Q2 2020 Earnings Call
Q2, 2020 earnings call.
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Thank you Chris I'm. Good morning, everyone welcome to Factset second quarter 2020, <unk> earnings call.
Like many of you were also in various remote locations today.
We may have some audio quality issues and we really appreciate your patience Andy that we have an audio interruption.
Before we begin I would like to point out that the slides people reference during the course of this presentation can be accessed via the web site on the Investor Relations section of our website at Factset dotcom.
The slides will be ocean or website at the conclusion of this fall.
A replay of today's call will be available via phone and on our website.
After our prepared remarks, we will open the call good questions from investors to be fair to everyone. Please limit yourself to one question.
One follow up.
Before we begin before we discuss our results I encourage all listeners to review the notice on slide two.
Which explains the risks are forward looking statements and the use of non-GAAP financial measures.
Additionally, please refer to our forms 10-K in 10-Q four discussion of risk factors that could cause actual results to differ materially from these forward looking statements.
Our slightly innovation in 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 during the presentation and in our earnings release issued earlier today.
Joining me today are filled snow sockets, Chief Executive Officer, and talent show in fact, its chief financial Officer.
I'd now like to turn the discussion over to filled snow.
Oh, thanks, very much and good morning, everyone wherever you are today.
I'd like to take a moment just to address the unprecedented times are experiencing.
And as ever you know up almost priority remains the health and safety of all employees that families.
And our clients, we're doing everything we can to support all stakeholders around the world and I thought so but each of you during this extremely challenging period.
Success has implemented its business continuity plan. So our incident management team is in place to ensure we respond to changes in our environment quickly and effectively we're also working closely with clients to support them as they implement their own contingency plans, helping them access factset remotely.
The side with multiple support just resources to manage increased volumes have extended additional whereby these declines in need of immediate remote access to financial data.
Our open flexible platform is well suited for this environments and the investments we've made to date and technology allow us to serve about points better. Additionally, part of our three year plan is accelerating the digital transformation and the efficiencies and values the digital transformation brain or even more amplified in a world where both we and our clients.
Walking remotely.
So that ended in the context of it nets change in our industry and the markets at large we're pleased to deliver a good second quarter fiscal half year with promising growth across all businesses, let's now talk about ASV and our geographic breakdown.
Organic ASV plus professional services grew at 4.3% an increase in our growth rate compared to the first quarter, resulting from a stronger second quarter year over year, the Americas region performed well, but the particularly strong quarter from our analytics business. The Americas also benefited from the impact of our annual price increase as long as continued improvements in okay.
On retention and new business initiatives. This performance was offset by softer results in the APAC region due to slower expansion at higher cancellation rates.
Which we can probably attribute to delays than expected decision, making it much the Hong Kong protests on the onset of the Corona virus and as conditions improve we see many opportunities to execute particularly in the areas of analytics and Cts and expect to see this region what turns higher gross.
Sales in Europe improve year over year due to a lower cancellation rate compared to the second quarter, a personal 19, Additionally, analytics and research both performed well.
Into Europe region, and we continue to capitalize on opportunities with wealth and institutional asset managers.
Yes, we're being cautious about greater uncertainty and all our regions as a result of the evolving impacts of the Corona percent dock.
Quick overview about second quarter results Q2 growth was driven by an especially strong performance from analytics. This strength was reflected across multiple aspects of the business.
Alluding performance and reporting trading solutions and risk management, well, we continue to see demand for a multi asset class offering.
Analytics pipeline looks healthy, but strong demanded performance reporting and fixed income wealth also performed well across all regions I'm proud of our team for expanding the wealth opportunities, we have especially compared to prior yes, we're growing both our product offering and client base laying the groundwork for a healthy pipeline.
Research had a solid color quarter relative to the fourth quarter, driven by stronger client retention on cross selling through existing clients or enhance deep sector data strategy is helping to pave the way for additional corporate clients research also benefited from our annual price increase.
Within contents in technology solutions, we got a solid pipeline as we.
As we head into the second half of the year driven by strength in our core in premium data feeds offering. We're also excited about clients consuming data through eight the ice and continuing to make our proprietary datasets available on the cloud and example is our partnership with the cloud data platform Snowflake, who helps use a centralized integrate and analyze facts that content.
Alongside other hosted data feeds in an open interoperable way.
As we've said before we're investing from a position of strength to meet Universal point demand for increased efficiency and cost savings, particularly through our efforts in content and technology. This investment is more important today than ever with clients stressing the need for flexible access to critical data in the current environment. Our continued spend on technology.
Transition to the cloud and increased pace of Apiay launches have proven vital. These last few weeks and we believe they will make us ever more resilience in the long so.
Content strategy is also progressing well and is proving equally important to clients.
Tell the industry specific data, what we refer to without deep sector strategy is solely needed and we're seeing strong demand for the sectors, we've launched as well as those we planned to launch in the coming months. We believe this demand will increase our appeal to a wider coin base, especially when combined with a growing private buckets and streetaccount offerings.
