FactSet Research Systems Inc.

Ladies and gentlemen, thank you for standing by and welcome to the FactSet Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Who asks a question during the session will be to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to introduce today's conference call, Ms. Rima Hyder, Vice President of Investor Relations. You may begin.

Thank you, Kevin, and good morning, everyone. Welcome to FactSet's Fourth Quarter 2020 Earnings Call. We continue to be in various remote locations today, and if we have any audio quality issues, we certainly 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 website on the investor relations section of our website at factnet.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 to investors. To be fair to everyone, please limit yourself to one, that's one 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-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, Chief Financial Officer. I would now like to turn the discussion over to Phil Snow.

Thanks, Reema, and good morning and good afternoon, everyone. First, I hope everyone is healthy and continuing to do well. And when we started this fiscal year, none of us, I think, could have anticipated what we'd be faced with over the last six months. And I really couldn't be prouder of our team's performance and its resolve to be there for our clients as we all quickly adapted to new ways of working. Our resilience and ability to execute over the last three months meant our client-facing teams, armed with an expanding suite of products, achieved the highest quarter of incremental ASV in our history. We finished our fiscal year having delivered 40 consecutive years of top-line growth and 24 years of adjusted EPS growth. I'm pleased with how our digital transformation efforts are supporting this growth and increasing our ability to build personalized solutions for our expanding client base. Earlier this year, we partnered with Forbes Insights to survey 200 asset managers and asset owners from around the globe to better understand where they stood with their digital transformation programs and how they're leveraging next-generation technologies. And according to the results, 75% of executives believe their firms need to invest more in technology initiatives, and also 69% of executives believe that businesses are facing more competitive pressure than in the past as customers expect higher and more personalized levels of service. A successful digital strategy includes having a scalable cloud foundation, a modern data layer with best-of-breed content, streamlined processes, the use of cognitive computing, and a personalized client experience. This is the journey we ourselves are on as an organization. It makes us stronger, and more importantly, it will help our clients get to where they too are going. We believe we're making tremendous progress in our initiatives, and we were widely recognized by the industry in 2020 with numerous product awards for solutions that cross every aspect of our business, including best data provider to the buy and sell sides and best buy side analytics tool from Waters Technology. This past year, we executed well against the first year of the investment plan we laid out back in September of 2019. On the technology front, we've made significant progress on our move to the public cloud, and we have announced plans to migrate our real-time ticker plant to Amazon Web Services. This migration will create the first global ticker plant of its kind in the cloud. We also opened up many more APIs, creating new ways for clients to ingest, process, and program against our data and analytics. We added more industries to our deep sector program, made progress on our private market strategy, and executed on our wealth investments, expanding coverage of our street account offering in both Asia-Pac and Canada. We remain committed to our multi-year investment plan for both content and technology and believe continuing to invest now is the best long-term strategy. Turning to our results, we continue to execute well against our second-half pipeline, resulting in a strong fourth quarter. Our ASV growth rate accelerated 45 basis points to over 5%, and we maintained our margins as well as grew EPS for the quarter. Both the Americas and EMEA's growth rates accelerated, with both regions seeing strong contributions from our largest institutional asset management clients. Private equity venture capital and hedge fund clients also drove growth in the quarter, helped in large part by our increasing private market content. Asia-Pac continues to be our fastest growing region, even though our business in the region saw a fair amount of challenges this year due to the effects of the pandemic. We saw some bright spots in Australia and Singapore. particularly with sovereign wealth funds, and we believe we have good opportunities next year as the recovery proceeds, especially with our premium products, such as reporting and trading solutions. Looking at things globally, I'm happy to say that all our businesses contributed to the fourth quarter growth. The greatest contributions year on year were from wealth and analytics. Analytics grew 7% and was the biggest contributor to overall ASV. This business saw strength in our performance, reporting, fixed income, and risk solutions, And we believe these products will continue to benefit us as we go into 2021. CTS, the second biggest contributor, grew at 13% thanks to continuing demand for core data feeds. And we're confident that this business will maintain its high growth rate as we head into 2021, especially as we develop new content and broaden our distribution channels. Wealth continued to execute well on its pipeline with a well-distributed number of wins across various client segments and sizes, resulting in a 9% growth rate, and research saw increased retention this year and benefited from our investments in our industry-specific or deep sector content. We're particularly pleased to see the growth of this business remain stable at 1%, with a well-balanced client base that includes asset managers, asset owners, sell-side research, corporates, and portfolio managers. In summary, I'm pleased with our performance in fiscal 2020, and proud of our team, which has executed well across all areas of our company. Our business model combined with our strong liquidity and balance sheet position us well to continue to manage through uncertain markets. We believe our focus on providing solutions aimed at our clients' own digital transformations and an unwavering commitment to expanding our library of smart, connected content is a winning strategy that is delivering results. As our survey showed, digital transformation efforts are an increasingly integral part of our clients' businesses. In fact, it is supporting its own growth by accelerating our clients' journeys through technology innovation. We also have a strong and experienced sales team focused on deepening client relationships and further diversifying our client base. For these reasons, we remain confident that the execution of our investment plan, along with continued product innovation, open and flexible solutions, and retooling our workforce to adapt to a virtual environment will help us return to a higher growth rate over time. Having said that, we approach our 2021 guidance and future higher targeted growth with necessary caution. We do not yet know the full extent of the impact to our clients as it relates to the pandemic, and we acknowledge risks remain, such as delays in completing complex deals and challenges in client retention as budgets tighten. We are therefore viewing the new fiscal year carefully with projected ASV plus professional services growth anticipated to be in the range of $55 to $85 million. Helen will take you through the details of our 2021 guidance in a few moments. Just to wrap up, you know, we enter fiscal 2021 with a sense of excitement. We're in a period of accelerated innovation within our industry as clients look to differentiate themselves and be ever more efficient. There's a great opportunity for us to work in new ways, and create new products to improve the experience of both our clients and FactSetters around the globe. You'll now hear from Helen, who will take you through the specifics of our fourth quarter and four-year performance for 2020.

