Factset Research Systems Inc (FDS) — Q4 2020 Earnings Call Transcript

Thank you, Kevin, and good morning, everyone. Welcome to FactSet's fourth quarter 2020 earnings call. We continue to be in various remote locations today. And if we have any audio quality issues, we certainly appreciate your patience, should we experience a disruption. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the 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, plus one follow-up. Before we discuss our results, I encourage all listeners to review the legal notice on slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our Forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measures can be found 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. I would now like to turn the discussion over to Phil Snow.

Thanks, Rima, and good morning and good afternoon, everyone. First, I hope everyone is healthy and continuing to do well. When we started this fiscal year, none of us could have anticipated what we'd face over the last six months. I'm really proud of our team's performance and its resolve to be there for our clients as we all quickly adapted to new ways of working. Our resilience and ability to execute over the last three months meant our client-facing teams, armed with an expanding suite of products, achieved the highest quarter of incremental ASV in our history. We finished our fiscal year having delivered 40 consecutive years of top-line growth and 24 years of adjusted EPS growth. I'm pleased with how our digital transformation efforts are supporting this growth and increasing our ability to build personalized solutions for our expanding client base. Earlier this year, we partnered with Forbes Insights to survey 200 asset managers and asset owners from around the globe to better understand their digital transformation programs and how they're leveraging next-generation technologies. According to the results, 75% of executives believe their firms need to invest more in technology initiatives, and 69% believe businesses are facing more competitive pressure than in the past, as customers expect higher and more personalized levels of service. A successful digital strategy includes having a scalable cloud foundation, a modern data layer with best-of-breed content, streamlined processes, the use of cognitive computing, and a personalized client experience. This is the journey we are on as an organization. It makes us stronger, and more importantly, will help our clients get to where they too are going. We believe we're making tremendous progress in our initiatives, as we were widely recognized by the industry in 2020 with numerous product awards for solutions across every aspect of our business, including best data providers of the buy and sell sides and best buy-side analytics tools from Waters Technology. This past year, we executed well against the first year of the investment plan we laid out back in September of 2019. On the technology front, we've made significant progress on our move to the public cloud and have announced plans to migrate our real-time ticker plant to Amazon Web Services. This migration will create the first global ticker plants of its kind in the cloud. We opened up many more APIs, creating new ways for clients to ingest, process, and program against our data and analytics. We added more industries to our deep sector program, made progress on our private market strategy, and executed on our wealth investments, expanding coverage of our StreetAccount offering in both Asia-Pac and Canada. We remain committed to our multi-year investment plan for both content and technology, and we believe continuing to invest now is the best long-term strategy. Turning to our results, we continued to execute well against our second half pipeline, resulting in a strong fourth quarter. Our ASV growth rate accelerated 45 basis points to over 5%, and we maintained our margins as well as grew EPS for the quarter. Both the Americas and EMEA's growth rates accelerated, with both regions seeing strong contributions from our largest institutional asset management clients. Private equity, venture capital, and hedge fund clients also drove growth in the quarter. Asia-Pac continues to be our fastest-growing region, even though our business in the region faced challenges this year due to the pandemic. We saw bright spots in Australia and Singapore, particularly with sovereign wealth funds. We believe we have good opportunities next year as the recovery proceeds, especially with our premium products such as reporting and trading solutions. Looking globally, I'm happy to say that all our businesses contributed to fourth quarter growth. The greatest contributions year-on-year were from wealth and analytics. Analytics grew 7% and was the biggest contributor to overall ASV. This business saw strength in our performance reporting, fixed income, and risk solutions, and we believe these products will continue to benefit us as we enter 2021. CTS, the second biggest contributor, grew 13%, thanks to continuing demand for core data feeds. We're confident this business will maintain its high growth rate as we head into 2021, especially as we develop new content and broaden our distribution channels. Wealth continued to execute well on its pipeline with a well-distributed number of wins across various client segments and sizes, resulting in a 9% growth rate. Research saw increased retention this year and benefited from our investments in our industry-specific deep sector content. We're particularly pleased to see this business's growth remain stable at 1%, with a well-balanced client base that includes asset managers, asset owners, sell-side research, corporates, and portfolio managers. In summary, I'm proud of our performance in fiscal '20 and of our team, which executed well across all areas of our Company. Our business model combined with our strong liquidity and balance sheet position us well to continue managing through uncertain markets. We believe our focus on providing solutions aimed at our clients’ own digital transformations and an unwavering commitment to expanding our library of smart, connected content is a winning strategy delivering results. Our survey shows digital transformation efforts are an increasingly integral part of our clients’ businesses, and FactSet supports its own growth by accelerating our clients' journeys through technology innovation. We also have a strong and experienced sales team focused on deepening client relationships and further diversifying our client base. For these reasons, we remain confident that executing on our investment plan along with continued product innovation, open and flexible solutions, and retooling our workforce to adapt to a virtual environment will help us return to a higher growth rate over time. Having said that, we approach our 2021 guidance and future higher targeted growth with necessary caution. We do not yet know the full extent of the pandemic's impact on our clients. And we acknowledge risks remain such as delays in completing complex deals and challenges in client retention as budgets tighten. Therefore, we are viewing the new fiscal year carefully with projected ASV plus professional services growth anticipated to be in the range of $55 million to $85 million. Helen will take you through the details of our 2021 guidance in a few moments. Just to wrap up, we enter fiscal 2021 with a sense of excitement. We're in a period of accelerated innovation within our industry, as clients look to differentiate themselves and be even more efficient. There's a great opportunity for us to work in new ways and create new products to improve the experience of both our clients and FactSet employees around the globe. You'll now hear from Helen, who will take you through the specifics of our fourth quarter and full year performance for 2020.