I'm very pleased that faxes overall expansion of coverage is receiving such a positive response from clients.
One thing that's address that needs for comprehensive content solutions.
Now before I turn the call over the Helen I want to highlight that our pipeline up the ended the quarter appeared to be the healthiest and yes. As we noted previously we've been projecting a stronger second half.
Fiscal 2020.
And as we talk to you today, it's difficult to measure the potential impact of the Corona virus pandemic on our clients employees industry and brought to market and how long is going to walk you through the details of how this may impact our business in a few moments.
First I want to stress that our robust subscription based business model and all strategy together without best in class products, many of which are critical to clients position us well to manage through this period. Moreover, we've continued to diversify our product and client base over the years.
<unk> plans to invest in content and technology are more important in today's environment than ever and I want to reiterate our commitment to watch where you ever investment plan, we've proven resilience and finds the volatility with the strong balance sheet and I've gone to deliver consistent long term growth and value to our shareholders, which we expect me will continue in the future.
Why we believe we had.
Good momentum going into the second half we fully recognized the scale of the challenge that the entire industry faces. So it all our job is to do what we did that help our clients whether such unprecedented change.
Now I'll turn the call over that one who will discuss the specifics of our second quarter performance and the second half outlook.
Thank you, Phil and I'm really glad to be here with all of you today.
I Hope you and your families are healthy okay.
So stated our priority the well being of our employees and ensuring that we can provide uninterrupted service to our clients.
At the same time today is about updating all of you on our second quarter and also discussing our outlook for the second half given what we know today about the macro environment.
As we have discussed on previous calls all performance is a tale of two pad.
We are ahead year on year <unk> first half of 2020 in revenue operating margin Andy Yep.
I can be your investment plan also remains on track, we continue to ramp up hiring in spend in the areas of content and technology.
I'll now walk us through the specifics of the second quarter's results.
GAAP and organic revenue increased by 4% to 370 million at 371 million respectively.
Growth was driven primarily by wealth Cts and analytics.
The result was further supported by our January 1st and you all Americas price increase which totaled 12 million a 2 million dollar increase over the prior year.
For our geographic segments over the last 12 months America's revenue and international revenue both grew 4% organically.
Americas, primarily benefited from increases in wealth in analytics International revenue was largely driven by analytic and Cts.
GAAP operating expenses for the first half totaled 264 million, 7% uptick over the prior year.
This increase reflects the acceleration of spend related to our investment plan.
Expenses going faster than revenue, our GAAP margin decreased 190 basis points to 29%.
Adjusted operating margin decreased by 140 basis points to 32% versus last year.
As a percentage of revenue decreasing margins came largely from a cost of services, which was 110 basis points higher than last year on a GAAP basis.
On adjusted basis, the cost of sales was higher by 170 basis point.
Increased cost for both GAAP and adjusted were driven by a planned spend and technology related to our three year investment plan, partially offset by productivity gains in salary costs as we continue to ship hiring from high cost below cost location.
As gene expenses expressed as a percentage of revenue grew 80 basis points over the prior year period on a GAAP basis.
On an adjusted basis, the expenses grew by 30 basis points year over year.
On a GAAP basis increase in expenses is from higher professional fees related to the execution of the investment plan offset by reduced travel and entertainment expenses and lower bad debt expense.
On adjusted basis, the increase was primarily due to higher office expenses and marketing.
Moving on our tax rate for the quarter was 14%. This rate includes tax benefits related to stock compensation exercise.
Keep in mind that wouldn't be providing annual guidance for fiscal 2020. We did include a certain level of stock compensation exercise.
Given the strong performance of our stock during the quarter the exercises in the United benefit was higher than we had estimate.
Yeah, I P. P S increased 5% to $2.30 this quarter versus $2.19 in the second quarter 2019.
When adjusted diluted EPS also grew 5% to $2.55, primarily due to a low tax rate.
Looking at the first half the year EPS growth was driven primarily by operating earnings boosted by a low tax rate and lower interest expense.
Reconciliation of our adjustments to GAAP, yes, its disclose at the end of our press release.
Free cash flow, which we define as cash generated from operations less capital spending $75 million for the quarter decreased 15% over the same period last year.
This reduction is primarily due to expected higher capital expenditures related to office space build out for some of all locations where existing leases have your exploration.
The timing of Capex spend related to technology and facilities. It's important to note as when we review the first half of fiscal 2020 free cash flow grew by nearly 16%.
For the second quarter, I actually retention continued to be over 95%.
Versus the prior year, we grew the total number of clients by 5% last 12 months basis.
The addition of wealth and corporate clients and the retention of 89% existing clients.
These results and our overall healthy client they reflect the activities in flight with our sales organization, who have targets and focus on retention expansion and new business.
The second quarter, we bought back 268000 shares were $74 million at the average share price $277. A board of directors recently authorized an additional 220 million to our share repurchase program, bringing the total ties back to 300 million.