Thank you, Phil, and hello, everyone. I'm happy to be speaking with you today, and I hope you and your loved ones are safe and healthy. I want to echo Phil's sentiments on the strong performance by the FactSet team. Their efforts are clearly reflected and our full year results. Our financial results in 2020 proved the strength and resilience of our business model, the critical value of our content, and the strength of our client relationships. At the start of the lockdown in March, our team quickly pivoted to focus on helping clients and ensure they were able to operate productively from remote locations. We were rewarded with continued loyalty as reflected in our client and ASV retention rates. Since the first quarter of 2020, we accelerated our growth rate in ASV plus professional services through solid execution of our second half pipeline, crossing over the billion five dollar mark and exceeding our most recent guidance for the year. Building upon our operational improvements in 2019, we continued greater productivity through workforce mix and disciplined expense management. We executed on our investment plan adding needed talent and technology. Savings and costs related to the pandemic contributed to our results as we managed deliberately to keep our employees safe and productive while working remotely. Our team's notable efforts led to an adjusted operating income improvement of 6%, an adjusted operating margin expansion of 40 basis points to 33.6%, and an adjusted EPS growth of 9% to $10.87. primarily driven by higher operating earnings and supported by a decrease in our tax rate. We are really pleased with our four-year results, especially amid the unexpected challenges of the coronavirus pandemic. Let me now walk you through the specifics of our fourth quarter. As noted on the previous slide, we increased ASB by more than 5% year over year, reflecting strong retention across our client base and continued realization of cross-selling opportunities. Before I explain the quarterly results, please note that our fourth quarter GAAP results were impacted by a one-time non-cash charge, an impairment of an investment in a third party of approximately $17 million. GAAP and organic revenue increased by 5% to $384 million and $383 million, respectively. Growth was driven primarily by analytics, CTS, and wealth. For our geographic segments, Americas and Asia-Pacific revenue each grew 6%, and the MIA grew 5%. The regions primarily benefited from increases in analytics, wealth, and CTS. GAAP operating expenses for the fourth quarter totaled $285 million, a 13% uptick over the previous year, mainly impacted by the one-time charge. our GAAP operating margin decreased 490 basis points to 26%. Without this charge, our margin would have largely been in line with last year at 30%. Adjusted operating margin decreased by 70 basis points to 33% versus last year. These results also reflect a positive impact of 34 basis points due to favorable foreign exchange rates. Aside from the one-time charge, GAAP expenses for the quarter include our planned investments in technology and and in new talent and capabilities, and will offset by net savings from continued workforce mix, productivity, and a reduction in discretionary expenses, mainly due to pandemic-related savings. As a percentage of revenue, our cost of sales was 180 basis points higher than last year on a GAAP basis. On an adjusted basis, our cost of sales was 260 basis points higher, driven by technology spend, which includes our shift to the public cloud as well as our multi-year investment plan. This total was partially offset by lower data cost spend. Higher SG&A expenses are largely responsible for the decrease in our gap operating margin as the investment impacted the SG&A and gap margins. When expressed as a percentage of revenue, SG&A increased 310 basis points over the prior year period on a gap basis. On an adjusted basis, the SG&A expenses decreased by 180 basis points year over year. The drivers include materially reduced travel and entertainment costs, as well as office-related spend due to office closures and restricted travel. As some of our offices have started to open, we expect a portion of this spend to resume. Moving on, our tax rate for the quarter was 7%, compared to last year's 16%. This unusually low tax rate was primarily due to higher exercises of stock options resulting in a tax benefit. Excluding these exercises and one-time items, our tax rate would have been 18%. We have estimated an amount for stock option benefit in our tax rate guidance for fiscal 2021, but as you have seen this year, timing and the amount of stock option exercises can cause large variances versus our estimates. GAAP EPS decreased 2% to $2.29 this quarter versus $2.34 in the prior year. Without the one-time charge, our GAAP EPS would have increased 16% to $2.71. Adjusted diluted EPS grew 10% to $2.88. Both EPS figures were primarily driven by the lower tax rate and improved operating results. A 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, less capital spending, was $145 million for the quarter, an increase of 52% over the same period last year. This increase is primarily due to the timing of certain tax payments and lower capex on facility spend. On a full year basis, Free cash flow grew by 16% despite higher capital expenditures on facilities. For the fourth quarter, our ASV retention continued to be above 95%. We grew the total number of clients by 5% compared to our prior year, reflecting the addition of more wealth and corporate clients. Due in part to the focused and successful efforts of our sales team, our client retention improved to 90%. For the fourth quarter, we repurchased 82,000 shares for a total of $27 million at the average share price of $349. We remain disciplined in our buyback program, and the amount we purchased in part reflects the high performance of our share price this year. For the full year, we repurchased $200 million of our shares and increased our dividends for the 15th consecutive year. We remain committed to returning long-term value to our shareholders. Turning now to our outlook for fiscal year 2021. We operate in an environment that is in need of greater digital capabilities and differentiating solutions, which presents numerous opportunities for SACSET. For that reason, and given the solid progress we have already made, we remain confident in our strategy of investing in content and technology and in our ability to drive growth with our clients and to operate efficiently. The current environment also gives us less visibility due to pandemic, economic, and political factors that may well have an impact on our clients' budgets for next year. Therefore, we remain cautious as we start our new fiscal year. I still mentioned, and as you can see in our press release from this morning, we expect ASB plus professional services for the year to increase between $55 and $85 million over fiscal 2020. The remaining metrics listed on this slide all stem from our ASV ranges and reflect our planned investments. We will continue to execute at the same pace in content and technology as outlined last September. We believe momentum in our businesses from fiscal 2020 will carry us into fiscal 2021 with a number of tailwinds, including the strength in our analytics business as clients add our front office solutions, performance and risk, and APIs to their workflows. as well as continuing demand for our core data feeds and wealth tools. Additionally, we expect high client retention to continue and will serve as a solid base for research, buoyed by the continued demand for expanded content coverage in deep sector and private markets. As highlighted earlier in the year, I want to give you some details of the external factors we think may impact our top-line growth for 2021. First, delays in decision-making could cause longer sales cycles. While we built a strong pipeline and converted it with solid execution in 2020, we did experience situations in which larger and more complex deals required additional reviews, lengthening the time to close, especially in this virtual environment. We expect this may continue in 2021. Second, client budgets may tighten. The majority of our clients will finalize their 2021 budgets towards the end of this calendar year. Depending on the speed of a vaccine and economic recovery, clients may be cautious in their outlook and reduce or delay their spend. And third, a prolonged pandemic and virtual environment may slow new business growth. The strength of our sales force and our value proposition converted into key wins this year, proving that we can sell virtually. However, as pandemic-related uncertainty blunts decision-making, we acknowledge that clients may take longer to switch providers and it may take more time to build new relationships virtually. These same factors impact our visibility when we consider the 2022 targets laid out last September as part of our multi-year investment plan. While we maintain strong conviction in our ability and to achieve our milestones and solutions, capabilities, and savings, We would need greater visibility in order to reaffirm our 2022 targets, which we are unable to do so today. We have modeled multiple scenarios, including one with an economic recovery that supports our 2022 growth objectives. We believe that we have the right team and right products to see our growth objectives materialize. However, we must continue to weigh the factors I just mentioned, and as time goes on, to see the timeline of our growth targets that may shift from 2022 to beyond. In closing, our team rose to the many challenges that our industry, our clients, and our world faced this year. We posted our highest ASV quarter ever amid a global pandemic and marked 40 years of consecutive growth. Our core strengths served us well. Stable business model, strong liquidity, valued solutions, and laser-focused client service. The results are top-line and earnings growth, increase in retention, commitment to investment, and growth in our client and employee base. I'm confident that our strategy and team will continue to help us manage successfully through the challenging environment and generate long-term value for our shareholders. With that, we are now ready for your questions. Over to you, Kevin.

