Factset Research Systems Inc (FDS) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the FactSet Q1 Earnings call.

(Operator Instructions)

I would now like to introduce your host for today's conference call, Ms. Rima Hyder, you may begin.

Thank you, Kevin, and good morning, everyone.

Welcome to FactSet's First Quarter 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 factset.com.

The slides will be posted on our website at the conclusion of this call.

A replay of today's call will be available via phone and on our website.

After our prepared remarks, we will open the call to questions from investors.

(Operator Instructions)

Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures.

Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements.

Our slide presentation and discussions on this call will include certain non-GAAP financial measures.

For such measures, reconciliation to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier this morning.

Joining me today are Phil Snow, Chief Executive Officer; and Helen Shan, our Chief Financial Officer.

I would now like to turn the discussion over to Phil Snow.

Thanks, Rima, and good morning, everyone.

I'm pleased to report that FactSet has started its fiscal year on track to meet its first half goals.

We've learned a lot over calendar year 2020, how resilient are businesses, 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 life cycle 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 places 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 in technology this quarter with the exciting acquisition of Truvalue 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 are 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.

Truvalue 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 bps over the last 3 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 Americas, strong retention and expansion of our research solutions with our largest clients, especially banks and asset managers, helped 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 Truvalue Labs' 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 life cycle 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 near 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 life cycle solutions.

We are the only provider of integrated solutions that originate at portfolio research and end with client reporting.

We are targeting the front office with these robust research and analytics 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 life cycle increase FactSet's value to our clients.

While the short-term environment continues to be affected by the prolonged pandemic, we've taken 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 turn the things over to Helen, who will take you through the specifics of our first quarter performance.

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 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 Truvalue 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 FY '21.

As Phil stated earlier, we grew organic ASV plus professional services at 5%, a slight deacceleration from the previous quarter and reflecting the seasonally slower start to our fiscal year.

GAAP 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 segment, Americas revenue grew 6%, EMEA came in at 5%, and Asia Pacific revenue grew 10%.

The regions primarily benefited from increases in analytics and CTS.

GAAP operating expenses grew 5% in the first quarter to $267 million, impacted by higher cost of sales.

Compared to the previous year, our GAAP 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 GAAP 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 multiyear 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 GAAP 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 has included income benefits related to a change in the foreign tax rate as well as credits tied to finalizing our annual tax return.

GAAP EPS increased 8% to $2.62 this quarter versus $2.43 in the prior year.

Adjusted diluted EPS grew 12% 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, was $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 ASV 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 team.

For the first quarter, we repurchased 133,000 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 budget 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 digital 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 in sales and in the development of products including in wealth and analytics.

As noted earlier, we expect a portion of the T&E 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 FY '21 guidance ranges.

We are reaffirming our guidance for 2021.

With that, we are now ready for questions.

Kevin, back to you.

(Operator Instructions) Our first question comes from Andrew Nicholas with William Blair.

Really strong margin performance in the quarter, nicely above the full year guidance range.

Given you maintained 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 to a portion of -- 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.

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 a strong Q4 and that's offset by both growth and spend in both compensation and technology.

The salary growth with -- comes with the new hires we did quite a lot in Q4, and that's coming through.

And that's why when they've become more of a run rate, we did more in Q1, but we can 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 into -- partly into Q2, but more into Q3, Q4.

So that's also why, from a margin perspective, we'll see that play out through the rest of the year.

And so that margins will reflect that as well.

Understood.

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?

Andrew, it's Phil Snow.

I'll take that one.

So what we're focused on is our strategy which we feel really good about.

So if you think about FactSet 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 life cycle 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, 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 advantages to that strategy and the utility that we have when we talk to our clients.

So we -- 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.

Our next question comes from Manav Patnaik with Barclays.

I just had a question on the Truvalue Labs acquisition.

I think the cross-sell opportunities seem pretty evident.

I was just curious on what this means to your ESG strategy because I think in the past, you were more ESG agnostic, I guess, just pass-through other data through your system.

Does this change that?

Like, how should we envision what you guys are working towards in terms of the ESG theme?

Manav, it's Phil.

