you could give on what led to the cancels.

Yeah, thanks, Tony. It's Phil. So, yeah, I think these are – a lot of the cancels are typical in terms of the seasonal banking show. And there were a couple of firms where we had some things happen that we didn't anticipate. One was at a larger sell-side firm, and the other was at a middle markets firm. At the sell-side firm, it happened that we have a very strong relationship with them, very excited about the opportunities moving forward. You know, I can't get into the specific details, but clearly there's pressure, particularly on the bigger firms. You know, we're feeling some of that. I think that's what you're seeing in the numbers for Q1. But we're doing lots of things, right, to – So we'll come right up the stack at these bigger firms, provide more solutions, and it's going to be a little bit choppy at some of them, but we feel good about the longer-term opportunity for us.

That's great. And then for my follow-up, I just want to find out how much FX benefited margins this quarter, and if there was anything one time, if it wasn't FX, that helped the margins just because they were a lot stronger than expected. Thank you.

Yeah, sure, Tony. Thanks for your question. So this quarter, the benefit of FX was about a million, which is actually less than in the previous year, and obviously a lot less in terms of course of FY19. So that was not a material impact. You know, if you compare our margin this quarter to Q4, we're exactly the same, 33.9%. So I think it's reflecting more of the consistency of the actions that we've put forth over the course of the year.

Thank you.

You're welcome.

Your next question comes from the line of Alex Cram from UBS. Your line is open.

Yes, hey, good morning, everyone. Phil, you talked about your excitement of the, I think, 2Q launch of some of the more in-depth data around financial services or banks. Can you just talk about the appetite there a little bit? I think this is supposed to be a little bit of a SNL competitor, but one of the things that I'm also hearing is that, you know, that competitor has a lot more different industries that they cover. So, some firms might still wait until you have the full breadth. So, I guess, how much is this going to be a niche solution for now and maybe in a few years it's going to be a real competitor? Can you just touch it out a little bit? Thanks.

Yeah, thanks, Alex. So, we're attacking around eight sectors, I believe, over the next three years to a point we can't get them all done this year. So, We have a very methodical plan to work our way through eight sectors, and we're doing it in the order that we think will have the biggest impact for us. We've already hired all from the outside industry experts for each of these sectors. So they're on board already this quarter. So I think we did an exceptional job there hiring. And it's going to depend on the firm, essentially. So some firms may just want one or two sectors. Some may want all eights. Some may be very happy with 80% of the – you know, 20% of the functionality but 80% of the value. But, you know, we are seeing a very healthy appetite for, you know, more choice in this area. And, you know, we feel that we're going to have some impact this fiscal year. In fact, we already had, I think, one very good win. I can't remember if it's in Q1 or in the pipeline for Q2, you know, with another firm for the financial data that we have.

Okay, great. Thank you for the color. And then just secondly, again, on the opportunity side, I mean, you mentioned the tough environment, which obviously all of us on this call probably know about. I've been hearing a little bit more of an effort to reduce costs when it comes to the really expensive competitors of yours. So I think you've been benefiting from that to some degree. I think you've done this all along over the last few years. But I Are you seeing an acceleration in focus on cutting some of your more expensive competitors? And is that going to be something that can help in the next couple of quarters? Or is it business as usual from that perspective?

I think we are seeing more of an appetite for that. And, you know, I was on a recent trip to Europe. I had a couple of, you know, good meetings at larger firms where I think historically People have been given choice, and it's been a little bit more of a grassroots effort to do this. But what I'm feeling at a lot of these firms that are having more cost pressures is that there's going to be more of a top-down push to save costs and do some of what you just described. Okay. Thanks for confirming.

Yep. Thank you.

Your next question comes from the line of Joseph Forassi from Cantor Fitzgerald. Your line is open.

Hi. It seems like you're going through sort of maybe a portfolio shift because some of the buy-side stuff and sell-side stuff isn't working as well, and I'm sure we can all understand that. When do you think you'll hit an inflection point where organic growth starts to accelerate because the portfolio has been right-sized?

Well, I'm hoping, Joe, that this is the inflection point and that when we talk to you in Q2 – you know, we can point to that. Obviously, it's hard to predict the future, but, you know, when I look at what I just described in terms of analytics, when I think about our CTS product suite, which we haven't talked a lot about today, but we're having exceptional momentum there selling our content, you know, the wealth pipeline, our efforts to fill out the portfolio lifecycle, you know, all of that is really great. I think we are seeing, obviously, people pressure in our industry and you know, a lot of pressure, you know, on the research side. So that's the piece that's a little bit harder to kind of predict. But, you know, we feel like we've got the right strategy and we've got a team that's sort of really excited to execute even in what is a tough environment.