Ladies and gentlemen, if you have a question or a comment at this time, please press the start and the one key on your touchtone telephone. If your question has been answered, you wish to move yourself in the queue, please press the pound key. Our first question comes from Kevin McVey with Credit Suisse.

Great, thanks. Hey, so you made a comment. You said the highest quarter incremental ASV growth in the company history. Can you kind of just frame the puts and takes around that? Specifically, it looks like on the research side, you know, that's seeing a little bit more momentum there. Is that just structural change around COVID or some of the early benefit of the multi-year investments? Just any thoughts on that would be helpful.

Sure. Hey, Kevin. So, yeah, it was broad-based across all of the businesses in Q4. It was very strong. Research, I think, was comparable to what we did in Q4 of last year. We did see You know, decent hiring in the banks. I think many people were concerned that that was going to be significantly lower, but we saw, you know, pretty good strength there. Analytics had a particularly strong quarter. We talked about that earlier in the year where, you know, some of the investments we made previously around the portfolio lifecycle were really starting to gain momentum. So we did great with our performance system, which was really the result of the acquisition of BISM integrated with PA. and also our reporting system, which was the Vermillion acquisition. So a great quarter from analytics. CCS had a very good quarter, better than Q4 of last year. You know, our hopes were to grow CCS a little bit faster this year, but we did have less salespeople, I think, than we needed at the beginning of the year going into 20, which we've corrected going into 21. And wealth had a really good quarter relative to the last Q4. So all businesses grew, you know, firing on all cylinders, and the sales team did a tremendous job of executing on the pipeline that we had laid out at the beginning of the second half. That's helpful.

And then, Helen, real quick, you know, and the expense management continues to be really, really effective. Any thoughts on, you know, just any structural savings, maybe on the travel side or occupancy and, does that allow you to share more with the market or accelerate, you know, product development? Just any thoughts around that? I know it's still early, but, you know, you've got a couple quarters here.

