Factset Research Systems Inc (FDS) — Q1 2020 Earnings Call Transcript

Thank you, Marcella, and good morning everyone. Welcome to FactSet’s first fiscal quarter 2020 earnings call. We're joined here today from our brand new global headquarters in Norwalk, Connecticut. Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the webcast on the Investor Relations section of our website. 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 and one follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measures is in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer and Helen Shan, Chief Financial Officer. And now I'd like to turn the discussion over to Phil Snow.

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

Thank you, Phil, and good morning. It is great to be here with all of you. We began our fiscal 2020 with a solid operating performance, 10% earnings growth and operating margin that continues to reflect the productivity and efficiency improvements made throughout 2019. While we are at the beginning of our three-year investment plan, we are on pace as we start to ramp up hiring and spending. I'll now walk us through the specifics of the quarter's results. GAAP and organic revenue increased by 4% to $367 million and $368 million respectively. Growth was driven primarily by Wealth, CTS, and Analytics. For our geographic segments over the last 12 months, Americas' revenue grew 4% and international revenue grew 5% organically. Americas benefited from increases in Wealth, Analytics, and CTS. International revenue was largely driven by Analytics and CTS. GAAP operating expenses for the first quarter totaled $253 million, a 1% growth over the previous year. With revenues growing faster than expenses, our GAAP margin increased by 230 basis points to 31%. Adjusted operating margin increased to 34%, a 240 basis point improvement versus last year. As a percentage of revenue, the expense improvement came largely from our cost of services, which was 240 basis points lower than last year on a GAAP basis. On an adjusted basis, the improvement was 210 basis points. Contributing factors include decreases in employee compensation, reflecting the continued mix shifts from high to low-cost locations, as well as lower contractor fees. This benefit was partially offset by an increase in computer-related expenses as we continue to upgrade our technology stack. SG&A expenses, expressed as a percentage of revenue, grew 10 basis points over the prior year period on a GAAP basis. On an adjusted basis, we saw improvement of 30 basis points. This result is driven primarily by expense reductions in travel and entertainment, professional fees, and lower bad debt expense, and partially offset by higher employee compensation and higher rent expense associated with our move to new headquarters. We've been improving our operating margin over the past four quarters, reflecting our efforts to maintain disciplined expense management and to both grow and sustain productivity gains through our planned workforce mix. We are pleased with the progress that we have made as it has given us the ability to redeploy capital back into the business in the key areas of content and technology. On the last earnings call, we provided financial targets for FY '22. To recap, our investments build incrementally at $15 million per year in each of the next three years, totaling an additional $45 million in the FY '22 expense rate. As we noted, we expect our ASP growth rates to be in the high single digits adjusted EPS growth of 10% plus, and an adjusted operating margin at 32% plus in FY '22. We've begun to execute on these projects as Phil noted earlier; the spend will be building over the course of the year. For fiscal year 2020, the majority of the costs will be people-related. We expect the level of expenses to ramp up, were heavily weighted in the second half of the year as we build out the resources and capabilities. We believe we will be in line with our FY '20 guidance of 31.5% to 32.5% in operating margin given the phasing of incremental investments. We remain confident in our investment strategy and plan. Moving on, our tax rate for the quarter was 13.6%. This rate included a few one-time items related to the finalization of prior year tax returns and a change in tax rate in one of our foreign jurisdictions. Excluding one-time adjustments, our quarterly tax rate would have been 17.3%. Please keep in mind that when we provided annual guidance for fiscal 2020, we did not include any one-time adjustments in the tax rate. GAAP EPS increased 12% to $2.43 this quarter versus $2.17 in the first quarter of 2019, primarily attributable to higher revenue and improved margin. Adjusted diluted EPS grew 10% to $2.58. The reconciliation of our adjustments to GAAP EPS is disclosed at the end of our press release. Free cash flow, which we define as cash generated from operations plus capital spending, was $59 million for the quarter, an increase of 88% over the same period last year. The improvement was primarily due to higher net income, an increase in cash collections, and the timing of payables, partially offset by higher capital expenditures. As noted on past calls, our CapEx is higher this year due to planned investments in technology, as well as new office space build-out for some of our locations where existing leases have neared expiration. Last quarter, we looked to update our annual ASV retention metrics. On further review, we have determined that the current methodology is aligned with our client retention metric and remains an accurate measure of ASV retention. For the first quarter, our annual ASV retention continues to be over 95%. We're also pleased to report that our client retention, the number of clients we've attained over the last 12 months, remained at 89% and our client count grew by 6% year-over-year. Looking at our share repurchase program for the first quarter, we repurchased 343,000 shares for $84 million at an average share price of $246 per share. Over the last 12 months, we have returned approximately $345 million to our investors in the form of dividends and share repurchases. We remain committed to creating long-term value for our shareholders, and plan to repurchase shares at a steady pace in line with last year. The improvement in our operating results over the course of fiscal year 2019 and the first quarter of this year reflects our progress in operational discipline and in the sustainability of the productivity gains. We believe our plan to invest in more comprehensive and integrated content and in digital technology will fuel future top-line growth, which in turn is key for long-term value for our clients, employees, and our shareholders. With that, we're now ready for your questions. Marcella, over to you.