Thank you, Phil, and hello, everyone. I'm happy to be speaking with you today, and I hope you and your loved ones are safe and healthy. I want to echo Phil's sentiment on the strong performance by the FactSet team. Their efforts are clearly reflected in our full year results. Our financial results in 2020 proved the strength and resilience of our business model, the critical value of our content, and the strength of our client relationships. At the start of the lockdown in March, our team quickly pivoted to focus on helping clients and ensuring they could operate productively from remote locations. We were rewarded with continued loyalty as reflected in our client and ASV retention rates. Since the first quarter of 2020, we accelerated our ASV plus professional services growth rate through solid execution of our second half pipeline, crossing over the $1.5 billion mark and exceeding our most recent guidance for the year. Building upon our operational improvement in 2019, we achieved greater productivity through workforce mix and disciplined expense management. We executed our investment plan, adding needed talent and technology. Savings and costs related to the pandemic contributed to our results as we managed deliberately to keep our employees safe and productive while working remotely. Our team's notable efforts led to an adjusted operating income improvement of 6% and adjusted operating margin expansion of 40 basis points to 33.6% and an adjusted EPS growth of 9% to $10.87, primarily driven by higher operating earnings and supported by a decrease in our tax rate. We are pleased with our full year results, especially amid the unexpected challenges of the coronavirus pandemic. Let me now walk you through the specifics of our fourth quarter. As noted, we increased ASV by more than 5% year-over-year, reflecting strong retention across our client base and continued realization of cross-selling opportunities. Our fourth quarter GAAP results were impacted by a one-time non-cash charge, impairment of an investment in a third party of approximately $17 million. GAAP and organic revenue increased by 5% to $384 million and $383 million, respectively. Growth was driven primarily by analytics, CTS, and wealth. For our geographic segments, Americas and Asia-Pacific revenue each grew 6%, and EMEA grew 5%. The regions primarily benefited from increases in analytics, wealth, and CTS. GAAP operating expenses for the fourth quarter totaled $285 million, a 13% uptick over the previous year, mainly impacted by the one-time charge. Our GAAP operating margin decreased 490 basis points to 26%. Without this charge, our margin would have largely been in line with last year at 30%. Adjusted operating margin decreased by 70 basis points to 33% versus last year. These results also reflect a positive impact due to favorable foreign exchange rates. Aside from the one-time charge, GAAP expenses for the quarter include our planned investments in technology and in new talent and capabilities, and were offset by net savings from continued workforce mix, productivity, and reduction in discretionary expenses mainly due to pandemic-related savings. As a percentage of revenue, our cost of sales was 180 basis points higher than last year on a GAAP basis. On an adjusted basis, our cost of sales was 260 basis points higher, driven by technology spend. Higher SG&A expenses are largely responsible for the decrease in our GAAP operating margin. When expressed as a percentage of revenue, SG&A increased 310 basis points over the prior year period on a GAAP basis. On an adjusted basis, SG&A expenses decreased by 180 basis points year-over-year. The drivers include materially reduced travel and entertainment costs as well as office-related spend due to office closures. Our tax rate for the quarter was 7%, compared to last year, 16%. This unusually low tax rate was primarily due to higher exercises of stock options resulting in a tax benefit. Excluding these exercises and the one-time item, our tax rate would have been 18%. We have estimated and announced the stock option benefits in our tax rate guidance for fiscal 2021. GAAP EPS decreased 2% to $2.29 this quarter versus $2.34 in the prior year. Without the one-time charge, our GAAP EPS would have increased 16% to $2.71. Adjusted diluted EPS grew 10% to $2.88. Both EPS figures were primarily driven by the lower tax rate and improved operating results. Free cash flow grew by 16%, despite higher capital expenditures on facilities. For the fourth quarter, our ASV retention continues to be above 95%. We grew the total number of clients by 5% compared to our prior year, reflecting the addition of more wealth and corporate clients. Our client retention improved to 90%. For the fourth quarter, we repurchased 82,000 shares for a total of $27 million at the average share price of $349. We remain disciplined in our buyback program, which reflects the high performance of our share price this year. For the full year, we repurchased $200 million of our shares and increased our dividends for the 15th consecutive year. We are committed to returning long-term value to our shareholders. Our outlook for fiscal year 2021 remains bullish, given the solid progress we have already made. We expect ASV plus professional services for the year to increase between $55 million and $85 million over fiscal 2020. The remaining metrics listed on this slide, all stem from our ASV ranges and reflect our planned investments. We will continue to execute at the same pace in content and technology as outlined last September. We believe momentum in our businesses from fiscal 2020 will carry us into fiscal 2021 with tailwinds, including strength in our analytics business as clients add our front office solutions, performance and risk, as well as continuing demand for our core data feeds and wealth tools. Additionally, we expect high client retention to continue and will serve as a solid base for research, buoyed by the demand for expanded content coverage in deep sector and private markets. We believe that faster sales cycles and maintaining the pace we executed in '20 can lead us to achieving our targets. As always, we are keeping an eye on client sentiment as the market continues to evolve and navigate through these uncertainties.