Yeah. I guess my follow-up will be an old question. Maybe we could start to get a breakdown from a percentage of revenue or you could just give us rough ballpark numbers. around the new pieces of the business and what they're growing versus sort of the old pieces of the business so that we can kind of start to model out the inflection point ourselves. I'm just wondering if there's any thoughts around that or if there's any general numbers because you said you hope that there's the inflection point that we're at right now. Thanks.

Hi, this is Helen. Thank you for your question. A lot of what we provide is even when we talk to the client, are bundled as well. So while we do track, we don't actually have plans right now to be breaking that out, but certainly we'll give you updates as we go on each call as best we can.

Okay. Thank you.

You're welcome. Thank you.

Your next question comes from the line of Shomo Rosenbaum from Stifel. Your line is open.

Hi. Good morning. Thank you for taking my questions. Hey, Phil, just a quick question, not to beat that research cancellations to death, but is it people that are just no longer there or they're moving to a different platform? I just want to understand the dynamic a little bit more.

I don't have all of that detail, Shlomo. I imagine some of it is just people pressure, right, within the research side that there's sort of less hiring going on. You know, some of it may be competitive pressure. I think there are situations there where we're taking market share and others are taking it from us. Again, I'll point to the fact that it's typically a smaller quarter, so we're calling it out this quarter just because it's one of the, you know, larger numbers. But in the big picture, when you think about our numbers for Q2 and Q4 especially, I wouldn't read too much into that for this quarter. Okay.

But it's not, I guess, what, you know, people are trying to figure out, is there any pickup in Refinitiv? Is there anything going on in, you know, on the CapI2 side that's becoming, you know, kind of nipping at your heels? Is there any change in any of that stuff?

I guess that's really what I'm trying to get to, or is it just... We're still, you know, when I look at the competitive win-loss, we're still, I think, doing well from a market share, taking market share standpoint.

Okay. Okay. And then just open facts, are there any additional metrics you can give us besides, you know, maybe some of the APIs, how that's tracking? Are you starting to generate any meaningful revenue over there? Just that seems like an interesting part of the business I want to delve into more.

Yeah, so we're beginning to get some momentum there. There's different pieces to it. So, you know, the piece that's generating, I think, the growth in CTS is really the data exploration platform that we've created. So it's really the ability to come in and look at our content in addition to some of the open providers that we've added, some of the alternative data. But a lot of the growth you're seeing is really from FACSAT-owned content, and we're beginning to see a pretty healthy pipeline for, you know, some of the alternative data providers that are combined with that. I think it's as much the model and the ability to come in and begin programming in Python using Tableau, you know, kind of what the analysts of the future and the data scientists of the future is going to want to use, that's really the most exciting piece of it.

All right. Thank you very much.

Thanks. Your next question comes from the line of Bill Warmington from Wells Fargo. Your line is open.

Good morning, everyone. So you had mentioned the strength in analytics, CTS, and wealth. And by implication, I would take it that research had turned negative this quarter. And I just wanted to confirm that and ask if that was really the result of the turn that you've mentioned and to ask how long you think it will take to return to low single-digit type target growth results.

Yes, so you're right, Bill. You know, the other three businesses were positive this quarter and research was negative. Again, you know, it's a smaller quarter. So, again, it's hard to predict. You know, we feel good about the research business as we look out for the rest of the year. And on our last quarter, we gave sort of longer-term guidance for what we think that business can do. The investments we're making in deep sector, in private markets, and street accounts all will, we believe, bolster that business and allow it to grow over time.

Okay, and then a follow-up question for you on the data feeds business. You know, that seems like a business that could potentially become commoditized, and so I wanted to ask about what you guys are doing to differentiate your offerings there.

Yeah, so, you know, some of the data is unique. Some is, you know, other people have it. I think the value that FactSet has always brought to the marketplace over the last 40 years is the integration of content. So you can deliver data sets all day out of a marketplace or a library, but the hard work is integrating the data so that you can use it as one database and providing the tools to analyze the data. So that's what we do. We do very well. Of course, it's great to have our own content as well to monetize. But the real value for our content is how well it plays together and how well we can integrate it with other data sets and within other people's systems. All right. Well, thank you very much. Thanks, Bill.

