FactSet Research Systems Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the FactSet Q3 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, Ms. Reema Haider, Vice President of External Communications. Thank you. Please go ahead.

Thank you, Jimmy. Good morning, everyone. Welcome to FACTSAT's third fiscal quarter 2020 earnings call. Like last quarter, we are in various remote locations today. We may have some audio quality issues, and we appreciate your patience should we experience a disruption. Before we begin, I would like to point out that the slides we will reference during 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 one follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to 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 Chan, our Chief Financial Officer. I'd now like to turn the discussion over to Phil Snow.

Thanks, Reema, and good morning and good afternoon to everyone. To start things off, I'd really like to thank the entire FactSet team for its remarkable efforts over the last quarter. It's really inspiring to see how FactSetters are going above and beyond each day to support our clients and each other as we all explore new ways of working. We've been positively surprised on how quickly we've been able to adapt to working in new ways, and are actively evaluating what this could mean in terms of efficiency, productivity, client experience, talent, and work-life balance for our employees. We've maintained a high level of engagement with both clients and employees over the last quarter, and we show healthy trends in client usage and interactions with our client service team. Our annual hackathon had a record number of projects submitted this year with some fantastic ideas, and fact-setters around the world continue to support our communities through company-wide volunteering and donation efforts. Let me talk a little bit about digital transformation and our investment plan. The events of this year and the uncertainty in what form the recovery might take is likely to put continued pressure on our end markets. There's even more urgency for firms to revamp their legacy platforms and accelerate their digital transformation efforts, developing next-generation manufacturing capabilities and delivering a more personalized, experience is going to be the key to winning for asset managers and asset owners. And the success that firms on both the buy side and sell side have seen in working remotely could be a meaningful catalyst in transforming historically inefficient workflows. The transition to a more digitally driven future, which was already taking place, is accelerating at a pace few would have predicted three months ago. More firms are moving to the public cloud, and upgrading their data and technology faster to meet the needs of a virtual workforce, manage volatility, and continue to adapt, evolve, and compete. Our investment plan addresses these trends and is rooted in migration to the cloud and our longstanding mission of providing clients with actionable data and insights where, when, and how they want it. Every day, we are supporting our customers with their own digital transformation efforts, delivering personalized and value-added solutions and as a result, deepening our relationships with them. We remain confident and on track with the programs in our three-year investment plan. Our focus on transforming our technology landscape, creating a new universe of data for private markets, along with our expansion of critical content for banking and wealth, positioned us well to capture market share. We found this is a good market for talent and made some key industry hires in the third quarter. Our business model has shown its resilience and confirmed that our solutions are mission critical for clients, particularly during times of market stress. We launched many new enhancements in the quarter and added deeper, richer content in finance, insurance, and real estate. Also, we reached an important milestone last week where we had our last VMS install, marking the end of Project NextGen. For those of you that recall this project, it's been a large undertaking for our engineers over many years, and completing this project allows them to focus on some of the newer things we're doing, such as the shift to the public cloud. Let me talk a little bit about ASV and the geographic breakdown this quarter. Turning to results, I'm pleased with our performance for the quarter. We executed well on our pipeline, and we were effective at managing costs. While we remain cautious given the uncertainty in the markets and economy, we remain on track to meet our revised ASV guidance for fiscal 2020, which we have narrowed to $60 to $75 million. This quarter, our organic ASV plus professional services grew 5%. Our Americas region had a solid quarter with 5% growth, benefiting from a healthy pipeline built earlier in the year. Asia Pacific rebounded with strong growth of 9%. and saw an acceleration in new business and the easing of pandemic-related restrictions in key markets. And our EMEA region, which grew at 4%, benefited from an uptick in demand for CTS and the international price increase. ASV growth in our third quarter was largely driven by wealth and research. We continue to expand our wealth pipeline and add wins this year, despite facing some delays due to the pandemic. Research grew thanks to healthy demand from investments, and asset management clients, especially in the Americas region, as well as our international price increase and improved client retention. Our deep sector strategy continues to have a positive impact on both retention and our ability to expand our client base beyond the traditional investment space, particularly with corporate clients. Content and technology solutions also performed well, driven by continued strong demand for premium and core data feeds, and a strategic win with GPIF, Japan's largest pension investment fund. Analytics had a slightly weaker quarter, primarily due to some large deals being pushed out to the fourth quarter, but it's been a solid contributor to date and has a healthy pipeline, especially across performance reporting and fixed income. Additionally, we delivered strong results in our adjusted operating margin and EPS, seeing some cost benefits related to the pandemic, and Helen will walk you through these in a few minutes. In summary, we're executing well and remain confident in our ability to finish fiscal 2020 on a strong note. At the same time, we're aware that the uncertainty surrounding the coronavirus pandemic makes it more difficult to predict the longer-term impact on our pipeline. We're excited about the pace of innovation at FACSAT on our industry and believe we are well-positioned to meet the needs of the virtual workforce, and we are pleased with the high levels of engagement and productivity we have seen throughout the quarter. As the world around us changes seemingly daily, I'm proud to say that we are still closing deals, bringing on new clients, and finding new ways to collaborate. Before I turn the call over to Helen, I want to take a moment to talk about the four changes we announced yesterday. I particularly want to thank Bill Hadley, who has decided to retire from our board, and to welcome Robin Abrams as incoming chair. Many of you know Phil, who was FACSED CEO for 15 years and served as our board chair for 20 years. I want to thank him both personally and on behalf of the entire FactSet community for his visionary leadership and profound contribution to FactSet's success. Additionally, I'd like to thank Scott Bilodeau, who's going to be with us until the end of the calendar year, for his years of client perspective as well as steering the audit committee. And we also look forward to working with Xu Kai Choi and Lee Chavelle, who both bring a breadth of experience to our board. You'll now hear from Helen, who will take you through more details for our third quarter.