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

Sure. Hey, Kevin. So, yes, it was broad-based across all of the businesses in Q4. It was very strong. Research, I think, was comparable to what we did in Q4 of last year. We did see decent hiring in the banks. Many people were concerned about that being significantly lower, but we saw good strength there. Analytics had a particularly strong quarter. We talked about that earlier in the year where some of the investments we've made previously around the portfolio lifecycle were really starting to gain momentum. So, we had a great quarter with our performance system, which was really the result of the acquisition of BISAM integrated with PA, and our reporting system, which was the Vermilion acquisition. So a great quarter from analytics. CTS had a very good quarter, better than Q4 of last year. Our hope is to grow CTS a little bit faster this year, but we did have fewer salespeople at the beginning of the year going into ‘20, which we've corrected going into ‘21. Wealth had a really good quarter relative to the last Q4. So, all businesses grew, firing on all cylinders, and the sales team did a tremendous job of executing on the pipeline that we laid out at the beginning of the second half.

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

Yes. No, thank you for that question, and it's definitely an important one. Right now, given our fiscal year end, we have the situation where we have half a year of non-COVID and half a year of COVID. And so, as we think about the go-forward, we have A, proven that we've been able to sell virtually very effectively; and B, we have to obviously take into account how our client's behavior is. So, when we think about the go-forward, we do assume that we are going to go back to the offices sometime in the second half for us, but also that there will be some level of change, and that is built into our numbers. That is in part, we are, I’ll say, reinvesting some of that back into the business, not all of it. But that is part of what when we gave our guidance for FY21 is built in. So, we do think that there are some structural changes, but there will be some level of difference in how we just operate as a business that we need to consider.