I just want to clarify my understanding; it appears there is considerable potential for growth, but perhaps spending did not increase as quickly as anticipated. However, your guidance suggests that we may experience negative adjusted earnings per share growth in the latter half of 2020. How do you view that as we transition into the first few quarters of 2021?

It's Helen. We expect to maintain our spending level for the year as it ramps up, staying within that range. We'll likely continue this pace through the first two quarters of 2021. To elaborate, most of this year's expenses are primarily related to personnel, which means it takes some time to ramp up. If you consider the timing throughout the year, about 30% of the expenses will occur in the first half, with the remainder in the second half. Additionally, the technology spending will be more concentrated in the latter part of our three-year investment plan. While the start may be slow as we hire, we do not anticipate this posing a problem concerning the guidance we've provided for the year.

And then just while I have you, you haven't talked too much about Portware and the Company's efforts in trading. Can you just give us a quick update there?

Yes. Hey, Peter, it's Phil Snow. So, yes, we're seeing very positive momentum in the trading space over the last few quarters, and a lot of that is attributed to the integration now of the EMS capabilities within FactSet. We're also seeing good momentum with our OMS offering as well. So just to remind everyone, we have execution capabilities, we have order management capabilities and we've integrated those now into a portfolio management platform, which is also beginning to gain some traction. So these are big numbers right now but the trend is positive, and we're very excited about that part of our Analytics suite.

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

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

And then maybe just your comments on growth in Wealth, what were the drivers there? Was it just the ramp of the BAML contract? Or was it a lot of single wins here and there? Just curious if you could give a little bit more color there.

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

This is actually Mario Cortellacci for Hamza. Just wanted to piggyback off the Wealth question, and you mentioned that there are some binary wins. It sounds like you're doing well in the middle markets channel. But just wondering if, say there are larger deals and more consolidation among the wirehouses. Just didn't know how you guys are positioned. Obviously, when things as is are like you said binary. But how are you positioned and how do you think you'll fare if there is some consolidation among the much bigger players?

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

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

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

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

Some of them are this fiscal year. Some of them are further out.

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

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

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

Toni, it's Phil. Yes, I think a lot of the cancellations are typical in terms of the seasonal banking churn. There were a couple of firms where we had some unexpected occurrences. One was at a larger sell-side firm and the other was at a middle markets firm. The sell-side firm has a very strong relationship with us, and we’re very excited about the opportunities moving forward. I can’t get into the specifics. But clearly, there’s pressure, particularly on the bigger firms. We’re feeling some of that. I think that’s what you're seeing in the numbers for Q1. But we're doing lots of things right to work our way up the stack as these bigger firms provide more solutions and it’s going to be a little choppy at some of them, but we feel good about the longer-term opportunity for us.

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

Yes, sure. Toni, thanks for your question. So this quarter, the benefit of FX was about $1 million, which is actually less than in the previous year and obviously a lot less during the course of FY '19. So that was not a material impact. If you compare our margin this quarter to Q4, we're exactly the same, 33.9%. I think it's reflecting more of the consistency of the actions that we've put forth over the course of the year.

Phil, you talked about your excitement of, I think, Q2 launch of some of the more in-depth data around financial services or banks. Can you just talk about the appetite there a little bit? I think this is supposed to be a little bit of an SNL competitor. But one of the things that I'm also hearing is that that competitor has a lot more different industries that they cover, so some firms might still wait until you have the full breadth. So I guess how much of this is going to be a niche solution for now and maybe in a few years, it's going to be a real competitor? Can you just touch it out a little bit? Thanks.

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

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

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

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

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

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

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

Phil, just a quick question. Not to beat that research cancellations to death, but is it people that are just no longer there or they are moving to a different platform? I just want to understand that dynamic a little bit more?