Thank you, Phil, and hello, everyone. I'm happy to be speaking with you today and hope you and your loved ones remain safe and well. I want to reiterate Phil's appreciation to the FactSet team. Our colleagues continue to show their strength and resilience in partnering with clients and with each other. The positive outcome is reflected in our results. We entered the third quarter with solid pipelines. And for our second quarter in a row, we accelerated our growth rate in ASV and professional services. We experienced expansion in our operating margin and an increase in our EPS. Back in March, we noted that the uncertainty of the environment could impact both the top and bottom line in terms of our ability to generate new ASV and the potential to realize savings from lower discretionary costs such as P&E. With discipline and execution, we secured new wins and used productivity benefits to help fund our investments in content and technology. I'll now walk us through the specifics of the third quarter. We increased ASV by 14 million, or 5% year over year, reflecting solid growth through existing clients with continued strong retention and realization of cross-sell opportunities. Our annual price increase outside the U.S. generated $7 million, a $2 million increase over the prior year, affirming the value clients find in our suite of offerings. Gap in organic revenue increased by 3% to $374 million and $375 million, respectively. Growth was driven primarily by analytics, CTS, and wealth. Please note that last year, we had a one-time sale of data to a corporate client that positively impacted revenue for our third quarter of 2019, specifically in the Americas region. Adjusting for this transaction, the revenue growth rate year-over-year would have been 4%. For our geographic segments, America's revenue grew 2% and the 3%, and Asia Pacific was the highest at 7% year-over-year. The regions primarily benefited from increases in analytics, wealth, and CTS. GAAP operating expenses for the third quarter totaled $252 million, a 2% uptick over the previous year and in line with revenue growth. Our GAAP operating margin increased 30 basis points to 32.5%. Adjusted operating margin improved by 150 basis points to 35.5% versus last year. These results also reflect a positive impact of 40 basis points due to favorable foreign exchange rates. Expenses for the quarter include investments in technology and in new talent and capabilities, offset by net savings and productivity from workforce mix, and a reduction in discretionary expenses. The result is an improved operating margin. As a percentage of revenue, our cost of sales was 70 basis points higher than last year on a gap basis. On an adjusted basis, the cost of sales was essentially flat. Increased costs were driven by technology spend, which includes our shift to the public cloud as part of our three-year investment plan. This total was partially offset by lower compensation costs driven by more concentrated hiring and low-cost locations. Lower SG&A expenses are largely responsible for the increase in operating margins. When expressed as a percentage of revenue, SG&A decreased 100 basis points over the prior year period on a gap basis. On an adjusted basis, SG&A expenses decreased by 140 basis points year over year. The drivers include materially reduced travel and entertainment costs, as well as office-related spend. Both reflect the current working environment, given closed offices and limited need for travel. We would expect a portion of the spend to resume once we are able to return to the office and operate in a post-pandemic environment. Moving on, our tax rate for the quarter was 15% compared to last year's 19%. This improvement is mainly due to the timing of an income tax expense in the third quarter of 2019 related to finalizing the company's tax returns. There was no similar event for this quarter. GAAP EPS increased 11% to $2.63 this quarter versus $2.37 in the prior year, and adjusted diluted EPS grew 9% to $2.86. Both were driven by higher operating results and lower interest expense, and GAAP EPS was further boosted by the lower tax rate. The reconciliation of our adjustments to GAAP EPS is disclosed at the end of our press release. Free cash flow. which we define as cash generated from operations plus capital spending, was $140 million for the quarter, a decrease of 6% over the same period last year. This reduction is primarily due to the timing of certain international tax payments. On a year-to-year basis, free cash flow grew by 4%, despite higher capital expenditures on facilities. For the third quarter, our ASG retention continued to be above 95%. we grew the total number of clients by 1% compared to our prior year, reflecting the addition of wealth and corporate clients. Our client retention rate held steady at 89%, demonstrating the value of our offerings to clients, even and perhaps especially during these challenging times. For the third quarter, we bought back 47,000 shares for a total of $12 million at an average share price of $266.00. We remain disciplined in our buyback program, and the amount we purchased in part reflects the highest performance of our share price this past quarter. Year to date, we have repurchased $173 million of our shares. Additionally, over the last 12 months, we have returned over $343 million to our investors in the form of dividends and share repurchases. We recently increased our dividend by 7% to 77 cents, marking our 15th consecutive year of dividend increases. We remain committed to returning long-term value to our shareholders. Turning now to our outlook for the remainder of our fiscal year. As Phil mentioned, our performance over the past few months reflects the resiliency and strength of FACTA's business model and the mission-critical value of our content. Moreover, our recurring cash flows and strong balance sheet provide stability during times of market volatility. We continue to believe these attributes will allow us to succeed through further challenges and emerge stronger when the economy eventually recovers. Given our solid third quarter performance, we believe we were able to address some of the factors we discussed on our last earnings call. However, we remained cautious for our fourth quarter. First, we noted that there might be delays in decision-making, which could cause longer sales cycles. We've seen examples of trials taking more time and disruption in the internal approvals process, especially with larger clients. A number of Q3 deals moved into Q4, but in line with the previous year. Similarly, this same dynamic resulted in benefits as we experienced lower cancellations versus the prior year. Hence, our retention rate remained high. Second, We had cited the potential of delays in implementation due to restrictions on being able to work on site. While we have some clients who are unable to accommodate our virtual implementations, these deals to date have not impacted our top line in a meaningful way. And third, we had highlighted the uncertainty around seasonal hiring at the investment banks over the summer months. The ASV from our banking business is primarily comprised of large investment banks with midsize and boutique firms making up a smaller percentage. To date, over half of these large banking clients have confirmed their new class hiring numbers, which are in line or better than 2019. Consistent with the past, many of these decisions are confirmed by mid-August. While we are encouraged by the results thus far, we will likely not have a final view until the end of the summer, so a risk of smaller classes or hiring delays remains. As many of you know, the fourth quarter is typically our largest. With what we know today, we remain guardedly confident in our ability to execute against our pipeline and moderate our spend. Based on these factors, we are bringing up the bottom end of our ASB guidance. The range for our full year is now expected to be $60 to $75 million. Given how we have performed to date and our control of and visibility into the investment and operating spend in the fourth quarter, we are increasing our guidance range for other key metrics such as gaps, and adjusted operating margin, and GAAP and adjusted EPS. We are lowering the guidance range for our annual effective tax rate. These revisions are noted on slide 14. In closing, I want to reiterate our conviction in our business model, operating plan, and investment strategy. The company's liquidity position remains strong with low leverage and ample cash flow. Our workforce mix continues to generate productivity as we meet the hiring needs of both the core business and investment plan. Our spending digital offerings and on our own infrastructure has served us well while operating in this pandemic environment. The current situation is generating unplanned savings, but we believe that a more normalized level of activity will return in the future. In the meantime, we will continue to focus on execution and and on generating long-term value for all of our stakeholders. With that, we are now ready for your questions. Jimmy?