Thank you.

You're welcome. Thank you.

Hi. Good morning. Thank you for taking my questions. Hey, Helen, could you discuss the pipeline and what you're observing regarding the sales trends throughout the quarter and into the first quarter? Please provide more details on the support for the accelerating organic growth rate that you mentioned for this year.

Sure. I'm happy to touch on that. So, I think as mentioned by Phil, we think about our different businesses, particularly for analytics. One of the benefits we've seen over the course of '20, which we think will continue into ‘21, is expansion. For example, with the reporting and risk and performance, we have found that those who have our core analytics solution within a certain period of time do have those add-ons. So, that expansion is happening. And so, we think that will just continue to build as we go forward. From a CTS perspective, as Phil mentioned, we have additional sales resources, for example. So, we think that positions us better, and that will reflect itself into '21. We're really building our mind around both research and wealth to focus on solid retention. It is aided by the investments that we've made, and we would expect that to continue. We're not looking for large deals to be part of what’s going to help us succeed in '21.

Okay, great. Can you provide some insight into the ASV growth rate? It seems that the expectation for the year is lower than the revenue growth rate. I usually view this as a leading indicator, where ASV tends to grow faster in a positive environment and decline more rapidly in a negative one. Why is that not the case this time?

Sure. So, there's a little bit at the nature of ASV and revenue, which you hit upon. But when you have a very strong Q4, you're not really recognizing that revenue immediately, since that will be recognized in the following, let's say, the next 12 months. So, there's a little bit of a lag effect that can occur because you're not going to see that all in there. That's really what we're seeing here when we're talking about the growth rate; it’s the impacts from the previous year, that's showing through into the subsequent year.

My question was just on Asia-Pac. It's been continuing to outperform. I know you mentioned sovereign funds. But maybe anything you can touch on in terms of the mix of that business or execution? I guess, it's a small base; do you envision that business being as big as the U.S. over time? Just sort of any thoughts there would be helpful.

Sure. Hey, Hamzah. It's Phil. So, yes, Asia-Pac had a slower year of growth than we were expecting. But we do think that it will return to a higher growth rate this year. It was the first region to get affected by the pandemic. We saw particular strength in a couple of different countries, and we see a lot of good momentum going into next year. I don't think that's sort of a longer-term trend in terms of Asia-Pac not growing at rates that it used to grow. It is around 10% of our business today, so it certainly has a lot of potential. I think Asia-Pac is a great market for asset managers, with a lot of opportunity on the wealth side. We're very bullish on it, but it will take a long time for it to reach the size of the U.S. However, we believe our EMEA plus Asia-Pac business could be 50% of our ongoing revenue at some point.

Got it. Could you provide an update on the multiyear investment plan, specifically regarding the timeline for that initiative? We're seeing a rebound in ASV, which is a key milestone for assessing the success of the program. Additionally, have there been any changes to the timeline due to COVID? I know you've mentioned the sales cycle, but any insights you could share would be appreciated.

We're on track. We've not changed our plan. The three-year plan we laid out, we’re still committed to. The broad buckets, which are digital transformation, which includes a move to the public cloud, opening up the platform through APIs, and more personalization, all of that continues to do well. On the content side, we committed to deep sector, private markets, and investments for the wealth clients. We did well this year with the deep sector strategies and had significant releases across the three sectors, leading to good retention. We’ve secured many more content providers to fill out new sectors we're working on, and we have a full team of sector specialists for our three-year plan. Like any plan, you'll make some tweaks, but overall, the strategy, the pace at which we're investing has remained unchanged.

First, I want to confirm the ASV guidance range. I believe the press release mentioned a low end of $55 million, but the slide showed $65 million. I want to clarify what the bottom end is. My main question revolves around the notable acceleration in ASV last quarter to 5%, and this quarter to 5.3%. So far, it seems you're not experiencing the COVID impacts I anticipated; however, the lower guidance suggests that this may not be the case yet. I want to understand whether this is simply a cautious approach or if you are observing something in your data, such as retention rates, that indicates a slowdown.

