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spk05: Ladies and gentlemen, thank you for standing by, and welcome to the FACSET Q1 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. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to use your audience conference call, Ms. Rupa Heider. You may begin.
spk10: Thank you, Kevin, and good morning, everyone. Welcome to FACSET's first quarter of 2021 earnings call. We continue to be 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 faxit.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. 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 this morning. Joining me today are Phil Snow, Chief Executive Officer, and Helen Chan, our Chief Financial Officer. I would now like to turn the discussion over to Phil Snow.
spk15: Thanks, Reema, and good morning, everyone. I'm pleased to report that FACSA has started its fiscal year on track to meet its first half goals. We've learned a lot over calendar year 2020, how resilient our business is, how well we can work remotely, and the strength of our client relationships. The last 12 months have also served as a reaffirmation of our investment strategy in content and technology. FactSet's focus on supporting client workflows across the entire portfolio lifecycle is increasingly serving as a differentiator for us in the market, and we enter the new calendar year with increased visibility and measured confidence in our position. Our focus remains on maintaining our already high client retention, adding new clients, expanding wallet share with large strategic clients and continued pricing discipline as we seek to capture more market share. Strong execution will be key to performance this fiscal year and we are optimistic in our ability to close our pipeline. Our second quarter pipeline is higher now than it was at this point a year ago and we have proven that we can execute well. Ultimately, We provide clients with critical data that is only increasing in importance. The demand for more and more differentiated content is at an all-time high, especially on the buy side, and FactSet's depth and scale in this area place us in a solid position. We believe we offer the strongest data concordance in the industry, and this strength, coupled with FactSet's comprehensive suite of open and flexible technology solutions, are driving more engaged and actionable C-suite level conversations. Moreover, our ability to link diverse content and convert unstructured data into structured meaningful financial insights is a key differentiator for us in the industry. We are the provider of choice for many of our clients looking to scale their technology and migrate their workflows to the cloud. We further improved our content and technology this quarter with the exciting acquisition of True Value Labs, one of the strongest ESG providers in the industry. I'm very pleased with the demand we see from clients and the speed with which we're integrating this company into the FactSet ecosystem. They were already a provider on the open FactSet marketplace and one of the many ESG data providers on our platform. True Value is pioneering AI technology Their alignment with SASB and the UN SDGs combined with our existing library of content creates a powerful engine for data collection and signal creation that will certainly add value for clients across all our businesses. As we look at Q1, the growth rate for organic ASV plus professional services decelerated by 40 pips over the last three months, ending at 5%. Our research business, which primarily experienced higher growth due to stronger retention, helped support the ASV growth this quarter. The strength in research was offset by delayed decision-making that slowed our ability to close deals, as well as higher cancellations in other businesses. We also saw an increased level of activity in new business, as well as expansion with existing clients. As we've said before, the first quarter typically tends to be our smallest quarter and is not necessarily an indication of our performance for the remainder of the year. We're also pleased with improved results for both the adjusted operating margin and EPS this quarter, driven by higher operating results. Helen will walk you through the details in a few minutes. Turning to our regional segments, in America's strong retention and expansion of our research solutions with our largest clients, especially banks and asset managers, help sustain growth in this region. As we enter our second quarter of 2021, we anticipate closing on large deals within wealth, banking, and asset owners that we believe will help us stay on track to meet our first half goals. Our EMEA region contracted this quarter, largely impacted by cancellations. There is a heightened focus by the sales team to mitigate these cancellations by increasing new business with ESG as a central theme. We have plans to deploy the True Value Lamps product as a differentiated offering in this region. We also continue to see good opportunities in EMEA for our CTS and analytics solutions. In Asia Pacific, the ongoing conversations with clients around digital transformation and portfolio lifecycle are helping to build a strong pipeline across different markets. The Q2 pipeline looks strong, as some large deals, largely in our analytics business, were pushed from Q1 into Q2 as they neared their final stages of closure. We also see solid demand for CTS data feeds across the region, and our new business pipeline reflects that. We have conviction in the second quarter pipeline across all regions, stemming from the demand we see for our products, especially with our end-to-end portfolio lifecycle solutions. We are the only provider of integrated solutions that originate in portfolio research and end with client reporting. We are targeting the front office with these robust research and analytic solutions, tapping into clients' technology budgets with digital transformation, focused on thematic-based selling, especially with ESG products, and continuing to provide holistic, open, and flexible solutions. This sets us up well to meet our goals for the first half of the year. In summary, I'm proud of our team for delivering solid results this quarter. We are reaffirming our fiscal 2021 guidance. As we look at the world today, we are more confident than ever that the early investments we made in content and technology, coupled with solutions that cover the entire portfolio lifecycle, increase FACTS' value to our clients. While the short-term environment continues to be affected by the prolonged pandemic, we are taking the necessary steps to meet our goals this fiscal year. We are doing all this while maintaining cost and capital discipline across the organization. The relationships with our clients have strengthened during the pandemic, allowing us to build an even stronger Q2 pipeline than we saw at this time last year. Above all, we have an exemplary team that has demonstrated again and again its ability to execute. I'll now send things over to Helen, who will take you through the specifics of our first quarter performance.