Thank you. As a reminder, to ask a question, you will need to press star then 1 on your touchtone telephone. To withdraw your question from the queue, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Tony Kaplan with Morgan Stanley. Your line is now open.

Thanks very much for taking my question. I just wanted to make sure I understand the expense guidance changes clearly. Is it that you're benefiting from lower T&E? Is it the productivity that you mentioned? Just trying to get a sense of maybe a breakdown of the pieces that are contributing to the better margins that you're expecting for this year. Thanks.

Sure. Thanks, Toni, for your question. So I would look at three different areas when we think about what's driving the expense reduction or really margin expansion. So the first are expenses that are pandemic-related items. So T&E, office-related, even U.S. medical costs, which were actually lower as many folks stopped going to their normal doctor or medical activity. So we actually saw savings on that as well. Then the second bucket I would call operational discipline. So that's Our ability to manage third-party content and professional fees, in some cases reducing, in other cases it's more of managing from a timing perspective, and the workforce mix, which we've talked about before, Tony, as you know, and that has continued to play out where we have, for example, we've hired 7% more in our workforce, but we've actually had 2% higher as a mix of low cost versus high cost. And then the last bucket, I would say, are investments. where we were also adjusting both by using our own employees for some of the needs that we have, and then also hiring in low cost. So tighter management around party costs there was really important. The three areas I would say are pandemic-related, operational discipline, and spending investments, of which the pandemic piece is largely, I would say, nearly two-thirds of the benefits that we're seeing in the quarter.

That's very helpful. And Phil, you mentioned the changes in the industry, basically accelerating the technology changes given the COVID period. And I know that your investment plan has been sort of a multi-year period where you're investing in content and technology. And just wondering if anything from this period has changed where you're planning on spending within the investment plan maybe change the weightings or change towards different products or just anything sort of structural in terms of the industry changes, changing the way that you're attacking it. Thank you.

Yeah, thanks, Tony. So I'd say the biggest change and the thing that we're really focused on is how our clients are going to be working in the future. So, you know, we quickly sent out a survey to our clients when they were working from home to sort of understand how their lives were changing and and try to predict how they may change in the future. So, you know, obviously the plan is very heavily weighted to moving to the public cloud, you know, opening up the tech stack and creating a more personalized experience. Nothing's going to really change in terms of the big buckets, but we do see a great opportunity to streamline workflows that are going to become more digital for our clients, you know, around collaboration tools. And, you know, we've all been in the industry for a long time, so we sort of know which of our workflows are still pretty manual, right, where there's a lot of people putting together pitch books or models or what have you. And I do think that now people have been surprised. I mean, I've been surprised by how quickly we were able to adapt, and that's what I hear from our clients. So I do think it's sort of really giving people an opportunity to think more boldly, and I just feel like we're in a really great position to kind of meet those needs for our clients.

Terrific. Thank you.

Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is now open.

Yeah, thank you. Good morning, guys. You know, you guys talked about the unplanned cost savings and the benefits, I guess, from COVID, and kind of a follow-up to the last question, Phil, and, you know, we talked about this a little bit before, but, you know, do you think there's a case to be made that maybe you can take some of those savings and accelerate and maybe even spend more in terms of your three-year road plan, just, you know, since the whole world seems to be digitizing so fast as well?