So, yes, the low end should be $55, and I believe that's already been corrected in the deck. The range is $55 to $85. We've been very successful, Toni, at selling virtually. I'm very proud of the team, and we're confident that we can sell FactSet and support it and implement it virtually; we’re just not sure how long that's going to go on. There are a couple of things here. We are always very backend loaded in terms of ASV. Sometimes it's hard to have visibility into the second half of the year. And this is a year where there's more uncertainty, more things that could happen. We're trying to put a good number out there for you. If we need to adjust to the second half, we can as we get more visibility. The area we're a little bit not worried about, but thinking halfway about is how do we get the larger deals lined up. Are clients themselves in the end markets going to be willing to make those larger decisions? As we get closer to the end of the year, we'll understand how clients are looking at their budgets. Because we're an August company, that's a little different. We're going into the first full budget cycle since COVID began, so we're just not sure how that's going to play out exactly. We have a comparable pipeline going into FY21 as we had going into FY20. If we need to revise our guidance at mid-year, we will, but we feel this is the range that we think is appropriate given what we know today.

That's helpful. I wanted to ask about CTS. While it's still experiencing double-digit growth, it's down from 15% last year and 20% in prior years. The increasing demand for data seemed to provide positive momentum for that segment. I would like to understand if you think it can return to the 20% range. Were there any specific reasons for the slowdown this year?

Yes, I believe we can definitely achieve a faster growth rate. The market trends indicate strong support for our efforts. I think we are outpacing most competitors in delivering the type of data we provide. We are capturing market share and effectively selling our core content. As we continue to develop more content sets and make significant investments, we will have a broader range of products to offer our clients. One area that didn't develop as quickly as we had anticipated this year was the API. Traditionally, clients have accessed FactSet content through feeds, but we believe that our API strategy will ultimately prove successful. It just didn’t materialize as quickly as we expected. We have expanded our sales channels through collaborations with other enterprise software providers and strategic partnerships. I believe this will be our fastest-growing segment for some time, and we have more specialists selling CTS as we enter FY21 compared to FY20, which had been a limiting factor in our growth rate.

Thank you.

Sure.

Good morning. Thank you for taking my question. Could you please give us an update on your wins in non-traditional sectors for FactSet, like insurance and real estate? And also, could you please talk about the value proposition with them, and why they are switching over to FactSet? Thank you.

Sure. Thanks for the question, Owen. Let me discuss insurance. We do very well in the asset owner space, having grown that type of client this year in high single digits. We saw a lot of success with insurance companies, particularly in the fourth quarter. Insurance companies typically use our analytics suite. They subscribe to our multi-asset class risk solutions. As we continue to build our capabilities there, that resonates greatly with the insurance companies. This is a space we're bullish about. As for real estate, we don't do much with real estate companies today. We are investing in that area, so perhaps that’s something we can discuss further on a future call.

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

Yes. We had a great quarter in the EMEA region. Analytics and CTS were big drivers there. We did very well with some of the large accounts in the region. The UK sales team performed exceptionally well this year. We had a strong performance from the UK and with redistributed sales efforts, we do have a segment of our business that goes to other fintech companies or consumers seeking financial data, which also had a strong year.

Good morning, everyone.

Good morning.

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

To address that quickly, when we think about our contracts, like you said, they all vary and are typically multi-year in nature. The second point is that many of them, especially the larger ones, which is probably what your question is focused on, have minimums and tiers. So, from the user's perspective, yes, that may change over time. But it would have to be something more material for any kind of impact given how our contracts were set up. I'm giving you a general answer, Bill, but that's how we would think about it and how it would probably play out.

That's helpful. The other question I have is, it’s really one where I was doing some calculations earlier today. If we take the ASV segments and their growth rates from this past quarter and the past year, it only takes ASV growth from 5.2% to 6% over the next three years. I'm trying to figure out how to get the entire Company up to that upper single-digit growth rate, which is where that 40%, sorry, that 60% is growing now. How do you get the whole company to that level?