Your next question comes from the line of David Chu from Bank of America. Your line is open.

Thank you. So related to a previous question, can you just provide some color on what you're seeing in terms of client budgets overall? I mean, is cost cutting more in focus versus, let's say, a year ago?

Hi, David. Yes, I believe it is. I think we, you know, active managers in particular continue to be under cost pressure, and, you know, it's up to FACSET to provide them tools that allow them to be more efficient. And that's really, you know, that's where it is with active managers. If we think about other client types that are out there, you know, we're making a lot of exciting progress in asset owners, which include plan sponsors and sovereign wealth funds. That's an area of growth for us. We're doing very well with hedge funds. I mentioned that we were positive this quarter. We're selling hedge funds a lot of CTS products. We're seeing good momentum in private equity. So that's an area that we're investing, but it's a smaller area of our business, but it's one that's going pretty rapidly. We're doing well in the corporate space. That continues to build momentum for us. So, you know, we're obviously active managers for a big piece of FACTSA's business. We're providing, you know, good long-term solutions for them, but there are other markets that we're going into that have a lot of great momentum.

Okay, that's helpful. Thank you. And, Helen, is the 1Q capex number a proper run rate for the year?

Thank you for that question. Yeah, it is about that. We are expecting to be up year on year. So I think we ended last year around $60 million, and we're looking more like an $80 million for this year.

Perfect. Okay, thanks.

Thank you. Next.

Your next question comes from the line of Keith Halsum from North Coast Research. Your line is open.

Good morning. If we look at the research environment, you know, customers getting rid of some of their employees, how protected is fact that if one of your customers just goes from, say, 100 employees down to 50 employees, do you guys have minimums baked into your contracts that you're protected or not?

We do, you know, we do in some cases. So, you know, as clients have gotten larger and our footprint has gotten bigger with them, you know, they look for, I think, more certainty within their budgets over time. And, you know, we do have flaws in at some points. The other thing that, you know, we've made a transition towards and that continues is, you know, a bigger and bigger percentage of our ASV is tied to more workflow solutions and less people. So... The majority of what I just described in the analytics business has a lot less to do with feed count and a lot more to do with workflow and enterprise solutions. And the feeds is the same thing. So obviously it's an evolution. It won't happen overnight, but I think it's the right strategy for us and one that we're already capitalizing on.

Okay. So do I understand then if, as research can say, consolidates further next year, you guys will have some protection with some of your contracts based on some of the floors? Some of you may not.

Yes, I think that's right.

Okay, great. And then if I just turn to the international side, international revenue is down, you know, compared to the last two quarters. Was there anything unique, I guess, the end of last year that affected that revenue or anything unique in this quarter that their revenue declined actually sequentially?

Yeah, I don't think there's anything unique. You know, Europe, clearly is under, I think, probably more pressure than the Americas and Asia Pac. We see a ton of opportunity in Asia Pac. It's hard to imagine that not continuing if we make the right moves there. But Europe's under a lot of pressure for a lot of different reasons.

Great. Thank you.

Yeah, as Phil mentioned before, I mean, I think the pipeline is healthy. We have seen some good new business growth. So, as we think For the rest of the year, we were feeling more positive about the growth rate.

Your next question comes from a line of Kevin McVall from Credit Suisse. Your line is open.

Great. Thanks. Hey, Phil. Obviously, your Fed is changing hands twice within the last 18 months or so. you know, as they become part of the LSC, any thoughts from a competitive perspective? Does that change the behavior on the continent at all? Or, you know, even in the current form as part of Blackstone, have you seen any competitive dynamic shift?

Yeah, thanks, Kevin. You know, I've obviously thought a lot about that. You know, it doesn't feel to me that, you know, the combination of LSC and Refinitiv is going to be much different, frankly, to us than, you know, what we've been dealing with from a competitive standpoint with Repentor over the last couple of decades. So, you know, there's still uncertainty, I would think, you know, within both the client base and their employee base in terms of what's happening. And we're just capitalizing on that uncertainty right now.

And with that, I'll kind of allow you the opportunity to extend for any, you know, as you're kind of integrating, would you see competitive advantage on that? You know, if you were to look at other points in history, does that free up incremental opportunity or no?

I'm not sure I understand the question.

I guess, you know, is there consolidating? I'm sure they see disruption in their sales force. Do you take advantage of that? Is there opportunity to capture incremental share?

Yeah, I think so. So, yeah, I think that's what I was trying to describe. Yes, there's uncertainty in the client base and in their employee base. There's opportunity for us to go into clients and have conversations and take market share.