Over the last 12 month, we've returned over $375 million to why investors in the form of dividends and share repurchases.
We remain committed to creating long term value for shareholders and plan to repurchase shares at a steady pace in line with last year.
Turning to the outlook for the rest of our fiscal year.
Environment, we live in operating.
Change enormously in the past few months.
One of the strength. The fact that is our business model, which generates stable and recurring cash flows.
Another strength is the criticality of our solutions for our clients as reflected in a high retention rate.
Lastly, we have a solid balance sheet with low debt leverage and ample liquidity.
As a result, that's it has proven to be resilient during periods of volatility and has the capacity to invest even through periods of disruption.
Attributes should allow us to succeed through downturns and emerge stronger.
As we look forward uncertainties surrounding the magnitude duration.
Overall economic impact if the krona virus pandemic makes it challenging to assess the potential effect on our assay growth both in the second half of the year and further into 2021.
However, the trimming the possible impact on fiscal year 2020, we considered a number of factors.
First the potential delay in decision, making causing longer sales cycle.
May also have a positive impact in the form of delayed cancellation.
Second implementation risk due to restrictions on being able to work on site.
Well, we can do virtual implementation for many of our products. Our clients may not have the technology to enable us to execute successfully.
And third possible reduced seasonal hiring and investment banks, who are some of our largest client over the summer month.
It is possible that the negative effects of these factors could present significant headwind on our ability to realize our strong ASV pipeline in this fiscal year ending in August.
Based on what we know today, we believe the rest could be up to 25 billion over the fiscal second half.
With this risk we now expect increase in our organic ASV plus professional services to be in the range of $50 million to $75 million.
It is important to note that our business is subscription in nature.
He has to be booked later in the fiscal year is realized as revenue on a proportionate basis.
Given that we took the highest amount a base fee in the fourth quarter, we expect the impact to Twentytwenty revenues would be limited.
It's important to emphasize that these numbers reflect our best estimates at this time.
Simply too early to know what the exact number will be but we hope to gain more experience.
Unless it inside some clients over time.
Able could better assess the implications for fiscal year 2020 and 2021.
We believe that lowering our expenses what helped to offset any reduced realized that.
We remain committed to reducing expenses through the following action.
For the reduction of discretionary spend so just travel and entertainment building upon our prior success and prudent expense management and productivity.
Tighter management of Headcounts, then the focus on most critical areas and hiring and lower costs location.
Reduction in variable third party content costs in a manner consistent with client demand.
These actions would also moderate depending on the economic conditions for example, TNT and targeted third party content costs would be variable in nature.
We've also taken additional expenses related to business continuity and a pandemic into accounts as well.
We expect it didn't know profitability improvements over the past 18 months, our team has proven our ability to manage expenses increased efficiency.
As noted we are adjusting guidance on the ASV range in light of our best estimates today, leaving the rest about guidance unchanged.
Based on our results for the first half how much revenue growth and operating margins were in line with our expectation and our ability to mitigate potential lower revenue impact with direct expense reduction in the second half we are reaffirming the other metrics.
In closing, we're often asked how we might perform during a future downturn in the economy. We point, we point to the 2008 2009 time period I wish we grew both the top and bottom line.
I've discussed our business model is resilient and one of our greatest strength.
In addition, our product bases evolved in terms of its technology interoperability and of course, it's openness and flexibility, making us more critical to clients.
We remain committed to one investment plan and we'll look for other opportunities to grow support our clients during times of change as well as deliver value to long term shareholders.
With that we're now ready for questions over to you Chris.
And again, ladies and gentlemen in order to ask a question you do need to press Star and then one on your telephone please standby will be compiled documenting roster.
Your first question is from Toni Kaplan with Morgan Stanley. Your line is open.
Thank you so much I'm glad to hear your all well I guess.
Given that this quarter ended in February before a lot of the volatility started to increase.
Trends that you're seeing in march across the different businesses.
And just give us like a real time trends that you're seeing on through you know as late as you possibly could.
Sure Hey, Tony its Phil Hope, you're you're doing fine.
So we I think as Helen mentioned.
During a script.
You know we felt very good about the pipeline.
Going into the second half and you know from what we can see today, you know that pipeline, there's really hanging in there. So we are still closing deals. Obviously, we're talking very closely to our largest clients or some other bigger deals in the pipeline and we are anticipating some headwinds, but we're not seeing you know just an immediate.
Its response from the clients right incidence of either cutting back services are.
Completely pushing out things that we're in.
In the pipeline that run books.
Got it and I you did mention that pipeline there and then also that's the strongest that you've had a as you ended the quarter and I you mentioned a number of the areas analytics being very healthy and also research and Cts I'm, just I guess, which are which are the best.
You know most increased parts of the pipeline you know what are you really.
People signing up for and demanding right now.
Yeah sure so he's doing out a little bit so it can be area, where but seeing sort of some really great momentum is within you know the institutional asset management clients. So the call effects that clients. When we talk about the Buyside. There's lots of other firms that are included there, including you know law wealth clients in the hedge funds, but the core institutional asset.