spk12: Thank you, Phil, and hello, everyone. I'm happy to be speaking with you today, and I hope you and your loved ones continue to be safe and healthy as we enter the holiday season and end of the year. In our first quarter, we accelerated revenue growth, reflecting the momentum from our fourth quarter's strong ASV performance and expanded our operating margin. We continue to progress in our investments in content and technology, and in fact, are using a portion of the cost savings associated with the ongoing pandemic to further fund initiatives in sales and products. We are also pleased to welcome the True Value Labs team to FactSet. Given that we closed the transaction in early November, the financial impact on our results is immaterial for this quarter. The acquisition adds approximately $5 million of ASV which is included in our reported ASV plus professional services. We will exclude this amount for organic-related metrics for fiscal year 21. As Phil stated earlier, we grew organic ASV plus professional services at 5%, a slightly acceleration from the previous quarter and reflecting the seasonally slower start to our fiscal year. Gap revenue increased, by 6% to $388 million, while organic revenue, which excludes any impact from foreign exchange and acquisitions, increased 5% to $387 million. Growth was driven primarily by analytics and CTS. For our geographic segments, America's revenue grew 6%. EMEA came in at 5%, and Asia-Pacific revenue grew 10%. the regions primarily benefited from increases in analytics and CTS. Gap operating expenses grew 5% in the first quarter to $267 million, impacted by higher cost of sales. Compared to the previous year, our gap operating margin expanded by 30 basis points to 31%, and our adjusted operating margin increased by 40 basis points to 34%. These improvements are largely due to net savings from continued productivity through workforce mix and a reduction in discretionary expenses, including lower travel and office costs. These benefits were partially offset by higher spend in both compensation and technology. As a percentage of revenue, our cost of sales was 350 basis points higher than last year on a gap and adjusted basis. This result reflects increased hiring from fiscal year 20, as well as higher compensation expense for our existing employee base. Growth was also driven by higher technology spend, which includes our shift to the public cloud as part of our digital transformation and multi-year investment plan. This total was partially offset by lower third-party content costs. When expressed as a percentage of revenue, SG&A improved year-over-year by 380 basis points on a gap basis and 390 basis points on an adjusted basis. The primary drivers include materially lower travel and entertainment costs, reduced spend due to office closures, and lower facility expense, offset in part by higher compensation costs. The pandemic-related savings are helping to manage a portion of our higher spend. Over the long term, we believe a portion of these savings will become permanent. Moving on, our tax rate for the quarter was 16%, compared to last year's rate of 14%, which had included income benefits related to a change in the foreign tax rate, as well as credits tied to finalizing our annual tax returns. GAAP EPS increased 8 percent to $2.62 this quarter versus $2.43 in the prior year. Adjusted diluted EPS grew 12 percent to $2.88. Both EPS figures were primarily driven by 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, or $71 million for the quarter, an increase of 3% over the same period last year. This increase is primarily due to lower CapEx on facility spend as we have finished a portion of our office build-outs. For the first quarter, our ASC retention continued to be above 95%. We grew the total number of clients by 6% compared to our prior year, reflecting the addition of more wealth and corporate clients, an ongoing trend in our client base. Our client retention improved to 90% year over year, which speaks to the mission criticality of our solutions and the efforts of our sales teams. For the first quarter, we repurchased 132,000 shares for a total of $43 million at an average share price of $327. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. We remain measured in our outlook on growth. We also continue to monitor the factors laid out last quarter, potential delays in decision-making, tightening client budgets, and a challenging new business environment. As we begin our second quarter, we have more momentum and visibility into our business, as reflected in the size and quality of our pipeline and in our level of client engagement, particularly in their visual transformation. This is an area of competitive strength for FactSet. As we invest for long-term growth in the areas of content and technology, we are redirecting savings, driven largely from the pandemic, to fund additional hiring and sales and in the development of products, including in wealth and analytics. As noted earlier, we expect a portion of the T&E and facilities-related costs to become permanent post this pandemic environment, enabling us to offset ongoing operational expenses. Our discipline in cost management is also reflected in our continued shift in workforce mix, as well as expense rationalization with external vendors. We believe these collective actions will allow us to achieve solid results that are within our FY21 guidance ranges. We are reaffirming our guidance for 2021. With that, we are now ready for questions. Kevin, back to you.