The key is really in CTS and analytics. We have to execute on those two in particular. It’s also about seat count, how well we can capture more seats in the wealth and research space. When we laid out a plan, we have a theory where we can move each of these pieces of our business to a higher level, and some have more opportunity than others. But this is our theory, how quickly can each get to the growth rates that we think they can attain, to then reach the high single-digit number we outlined last year.

Phil, you talked about the investment plan, and early in the call, you mentioned that almost everyone is going through accelerated digital transformation. I'm curious about your thought process and why you didn't decide to accelerate investments more given these positive trends?

We certainly could, and we have an ambitious investment plan. We're encouraged with the investments made so far, and if some of these things produce higher growth rates than we originally imagined, we could consider that. However, there is a limiting factor on how much we can execute at a certain rate.

Okay, fair enough. And then just to follow up, on the content side, could you remind us where you're sourcing that data? How are you collecting that data, and how much is proprietary versus partnerships to resell the data?

It's a combination of partnerships and our own data collection. I want to be careful about detail here, but we have a healthy mix. One of our big priorities in our digital transformation strategy is to automate much of our content collection. We have a solid machine for gathering content, but if we started over today, we would likely set it up differently. As we progress on that journey, we'll be able to source more data ourselves from a wider variety of documents and more unstructured content.

To add, having content is essential, but it’s also concordance with everything else we offer, which is a differentiating factor. So, please keep that in mind as well.

Okay, thank you both.

Thanks, Manav.

I wanted to tie a couple of these pieces together that you talked about. Since you took the guidance away for 2022, I think this was mostly in ASV comments related to top-line growth. You're also basically implying the investment will continue to go forward. So, when margins were guided to be 33% plus in 2022, presuming that was predicated on higher growth driving margin expansion, if we are not getting that growth, I assume those margin targets are off the table for now. Is that a fair assumption?

Hey, Alex. It's Helen. Thanks for that question. We're not commenting specifically on that, but I would say, if you look at our trend from '19, '20, and '21, I would expect to see continued productivity and efficiency gains. The margin will indeed be impacted by revenue growth, but we would still be executing against operational improvements we've made.

Okay. To conclude on margin, looking at the near term for 2021, I understand it’s a challenging year to forecast. Are there any seasonal factors we should consider regarding the reopening? How do you perceive that? I believe you mentioned that COVID had a positive margin impact of around 180 basis points in 2020. For 2021, did you specify how much margin benefit from COVID you are incorporating into your model today?

Yes, let me address that. Generally, our business isn’t overly seasonal. So, the difference would be savings that come from reduced costs due to office shutdowns or lower travel expenses, but the back half is really where those expenses may resume. The impact of COVID from both the office savings and T&E netted about 1% for both years when considering our fiscal half under these situations. We have business continuity planning that ensures employees work effectively from home regardless of the situation.

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

For the year, we had broad success with wealth. There were significant deals we were targeting that we couldn't capture in the end. However, we managed to secure three notable wins with marquee names in three different countries. We also excelled with smaller and medium-sized wealth firms. We're really encouraged by the service level we've proven, evident from marketplace feedback. The digital business, built from an acquisition a few years ago, had a relatively good year. Overall, wealth executed well through the year, taking advantage of the digital transformation efforts. We managed to integrate different views from FactSet into client ecosystems rather than just traditional FactSet experiences.

And then, as a follow-up, the conversation around ESG seems to be growing with every passing quarter. I was hoping you could talk about how you're capitalizing on that trend at FactSet and how material of an opportunity that could be within content technology solutions?

We view ESG as a significant opportunity. Today, we integrate many best-of-breed ESG content pieces, either through the workstation or the open FactSet marketplace. If you visit open.factset.com, you'll see we currently have over 100 providers of alternative data, categorized by theme, with ESG being the most popular and contributing the most. FactSet has always excelled in aggregating data from various sources and providing great analytics and service. That’s our current approach to ESG, but we are carefully exploring what we can do ourselves from a proprietary standpoint to take advantage of the trend.