As our clients. This year are doing much better for us than last year and I attribute a lot of that through the work we've done around the portfolio lifecycle of the strength of the analytics products. So a lot of the work we did to integrate the acquisitions that you're all aware off from three years ago is really now beginning to bear fruit. So we can see that without performance suites.
Oh, we can see it with the investments we've made in our risk offering, but continuing to build momentum in fixed income now that the specialists to back in that business line, Oh reporting suite, which was sort of a result of acquiring vermillion all that stuff is doing great knows the enterprise solutions in many cases right so that.
Tied to the desktop so I'm very excited about that obviously, that's a segment of our market that's been under water pressure.
But just to see sort of the turnaround that particularly.
Given the recent trends is very promising you know our open platform you know it's resonating. So we have a very healthy pipeline for Cts going into the second half.
And a lot of values within these core institutional asset management clients now that are just AI, the feeding systems or be just needing to look at lots of new data in interesting ways. So those are some of the highlights.
Thanks, a lot stay safe and healthy.
Yeah me too.
Your next question comes from an NAV I met with Barclays. Your line is open.
Thank you good morning.
I was hoping for a little bit us compare contrast, this access to the.
Which is you know only eight or nine kind of timeframe because yes, I believe in overnight you guys did grow.
Psyche positively, but it also decelerated from what was a really strong growth prior to that so I was just curious how you would describe you know the resiliency that this litigation exception today.
Yeah. So it's you know it's a good thing to think about enough cost. We've done you know I've gone back and reflected on that Dakota. So I think you know each one of these black Swan event the difference.
But an sometimes it's hard to call parallels but I think there are some things that the different now.
You know back then I think you know the in some ways a lot of the markets were broken right and we saw Lehman and bad just completely go out of business and those mill large clients for us. So a lot of what you saw that I was just clients are disappearing right big clients.
I don't think you know that's going to happen. The same way. This time, you don't know, but I think that's one point of comparison.
You know back then also appointed a lot more flexibility within the contract. So you know they they were able to sort of unwind a little bit more quickly than they would be able to now if they want it to but I think.
Sort of overshadowing I don't know more important point, it's just the breadth of all product suite now and the fact that we really have evolved from just being on the desktop to being more of a workflow solutions. So backing away didn't know nine you know with the exception of all seed business, which was pretty small back then you know almost.
Everything on tax that was tied to people in times of the workstation and of course, we had t., a which is great but it was sort of an add on typically that until the books station.
Less of a workflow solutions. So I think this as a point of comparison I know that was up a severe sort of downturn in the markets and we went down pretty quickly and then bounced up you know sort of a year later on but I think it's it's different than a positive way for us This time.
Got it and then Helen you know you walked through a lot of cost areas, where you have some flexibility I was just curious on the you know the three year investment plan does that seem to new at all cost. So it does it is there a point, where you think but even slowing that down.
Hi, Thank you for your question at this juncture I mean, what we do typically is to review every quarter, where we stand how a milestones are what's happened in the environment that that makes us we think and he has been changed any any changes that we would make it at this point right now.
We're looking at prioritizing spend and well make adjustments if we needed so for us we're investing for growth in the long term.
And and the your one was really meant about investing as opposed to I'm seeing the returns early on so at this point, there's no plan for any change.
Right got it thank you guys.
Got it took here.
Your next question is from I'm, Tom as our even with Jefferies. Your line is open.
Good morning, hope everybody as well as art just the first question if you could go up our.
Whether you can retooling cost.
Our a barrier to entry in your business.
Particularly when when contracts come up for renewal yours girl greater price sensitivity.
In a slow down and and <unk> you just switching costs going to prevent or help your retention. I guess is is another way to look at it or is it pretty easy for people to switch because you know competitors come in and Goodyear's redo, our you know cokes ARQ <unk> product and Scott.
Hey, Hey, I'm, sorry cells. So I think switching costs and you know changes you know there's a lot of work that goes into that for clients. So you know I think Helen mentioned this in the script, but in the same way that clients may be slowing down their decisions and sums of things that we have actively in the pipeline in cases.
Wearable you know, we're working with either until solution or a competitor or.
In some sort of bake off.
It's going to slow the decision, making round around that I think it's probably more of the change right now for claims in the switching costs.
What I will highlight a which we're seeing.
You know a lot of positive feedback from our clients on right. Now is we can deploy factset very quickly on our web based product now is proving to be a real winner in this market. So we are actively reaching out to our clients like we always do the saying how can we help oh, we're offering web ideas for factset for clients, where they need it where someone may not even be a user.
Okay, and we're deploying that so I think you know we're nimble agile we're doing what factored those tests, which is supported clients, particularly through periods like this.
The fact that we can sort of get those out that very quickly is getting a very very positive response from from clients.
Great and just a follow up question are there any up here as you know simplification or have your pricing remarkable and are moving to sort of more enterprise wide gone cracks or any up here Karen. Thank you.