Got it. And then just quick follow-up. The investments you're making and kind of the research product, when do you think the earliest you'll start to see the revenue benefit from that?

So overall, and when we think about both the content and technology, we see minimal in this year, but as it ramps up in general, we would expect to see about 25% of the total growth coming in year two, excuse me, 2021, with the balance coming into 2022. So it's more of a back end in terms of the list.

Understood. Thank you.

Your next question comes from the line of Craig Hoover from Hoover Research Partners. Your line is open.

Yes, hi. I think I missed the first few minutes of your comments, but I'm wondering if Was there any major cancellation fees that showed up in your revenues in the quarter you guys just reported here?

Cancellation fees?

Well, for many clients of yours, any revenue that was pulled forward to account for revenues up to $2.5 million sequentially, your ASV, of course, was down slightly versus three months ago, I guess only a third time in the last 20 years or so. I'm just wondering if there's any clients that cancel or any revenues that were recognized pulled forward maybe to some degree in the November quarter. The first question.

Right. Sure. This is Helen. No, we don't see that. There was no pull forward due to cancellation from clients. So that's not how our model works. So that's not a driver at all.

Okay. And then thank you for that. My other question, again – With the ASV down slightly versus three months ago, you went through your confidence level of wealth and CTS, et cetera. It sounds like you're still comfortable with the $65 million to $85 million increase in ASV. You're thinking that's more back-end weighted for the year?

Yes, correct. We believe that this year in particular, it's always back-end weighted. I think if you go back historically, it's maybe 80%. somewhere between 60-40, just in terms of the split. But the way that we thought about this year and the way that we sort of modeled out our plan, we believe that the second year – the second half of the year is going to be more heavily weighted than typical, and we're still feeling good about the guidance range that we issued last quarter.

And then I think you said, you know, this three-year investment program to enhance the product – an extra $45 million of extra costs, I guess, by the time we get to the end of fiscal 2022. How much of that do you think will fall into this year versus next year?

So to go through, let me reiterate how that works. So we have $15 million in each of the years that we'll be investing in for 2021 and 2022. So in terms of what falls into the first year, it's $15 million.

and very little of that was obviously in the first quarter.

Right, because much of the spend is people-related, and it takes time to hire, especially for the capabilities that we're building, which has to do, as Phil talked about, in terms of content, the expertise there, and also on the technical side as it relates to digital capabilities.

Your last question comes from the line of George Thornby. From Goldman Sachs, your line is open.

Hi, thanks. Good morning. Organic ASV plus professional services growth has decelerated to its lowest level in years. You talked a bit about client budgets coming under pressure and some sell-side headcount reductions. Can you elaborate on changes you're seeing with buy-side headcount in both the U.S. and internationally?

Yeah, hey, George. It's Phil. So, yeah, I think we're seeing, you know, the bite. We're seeing pressure on headcounts in the front office. I think that's pretty well known. I think, you know, portfolio managers, traders, research analysts, I think over time, you know, our thesis is that we'll see, you know, sustained pressure, you know, in terms of the number of people and that, you know, clients are going to want to go to more efficient solutions and more of a technology-type solution.

Got it. That's helpful. You noted a decrease in your add-on business where you cross-sell to existing clients. Can you discuss broader trends you're seeing with new product uptake versus your expectations and traction with client wallet penetration?

Yeah, so a lot of that really had to do with the large deal that we had in Q1 last year. That was booked as an add-on business. That was an existing client. I think that was the vast majority of it. And as I mentioned in my script and throughout the call, we're seeing a lot of very positive momentum, you know, for analytics product, for feeds. On the wealth side, a lot of it's driven by, you know, user count.

Great. Thank you.

Thanks, George.

There are no further questions at this time. I turn the call back over to Phil.

Well, thanks, everyone. I'd like to thank you all for joining us today. It's clear that the changes in our industry are happening at speed, and we remain well-placed to lead the charge. Our efforts are already taking root as we position the company for the future, which is reflected in our new global headquarters here in Norwalk, Connecticut. And I'm very proud of the efforts we've made to create space that fuels innovation and collaboration and truly mirrors our company and values. Demand for open and flexible solutions is growing, and I want to conclude by reiterating our conviction in our outlook for the year, and happy holidays to all of you. If you have additional questions, please call Reema Haider, and we look forward to speaking to you next quarter. Operator, that ends today's call.

This concludes today's conference call. You may now disconnect.