spk05: Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Andrew Nicholas with William Blair.
spk16: Hi, good morning. Thanks for taking my questions. Really strong margin performance in the quarter, nicely above the full-year guidance range. Given you maintain the full-year guide, I was just hoping you could speak to the mix of factors driving implied step-up in expenses through the second half of the year or through the remainder of this year, mostly just wondering how much of that implied increase is investment spend versus maybe a return of a portion of those T&E costs or the facility costs you called out? Just trying to get a sense for that and maybe the cadence of spend throughout the rest of this year.
spk12: Sure. Thanks for your question. So, yes, we are pleased with how we're performing. When we think about the benefit in this quarter, it comes in part from the higher revenue growth given the strong Q4. and that's offset by both growth and expend in both compensation and technology. The salary growth comes with the new hires. We did quite a lot in Q4, and that's coming through, and that's why when they become more of a run rate, we did more in Q1, we're going to see that come through for the rest of the year, as well as our merit increases that come through. So that's why there's a bit of that cadence that we'll see come through post-Q1. And we've also been doing additional spend in sales and product hiring and development. And that's going to see that come through for the back half of the year also. I think that when we talk about the part that's going to be more permanent, that is really when we're back to an ongoing normal, whatever that's defined as, environment. But we're also going to start to lap as we get partly into Q2, but more into Q3, Q4. So that's also why from a margin perspective, perspective and we'll see that play out through the rest of the year and so that margins will reflect that as well.
spk16: Understood. Thank you. And then obviously one of your competitors announced a major merger late last month. I was hoping you could speak to one, how you anticipate the competitive dynamics in the space to evolve as a consequence of that deal and then second, what your outlook is in terms of consolidation in the sector broadly and whether you anticipate continued activity of this type going forward. Thank you.
spk15: Hey, Andrew. It's Phil Snow. I'll take that one. So, you know, what we're focused on is our strategy, which we feel really good about. So if you think about access and how we differentiate ourselves in the marketplace, so much of that is driven by the workflows that we build out around client portfolios, particularly on the buy side and increasingly with wealth. So our strategy is covering the portfolio lifecycle from research through to client reporting and what we can do there in combination with the investment we're making in digital transformation for our clients. So that's the piece of the market that, we see as being truly differentiated for FactSet, you know, along with the concordance that we offer between those portfolios and all of the data sets that we have on our platform. And we think there's some real, you know, advantages to that strategy and, you know, the agility that we have when we talk to our clients. So, you know, the consolidation of the industry has been happening for a long time. But we don't necessarily see this particular deal as something that would necessarily affect us in a negative way.
spk16: Great. Thank you.
spk05: Sure. Our next question comes from Nick with Barclays.
spk07: Thank you. Good morning, guys. I just had a question on the True Value Labs acquisition. And I think the – the cross-sell opportunities seem pretty evident. I was just curious on what this means for your ESG strategy, because I think, you know, in the past you were more ESG agnostic, I guess, just, you know, pass through other data through your system. Does this change that? Like, how should we envision, you know, what you guys are working towards in terms of the ESG team?
spk15: I'm an avid fill. I would think of this the way that, you know, we've handled some other new content sets that we've gotten into. So, we still want to be that ecosystem where the concordance that we offer and the software that we provide is a reason clients want to come to FactSet. So we have, you know, I think upwards of 20 ESG providers within the open FactSet marketplace, and I believe we've integrated about nine of those within, you know, our workstation and other workflows just based on client demand. So I don't anticipate that changing. You know, I think what we can do, you know, if we own an asset which is differentiated like True Value is we can further integrate that through, you know, through the different workflows for our clients. So we see exciting opportunities for True Value just in terms of continuing to sell it, you know, as a discrete product, which could be a feed or an API just for the signals. But then we can get it really embedded in our RMS research management solutions We can attach it to the portfolios. So I think it's going to become ubiquitous now, ESG across portfolio management. And, you know, the strength that we have with our portfolio analytics products is that, you know, you can really configure the groupings, the columns, you know, the things that you want to know about your portfolio. And getting this data in there, I think, will be exciting for our clients and something that, frankly, they're all going to be demanding and needing to do in the future. Got it.
spk07: And maybe just if you could give us an update on Open FactSet. You know, I guess it's been a while, just maybe some metrics, how things are going there.