How long do you want to take on.
Sure I will thanks for your thanks for your question. So right now in terms of our ability to continue to capture the value that we provide clients. We will earn a larger clients looking for enterprise like that is not something it's really by case by case, we're really for our strategic client group.
Clients. So at this point, where we do you have about pricing on a work flow basis, and we've had good success with it so I would peers continuing down that path.
[laughter].
Thank you.
Your next question is from Alex Kramm with Yes. Your line is open.
Hey, good morning, everyone I'm, just want to come back to ASV, a that you still need to do for the before the end of the year to gets the midpoint I think it's about $40 million and how how the kind of expectation is what's supposed to come in terms of what's the pipeline and I guess, what I'm, saying they are is.
How much of the growth off the age these dependent on no thinks the already signed kind of bigger and a price implementations versus maybe some of the ASV growth. It's supposed to come from more users that somebody existing clients and you know and maybe also how cancellations Oh.
Already factored into the updated ASV. Thank you.
Sure. So I think you know the one area, which I think it's pretty obvious Alex what we can see some pressure and it's hard to predict a is the summer banking as at the lifespan. So you know we've not heard yet that's a any of that is getting council, but sort of going into the second half that's when we.
We have some production sort of based on prior years and how we think things are trending so yeah, that's usually pretty decent uptick in Q4.
And if the banks decide to.
You know slowdown hiring will cancel classes that will affect us. So you know we've modeled a lot of that and already we're actually we've given ourselves a pretty big pickup there in terms of what were thinking.
Unlike any problem you know we've got things at different stages in the pipeline you know all the way through almost signs to you know sort of 50 50. So you know there's a lot of very good deals out there you know our sales cycle is a little bit longer than it used to be just given we've got some of these enterprise products. So.
You know these are important mission critical solutions to clients. So you know what we're not expecting writers for these opportunities just to go away I think if anything boat you know we're expecting them in the decisions. They get stretched out of this clients you know try to get I'm sure footing and figure out sort of what they think the impact of all of this is gonna be for them or just.
In terms of watching the pipeline you know I think it's a pretty evenly split between you know the Americas and Europe and Asia Pac Asia Pac has a very strong second half you know pipeline and it'll be very interesting to see how Asia Pac does particularly in Q3, given that it looks like that.
Region that you know hopefully has this under control they looked like they could it could come back to work sooner than other regions. So I think that will be an important.
Things for us to keep an eye on.
And again the pipeline is very much weighted towards on a net basis towards analytics and see us which are the again more of the enterprise or workflows solutions product.
I just know that will help to that please thanks.
That's helpful. Alex So everything that Phil said and spot on and as we thought about the pipeline and our view on the risk as we said, it's delayed decision, making a which is about let's call a half of what we think the risk would come from a longer implementation.
To that lets call it another quarter ish and then a then the balance could be due to user growth.
Meaning they see we had a reduction there so in those first two buckets as Phil was alluding to that is a little more along timing and so we did do lot of thinking and so as you can appreciate we're a little more art than science, but in thinking through them not only where they are long odds are the funnel.
But also the sentiment so that's how we came about this and hopefully that gives you a little bit of a perspective of how we thought about the pipeline and what would be at that.
And where we're encouraging the salespeople obviously to make sure that there you know there probabilities are accurate and updated so it's a pretty good peak on a daily basis.
You know the probability of close or extension you know they think we're expecting you know less pure councils and more just delayed decision making.
No not she will ship you think about well only a few weeks in here right as yeah at least here in the western Western part of the world, but our ability to significantly operate remotely we've had no disruption.
Our top 20 deals not not there's been no delay as of now you have a where we are fully operational we've got we've added resources to our helped US we've had really good engagement.
So again this is Rick just real time, you're getting real time data from us.
And ER and that's our best view at this junction.
No we're not getting calls from clients, we're not we're not getting a lot of inbound calls you know around cancels or anything like that so its.
No, it's not something will be coming I'm sure you know sort of clients evaluate situation, but I think it's different than you know from Oh wait onein sort of but going back to the question them enough.
That Clarkson Atlanta sure Yeah.
Your next question.
Your next question is from Bill Warmington with Wells Fargo. Your line is open.
Bill Warmington with Wells Fargo. Your line is open.
First question I had.
It sounds like the Corona virus had a pretty significant impact on Asia Pac performance.
Why wouldn't the Americas have the similar impact.
[noise] you know there will be sung impact there bill, but the you know Asia Pac is a much smaller region and.
No it's.
It's a little bit more difficult to sort of draw a complete analogies that so you know within <unk> a pack there are other things going on potentially although not I think that's just one other factors that made have slowed it down we had you know we've had some change over there.
And sort of leadership change sometimes leads to you know a little bit of a slowdown is sort of the new leader comes in and implement that strategy.
But we still view Asia Pac as you know a really.
Big opportunity for us.