Well, we certainly are taking a look at, you know, what we've learned over the last year and new things that we'd be interested in doing. So we do that every year. We've been through that process in the last quarter. So we're looking at, you know, what we chose to do. That's solid. We're going to continue to invest in everything we said we were going to. But we do see some potentially new opportunities for us as well. So I do think there's an opportunity to do more. And I do think there's an opportunity, again, for us to look at, not just the cost savings that we've kind of seen in the last quarter, but just look at how we're working as a company and how we may have been inefficient in terms of how we're servicing clients or doing other things. It's a much longer process to figure that out, but we're really actively looking at that and seeing what it might mean for us in the future. So, net-net, I'm very excited in terms of what the potential is for the company.

Got it.

Fair enough. And then, Manav, I think one thing, just to keep in mind, I mean, costs like any U.S. medical, there's still a little bit TBD as we go into the quarter and obviously into next year. And also some of the costs that we are getting the benefit in this year, or this quarter rather, is a little bit timing related. But for sure, we're all looking to see how we can best leverage that into, as Phil mentioned, into the existing investments, if not new ones as well.

Got it. And I was going to ask, Helen, like in terms of, you know, your comment on we do expect business to be back to, you know, some normalcy from the cost perspective and so forth. I was hoping perhaps you could maybe use Asia as an example and maybe tell us what you're seeing there in terms of, you know, the recovery and so forth.

Yeah. I mean, as we think about, you know, our thinking as we go forward, I really look at it in kind of two different buckets in terms of the assumptions. So one is operational cost. How do we see going out of Q3? We talked about the fact that we have seen a good market for hiring new talent. You'll see that we increased our total headcount. We're over 10,000 employees now. I think that's the highest we've been. So that's a 7% increase in hiring. So we were able to do a lot of that. We continue to invest, as we discussed. And so I see some of that picking up and, therefore, driving higher costs going forward from a people perspective. I think I just mentioned there are some costs as it relates to things that we held back in Q3. 90 days ago, we weren't sure where the world was going to be, so we wanted to also be quite cautious. And some of that now we're feeling better having experienced what we had in Q3. So we're seeing that come through, and we'll look to spend that in Q4 and some of that maybe even into the following year. As it relates to the pandemic-related savings, we also have costs that we're going to see come through. So those would be related to business continuity, you know, equipment, Internet, things that we need to make sure that our workforce is properly ready to work remotely consistently. We're going to have some office reopenings that, you know, it's a little bit unclear yet how we'll deal with that. And then medical costs I would expect would come back as folks are now becoming more comfortable and now that we're reopening. So I would look at that, Manav, as we think about a go-forward rate.

All right. Thank you, Dave.

You're welcome.

Thank you. Our next question comes from Bill Warmington with Wells Fargo. Your line is now open.

Good morning, everyone. Good morning. So congratulations on the GPIF of Japan win. I was hoping you guys could give us some additional details on that. What were they using previously? Was it an RFP with multiple competitors? And then when does the new contract start?

Hey, Bill, it's Phil. So, yeah, I typically don't give sort of that level of detail around a client's wins. We did have a press release around this, which I think is why we're mentioning it. But what I would point to, I think, more is just the opportunity that exists with FactSet for asset owners. So we do very well with, you know, sovereign wealth funds, with plan sponsors. We've got good momentum with insurance companies. And when you think about our analytics suites, and how it's really geared, I think, for the asset owner and asset manager of the future in terms of what we're able to do. I think that just is a good area for FACSA to grow in the future. You know, that specific win was more CTS-related, so they are taking, I think, a good amount of our content, essentially, to build out some of their own analytics. So I think that also speaks to our off-platform efforts and our ability to deliver content in new and interesting ways.

And in your prepared remarks, you highlighted strengthening corporate clients as being one area. I wanted to ask about the new corporate clients. Is it being driven by new corporate clients or existing corporate clients buying more products? And are you displacing existing vendors or are these first-time users, if you will?

So a lot of our new client wins, I think we would net 55 new clients for the quarter. Many of those came from corporates, and a good amount of them came from wealth advisors as well. So we're closing a lot of new names. Typically, these aren't huge deals, but they really add up when you put them together. And what we're selling traditionally is mostly into investor relations groups, and business development groups. But as we build out our deep sector content, you know, we've started with financials, insurance, and we're beginning to get into real estate. I do think there's an opportunity to sell more to the existing clients and to uncork, you know, some corporate clients in industries that traditionally fact sets may not have been as heavily weighted towards. So, you know, we typically do very well in the sectors and industries that are very data and analytics driven and regulatory. as you can imagine. But I do think over time, you know, I see a lot of opportunity, particularly as we open up the platform to do more for clients that are not necessarily on the buy side of the sell side.

Great. Thank you very much for the insight.

Yep. Thanks, Bill.

Thank you. And our next question comes from Alex Cram with UBS. Your line is now open. Hey, good morning, everyone.

Could you just come back? and flush out the pipeline and guidance comments for the 4Q a little bit, in particular as it relates to some of the banking comments you made. You made it sound like you have a very strong, I guess, visibility here. Is that based on talking to all these different banks and really having almost 95%, 100% certainty what they're going to do or where they're coming from? Because you're obviously reading some of those headlines like, New hires are getting delayed. They're getting a few thousand dollars to sit on the beach for two extra months. So just wondering where that level of confidence is coming from in particular. Thank you.