spk15: Yeah, it's been an evolution. So we continue to add lots of alternative data providers to Open FactSet, and you can easily go and look at those now through the FactSet website. We've got the whole library of data that we have up there. You know, the The strategy is evolving, you know, as we go and as we learn more in terms of what clients are wanting. You know, the way I would describe Open FactSet now is not just necessarily that you're accessing alternative data providers, you know, in a modern research environment, but it's really the opening up of FactSet's technology stack. So we continue to deploy more and more APIs so that those that want to come into the FactSet environment ecosystem and create value either with content or technology are able to do that. So we do see some momentum both in the alternative data providers and how much we're able to monetize that, as well as the use of APIs. The use of APIs has actually been driven mostly through the analytics group so far. So all of the power of PA that clients are used to through the workstation is they're now able to take those APIs and plug them into their own, you know, technology stacks and workflows if that's something that they wanted to do. So it's a big piece of our strategy, and I think, again, it's one that differentiates us when you think about FactSet and how we go to market and how we work with our clients.
spk05: Got it. Thank you, guys. Our next question comes from Tony Kaplan with Morgan Stanley.
spk09: Thank you. Phil, just touching on that digital transformation strategy point, I know you just mentioned the APIs, but maybe you could talk about where you are on the move to cloud, how much is sort of left to go, and what are the, just in general, biggest opportunities encompassed within this digital transformation theme? Because I know you've talked about your clients going on this process as well. So is there a way to sort of quantify it, or is this more about taking share versus others as you sort of personalize things? Just anything from a product or strategy or positioning standpoint would be helpful. Thank you.
spk15: Sure. Yeah, so one metric that could be useful is how far we've come in terms of moving to the public cloud. We said a year or so ago that our plan was to be 80% in the public cloud by the end of the original three-year plan, which would be seven quarters from now. And we're now 35% of the way there. So that's something that we're measuring very closely. Of course, there are lots of other ways to measure that, but I think that's a good one to keep track of. I'm talking these days, Tony, to more CTOs and CIOs than I have around their entire workflow and what it is they're doing from a technology standpoint. These are our largest clients. So one thing that our strategic client group and our other regional teams are doing with our larger clients is sitting down with them, really understanding the opportunities that are there and some of the pressures, frankly, that the clients are facing and regarding their own digital transformation. And we're having very open conversations with our clients about their entire workflow, their technology stack. We help blueprint that for them. And then we really overlay FACTSAT's capabilities across their entire workflow to help them understand how we can help them consolidate the number of providers that they deal with in the marketplace. So the very largest clients You know, over the years, I've dealt with hundreds of providers, whether they're technology or just content providers. And they're being forced, I think, to choose, you know, who are the one or two firms that we really want to tie ourselves to for the future as a platform, and then how do we get that list of hundreds of providers, maybe cut it in half even, right? So that's something that we're spending a lot of time with our clients on. And this is one of the things that I'm most excited about, particularly, you know, as we look at the second half of our year in terms of the pipeline and really trying to get, you know, deals that are in the millions of dollars into that pipeline around this theme for our clients.
spk12: Maybe, Charlie, I can just add, you know, a couple of things that we look at internally in terms of measuring costs. is a little behind the scenes, but we're making good progress in terms of content automation and the speed. So we're measuring the speed of when we're integrating and the collection around the speed and processing. And those are important pieces because that is part of our digital transformation. That is, again, behind the scenes that we measure and track as well.
spk09: That's great. And, you know, it sounds from the comments in both the press release and in the earlier in the call that you sound like you have more conviction in what's going on in the market and the pipeline being robust and the investment strategy is sort of in the line of what your clients need. So just wanted to help understand, bridge that versus your guidance is still sort of calling for further deceleration in ASV by the end of the year. I know last quarter you talked about the large deals. Is that mainly the real bridge between that? Because it sounds like you have some momentum right now that you're expecting coming. I just wanted to understand why the decel. Thank you.
spk15: Yeah, we're certainly anticipating a strong Q2, as I outlined in my comments. And I think as we get through Q2, we'll have even more visibility on the second half. I've spoken before that sometimes it's difficult to have a really high degree of confidence more than six months out. But if we feel there's an opportunity to – you know, change any of our guidance, Tony, I think the best time for us to do that would probably be in March after we've gotten through Q2 and we've got more visibility on the second half pipeline.
spk12: Got it. Thank you. Yeah, especially, Tony, as you think about the back half is always our bigger half. So, you know, we have greater visibility, but, you know, our things, we're continuing to track like the larger deals. They can, they can, they, some moved from Q1 to Q2, as Phil talked about. So, I think it's reflected in our wider range in terms of our – so we have confidence, but it's reflected in our wider range.