And one that we want to overweight and sums of relevant relative investment. So I think you know going back to Alex's question about the pipeline Watson there I think seeing how quickly are you know Asia Pac comes back and really executes on the second half pipeline will be important and sometimes you know years look a little bit.
Different so for that particular region I could have been that bid the the opportunities would just much more heavily weighted towards the second half of them. The first half this particular closely.
And just generally there was a fair amount of political unrest that was happening in particular in Hong Kong rights are there I think a multiple factors that.
Consideration.
Got it okay.
Okay, and then I wanted to ask for clarification on the subscriptions the.
What is the cancellation policy for clients how much notice is required.
To cancel see to reduce usage.
So we have alliance.
Okay go ahead for glass elsewhere.
That's fine so one of the things I think that's changed over the years.
Tell us that we have a lot more clients on multiyear contracts with minimum somebody did probably back in a way to know nine.
And you know most clients are on annual contracts now, though that aren't on those that have you know I'm you know they have they have to get more advance notice in terms of their cancellation, but it varies client by client.
Got it.
All right and then outside the point out.
Did you come up with that name fill snowflake that yours.
No. It doesn't that's a thanks [laughter], but I do have a broad based on snow I have a brother, whose name is John snow, which should provide endless hours of and use them for everybody.
[laughter].
All right well, thank you very much.
Okay. Thanks.
Your next question comes from Shlomo Rosenbaum with Stifel. Your line is open.
Hi, Thank you just a quick question in terms of the tech spend anything you're seeing with the turmoil going on bids Mickey is think about reprioritizing, just what you're spending on in the tech spend or spending more money off.
Take advantage of certain things I'm, just wondering how does that workers is it really too soon to.
Make any changes or given everything is kind of happening at a pretty quick pace.
So yeah. Thanks slow so yes, we are part of our multiyear plan, obviously is to invest heavily in technology open up more a T.I.s moved to the public cloud and you don't have a more personalized experience for clients. So.
We're on track there in terms of our investments in executing very well against that and as you point out a this might be a time to step on the gas and sounds of what we do that so how one and I are looking carefully at the budgets. Obviously, we want to get it was much visibility as we can on sort of what the next six to 12 months looks like but I do think that was a an argument it'd be in may.
For a going faster than just for obvious reasons.
And you also talk little bit about just the your with everyone working remotely and probably you know probably overbuilding the calls too.
Your support staff are you bring on additional support staff kind of how you're handling that internally for right now.
Yes. So we're we're beefing up our support us for for clients. We do see some increased volume right. So we're seeing facts that use more than ever. So as you can imagine people need access to our stuff I'm missing very good usage across the system and obviously a lot more volumes in terms of trading so we're performing exceptionally well.
In the system standpoint, a and Weve you know, we've we've over time I sort of distributor das support anyway. So we've got a lot lot of folks in India, and the Philippines that help particularly over Chad you know, they're very skilled we've been at it for years, particularly in Manila.
And were able to handle that increased volume and I believe there or even some.
You know people that have been factor, though a longer time sort of pitching in a little bit on the analytics side. If you know we're getting a lot of complicated questions coming into some of our work flow products. So everyone's pitching and there's a great spirit at the company.
This is where we shine I think just in terms of thing there you know to support our clients and we're doing everything we can this environment to make sure that we're performing.
Even better than usual.
Greetings to just to add a little to that is the.
If anything with this period of time is.
Selling houses our ability and how important is for this transformation for us and digital technology investments I think that's a positive.
And then secondly, the media spend that was done on infrastructure is allowing us to be able to work remotely and to have more of our enterprise.
Patients on the cloud again, a positive so.
The current situation and reinforcing somebody decisions we've made.
Great. Thank you.
Thank you.
Your next question comes from Peter Heckmann with Davidson Your line is open.
Hey, good morning.
Faded out there for a minute I don't think that's been addressed but how and could you talk about given the recent strength the U.S. dollar.
What type of benefit you had in the quarter.
Expenses relative to the content creation centers in India, and the Philippines and and I.
I guess what type of.
Benefit you would expect in the back half given some of the hedges that you had in place.
Right no. Thank you for the question and we Didnt address that yet so in terms of this quarter of foreign exchange was not an impact on now on margins. It was fairly neutral so from that perspective, there was no impact going forward, we typically hedge around into rolling.
Exposure hedged.
50%, so looking where we are right now and we just look at this last week.
Yeah, I think our exposure to the pound in New York, well potentially give us some benefit as it relates to where we locked in for that pay so Andy.
Looking.
A little bit less so, but but they're all very good levels. So we're very comfortable.
Okay, great great.
And then just in terms of the then just you're thinking about your salesforce and how you're growing in wealth and analytics. How important is is that both field sales and attendance.
Kind of industry events for your new sales and how do you.
Is that part of some of the uncertainty in terms of trimming the assay growth guidance.
That's a I mean, that's never really been part of what we do so we don't spend a lot of money on marketing.