Yeah, thanks, Alex. So I think we typically don't get a final answer from the majority until August. I think we've spoken to about half the banks so far, and early indications are that they'll still be hiring that classes. Maybe it will get pushed out into Q1. as you mentioned. But when we're looking at our pipeline for Q4, it's pretty heavily weighted towards analytics and CTS, which are sort of more of our platform offerings and less heavily weighted towards the people, you know, the piece of the business that's very much workstation driven. So, you know, we've got, you know, a good pipeline for Q4. We certainly have, you know, enough in there to support the range that we narrowed this morning in our comments.

Okay. No, very good. Thank you. And then secondly, I guess this is for Helen. I may have asked this before and maybe a little bit of a too detailed question, but when you look at your adjustments to your numbers these days, obviously some of those adjustments have been getting bigger and bigger. I think it was like $5.5 million this quarter for, I guess, one-time-ish items, but when you look at the footnotes, it's kind of related to some of these investments spent that you're doing. So can you just flush out what you think is reasonable to back out some of that stuff? Because quite frankly, if you're backing out a lot of these investments, then you may as well invest more if it doesn't come towards EVS, if you know what I mean. So yeah, please just help us why that's reasonable in your opinion.

Sure. Yeah, and I'll comment maybe a little bit broadly in any detailed questions. You can obviously get that from Rima directly. So there's a couple different things that fall into that. Now some, as you note, there's a number in there that is, I would say most of it is not necessarily investment. These are about three-year plans. A lot of that is more infrastructure-related, so things that we're doing, whether it's on workday or things that are more, I'll call it corporate infrastructure-focused. So those are one-time investments. We also have in there double rent that we have as we've been building out facilities. So some of our facilities, we've got both our existing building and we already have a lease on another one. So that's not really part of the ongoing. So we pull that out as well. So that gives you a little bit of what's in there. They're not really directly related to the three-year plan.

Okay. Thanks again.

You're welcome.

Thank you. Our next question comes from Hamza Mazari with Jefferies. Your line is now open.

Good morning. Thank you. I just had a question around the wealth business. Could you remind us what your market share is there? Specifically, if you can't talk about market share, maybe you could talk about how down market in wealth is. you could go. So we all sort of know of a few large firms, right, that have armies of financial advisors. But just curious in terms of thinking about the wealth segment, how far down market can FaxHut go?

Yeah, hey, Hamza, it's Phil. Thanks for the question. So our wealth segment is around 10% of FaxHut in terms of its size. And I do think, you know, it's – We've got a ton of total addressable market that we can look at. You know, at the very high end of the market, I think we're suitable for, you know, the ultra-high net worth workflow. You mentioned sort of the armies of financial advisors out there, so obviously we had a big win a couple of years ago that we're very proud of and doing well with, and it's uncorked a lot of opportunities for us. We had a significant wealth win this quarter, so it was building on an existing relationship, but we really had sort of a good-sized win displacing a major competitor at a large firm. And, you know, we have a digital business, which really can get to tremendous amounts of users, you know, that are sort of retail users of a bank, essentially. So we've got... the full gamut of stuff, I think, particularly for, you know, the market data and news segment of the workflow. I think now we're getting to the point where the product can really begin to leverage our analytics suite, where those two can come together when we can begin to do more for existing clients, you know, on the risk oversight, in the risk oversight area and some other areas. So we're really optimistic about our ability to capture more market share in wealth, and as I mentioned just previously, we closed a lot of smaller family offices and wealth advisors each quarter, and we did the same thing in Q3 of this year.

That's very helpful. Just a follow-up question, I'll turn it over. It seems like the EU and US regulators are scrutinizing exchanges buying data businesses quite a bit, and And so we're wondering if that creates an opportunity for you. And what we mean by that is, you know, a number of years ago you did quite a bit of M&A, and then you focused on integration. Now you're sort of focused on, you know, this three-year organic growth investment plan. And just curious, can you still be opportunistic on M&A while continuing to execute on that investment plan, or is M&A kind of off the table because you have a lot going on internally?

We continue to look at things that are opportunistic, so absolutely. I think we've obviously got the balance sheet to support that. We've done a lot of work to integrate the software companies that we acquired into But we do think there's some good opportunity out there for, you know, for some smaller data sets or providers that could really support, you know, what we've talked about, right, in terms of the areas of the market that we're interested in. So we're actively looking at things like we always are. You know, obviously valuations were pretty high over the years. And talking to banks, I think deals are starting to get done again. Obviously it was kind of a frozen period there, but I do believe that, you know, the – The ice is thawing a little bit, and we're going to begin to see some deals in our space.

Great. Thank you so much.

Sure.

Thank you. Our next question comes from Shlomo Rosenbaum with Stiefel. Your line is now open.

Hi. Thank you very much for taking my questions. Hey, Phil, can you talk a little bit about the company's ability to sell in the current environment? It sounds like you guys are doing pretty well. is how much of it is the same way that you guys are benefiting from, you know, benefiting from retention so there's stuff not falling out of the funnel and how much of it is that you're actually, you know, really doing a good job selling, which, you know, is fairly impressive in this kind of work at home environment.