I would think of this the way that 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, I think, upwards of 20 ESG providers within the open FactSet marketplace.

And I believe we've integrated about 9 of those within our workstation and other workflows just based on client demand.

So I don't anticipate that changing.

I think what we can do if we own an asset, which is differentiated like Truvalue, is we can further integrate that through the different workflows for our clients.

So we see exciting opportunities for Truvalue just in terms of continuing to sell it 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 portfolio.

So I think it's going to become ubiquitous now, ESG across portfolio management.

And the strength that we have with our portfolio of analytics products is that you can really configure the groupings, the columns, 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.

And maybe just if you could give us an update on Open:FactSet.

I guess it's been a while, just maybe some metrics, how things are going there?

Yes, 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.

It's -- we've got the whole library of data that we have up there.

The strategy is evolving as we go and as we learn more in terms of what clients are wanting.

The way I would describe Open:FactSet now is not just necessarily that you're accessing alternative data providers 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 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, they're now able to take those APIs and plug them into their own technology stacks and workflows, if that's something that they wanted to do.

So we're -- 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.

Our next question comes from Toni Kaplan with Morgan Stanley.

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.

Sure.

Yes.

So one metric that could be useful is how far you'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 3-year plan, which would be 7 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, Toni, 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 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 FactSet's capabilities across their entire workflow to help them understand how we can help them consolidate their -- the number of providers that they deal with in the marketplace.

So the very largest clients -- over the years, I've dealt with hundreds of providers, whether they're technology or just content providers.

And then being forced, I think, to choose who are the 1 or 2 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 as we look at the second half of our year in terms of the pipeline and really trying to get deals that are in the millions of dollars into that pipeline around this theme for our clients.

Maybe, Toni, I can just add, a couple of things that we look at internally in terms of measuring 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.

That's great.

And 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?

Yes.

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 6 months out.

But if we feel there's an opportunity to change any of our guidance, Toni, 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.

Especially, Toni, as you think about the back half is always our bigger half.

So we have greater visibility, but our things we're continuing to track like the larger deals, they can -- some moved from Q1 to Q2, as Phil talked about.

So I think it's really -- it's reflected in our wider range in terms of our -- so we have confidence that it's reflected in our larger range.

Our next question comes from Hamzah Mazari with Jefferies.

This is Mario Cortellacci filling in for Hamzah.

With the growth in your -- the 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 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, the large opportunities in wealth.

Does that make up the overwhelming majority of that pipeline?

Or are there are 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?

Yes.

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 it's a combination of those 2, 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.

What we do see, just from -- in terms of the market, on the wealth side, is an increasing demand for more sophisticated tools for wealth advisers.

We think that human elements of wealth is still going to exist.

I don't think it's going to be completely automated.

But the clients of wealth are going to demand, I think, more insight from the wealth advisers moving forward and more of a personalized touch.

So we're excited about some of the product that we have coming to market.

We've released a new adviser dashboard product which we have a lot of opportunities for in the pipeline.

That really does a great job of organizing a wealth adviser's day.

So we're able to sit through the hundreds of thousands of portfolios that our wealth -- or millions of portfolios that our wealth shop is managing and really helped a wealth adviser understand 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 is just good old FactSet 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.

And Mario, (inaudible) one of the outputs from our digital transformation projects.

So that gives you a, I'll call it a bit of a proof point.

Great.

And then just one more and I'll turn it over.

Just on the Truvalue 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 Truvalue sit in the competitive environment?

And then also, it sounded like you also have 20 maybe plus ESG providers or vendors on your platform.

I guess why did you choose Truvalue over one of the other ones?

So Truvalue 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, Mario.

So what the product does is it comes through unstructured text and looks for signals within that unstructured text using cognitive computing.

So this -- which we are very excited about.

So it was kind of a 2-part acquisition.

It wasn't just the ESG signals that Truvalue 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.

Our next question comes from David Chu with Bank of America.

So just in terms of pricing, have you guys made any concessions during the COVID for customers that have had some tough times during the period?

David, 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 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, understand what our clients are going through and in some cases, adjust for that.

So typically, it will end up being a win-win for some shorter-term concessions or conversations will also negotiate in terms of what that means for the longer-term relationship.