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

From our perspective, the 25% and 75% guidance was based on an optimistic view of what we expected under normal conditions. The benefits from these investments would show in the form of increased retention and new logo additions. I can't give you an exact dollar number, but I can say that it supports the overall growth for '21. The benefits will span across all businesses, but certain areas like research see more early benefits from those investments while in digital, we expect analytics and CTS to benefit going forward.

And then, CTS remains quite strong. Just wondering, who are the primary users here? Are they mainly quants, and what are your thoughts on the sustainability of that user base?

You're correct that a sizeable percentage of our users are quants, either through feeds or other mechanisms. We also sell into performance systems and application development projects, where clients need extensive content. Thus, we address multiple workflows, and we even sell real-time feeds, which is smaller but growing. As we enter FY21, we reassessed our focus on TCS and our earlier directions. We will continue to do well with quants, but we are ramping up focus on areas we've previously overlooked.

Could you talk about any acquisition opportunities? It’s been a while since we've seen any acquisitions.

Do you want me to take that one, Helen?

Sure, happy to do that. So, as from our strong liquidity and balance sheet, we can pursue acquisitions. We've opted to continue investing organically to build our growth, but we analyze acquisitions that support our content and technology strategies, those that exceed our hurdle rates. The market is quite competitive and valuations are high, but we keep looking at opportunities. We believe in targeting organic growth, but will remain open to an inorganic approach to strengthen our long-term growth basis.

That's very helpful color. And maybe just following on the 2022 targets, where do you see the biggest variances depending on what segment or geography may impact those targets?

When we consider scenarios to achieve those targets, we require external factors like timely decision-making in our sales process, growing client confidence in their budgets, and overall economic recovery. Until we get better visibility of that emerging environment, we can't provide more favorable commentary despite the resonance of products we offer. It hinges on confidence in the marketplace and how it guides spending in the future.

Can you elaborate on recent client sentiment and spending intentions and whether you're seeing those risks manifest through informative feedback from clients?

Hey, George, it's Phil. Yes, we experienced a little impact from COVID in Q4. I believe we could have had an even stronger second half without it. I've been part of calls with clients feeling cost pressure, thinking about their futures as well. As we approach the end of the year, we need to gain insight into their budgeting strategies as they gain visibility on pandemic influences.

Got it. That makes sense. Regarding your margins, you're not reaffirming your FY2022 margin target of 33% due to less operational visibility. Can you discuss whether this reduced visibility stems from uncertainty on ASV growth or expenditure management?

That's a good question, and you're correct—where we have more control lies in our investments. We're keen to continue investing at the pace discussed last year. However, the lack of visibility ties back to revenue growth compared to expense growth. Our strategy involves building toward extended margins while prioritizing investments.

As you’ve shown success with virtual selling, could the business model shift, allowing you to reduce high-touch travel expenses?

Yes, we've been doing inside sales for six months. I'm intrigued about how we can efficiently manage smaller client sales without FactSeters having to travel. However, for larger firms and complex deals, I still believe in meeting clients in person to discuss their strategies and build relationships. That aspect of our model won't disappear, but we're critically reassessing how we engage with clients and also operate internally. I'm seeing more opportunity than ever, and I'm encouraged by our sales force’s execution over the last six months.

Got it. So, to clarify, the pipeline expectations are similar to last year, but there might be a lack of large deals seen as of now, with potentially less strength than the end of the previous second quarter. Is that a fair summary?

The pipeline entering this year is comparable, and deals build confidence as the year progresses. We're hesitant regarding large deal opportunities in the second half, needing some time to determine whether we can line those up effectively.

I'd like to thank you all for joining us today. I'm pleased with our team’s and Company's performance this year and the strong progress we have made on our investment plan. We're excited for this new year. As we continue to expand our offering and equip our team and our clients to operate successfully in this environment, I'm confident we will capture further wallet share and secure additional client wins. Importantly, we remain committed to investing in our people, our clients, and communities to create long-term value for our shareholders. With that, I'd like to thank you one more time for your time. If you have additional questions, please call Rima Hyder, and we look forward to speaking to you next quarter.