spk09: Excellent. Thanks again.
spk05: Our next question comes from Hamza Mazari with Jefferies.
spk11: Hi, this is Mario Portolacci filling in for Hamza. With the growth in your new customers, I think you said 6%, I just wanted to maybe see if you can give us an update on the Wealth Channel and And maybe you can actually help us have some perspective on the mix of the size of the clients in that pipeline. I know you've talked in the past about having chunkier opportunities and large opportunities in wealth. Does that make up the overwhelming majority of that pipeline? Or are there a lot of smaller wealth players that you can tap into? And has the mentality shifted in that space as we get much further into COVID?
spk15: Yes, hi, Phil. So you're right in that there are some bigger, chunkier deals that are out there, and those are usually binary, and we continue to see a lot of enthusiasm from the marketplace around larger wealth deals and are exploring those moving forward. And we do see a high volume of smaller wealth deals as well. So with the combination of those two, plus the business that we have around digital, which is part of the wealth business line that we report out on. So there's a good healthy mixture across that. You know, what we do see, you know, just in terms of the market on the wealth side is, you know, an increasing demand for more sophisticated tools for wealth advisors. You know, we think that, you know, that human element of wealth is still going to exist. I don't think it's going to be completely automated yet. But, you know, the clients of wealth are going to demand, I think, more insight from the wealth advisors moving forward and more of a personalized touch. So we're excited about some of the product that we have coming to market. You know, we've released a new advisor dashboard product, which we have a lot of opportunities for in the pipeline. That really does a great job of organizing a wealth advisor's day. So we're able to sift through you know, the hundreds or thousands of portfolios, you know, that are wealth or millions of portfolios that a wealth shop is managing and really help a wealth advisor understand, you know, what she may or may not need to do that day in terms of an order of priority in terms of dealing with her clients. And some of that's just good old fact set software. Some of it's also the increased use of cognitive computing to highlight some of those things for our clients. So, This is an area that we're excited about. It's an area of the market, I think, where we have some tailwinds and one that we're just going to continue to invest in.
spk12: And Mario, this reflects one of the outputs from our digital transformation project, so I'll call it a bit of a proof point.
spk11: Great. Thank you. And then just one more, and then I'll turn it over. Just on the true value acquisition, you touched on the opportunity a little earlier, but maybe you can talk about how it's differentiated. You have other competitors that are a little more qualitative. You have ones that are quantitative. I mean, where does true value sit in the competitive environment? And then also, it sounded like you also have 20 maybe plus ESG providers or vendors that On your platform, I guess, why did you choose True Value over one of the other ones?
spk15: So True Value was one of the first ESG providers to leverage machine learning and artificial intelligence in its collection process. So I would say it's more on the quantitative side now. So what the product does is it combs through unstructured text and looks for signals that within that unstructured test using cognitive computing, which we're very excited about. So it was kind of a two-part acquisition. It wasn't just the ESG signals that True Value was creating. It was the technology that they also were using, and this is technology we believe we can apply to other parts of our business.
spk11: Great. Thank you.
spk05: Our next question comes from David Chu with Bank of America.
spk06: Hi. Thank you. So just in terms of pricing, have you made any concessions during the COVID for customers that have had tough times during the period? Hi, David.
spk15: It's Phil. A few months ago, there were certainly a few clients that we spoke to that anticipated they were going to have some difficulty moving forward. So there were a couple of cases, you know, where we dealt with some of our clients to do what FactSet does best during these periods, which is really think about the long-term relationship, you know, understand what our clients are going through, and in some cases adjust for that. So, you know, typically, you know, it'll end up being a win-win, you know, for some shorter-term clients. concessions or conversations will also, you know, negotiate in terms of what that means for the longer term relationship. And that worked exceptionally well for us, you know, over the last 20 years when clients are going through these types of issues. As I mentioned in the script, I think there's a lot more conviction in the markets now and a lot less uncertainty for all of us as we enter calendar year 2021. So I don't anticipate that we'll be having many more of those conversations.
spk06: Got it. That's helpful. And what are you hearing about client market data budgets? I'm just wondering if COVID is having a material impact or is it going to be a relatively normal year?
spk15: I believe it's going to be a relatively normal year. Just going back to the comments I made, you know, around Tony's question is, you know, the clients are looking to consolidate their technology and and data into a lower number of providers. And in some cases, that may be a lower spend for them as they face their cost pressures. But even in those cases, we are well-positioned to take market share. So when you sit down with a client and you're able to provide a holistic solution for them over the longer term, that can end up being a win-win. If they can see ways to be more efficient and we can see ways to help them for the long run and improve you know, the amount of wallet share that they spend with us, that's good for both the client and the fax office.