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

What people are trying to understand is whether there is any increase in activity with Refinitiv or if there are developments on the Cap IQ side that could be affecting us. Is there any significant change in that regard? That's what I'm trying to get at, or is it simply...

We still—when I look at the competitive win-loss, we’re still, I think, doing well from a market share standpoint.

Yes. We're beginning to get some momentum there. There are different pieces to it. The piece that's generating growth in CTS is really the data exploration platform that we've created. It’s really the ability to come in and look at our content in addition to some of the Open providers that we've added, some of the alternative data. A lot of the growth you're seeing is really from FactSet-owned content, and we're beginning to see a pretty healthy pipeline for some of the alternative data providers that are combined with that. When we think about the model and the ability to come in and begin programming in Python using Tableau—what the analyst of the future and the data scientists in the future are going to want to use— that's really the most exciting piece of it.

So you had mentioned the strength in Analytics, CTS, and Wealth, and by application, I would take it that Research had turned negative this quarter. I just wanted to confirm that and ask if that was really the result of the churn that you've mentioned and to ask how long you think it will take to return to low-single-digit type target growth?

Yes. So you're right, Bill. The other three businesses were positive this quarter, and Research is negative. Again, it's a smaller quarter, so it's hard to predict. We feel good about the Research business as we look out for the rest of the year. On our last quarter, we gave longer-term guidance for what we think that business can do. The investments we're making in deep sector and private markets and StreetAccount will help bolster that business and allow it to grow over time.

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

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

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

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

And David, to answer your question about the 1Q CapEx number, yes, it's about that. We are expecting to be up year-on-year. So I think we ended last year around $60 million and we are looking more like an $80 million for this year.

Phil, as we look at the research environment, customers are getting rid of some of their employees. How protected is FactSet if one of your customers just goes from say 100 employees down to 50 employees? Do you have minimums baked into your contracts that protect you or not?

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

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

Yes, I think that's right.

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

Yes, as Philip mentioned before, I mean I think the pipeline is healthy. We have seen some good new business growth. So as we think for the rest of the year, we're feeling more positive about the growth rate.

Phil, obviously with Refinitiv changing hands twice within the last 18 months or so as you become part of the LSE, any thoughts from a competitive perspective? Does that change the behavior on the continent at all? Or even in the current form as part of Blackstone, have you seen any competitive dynamic shift?

I've obviously thought a lot about that. It doesn't feel to me that the combination of LSE and Refinitiv is going to be much different than what we've been dealing with from a competitive standpoint with Refinitiv over the last couple of decades. There is still uncertainty within both the client base and their employee base in terms of what's happening, and we're just capitalizing on that uncertainty right now.

With that, I'll kind of lay the opportunity to the extent for any—as you're kind of integrating would you see a competitive advantage in that? If you were to look at other points in history, does that free up incremental opportunity or no?

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

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

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

I think I missed the first few minutes of your comments, but I wanted to hear was there any major cancellation fees that showed up in your revenues in the quarter you guys just reported here?

Cancellation fees?

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

Sure, this is Helen. No, we don't see that there was any pull-forward due to cancellation from clients. That’s not how our model works, so that's not a driver at all.

My other question again with the ASV down slightly versus three months ago, you went through your confidence level of Wealth and CTS, etc. It sounds like you're still comfortable with the $65 million to $85 million increase in ASV. Is that your thinking that's more back-end weighted for the year?

Yes, correct. We believe that this year in particular it’s always back-end weighted. If you go back historically, it may be somewhere between 60-40 just in terms of the split. The way that we've modeled out our plan, we believe that the second half of the year is going to be more heavily weighted than typical. We’re still feeling good about the guidance range that we issued last quarter.

And to go through, let me reiterate how that works. We have $15 million in each of the years that we will be investing in for '20, '21, and '22, so in terms of what falls into the first year, it's $15 million.

And very little of that was obviously in the first quarter?

Right. Because much of the spend is people related and it takes time to hire, especially for the capabilities that we're building, which has to do with expertise in content, as well as technical sides related to digital capabilities.

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

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

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

Yes. A lot of that really had to do with the large deal we had in Q1 last year that was booked as add-on business from an existing client. I think that was the vast majority of this, and as I mentioned in my script and throughout the call, we're seeing a lot of very positive momentum for the Analytics product for feeds, and on the Wealth side is driven by user accounts.

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