Yeah, no, thank you for that question. And it's definitely an important one. You know, right now, given our fiscal year end, we have this situation where we have half a year of non-COVID, half a year of COVID, right? And so as we think about the go forward, we have, A, proven that we've been able to sell virtually very effectively, and, D, we have to obviously take into account how our client's behavior is. And so when we think about the go forward, we do assume that we are going to go back to the offices sometime in the second half for us, but also that there will be some level of change, and that is built into our numbers. Now, that is in part. We are, I'll say, reinvesting some of that back into the business, not all of it, but that is part of when we gave our guidance for FY21 built in. So we do think that there are some, you're calling it structural change, but there will be some level of difference of how we just operate as a business that is taken into consideration.

Thank you.

You're welcome. Thank you.

Our next question comes from Charlotte Rosenbaum with Steeple.

Hi, good morning. Thank you for taking my questions. Hey, Helen, can you talk a little bit about the pipeline and what you're seeing just as you kind of the cadence of sales running through the quarter and into the first quarter? Just to give a little bit more color on the support for kind of the accelerating organic growth rate that you're expecting over the course of the year.

Sure, I'm happy to touch on that. So I think as mentioned by Phil, if we think about our different businesses, in particular, for analytics, one of the benefits we've seen over the course of 20, which we think will continue into 21, will be along the lines of expansion, for example, with the reporting and risk and performance. We have found that those who have our core analytics solution within a certain period of time do have those add-ons. So that expansion is happening, and so We think that will just continue to build as we go forward. From a CTS perspective, as Phil mentioned, we have additional sales resources, for example, so we think that positions us better, and that will reflect itself into 21. And then what we're really building into our minds here as it relates to both research and wealth is that solid retention. It is in part buoyed by the investments that we've made, and we would expect that to continue. And, you know, we're not looking for any large deal to necessarily be part of what's going to help us succeed in 21.

Okay, great. And then just give me a little color as to the ASV growth rate seems to be an expectation, at least for the year, is lower than the revenue growth rate. I'd look at that as kind of a leading indicator. You know, ASV grows faster in an improving environment, and it would decline faster in a slowing environment. Why is that different now?

Sure. So there's a little bit of the nature of ASV and revenue, which you hit upon. But when you have a very strong, say, Q4, right, so you're not really recognizing that revenue in the year. You recognize it really in the following, let's say, you know, the next 12 months. So there's a little bit of a lag effect that can occur because you're not going to see that all in there. So that's really what we're seeing here when we're talking about the growth rate. It's the impact from the previous year that's showing through into the subsequent year.

Okay, thank you.

You're welcome.

Our next question comes from Hamza Masraidi with Jefferies. Good morning. Thank you. My question was just on AsiaPAC. You know, it's been continuing to outperform. I know you mentioned sovereign funds, but maybe anything you can touch on in terms of the mix of that business or execution? I guess it's a small base. Do you envision that business being as big as the U.S. over time? Just sort of any thoughts there would be helpful.

Sure. Hey, Hans, it's Phil. So, yeah, Asia-Pac, you know, had a slower year of growth than we were expecting, but we do think that it will return to a higher growth rate this year. It was the first region to get affected by the pandemic. You know, we did see particular strength in a couple of different countries, and we see, you know, a lot of good momentum going into next year. So I don't think that's sort of a long-term trend in terms of Asia-Pac not growing at rates that it used to grow at. In terms of it getting back to, you know, over time to the size of the U.S., I mean, it is only around 10% of our business today, so it certainly has a lot of potential. I think, you know, Asia-Pac is a great market if you're an active manager. There's a lot of opportunity on the wealth side there, so we're very bullish on it, but it would take, obviously, a long time for it to get to the size of the U.S. But, you know, I think we've been consistent over time saying we think, you know, our And the Buff Asia Pack business could be, you know, 50% of our ongoing revenue at some point. And I think we're beginning to get close to that now.

Got it. And then maybe if you could just update us on – You know, you laid out the multi-year investment plan. Just in terms of timeline of that initiative, you know, clearly we're looking at ASV bounce back, which is, you know, sort of a milestone to judge success maybe of that program. But just maybe just update us on the timeline of that initiative and if there's been any change sort of due to COVID. I know you mentioned the sales cycle, but any thoughts there would be helpful. Thank you.

Sure. So we're on track. We have not changed, you know, our plan. So the three-year plan that we laid out, we're still committed to. So the broad buckets, which were digital transformation, which include, you know, a move to the public cloud, opening up the platform through APIs and more personalization, you know, all of that continues to do well. On the content side, we committed to deep sector private markets and some investments for the wealth clients. We did really well this year with the deep sector strategy, so we had significant releases in three sectors, and we believe that, you know, that led to some very good retention, some clients that worked that we were doing there. We've secured a lot more content providers to kind of fill out new sectors that we're working on, and we have a full team of sector specialists for each of the different sectors that we had for the three-year plan. So, you know, like any plan, you'll make some tweaks here and there. You know, so the plan itself, the overall strategy, the pace at which we're investing, none of that has really changed.

Got it. Thank you.