You know, we do we have a client symposium every year, where our clients come in sort of meet with each other that's a lot in sort of best practices and how people are using Saxa. You know that's probably every 18 months Swanson EMEA once in Americas, and we started to do that in Asia, but our sales people I think usually grow up supporting our clients they've got good relay.
Okay and shifts they usually you know transition from technical support over the sales and we just do a lot of sort of direct marketing to clients and working with them. So you know what's different for you know our salesforce as they used to traveling being in front of clients and sitting down with clients, but I'm sure you're all discovering some new things working from home I am and.
I'm actually positively surprised by the efficiency and even the intimacy that you can get you know Oh video you know we use teams, which has been really good. So I think we're going to learn new ways of working with our clients and I think youre going to learn new ways of working and I think it's a great opportunity for all of us to be more efficient.
And then like there's Helms pointed out we're very well poised I think for a new world. So there's going to be different you know I I don't I hope roll back to work in a month.
No we may not be obviously and depending on the region.
But when we all do go back to work I think it's gonna be different than what we used to and I think different in a good way.
Great Thanks for that either.
So.
Your next question is from Kevin Mcveigh with Credit Suisse. Your line is open.
Great. Thanks.
Sure Helen I wanted to give us into you know trench within Asia is kind of acute for I guess more from recovery perspective anything you're seeing there that kinda helps frame, what we should expect in Europe and ultimately the U.S., obviously still very early but just any thoughts around that'd be helpful.
Sure So very strong pipeline in Asia for the second half as I mentioned.
And I think similar to what I mentioned for the whole company, which is heavily weighted towards analytics and Cts Oh, we opened our office in Shanghai.
I think it was just under two years ago now so we've got a really crackerjack team a in mainland China.
And we've been driving very strong growth in mainland China as well as a Korea, which will be interesting. So I think looking at those two markets in particular, given that they wouldn't hardest hit over there I will give us a good sense of well to come back soon to look like.
Thank you.
Sure.
Our next question is from Andrew Nicolas with William Blair. Your line is open.
Hi, Thanks for taking my questions.
I believe the majority or price increases occur in the third quarter at least for your international clients. So with that in mind would it be possible. The size the percentage of international asked the that comes up for renewal this year, where pricing conversation make the happening right now and then if you could talk little bit about any changes you've made.
We expect to make on the pricing front given the current environment.
Hi, Thanks for your question I'll take both were shot at that one so we typically do annual price increases and you're right. As we saw in Q2, we're very pleased with <unk> proven to be able to get which reflects what our client value from us. So I think that so that's a real.
Positive and it also reflects all the best enhancements that we've made to it as it relates to Q3 and international clients.
Right now I would say if you look at what we did last year versus this year, we feel very good of where we stand we're likely to be there or or or better and as you know right. Now. This is an annual we do it annually. So.
All the time, we finished Q3 that well have done through that that price increase.
Sector at that point.
All right. Thank you and you no longer more drawn out recession type scenario, which business lines would you expect to have the hardest time, achieving your 2022 ASV growth targets.
I guess trying to figure out which business aren't you also I would expect can be be more resilient to the economic environment. Thanks.
Yeah, I think banking, that's probably the one that could get hardest set for US you know, but I think that's less than 20% of our business now and.
10 years ago, I think I believe it was bigger percentage than that.
And then I think if you know underperforming asset managers family offices hedge funds I think those those are gonna struggle in the long run anyway.
But I think our core clients, a healthy middle market, a large institutional asset managers.
The we've got a very healthy business with.
Sovereigns, an asset owners, which that's not going to go away right. I think that's just the bigger opportunity for us moving forward a insurance companies with the beginning to build up you know some good momentum in the private market space. So that's a small area for us, but we're seeing very good momentum that with the little investment we've made so far so there's lots of.
Opportunities for us to grow but I do think if that traditional you know very people heavy I'm sort of sell side business could be the most effective in the protracted though.
Great. Thank you.
Sure.
Your next question is from Joseph Foresi with Cat or if its girl your line is open.
Hi, I wanted to ask a just about the long term you've been shifting the portfolio kinda more towards private client stuff.
You know for quite some time in newer areas like that and I guess my question is you know when we come out the other end.
You know do we think that.
That's going to accelerate are there any specific that's that you're making based on what's happening now that could give you some directional.
Oh understanding of that and then I have.
Just one quick follow.
Yeah sure Joe So your private markets are still at a small business for us we've only just really committed to making a big investment there are in September when we announced Sapthree at plans. So you know weve sold a lot of traditional Factset workstation you could you can see there's a lot of utility that the sudden workload.
But we do the view that as a greenfield opportunities. So as we invest this year and through the next three years, we certainly see that as a <unk>.
As you know as a great opportunity for us a greenfield opportunity I think private markets have obviously done very well and I think that's still sitting on you know like lots of try gunpowder to use so that's one area and wealth you know well its importance.
That's relatively new for us I think the wealth advisor of the future is going to continue to involve an old all the investments, we're making in technology to create.