It's a good mix, Shlomo. So we've been able to close some new names. You know, we did well in new business in Asia, which, as I spoke about on the last earnings poll, I thought would be, you know, kind of the first region to come back from that standpoint. But talking to our leader of our European business, she's telling me that we're beginning to see some good opportunities over there on the new business side. We have been really effective at closing what was in our pipeline, you know, for Q3, sort of when we spoke three months ago. And I think part of what Helen and I were thinking about was would it really delay clients' decisions to buy things? We've seen some of that. How well would we be able to implement things virtually? We are very capable of doing that. In some cases, our clients, I think, were having difficulty engaging with us. But net-net, I think, again, we were positively surprised in how we were able to do things more remotely than typically FACTA has done in the past. So I think that's very promising in terms of how we think about selling and supporting clients in the future. And, yeah, there have been a few cases of clients that were planning on transitioning potentially to other solutions, and those decisions have been delayed, which has helped us on the other side as well. Yeah. But, again, net-net, it's been very positive. I mean, I'm sure it's not lost on you that this is the best third quarter that Faxit has had since 2016. And I think to execute in this environment and produce those results is something we're very proud of.

Okay, great.

One other question, just on the tech investment, are there any milestones that you could talk about, any early signs of success that you could talk to, You know, just as we talk about the investment and the potential for you to accelerate the spend, maybe you could talk about some of the things that you've, you know, maybe early innings you've been able to accomplish.

Yeah, so we've opened up a lot of APIs. I believe we're up to about 40 that we've put into our developer portal. So clients are able to now come in and program directly against FACTS. They were able to do that in some cases before. And in our analytics area, we've seen good adoption of APIs. So we began to sell, you know, the APIs for analytics a little over a year ago. We had some initial success last year, but it's really begun. It's a small number now, but it's beginning to grow pretty quickly. And I think we're learning as we go as well. So that's one that I would point to.

Okay, great.

Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is now open.

Hi, good morning. Thanks for taking my questions. It looks like ASV growth reaccelerated a bit in APAC in the quarter, which is obviously encouraging. I'm just wondering if there's anything you can take away from that uptick, whether it be in terms of sales cycles, pipeline conversion, implementation timelines, and apply that to how you're thinking about you know, the same dynamics in the U.S. or EMEA over the next couple quarters?

Sure. I would say it was just a very good mix in Asia PAC. You know, I think we saw good growth in Japan. We saw good growth in Hong Kong and North Asia, and we saw good growth in Singapore. So I think the team executed well across the whole region. As we just pointed out, we had some good wins on the new business side. So, yeah, And, you know, I think we've begun to go back to the office in Hong Kong. So that's the first office, I think, that we've begun to have employees return to. So it looks like clients are really engaged over there. And as we've spoken about before, you know, we view Asia as, you know, it's our fastest growing region, one that has a ton of opportunity for it and where the trends are really in our favor. So we're really optimistic about what we're able to do there across all geographies and all of our business lines.

Got it. And then one more would just be on on-site implementations. I know that was kind of ahead when you called out last quarter. Just curious if there's been any improvement in that capability, whether it be at FACSAP's capability or clients' ability to handle off-site implementations and kind of how that's evolved over the past couple months.

Yeah, it's been really positive. You know, I think that I just pointed out with the previous question that we've been able to do almost everything we need to do from an implementation standpoint, you know, virtually. And our clients are learning how to do that as well. And that's clearly one of the benefits of going to the cloud. If everyone's up there, I think it just makes it easier for all of us to work together. And if you have APIs and components that sort of plug in very easily with, other people's systems and ecosystems, it makes the whole thing much faster. It really just clashes the sales cycle and the implementation scene versus kind of the heavy lift where it's more custom and you have to be on site. Got it. Thank you.

Thank you. Our next question comes from David Chu with Bank of America. Your line is now open.

All right. Thank you. Can you just highlight the cadence of ASV growth over the course of the quarter? Just wanted to see if, like, things were quite slow in, like, let's say mid-March, early April, and things picked up quite significantly since then?

I don't think there's anything different, David, honestly, from previous quarters. So, you know, we had a healthy pipeline going into the quarter. And, you know, from what I saw, we were closing things at kind of the same rates that we did, you know, in previous years. You know, like any sales team, right, you're going to have that mad push at the end of a quarter or the end of a year. So, you know, our Q4 is always our biggest quarter. And typically in a quarter, you know, people are very anxious to sort of get things in. And one thing that we've done is, which has really helped is we've got a clearer compensation model for our sales team, and they are really incented to bring things in earlier if they can, and they're getting paid on a more frequent basis just based on transparent compensation models than they had in the past. So I think some of what we're seeing here is just some of the discipline that we've put into the sales force over the last years and all the great work that's been done there.

Got it. Thanks. And then in the past, if we look at past recessions, revenue growth slowed most sharply at the tail end or as the economy was coming out of the downturn. Just wanted to get your thoughts around timing. I mean, do you feel like we've seen the worst in terms of the revenue impact or is that something maybe still to come based on just the subscription nature of your business?

Well, I think it's very hard for all of us to predict. So I do think that this if you want to call it a downturn, is different than what we experienced in 2008 and 2009. But I think all of us, as we look out over the next 12 months, it's very hard to predict what's going to happen in the world from a lot of different dimensions and what the impacts are going to be on economies, the markets, and then us. What I'll just go back to is we're a resilient company. We've just shown that. And no matter what the environment, we're going to I believe, execute well against it. But in terms of talking about whether or not we've seen the worst of it, I don't think any of us can say that with any certainty right now. Sure. That's fair. Thank you.

Thank you. Our next question comes from Peter Heckman with DA Davidson. Your line is now open.