Our next question comes from Tony Chapman with Mortgage Family.

Thank you. First, I actually just want to confirm the ASV guidance range because I think the press release at the low end had $55 million, but On the slide, I think it said 65, so I just wanted to make sure I have a good handle on what the bottom end is. But my main question, though, is really, you know, you had a pretty nice acceleration in ASV last quarter to 5%, this quarter again to 5.3%. So, so far, you're really not seeing, you know, the COVID impact that I think I would have thought. But then... On the guidance being lower, it sounds like maybe it's just it hasn't happened yet. So just wanted to understand, is it really conservatism, or is it something that you're seeing in your data, maybe in the retention rates or in something that's leading to sort of the slowdown? Thank you.

So, yes, the low end should be 55, and I believe – That's already been corrected in the deck, so we'll get that posted. So, yeah, the range here is 55 to 85. Okay. So, yeah, we've been very successful, Tony, at selling virtually. So, you know, I'm very proud of the team, and I think we're very confident that we can sell FACSAS and support it and implement it virtually, and we're not sure how long that's going to go on. I think, you know, there's a couple of things here. We are always very back-end loaded in terms of ASV, and sometimes it's hard to have visibility into the second half of the year. And this is a year where I think we would all agree that there's more uncertainty, more things that could happen. So, you know, we're trying to put a good number out there for you. If we need to adjust to the second half, we can as we get more visibility. You know, the one area that I think we're a little bit you know, just not worried about, but thinking carefully about, is how do we get the much larger deals teed up over the year? Like, can we do as many of those as we did in fiscal year 20? We're able to do them. It's just a question of, are the clients themselves and the end markets going to be willing to make, you know, those large decisions? So, as we get closer to the end of the year, we'll understand how clients are looking at their budgets. Um, you know, because we're an August company, that's a little bit different, but I think we're going into the first full budget cycle for clients, you know, since COVID began. So we're just not sure how that's going to play out exactly. Uh, you know, what I can tell you is that we have a comparable pipeline going into FY21 as we had going into FY20. Um, And, you know, like I said, if we need to revise our guidance at the mid-year mark, we will, but this is, I think, the range that we felt was appropriate, sort of, given what we know today.

Okay. That's helpful. And I wanted to ask about CTS. You know, obviously, you know, it's still a double-digit growth rate, but it is down from the, you know, 15% last year, 20% in prior years. You know, I think just in terms of expanding need for data and things like that, I thought were sort of, you know, positive tailwinds for that segment. And so just wanted to understand, you know, it's a good number, but, you know, can you get back to 20% range on that line? And were there any specific drivers of the slowdown this year to get to that number?

Yeah, I believe we can certainly grow this at a faster rate. And as you mentioned, all the trends in the market are there. It really is a tailwind. You know, I believe we're growing this business faster than, you know, most of the competitors are for the type of data that we're selling. So I think we're doing well and taking market share. And we sold a lot of our core content. So as we develop more of these content sets and we've made a significant investment in content, You know, recently we're going to be able to have more SKUs on the shelf to sell, you know, to our clients. You know, one area that didn't come in as quickly as we thought it might this year was the APIs. So traditionally clients have consumed FaxHead content through feeds, you know, really just files. We have built a lot of APIs for clients to sort of pull the data in and program it directly. We believe that is a winning strategy. It just didn't come to fruition as quickly as we thought it might. We've built out a lot more sales channels through, you know, other enterprise software providers and through our strategic partnerships and alliances team. So I believe it will be our fastest growing segment for some time. And we've got, you know, a lot more specialists selling CTS going into FY21 than we had going into FY20. I do think, you know, that somewhat limited us, but it's a very specialized sale. and if you don't have enough people to sell it, it can slow down the growth rate.

Great. Thank you.

Sure.

The next question comes from Owen.

Good morning, and thank you for taking my question. Could you please give us an update on your wins in some nontraditional sectors for FACSAT, like insurance and real estate? And also, could you please talk about the value prop of them and why they're switching over to FACSAT? Thank you.

Sure. Thanks for the question, Owen. Let me talk about insurance. So we do very well in the asset owner space. We grew that type of client this year, I believe, in high single digits. And we did have a lot of success with insurance companies, particularly in the fourth quarter. And usually the insurance companies are going to be using our analytics suite. So we'll be selling into the general fund. Typically they'll be subscribing to our multi-asset class risk solutions. So as we continue to build out our capabilities there, that's resonated greatly with the insurance companies. So that is a space we're very bullish about. We don't do a lot with real estate companies today. That is an area that we're investing in. So maybe that's something we can talk about at a future call.

That's great. Very helpful. And then the follow-up question is you talked about Asia Pacific decelerated a little bit, but I also realized that EMEA accelerated from 3.7% to 5.7% lean quarter. Any color you can provide? What's your driver for that? Thank you.

Yeah, we had a great quarter, a great year in the EMEA region. Analytics and CCS were big drivers there. We did very well in some of the very largest accounts in the region. And the UK sales team actually really crushed it this year. So we had a very good performance out of the UK. And we did well with redistributors as well. So we do have a segment of our business that you know, goes out to other FinTech companies or other consumers of financial data other than the buy side and sell side, and that team had a very strong year.

That's very helpful. Thank you very much.