spk06: Got it. Makes sense. Thank you.
spk01: Our next question comes from Kevin McVeigh with Credits Lease. Great. Thanks. Hey, Phil, you mentioned that kind of the demand for differentiated data has never been higher, but then it sounds like your third-party content costs were down in the quarter. Is that just some of the tech transformation or just any thoughts as to, so I would think more differentiated data would mean maybe more investment, but it seems like the third-party content costs, you've been able to manage them pretty well. Any thoughts around those two dynamics?
spk15: Well, our entire content costs are third-party content, so things we may get from other providers. But they also, you know, we also spend a lot ourselves on technology, on content and investing in content. So, you know, I don't think the amount that we're investing, for example, in deep sector or private markets would necessarily be represented in that third-party content number. But, Helen, do you have more color on that?
spk12: Yeah. I'm happy to answer that. So we manage our budget pretty tightly. I would say we have more content set providers, but we've been very judicious in making sure that we're rationalizing them appropriately as well. So that might be in the form of price. That might be in the form of where we have duplication that we're doing it more efficiently. The actual number of content providers have increased from a third-party perspective. Okay.
spk01: It's helpful. And then just as you think about ESG from a client perspective into 2021, do you feel like you have the data set you currently need, or would there be maybe more tuck-in acquisitions? It seems like that's going to be an area of more focus, particularly amongst U.S. clients than what 2020 was.
spk15: There'll be more demand, so whether it's, you know, a third party that we're able to integrate through the marketplace or through the workstation or, you know, if there are other assets out there that make sense for us to own directly, we'll look at that. But I think you're right. That's the trend that we anticipate we'll have more of it on TaxEd. And that's one of the beauties of our platform is that, you know, people love the concordance and the fact that they can come into one environment and get everything in one place and apply – you know, software to those different content sets.
spk01: Thank you.
spk05: Our next question comes from Shlomo Rosenbaum with Spiegel.
spk14: Hi, good morning. Thank you for taking my questions. Phil, maybe you could give a little bit more detail on some of the ASG drivers and, like, where you saw some cancellations and some of the things that were comments that were in the press release about, you know, wealth management and analytics being slower growth versus the research product being faster. It's a little bit counter to what I kind of expected and what's actually driving the revenue right now. So I thought maybe you could give us a little bit more detail on what's going on.
spk15: Sure. So hopefully you can hear me above the landscapes that are outside my window right now. Okay, good. So, yeah, those are relative numbers to last year's FOMO. So we're, you know, I think we're minus seven, and last year we might have been minus three for Q1. So, you know, the research numbers were down. As they typically are in Q1, you'll see some turnover there in terms of the banking relationships. It's just the retention was higher than it was last year. We did see a little bit more weakness in analytics, and wealth than we did in Q1 of last year, and CTS kind of held in there pretty well. So, again, it's a small quarter. Those are relative numbers in terms of what's affecting the growth rate. I think, you know, what we see as we look out for Q2, which is typically a much bigger quarter, is probably going to be a better indication just from an absolute contribution standpoint, which of our businesses are going to be driving the rest of the growth in the first half.
spk05: Okay.
spk14: Then just could you talk a little bit about the selling environment? You've talked a lot about high confidence and the fact that your salespeople are doing so much more remotely, you know, is that hampering anything at all? And I guess if you'd kind of level set, you know, the growth has been, you know, fairly the same over the last several quarters, you know, within several tens of basis points. Do you think if we were not in a covert environment and your salespeople were out there meeting people face to face, the growth would be higher? Just trying to get some sense as to understand what kind of environment you feel like you're in.
spk15: I believe, you know, it would have been higher, you know, over the last six to nine months, just intuitively. Moving forward, though, I think we're probably getting to equilibrium. It's easier to sell the smaller clients in a short-term environment as we learn how to operate. So I think some of the momentum you're going to see probably in Q2 is related to research and CTS, the core workstation and the feeds business. But as we look out for the rest of the year, you know, we're learning how to interact with clients. As I mentioned, like these blueprinting exercises, we're able to do those virtually. And typically those are more analytics heavy, right, in terms of the workflow going from research all the way through to client reporting. So FactSet and our clients have been learning at the same time. And I do think we're going to reach a nice equilibrium in terms of being able to effectively monetize, you know, some of the products that are more sophisticated and have a longer sales cycle.
spk02: Okay, thank you.
spk05: Our next question comes from Alex Cram with UBS.