Hey, good morning. Thanks for taking my question. So about $19 million of ASV growth year-to-date coming from price increases. Can you talk about how that compares to last year and kind of your thoughts on the sustainability of that as you build out more depth and breadth of the content sets and go back and try and true up pricing? How much fight are you getting on those from clients?

Sure. Why don't I try to address that? Thank you for your question. So as you recall, last quarter when we talked about the Americas, we got an improvement of $2 million year on year, and so the international was the same. So that gives you a sense of the improvement this year versus last year, so $4 million. But I think what we've seen, I mean, we're in a competitive environment, so that's never always the case. But we have put in a lot of enhancements. and value into the products and the offerings, and I think that's really coming through. So what we're seeing in this year, and we do have also natural pricing increases in our contracts already, is that continued recognition by clients that the value that we're bringing in is worth the additional amount. Now, that being said, we have to continually invest in it, to be able to do that. And I think the three-year plan is certainly meant to help that along, not only with new products, but really enhancing our existing and to maintain, if not increase, our retention rate with our existing clients.

Yeah. Yeah. Okay. That makes sense. And then I didn't hear you refer to it, but just in terms of the, you talked in prior calls, the outlook for 2022, the ability to, or the aspirational goal of hitting high single-digit ASV growth, Can you give us an update about how you're thinking about that number? Do you think that's still achievable within 18 months?

Yeah, I'll take the first shot there. You know, we're working hard to make sure we can get the next three months correct. So I would say there's a lot of variables right now. Our plan hasn't changed. In terms of our belief of what the investments will bring and the upside, I think we'll have more. We're going through all that right now, as you can imagine. in our own budgeting process, but also in thinking through how our investments were fair. So I think we'll come back to talk more about that right now. We don't have any change in our view, but gosh, there's a lot that can happen, and we're doing work on that right now.

Got it. Thank you.

You're welcome.

Thank you. Our next question comes from Ashish Sabadra with Deutsche Bank. Your line is now open.

Thanks for taking my questions. So maybe just a quick clarification. You raised the lower end of the ASV guidance or took down the revenue guidance for the year. I was just wondering if you could provide some color there. What's causing that? Is it just the timing of when the revenue gets recognized? And then just a quick one on wealth front, you mentioned a significant win there. I was just wondering if we can think about the sizing for that significant win compared to your prior win and when do we when will that get implemented and revenue get recognized? Thanks.

Right. Okay. Thanks, Ashish. Yeah, so I think, you know, in March, I think all of us were really wondering what was going to be happening, right, in terms of what was going on in the world around us. We mentioned we had a very strong pipeline and we were just, it just wasn't clear to us sort of how clients were going to react and really what was going to happen in the markets if you remember sort of how volatile things were back then. So, We came up with a methodology which we thought was good to at least be conservative in terms of what could be achieved. But we've learned a lot over the last quarter. And as I mentioned, we were effectively able to execute on the pipeline that we had in Q3. And I still feel good about our pipeline for Q4. That's why we just feel like we can raise the bottom end of that guidance up to 60 to give you a narrower range as we look out for the quarter. The other wealth win was at an existing client, I think, where we have a pretty good deployment. And I believe that much of that has already been deployed and that we're recognizing the ASV for that and the revenue in Q3. So it's not the same scale as the deal that we talked about two years ago, but it's a significant seventh-figure win at an important client force.

And let me just pipe in a little bit as it relates to the revenue. The good news is we've gotten from this quarter, Ashish, some better confidence. So that's a real positive because of some of the unknowns, as we've already talked about. Do keep in mind, in a subscription business, It really does matter when the ASP comes in. And so, as you know, the first quarter for us was softer than we had hoped. And so that does carry through. And depending on what happens on the back half of the year, without the pandemic, the dollars might have been a little bit different, and so did we believe how revenue was going to come out. But knowing, A, that we had a weaker Q1, that's really coming through a bit from a revenue perspective as we look at the full year.

That's very helpful. And maybe, Helen, if I can ask a follow-up question on the margin front, particularly around the low-cost location or employees in the low-cost location, what percentage of our employees are currently in low-cost location and where do you think it can go over the midterm? And then what does it mean for the margins? Because you've given that a margin goal for fiscal year 2022, given you're tracking much ahead of it. is there, as you transition to lower-cost destination, could that provide upside to the margin, the mid-term margin targets? Thanks.

Yeah, no, we've continued to migrate when we look at high-cost, low-cost. And as I mentioned, it was about 2% improvement in this quarter. That's been pretty consistent. So right now we're roughly around let's call it two-thirds offshore, one-third onshore. We did actually hire more onshore. It was actually growth, and that would have been, I think, the first in a couple of quarters due to the capabilities that we were trying to build, and in some cases that can really be found more in the developed markets. So that's where you see that come through. And that was anticipated. The opposite of that, or the balance that I mentioned earlier, is that some of the roles that we thought from our investment plan that we could fill that we thought would either need to be new hires in developed countries, we were able to either fill with our own folks or, quite frankly, with folks in the lower-cost countries. Going forward, I mean, that's still going to be a driver for us. Our own productivity with or without investments was a focus, and we saw that from FY19 through now. And that's certainly part of our thinking as we were thinking about the margin that would come out in the FY22 already.

That's very helpful. Thank you. And thanks on a good quarter. Congrats on a good quarter. Thank you.

Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is now open.