Sure. Yep. Our next question comes from Bill Wormington with Wells Fargo. Good morning, everyone.

Morning.

So I know that the contracts can vary from client to client, but Could you talk about how, for the majority of your revenue, potential seat reductions could impact or wouldn't impact your revenue?

Sure. I'll take that one. Oh, go ahead, Phil.

No, you go ahead, Helen.

It's fine. Yeah. So just to address it quickly, which is when you think about our contracts, like you said, they all varied and varied. They are multi-year in nature, so that's point one. The second point will be that many of them, especially the larger ones, which is probably where your question is focused on, we have minimums and then we also have tiers. So I think from the perspective of a number of users, yes, that may change over time, but it would have to be something more material for any kind of impact, more specifically as it relates to how our contracts are set up. Now, I'm giving you a general answer, Bill, but that is how we would think about it and probably the way it would play out.

That's helpful. The other question I have for you is really one where I was just doing some, we're doing some calculations earlier today, and if we take the ASVU segments as you have them now and we take the growth rates that you have done this past quarter, or sorry, this past year, And you just run those out for like the next three years. The challenge is it doesn't move the ASV growth very much. I mean, it takes it from like, you know, the 5.2, 5.3% growth to about 6%. And the challenge I'm facing is I'm trying to figure out, like, how do you get it to the upper single digits which is where that 40% is – sorry, that 60% is growing now. How do you get the whole company up to that level?

Well, the big, you know, the big move as far as still is CTS and analytics. So we have to execute on those two in particular. And I think, you know – it's seat count as well. So how well do we do in capturing more seats in the wealth and research space? So, you know, when we laid out our plan, we have, you know, a theory where we can move each of these pieces of our business to a higher level, and some have more opportunity than others. But that's really the theory is how quickly can each of them get to the growth rates that we think that they can attain. so as a group get to the high single-digit number that we outlined for you last year. Got it.

All right. Well, thank you very much.

Thank you.

Our next question comes from the now fatneck with Barclays.

Good morning, guys. So maybe somewhat tied to this prior question, you know, you talked about there was no pace in the change of your investments. And, you know, earlier in the call, you talked about how all the clients and almost everyone we listen to is going through this accelerated digital transformation and so on and so forth. And I was just curious, you know, your thought process and perhaps why maybe you guys didn't decide to accelerate, you know, given all the trends that are seen there.

You mean investing more, Alex? Yeah, investing more and faster or so forth. Yeah, we certainly could do that. I think, you know, we have – this is an ambitious investment plan that we have, and it's, I think, good to, I think, see how it goes, essentially. So I think we're very encouraged with the investment that we've made so far. And, you know, if it proves that some of these things, you know, produce higher growth rates than we originally imagined, we could certainly consider that. So, you know, we have tweaked some things. And there also is, you know, there's only so much capacity I think we have to execute on some of this stuff, you know, at a certain rate. So that's another potential limiting factor.

Okay, fair enough. And then just to follow up, you know, on the content side, you know, the deep private sector expertise you're talking about, could you just remind us or give us a flavor of, you know, where you're sourcing that data or how you're collecting that data and how much of it is, you know, more proprietary versus just a partnership to resell the data and so forth?

Yeah, it's a combination of partnerships and us collecting data ourselves. So, I don't know if we've been completely public about, you know, some of the sources we have, so I want to be a little bit careful there. But it is a very healthy mix. You know, one of the big kind of rocks within our digital transformation strategy is to automate a lot of our own content collections. So, you know, we have a very good machine for collecting content, but if we were to set up our company all over again today, we'd probably do it in a different way. So we're making that transition, and as we get further along with that journey, I think we'll be able to source more of this data ourselves that can come from, you know, a wider variety of documents and more unstructured content as well.

And Manav, just to add, yeah, just to add, part of it is having content and part of it is the concordance with everything else that we have, which is a differentiating factor and an important one. So I wanted to sort of keep that in mind as well.

Okay, thank you both. Excellent.

The next question comes from Alice Cram with UBS.

Yeah, hey, hello, everyone. Just wanted to put a couple of these pieces together that you talked about. I may be stating the obvious, but since you took the guidance away for 2022, which is understandable, I think that was mostly an ASV comment, right, in terms of top-line growth. But as some people have noticed, you're also basically saying the investment continues to go forward. So, you know, there was a margin guide that was 33% plus in 2022, and I assume that was predicated on getting to that higher growth, and that drives the margin expansion. So if we're not getting that growth, I assume those margin targets are off the table for now, and we're seeing probably more at these levels. Is that a fair assumption?

Hey, Alex, it's Helen. Thanks for that question. So since we're not commenting specifically on that, I'm going to hedge a little bit. But I would say if you take a look at the trend of what we've done in terms of 19, 20, and 21, I would expect us to continue to see some of the productivity and efficiency gains. And yes, for sure, the margin is impacted by the revenue growth. That's math. But we would still be executing very well against the operational improvements that we've done thus far.

Okay. And then maybe just to finish on margin, a little bit more near term on 2021. I know it's a difficult year to model, but... A, any seasonal stuff you would point out as we should be thinking about it from a quarterly basis? Again, maybe related to when things reopen, but how you would be thinking about it. I think you said maybe it was a 180 basis point that COVID was a margin benefit 2020. For 2021, did you say how much of a margin benefit COVID you are building in to the model today?