spk13: Yeah, hey, good morning, everyone. Just quick follow-up on the question just prior. On cancellations in particular, can you give us a little bit more detail of what you're seeing, what type of clients, and also what kind of services and why, and I think you highlighted EMEA as particularly an area of elevator cancellations, if I heard that correctly. So again, same question. What exactly are you seeing there? Like what type of products, what type of clients in the region?
spk15: There were a couple of lumpia cancels in EMEA, Alex, that I believe were hedge funds. Helen, I don't know if you've got any more detail on that.
spk12: Yeah, I think that's right. I mean, this is a low quarter, so when you have something that cancels out, it becomes more impactful. So we had, I would say, two clients that are in that hedge fund space with a reduction. So that will make that impact more this quarter than maybe in a typical quarter. And I think what we talked a bit about is the slowdown in decision-making. So often we would have had new wins, probably offsetting that as well. But I wouldn't say there's a concentration in any particular type of our businesses in the cancellation. If anything, the one that Phil talked about earlier is that in research we saw better than in previous years, or at least previous year, in terms of cancellation levels.
spk13: Okay, fair enough. And then just another quick one. On deep sector, I don't think you gave us an update today. I think you've been at this journey for, what, two years or so now? Any updates on take-up? But also, any more specific numbers you can put around this at this point in terms of how much it does contribute to ASV as this, I think, should be one of your growth areas going forward?
spk15: We're about 15 months in, Alex, to this initiative, and we're very pleased with what we've been able to accomplish on the product side. So the team's fully built out, and we're well on our way to delivering two or three of those sectors in great detail. So where you're going to see that show up at the beginning is in the research numbers. So it's going to help with retention, particularly on the banking side, And over time, I believe it's going to help drive new adoption across all types of clients. And we're also going to be able to monetize this data in feeds. So we'll be releasing pretty shortly some deep sector feeds that would show up in the CTS number.
spk13: Very good. Thank you. Thanks.
spk05: Our next question comes from Ashish Sabhadra with Deutsche Bank.
spk08: Thanks for taking my question. Maybe, Helen, a quick clarification. Did you provide the cost savings from lower T&E because of the ongoing pandemic, if there's a way to quantify that?
spk12: Sure. And are you talking about longer term? Are you talking about this quarter specifically?
spk08: Yes, just a quarter.
spk12: Yeah. So in this quarter, I would say it's sort of a continuation of what we saw last year. So I would say it's around a point of savings if I just look at it from purely year-over-year. That being said, we did, as we know, use that to help cover some of our higher expense as well in both compensation as well as high technology expense.
spk08: That's helpful. And then, Helen, also on the longer term, how should we think about this permanent reduction going forward?
spk12: Yeah, well, that's in a normal environment. That's a little bit of a hard one that we are looking when we get back into that, and that will be beyond this year. We think that's around 25, maybe 50 points. Let's compare that to 2019 in a more normal environment. Then I would say that's where the benefits of APC come through. We would look to that, whether that comes purely in funding some of our New initiatives and that, that will be seen. That's where I think we'll see some more permanent structural change.
spk08: That's very helpful. And maybe a quick clarifying question on the headcount growth in sales and content, particularly on the sales side. I was wondering if you could provide any color on any geographies or verticals or products that you're more focused on on the sales front. And same on the content side, is it part of the deep sector strategy? Any color on both those fronts? Thanks.
spk12: I'll take a little shot at that. So as we think about on the sales front, I think Jeff mentioned this earlier and also talked about in our last call, it is in an area that we believe we have a lot of opportunities. So in CTS, for example, where we've invested more on the sales front, also in new business and corporates. is another area, so it's not necessarily any particular geography. It's much more where we feel that we had some good opportunities and to reach our resources in that area. On the content side, I think that is in a couple of different places. ESG is obviously where we put the most, but also I think in the areas of private markets is where we're also spending more of our investments.
spk08: That's very helpful.
spk05: Thanks.
spk12: You're welcome.
spk05: Our next question comes from George Kong with Goldman Sachs.
spk02: Hi. Thanks. Good morning. I wanted to drill in a bit deeper into the selling environment. You provided some details on cancellations in the quarter. Can you elaborate on where you're seeing longer sales cycles and how client budgets are evolving on average year over year?
spk15: George, you know, I think I talked about that a little bit. with Shlomo. So the sales cycle for our analytics suite, when we do the portfolio lifecycle and sit down with a client to talk about their entire digital transformation, you know, that can be a six month plus exercise. Whereas, you know, sales cycles for just deploying facts at workstations or feeds are probably getting shorter, frankly, just because it's so much more efficient to do things virtually.
spk02: And then the question on client budgets, how are those evolving on average year over year?