Oh, a better workspace for them and and sort of anticipate what the workflows and it looked like a we're very excited about that as a second area for us.
Got it and I guess just to add some humor, maybe you could ask your brothers Johnson, who is alive.
Well as far as they're now he is a thank you very tasty [laughter]. Your next question is from George Tong with Goldman Sachs. Your line is open.
Hi, Thanks. Good morning, you talked about delays in decision, making and longer sales cycles can you talk about how much you long duration of the sales cycle is factored into guidance specifically if you have to estimate how much of the ASV guidance is a shifted to fiscal 2021 versus last.
How long do you want to talk about that.
At all to ensure.
Yeah. So so let me I'm kind of go back on on what we were talking about earlier. So when we thought about the risk I think about 50% or was it really attributed to delays in terms of the amount of time I mean, that's a that's adding another layer of.
Art than science, there, but we look at also where it was in the pipeline in terms of the.
The the sentiment and how far long discussions war. So I think it's a little bit hard George to pinpoint more than what we what we identified so I would say about half of it was based on a.
On the lane time and timing.
Got it that's helpful. You talked about various expense savings earlier, how do these expense savings alter your operating margin outlook over the next one to three years, especially when considering your continued commitment to reinvesting into content and technology.
Yeah. So as we discussed we're not changing guidance. So as it relates to this year, we think that any of the impact from a revenue is this comes to fruition well be able to offset with the expense actions that I talked about earlier.
As it relates to the outlook for the three year, we'd there's nothing there new I think we're way early in this process that is thinking about.
What the impact will be and we'll continue to focus on F. Why 20.
Got it thank you.
Welcome. Thank you.
Your next question is from Keith who some with Northcoast Research. Your line is open.
Your last question is from Keith Huson with Northcoast Research Your line is open.
<unk>.
You on mute Keith.
Please disconnect at I'll move on order and last question is from Craig Huber Research Partners. Your line is open.
Yes. Thank you quick housekeeping question first before by two main questions can you just give us to be we're pleased to Europe and Asia revenues.
Really the one decimal please.
Quarter.
Sorry.
That I'm I'm sorry.
Sorry, if you could give us the revenue in the quarter from Europe, and Asia to one decimal place rather wait for the 10-Q.
Oh, you're talking about that but the growth rate.
No no trying to catch up revenue the revenue number to one does small in the quarter <unk> remote can follow up with you after the call and that she she can give you that I think that's right.
Okay and then.
Can you talk a little bit about your outlook for costs in the May in August quarters relative. This 258 million of expenses you had the federal record excluding the onetime items, how should we sort of think about.
Hiring plans et cetera for the next three and six months. Please keep it given the environment.
As we discussed in terms of what we're managing from an expense perspective, no we have maintained or guidance.
We will focus on hiring on the areas like the investment plan, there's no change there.
As you might guess it will be taking a hard look so if there are new hires that are well say less essential in the near term memo modulator accordingly, but at this juncture, there's no material veering from what I plan to as it's been whereas for the balance of the year.
And then also wanted to ask a wealth management question, you've talked to do some out about a today.
Look there for bringing on some were wealth management clients. These chunky deals and stuff. It seems like the stuff that unlike others pushed out here given the environment stuff, but you still quite optimistic here as you think out as you go through this period, that's more wealth management clients of size.
Yes, absolutely. So we've got a number of a large active opportunities obviously, we're in constant communication with those phones and you know these a large deals lots of users who like you are gonna be working from home. So we're doing everything we can to sort of work with them.
And you know those opportunities are still alive, a it's just a question as you know making sure that we can.
Talks about clients and make sure that comfortable you know transitioning during this period. So we expect to get them over time, but that is one of the areas that potentially could slow down.
This does conclude all the time, we have four couponing I'll now turn things back over to Phil Snow for any closing remarks.
Great. Thanks, So thanks, everyone for joining us today, and I really hope you're all say your families. All the employees that Youre farms. You know obviously this is a difficult time for everyone I'm pleased with what we've accomplished during the first half of fiscal 20.
We're really encouraged by the solid todays foundation, we have in place, which helps us remain resilience of things I've missed any future disruptions.
The reality is that these early days and what could be a lengthy period of global change and there are many unknowns as we head into the future all of us to being tested on us to support one other in new ways and I'm proud that not at all surprised by the efforts Factset us around the world It been making them, we'll continue to make to support one another and thank God seem Fritz continued efforts commitment.
Resilience, we really have a fantastic management team all of our employees are really pitching and I think we're really seeing you know a culture shine through here.
And there's ever will use our unique strength to support clients leveraging our increasingly open and flex flexible technology stack best in class service to help them implement the wrong business continuity plan, we stand ready to meet challenges head on and remain steadfastly focused on ensuring the health and safety of all of us they called us.
Do you have additional questions. Please hold rima Hyder and we look forward to speak into next quarter.
That ends today's call.
Ladies and gentlemen, this concludes todays conference call. Thank you for participation and you may now disconnect.
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