Hi. Thanks. Good morning. I just want to dive a bit deeper into the ASV growth outlook. You indicated that the pipeline was healthy in the quarter and that win rates have been relatively consistent. Can you talk about how ASV growth could evolve over the next 12 months, given the high visibility there based on what you're seeing in the pipeline?

Well, I think I've been consistent, George, in saying that it's a little difficult to see more than six months out, you know, with a huge degree of confidence. So, I think we're comfortable talking about Q4 and the fact that, you know, we've definitely got the pipeline to support the range that we provided. And, you know, Q1, just bear in mind, is typically a smaller quarter for us. So I think in terms of talking about next year, you know, we may be able to give you some more visibility on that next quarter, but it's a little difficult to predict typically. And I think given the current environment, it's even more difficult to predict.

Okay, got it. And then if we dive into some of the components of the SVE, specifically just bifurcating renewal rate performance versus new business trends, can you comment on both of those and how they've progressed within the quarter?

Yeah, I think we've seen – I'll go ahead, Ellen.

Go ahead. I think what we've seen in retention is, I'm sorry for that, retention is that we've continued to see that be, as we talked about, above 95%. That's continued to be strong for the reasons that we've already outlined, as decisions can be somewhat delayed, but then we get the benefit of that as well. And new business, I think, has remained steady. So if you look over the course of the last couple of quarters, that contribution from new business has been around the same level, which is around that 2-plus percent of our total growth comes from new business. Sorry, Phil, I didn't mean to interrupt.

No worries. Got it. Thank you. Very helpful.

Thank you. And our last question comes from Keith Hosom with North Coast Research. Your line is now open.

Good morning, everybody. So over the past few weeks, you guys experienced another change at the sales level, the director's level. I think this is another change or probably a third change over the past several years. Any reason for a change? Any reason for a change in the strategy there? How should we be thinking about that?

So, you know, I'd refer you back to the 8K there. So, you know, we don't typically comment beyond that in terms of changes in leadership. But what I will say is the sales team has been executing exceptionally well. When I look at the four leaders of the Americas, the EMEA, the Asia-Pac region, and our strategic client group, between them they all have over 60 years of experience in total, so we've got a very deep bench and they're all executing at a very high level. And we've put in a tremendous amount of discipline in the sales force over the last number of years in terms of pipeline management, pricing, how we compensate folks. So I'm really pleased with how the sales force is executing and the talent we have in the team. And I'm confident in their ability to execute as we move forward. I'm not planning any changes in the organization in terms of how things are structured. I think it's working really well and it's working well with the specialty sales teams that are organized the way they are. So We're looking for a new leader there, and in the meantime, the sales leaders are reporting to me, and I'm, you know, heavily engaged with the clients. So I feel really good about the team that we have on the sales side.

Gotcha. Okay. Appreciate it. And as a follow-up, you guys are, you know, well-known for having a great servicing group of consultants. You know, you get younger kids out of college, and obviously now they're not traveling and servicing, you know, the customers, and that's obviously an inefficient role to travel. Are we thinking that perhaps those consultants are a lesser number today than they were several months ago, and as you guys travel more, you'll need to hire more? Or were you guys able to, I guess, redefine what their roles were in, you know, working more from home as opposed to traveling?

Yeah, I think it's been an evolution with that role. I mean, I was one of those consultants once upon a time. And I checked in with one of them who she'd been with us for a year, and I asked her what life was like working at home. So she's sort of at that point where she's becoming dangerous, right, in terms of how much taxes she knows. And she told me that it's been a great experience working with clients and being able to train clients and even to find in that it's even easier sometimes to engage with people over video than it might be, like, in a room full of people. So it's giving us a lot to think about in terms of, you know, how we support clients in the future. But I do think there's a way for us to continue to involve what is an industry-leading service model for our clients and just continue that great tradition for FACTS Up. So thank you for the question. Great. Thank you.

Thank you. And at this time, I'd like to turn the call back to Phil Snow, CEO, for the closing remarks.

Thank you. So I'd like to thank you all for joining us today. I'm pleased with our accomplishments year to date and our ability to pivot around the challenges and rally to be there for each other in times of need. It's undeniably been a challenging few months for us all. And as we reflect on this past quarter, it's impossible not to think of the broader events that have occurred. I want to take a moment to address that here, particularly the Black Lives Matter protests At FACSAT, there's no place for racism or discrimination of any kind, and I want to extend a special thank you to the members of our Black Business Resource Group for sharing and organizing insightful conversations over the past year, including Let's Talk About Race and the recognition of Juneteenth. I remain committed to supporting our Black colleagues and clients and to listen and learn, and I'm also committed to our overall diversity and inclusion initiatives. We've had a focused D&I strategy and effort in place since 2016, and we've come a long way cultivating a more inclusive environment. I'm proud of what we've accomplished with the launch of our business resource groups, unconscious bias training, leadership commitments, and increased investment in our retention and advancement programs for diverse leaders. And we're now stepping into the next phase of our strategy, and the company plans to significantly expand our investment in diversity and inclusion efforts with a focus on examining the processes by which we attract, recruit, support, and promote our people to ensure we're eliminating any and all bias and to make progress. We'll continue to increase diversity at all levels of the organization, and we'll do our best to work to be an agent of change. With that, I'd like to thank everyone once more for your time. If you have additional questions, please call Reema Haider, and we look forward to speaking to you next quarter. I'm afraid that ends today's call.

Thank you. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.