Yes. So let me touch on that. So for seasonality, normally our business isn't that seasonal per se. So the difference would be savings that comes from some of the continued office close or lower T&E, as you suggest. So the back half of the year is where we would see more of that resume. In terms of the impact, keeping in mind that given our fiscal year, we had half a year of and 20 that are under the situation, and let's call it a half a year in 21 that's under that situation. And the impact in both is roughly, you know, around 1% on a net basis for both the savings that we get from office savings as well as C&E, but also offset by some of the expenses we're going to have to take in terms of business continuity and ensuring that our employees are able to work effectively from home.

All right. That was clear. Thank you.

Thank you.

Our next question comes from Andrew Nicholas with William Blair.

Hi. Good morning. It seems like you were particularly successful growing the wealth business in the quarter as a primary driver of ASV growth, user count, client count. I was just hoping you could speak a little bit more to the growth in the period, what type of clients you were able to bring on board, and the extent to which there were any notable wins in the period that are worth calling out.

Well, I would say for the year, you know, we had a very broad-based success with wealth. You know, there were some much larger deals that we were shooting for that, unfortunately, we weren't able to capture in the year. But we did capture, you know, three significant wins, you know, with some marquee names in three different countries. And we also did very well executing on sort of smaller and medium-sized wealth shops. So we're really encouraged, you know, in terms of the products. and the service level, I think we've proven that just from the feedback from the marketplace. And we also had a good year with our digital business. So for those of you that remember, we made an acquisition a few years ago, and we had a relatively good year there with our digital solutions. So overall, I think Wealth just continued to execute well, you know, throughout the entire year. And in one particular case, I think really took advantage of some of the digital transformation that we've been doing where we're able to unpack different views from fact sets and plug those into a client ecosystem rather than just taking, you know, the traditional fact sets experience through the web or through the workstation.

Great. Thank you. And then just as my follow-up, the conversation around ESG and ESG data seems to be growing with every passing quarter. So I was just kind of hoping you could talk a bit about how you're capitalizing on that, trying to fact set and, and how material of an opportunity that can be within, you know, content and technology solutions. Thanks.

Yeah, we view that as a significant future opportunity. Today, you know, we integrate a lot of the best of 3DSG content that's out there, either through the workstation or through the Open SACSET marketplace. So if you go to open.sacset.com, you can see we've got, I think, over 100 now providers of alternative data grouped by theme. And the most popular theme, and I'm guessing the one with the most contributors in it, is ESG. So, you know, FACTSA has always been great about taking everything that's out there, putting it in one place, providing great analytics and service. That's the current approach we're taking with ESG. But we're certainly taking a very careful look at what we can do ourselves, you know, from a proprietary standpoint. to take advantage of the trend that's out there. Great. Thank you.

Our next question comes from David Shuler, Bank of America.

Hi. Thank you. So when you introduced the three-year accelerated investments, the idea was to get roughly like 25% of revenue benefit in fiscal 21 with the remaining in fiscal 22. I'm just wondering if that's what's embedded into your guide and what that means in dollar terms.

Thanks for your question. I think from the perspective of how we're looking at it, those 25 and 75 was obviously based off of what we thought we would be able to continue to do under normal conditions. It is some of the benefit that comes through from the investments. It comes through in the form of retention as well as new logos. So I think from the view of giving an exact dollar, that's not how we think about that, but rather that it is supporting the overall growth in 21. I think the benefits will come across all businesses, but given where we are in the different investments, research gets some of the earlier benefits from that, and we'll see that come through on the digital side into analytics and CTS going forward.

Okay, great. And then, you know, CTS remains quite strong. And just wondering, who are the primary, like, users here? Just wondering if they're mainly quants and what your thoughts on the sustainability of that user base might be.

So you're right that a very large percentage of what we traditionally sold was to clients, you know, either through feeds or through other mechanisms. But we do sell a lot of data into performance systems, other systems. When clients are doing application development, they need a lot of content to do that. So there are multiple workflows that we sell to. We also, you know, sell real-time feeds. It's a smaller piece of what we do, but we do have a good offering there. And we're currently looking at, you know, all of the different addressable market for us on the feed side. So as we enter FY21, we've sort of taken a fresh look, you know, at CTS and where we were pointed. And we're still going to do very well in quant, but we are ramping up the focus on some areas that we can sell feeds to that traditionally we hadn't spent as much time focused on. Great. That's very helpful. Thank you.

Sure. Our next question comes from Hafiz Salvador with Deutsche Bank.

Thanks for taking my question. Maybe just a question on the M&A pipeline. How are you thinking about any acquisition opportunity? It's been a few years since we've really seen any acquisition per se. Thanks. Do you want to take that one, Helen?

Sure. I'm happy to do that. Thanks for your question. So we, as you can tell from our solid liquidity and balance sheet, we have the capacity to to do so, and we've initially chosen to continue to invest in organic as a way of building our growth. But we continue to analyze acquisitions that support our strategy in content and technology, and that we want ones that have the adequate returns that exceed our hurdle rates. As you can guess, the market's pretty floppy, and from the perspective of evaluation, we continue to look at that in every one of our decisions as we continue to look at many of the opportunities out there. We agree that having some inorganic growth will be very helpful to support our overall longer-term growth, but we are going to remain disciplined in making sure that we get those adequate returns. The positive here is that we have plenty of liquidity to be opportunistic, and we'll continue to look to do so.