And that worked exceptionally well for us 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.

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?

I believe it's going to be a relatively normal year.

Just going back to the comments I made around Toni's question is the clients are looking to consolidate their technology and data into a lower number of providers.

And in some cases, that may -- and 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 that's -- when you sit down with the client and you're able to provide a holistic solution for them over the longer term, that can end up being a win-win.

They can see ways to be more efficient, and we can see ways to help them for the long run and improve the amount of wallet share that they spend with us.

That's good for both the clients and FactSet.

Our next question comes from Kevin McVeigh with Crédit Suisse.

Phil, you mentioned that the 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 we 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 2 dynamics?

Well, the -- when we -- our entire content costs are third-party content sets, so things we may get from other providers.

But they also -- we also spend a lot of ourselves on technology -- on content and investing in content.

So 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?

Yes.

So I'm happy to answer that.

So we manage that budget pretty tightly, and there's a lot of scrutiny around it.

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.

That'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 just -- it seems like that's going to be an area of more focus, particularly amongst U.S. clients than what 2020 was?

There'll be more demand.

So whether it's a third-party that we're able to integrate through the marketplace or through the workstation or 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, and we anticipate we'll have more of it on FactSet.

And that's one of the beauties of our platform is that people love the concordance and the fact that they can come into one environment and get everything in one place and apply software to those different content sets.

Our next question comes from Shlomo Rosenbaum with Stifel.

Phil, maybe you can give a little bit more detail on some of the ESG drivers and like where you saw some cancellations and some of the things that were -- comments that were in the press release about wealth management and analytics being slower growth versus the research product being faster.

It -- would it be counter to what I kind of expected and what's actually driving the revenue right now?

So thought maybe you can give us a little bit more detail on what's going on.

Sure.

So hopefully, you can hear me about the landscapers that are outside my window right now.

Okay.

So yes, those are relative numbers to last year, Shlomo.

So we're -- I think we're minus 7%, and last year, we might have been minus 3% for Q1.

So 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.

And we did see a little bit more weakness in analytics and wealth than we did in the 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 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 our businesses are going to be driving the rest of the growth in the first half.

Okay.

Then just could you talk a little bit about the selling environment?

You've talked a lot about high confidence in is the fact that your salespeople are doing so much more remotely.

Is that hampering anything at all?

And I guess, if you kind of level set, the growth has been fairly the same over the last several quarters within several tens of basis points.

Do you think if we were not in COVID 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?

I believe it would have been higher over the last 6 to 9 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.

So they are the core workstation and the feeds business.

But as we look out for the rest of the year, 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 the 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 some of the products that are more sophisticated and have a longer sales cycle.

Our next question comes from Alex Kramm with UBS.

Just quick follow-up on the question just prior, on cancellations, in particular.

Can you give us a little bit more detail 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 elevated 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?

There are a couple of lumpy cancels in EMEA, Alex, that I believe were hedge funds.

Helen, I don't know if you've got any more detail on EMEA.

Yes, yes, I have the -- Yes.

No, I think that's right.

I mean, this is a low quarter.

So when you have something that cancels, Alex, it becomes more impactful.

So we had, I would say, 2 clients that are in that hedge funds space reduction.

So that will make impacts more this quarter than maybe in a typical quarter.

And I think what we talked a bit about is the slowdown in decision-making to often what 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.

And then in research, we saw better than in previous years, at least previous year in terms of cancellation model.

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 2 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 an area -- one of your growth areas going forward?

Yes.

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 is fully built out, and we're well on our way to delivering 2 or 3 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 and feeds.

So we'll be releasing pretty shortly some deep sector feeds that would show up in the CTS number.

Our next question comes from Ashish Sabadra with Deutsche Bank.

Maybe, Helen, a quick clarification.

Did you provide the cost saving from lower T&E because of the ongoing pandemic, if there's a way to quantify that?

Sure.

And sir, are you talking about longer term?

You said what, this quarter specifically?

Yes, just the quarter.

Yes.

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 point of savings, if I just look at it from a year-over-year.

That being said, we did, as we know, that -- we covered -- used that to help cover some other higher expense as well in both compensation as well as higher technology spend.