spk15: We don't have, you know, visibility into client budgets exactly on what they're, you know, clients typically won't share that with us at that level of detail, so it's really hard for us to give you an accurate number.
spk12: Got it. Okay. I think you can also think of it in two pieces. There's the, you know, BAU on the business budget and there's the foundation budget. digital transformation budget. And so where we feel exactly right, we don't ask them for a percentage number or anything like that, but they have clearly a name more also in that second budget, and that's where a lot of the conversations that Phil was alluding to in collecting the CIOs, that's where that is more focused on.
spk02: Got it. That's helpful. And just as a follow-up question, customer count in the quarter grew faster than ASV, similar to earlier periods. And you noted that you've been seeing more more wealth and more corporate clients. Can you elaborate on the spending propensity of these clients relative to other types of clients?
spk15: The spending propensity of smaller clients? Is that your question?
spk02: The spending propensity of wealth and corporate clients, which appear to be growing faster than other types of clients.
spk15: I think those are typically smaller clients that we sell, George, so... You know, those are, I think, typically with a smaller client, you know, they're able to make a decision more quickly. And on the corporate side, you know, I think typically we've seen that sales cycle to be pretty short, again, because it's going to be a workstation-type deal rather than a broad analytics conversation that we might have with an asset owner or an asset manager.
spk05: Got it. Thank you.
spk15: Awesome.
spk05: Our next question comes from Jake Williams with Wells Fargo.
spk03: Good morning, everyone. Good morning. Can we assume that this true value lab acquisition indicates an increased focus on owning data in the CTS space as opposed to reselling? Or do you think you'll take more of a continued hybrid approach moving forward?
spk15: Well, this is just a continuation of the last few decades. So, fact set. you know, has a lot of proprietary data that we collect ourselves and half of our employees are in the business of collecting or engineering the collection of content. So, you know, true value is really very small compared to the overall, you know, content budget or strategy that we have. It's a very good, you know, indication of something that we can act on that's with a current trend. But, you know, it's going to be like it's been for the last 10 or 20 years in terms of us integrating more and more data onto our platform, either through third parties, through data that we collect ourselves organically, or through acquisitions. It's hard to draw any real conclusions from such a small acquisition.
spk03: Got it. Thank you very much.
spk05: Our last question comes from Keith Houston with North Coast Research.
spk04: Good morning, guys. Just wanted to go down a little bit further on a true value acquisition. I know you had a lot of questions already, but the run rate here is $5 million. So I guess the first question is, is that pretty much all the revenue that comes with true value? And then does this give you the foothold you need in ESG, or do you need to do a tack on acquisitions in order to make this a bigger part of your business and part of your strategy going forward?
spk15: Well, it's an asset that we're very excited about. You know, I think you got the number right, and it's one that's growing in very healthy double digits. So we think we can, like, you know, some other unique contents that we've acquired over the years. The Revere dataset was a good example. We believe we can get, you know, a really amplified return for unique content like this if you integrate it through the FactSet platform. ESG is going to be a big trend. We believe it's going to continue, so we'll keep our eye out for other things that we believe it's important for us to own. But more importantly, we want to be that platform where people come to analyze the data if they want it, not just get it, you know, through a feed or an API exam, for example. But apply what FactSet does really well, which is concord the data together and provide an environment where clients can, you know, really analyze the data the way that they want to.
spk04: Gotcha. And then changing gears on you slightly here to your guidance, how much of your guidance is depending in terms of going back to work sometime during the fiscal year? Or what is your assumption in terms of returning back to work during the fiscal year? I don't think it's – oh, go ahead, Helen.
spk12: No, no, it's good. We can say the same thing. I don't think anything has changed. At this time, we were assuming that maybe it's more of a back half a year and more of a return. And that's probably more from Todd's perspective than it would necessarily be from the top line. We think we're operating quite well remotely. And also, you know, from the way we've been performing in the last three quarters.
spk04: Great. Thank you.
spk05: And I'm not showing any further questions at this time. I'd like to turn the call back over to Phil Snow for any closing remarks.
spk15: Thank you all for joining us today. I'm encouraged by the conversations we're having with our largest clients and the continued progress our team has made on our investment plan. I look forward to executing on a robust pipeline and to continuing to help our clients solve problems and access critical data anytime, anywhere. While the prolonged uncertainty makes our annual performance, as it has been in the past, a tale of two halves, we remain focused on developing our content, technology, and people while as well as delivering value for our shareholders. Please be well this holiday season, and if you have any additional questions, call Reema Haider. We look forward to speaking to you next quarter. Operator, that ends today's call.
spk05: Hello, ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a wonderful day.
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