That's very helpful, Kala. And maybe just to follow up on the earlier question on the P22 targets, Where do you see, like in your scenario analysis, where do you see which segments or which end markets or maybe which geographies do you see the biggest variances as you think about the 2022 target and color that you can provide? Thanks.

Sure. I'll take the first shot on that. So when we think about the scenarios that help support that, and as Phil sort of talked through before of what will happen to help even in getting to our upper range in the FY21. When we think about the factors, right, which include those exogenous factors of delayed decisions, of new business being done virtually, as well as budgets, those all have to work more in the favor of a – I'll call it a normal environment, although what normal is is probably still a bit unclear – But having more confidence, just like with the markets, the more confident there is in the future, the more that our clients will have confidence in their spend. We know that our products are resonating. We know that they fit the trends and the needs of what they need to be productive on their end. But that confidence in the future and their own markets will allow for them to work with us and for us to be able to reach the market. in the scenario that I outlined, to reach back to where we believe our original strategy is meant to take us in the long term.

That's helpful. Thanks.

You're welcome. Thank you.

Our next question comes from George Tong, Goldman Sachs.

Hi, thanks. Good morning. You talked about being cautious with your AFC outlook due to potential economic, political, and pandemic-related risks. Can you elaborate on recent client sentiment and spending intentions and whether you're actually seeing some of those risks manifest in what clients are saying?

Okay, George, it's Phil. So, you know, we saw a little bit of that in Q4 even. So, you know, I believe we would have had an even stronger, you know, second half if it hadn't been for the pandemic. And, you know, I've been on some calls myself. particularly with clients that feel like they're under a lot of cost pressure, right? So they're obviously thinking about their own futures, their own employees, and what it is they want to do. So, you know, we've been navigating through it. I think it's already happening. But again, you know, I think a lot of companies are, you know, budget towards the end of the calendar year. And that's the one thing that we think we'll get sort of more of as we get to the end of the year. And we'll you know, and as people get more visibility themselves on how they've operated during this period and how long they think the pandemic is going to affect them.

Got it. That makes sense. And then switching gears to margins, you're not reaffirming your fiscal 2022 margin target of 33% because of less operating visibility. Can you talk about whether this reduced visibility comes from unknown ASV growth, which can, obviously impact margin flow through, or if it reflects potential changes in what or how much you plan to invest in, since presumably you have more control over investment levels and more control over margins.

Yeah, that's a good question, and you are correct as we think about where we've got more control and visibility. So right now we intend to continue to invest at the pace that we talked about last year. So that we have the levers, so to speak, if need be. But really, since it's all around revenue growth being higher than spend growth, expense growth, that's really why we lack that visibility at this juncture. But our intent is to continue to invest at the pace that we outlined a year ago.

Got it. Very helpful. Thank you.

You're welcome. Our last question comes from Keith House with North Coast Research.

Good morning, guys. Question for you on the operations. You know, you guys have proven that you're able to sell virtually, but yet your models are traditionally high-touch, you know, consultants visiting customers often. You know, coming out of the COVID pandemic, is there any expectation that the business model may change and you're able to cut back on some of the high-touch T&E that you guys do?

I keep the answer. So, yeah, we've been doing in-type sales now for six months. So I'm really intrigued by, you know, how can we be more efficient at selling, you know, the higher volume type sales of the smaller type clients without necessarily having, you know, facts that are sort of fly around the globe. But I do think for the larger firms and the more complex deals, there is going to have to be that element of sort of being in front of the clients, talking to them about, you know, their overall strategy and building those relationships face-to-face. So it's not going to go away, but like every other company, we're going to rethink carefully our business model, you know, how we work with our clients and also how we work as a company. So I think it presents more opportunity than not, honestly, and I've been very encouraged from what I've seen with the sales force and how they've been able to execute during the last six months.

Okay, got it. So just to see if I can clarify your pipeline expectations as of now, because I think that we heard several different comments, is that the pipeline is equal to the size that it was perhaps a year ago, but maybe you're not seeing as many large deals in that pipeline as of now, and it's certainly probably not as strong as it was, you know, at the end of the second quarter. Is that a good summary of how you see the pipeline right now?

It's a comparable size going into the year as it was last year, and, you know, the deals – filled up and we've gained more confidence in those deals as the year goes on. So, you know, the one area that I think we're just hesitant about and need a little bit more time with is can we, you know, build up that pipeline of the larger deals for the second half the same way that we were able to do that in the first half of last year.

Great. Thank you. Yep.

I would now like to turn the call back over to Phil Schmuck for closing remarks.

I'd like to thank you all for joining us today. I'm pleased with our team's and company's performance this year and the strong progress we have made on our investment plan. We're excited for this new year as we continue to expand our offering and equip our team and our clients to operate successfully in this environment. I'm confident we will capture further wallet share and secure additional client wins. And importantly, we remain committed to investing in our people, our clients, and communities to create long-term value for our shareholders. With that, I'd like to thank you one more time for your time, and 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. Ladies and gentlemen, you may now disconnect and have a wonderful day.