That's helpful.

And then, Helen, also on the longer term, how should we think about what's this -- how should we think about this permanent reduction going forward?

Yes.

Well, that's a -- 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 basis points of -- let's compare that to FY '19 in a more normal environment than I would say that's one of the benefits we could see comes through.

We would look to that, whether that comes purely in funding some of our new initiatives in that, but that will be seen.

That's where I think we'll see some more permanent or structural change.

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 the sales front.

And same on the content side.

Is it part of the deep sector strategy?

Any color on both those fronts?

I can -- I'll take it a little shot at that.

So as we think about on the sales front, I think Phil mentioned this earlier and also we talked about on our last call.

So I think it is in an area that we believe we have a lot of opportunities in CTS, for example, where we've invested more on the sales front, also in new business and corporate is another area.

So it's not necessarily any particular geography.

It's much more where we feel that we had some good opportunities to redrive resourcing 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 we are also spending more of our investment.

Our next question comes from George Tong with Goldman Sachs.

I wanted to drill a little 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?

George, I think I talked about that a little bit with Shlomo.

So the sales cycle for our analytics suite, when we do the portfolio life cycle and sit down with the client to talk about their entire digital transformation, that can be a 6-month plus exercise, whereas sales cycles for just deploying FactSet workstations or feeds are probably getting shorter, frankly, just because it's so much more efficient to do things virtually.

And then the question on client budgets.

How are those evolving on average year-over-year?

We don't have visibility into client budgets exactly on what their -- the 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.

Maybe we can also (inaudible) that in 2 pieces.

There's -- BAU run the business budget under the (inaudible) digital transformation budget.

And so where we -- so exactly right, we don't ask for (inaudible) a number or anything like that, but they are clearly spending more also in second budget and that's where a lot of the conversation of the sale was alluding to, and if you look at the CIOs, that's where that is more focused on.

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 wealth and more corporate clients.

Can you elaborate on the spending propensity of these clients relative to other types of clients?

The spending propensity of smaller clients, is that your question?

The spending propensity of wealth and corporate clients, which appear to be growing faster than other types of clients.

I think for the -- those are typically smaller clients that we sell, George.

So those are, I think, typically, with a smaller client, they're able to make a decision more quickly.

And on the corporate side, 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.

Our next question comes from Jake Williams with Wells Fargo.

Can we assume that this Truvalue lab acquisition indicates 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?

Well, this is just a continuation of the last few decades.

So FactSet 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 Truvalue is really very small compared to the overall content budget or a strategy that we have.

It's a very good indication of something that we can act on that with the current trend.

But 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.

Our last question comes from Keith Housum with Northcoast Research.

Just wanted to drill down a little bit further on the Truvalue acquisition.

I know you got a lot of questions already, but is the run rate here is $5 million?

So I guess, first question is that pretty much all the revenue that comes with Truvalue?

And then does this give you the foothold you need in ESG?

Or do you need to do or tack on acquisitions in order to make this a bigger part of your business and part of your strategy going forward?

Well, it's an asset that we're very excited about.

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 some other unique contents that we've acquired over the years, the Revere data set was a good example.

We believe we can get 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 through a feed or an API, for example, but apply what FactSet does really well, which is concord the data together and provide an environment where clients can really analyze the data the way that they want to.

Got you.

And then changing gears, I guess, slightly here to your guidance.

How much of your guidance is depending in terms of going back to back 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 -- go ahead, Helen.

I very much appreciate.

I would probably answer the same thing.

I don't think anything has changed at this juncture.

We were assuming that maybe it's more back half of the year more of a return.

And that's probably more from a cost perspective and necessarily from the top line, we think we're operating quite well -- and also from the way we've been forming the last for the last few quarters.

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.

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 so 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, the tale of 2 halves, we remain focused on developing our content, technology and people as well as delivering value for our shareholders.

Please be well this holiday season.

And if you have any additional questions, call Rima Hyder.

We look forward to speaking to you next quarter.

Operator, that ends today's call.

Ladies and gentlemen, this does conclude today's presentation.

You may now disconnect, and have a wonderful day.