FactSet Research Systems Inc. (FDS) Earnings Call Transcript & Summary

Great. So we are going to get started here. We are thrilled to host Phil Snow, who's the CEO of FactSet, as part of our technology conference. What I want to do is give a little background on Phil because I think it really helps underscore what he's brought to FactSet over the course of a 25-year career, starting back in '96. I'm going to try to keep this as interactive as possible. My hope is people ask questions directly. But if anyone wants to e-mail me, feel free to do so at kevin.mcveigh, M-C-V-E-I-G-H, @credit, C-R-E-D-I-T dash suisse, S-U-I-S-S-E, .com. Just to start off here, I am the business and information services analyst here at Crédit Suisse. And again, we're thrilled to have FactSet CEO Phil Snow. Phil has been the CEO since 2015 and began his career, again, over the course of 25 years. And what I think is important is to contextualize his career. He's been in the Asia-Pacific region before having leadership roles in content in the America sales, and I think that's really kind of helped them evolve to kind of build the organization the way it's built for success today. And I think one of the big things he's committed to, obviously, is diversity inclusion within FactSet and something I know he takes very serious and I think is one of the key parts to the FactSet story going forward.

With that said, Phil, I wonder if -- because I think it will help kind of really contextualize the success you folks have had to COVID, particularly given some of the investments you've outlined a couple of quarters ago as you positioned the business for growth into '21, into '22. But maybe remind the audience of the component to the research versus the analytics, the wealth. Because, again, I think one of the big drivers of the business, going forward, will be on the research side. And you folks have really been able to invest in that business, I think, to pivot it for more growth, leveraging the success you've had on kind of the CTS and wealth side as well. So maybe talk to that a little bit, and we'll start there and kind of go from there.

Right. Sure, Kevin. Thanks for having me, and I hope everyone is doing well and enjoying the conference.

Yes.

Yes. As you pointed out, we've got a number of business lines. Research is our biggest business line, and this really can be thought of as sort of the core FactSet we have of workstation offering. And we also have a very sophisticated research management solution that sits within that group as well. Our analytics business is our portfolio analytics business. So there, we've got a whole suite of products that can take you from portfolio management, order management, execution management, performance and risk analysis and client reporting. They've got a very good year last year. We have our wealth business, which we've broken out separately, which shares a lot of the same components as research but is really more geared to the wealth adviser and is really leveraging our investment in technology and the scale that we've been able to achieve with our web offering. And then finally, we have Content and Technology Solutions, which you can think of as really ways of monetizing FactSet outside of the offerings that I just spoke about. So those could be feeds. They could be APIs. They could be other ways that we do that as well. So those are the 4 different businesses. We're excited about all of them in a 3-year plan that we've been talking about. And in our second year of now, I believe that there's an opportunity to grow each of those businesses for different reasons.

And Phil, just to frame that a little more. I always say, unfortunately, it takes a crisis sometimes to prove out the business model. What you've been able to do through COVID has really been -- to say impressive is to say the least. Maybe talk about, I think, particularly the client service aspect of the business, which I think has been a big differentiator for you folks. Talk to that in terms of ability to really shepherd your clients through that process, which I think, in turn, probably helps the retention aspect of the business. And then maybe within the context of that, some of the expense opportunity and how that maybe helps you reinvest for the longer-term business. And maybe just any thoughts around that, I think, are really, really important to the story.

Sure. So one of the things people really like about FactSet and that we've been consistent in this throughout our history is the high-touch model we have with our clients and the deep trust and relationship that we build with our clients by having long-term relationships and really taking a really keen interest in their workflow and helping them solve problems. So I was a FactSet consultant myself. Many of the management team grew up supporting clients, and it's something we take very seriously. We were able to pivot to doing this virtually seamlessly, essentially. So very quickly, we were on the phone with our clients, talking to them, helping them get it set up at home. If they didn't have sort of a way to do that, we were offering licenses for a shopper for people that couldn't connect through other services, which went over very well with our clients. And at the beginning, I was wondering whether or not we'd be able to execute on the implementation of some of our more enterprise offerings, which, traditionally, we've had a balance of remote versus on-site. And we found that we were able to do all of that very well as well, so 99% of our team now is working from home. I check in with our consultants and salespeople all the time and just sort of ask them how they're doing, and they all seem to be thriving virtually. And many of them do want to get back to the office, so I think we'll end up with some sort of a hybrid there as we get into FY '21. But I feel very excited, honestly, about the opportunity to evolve our business model and be more efficient in terms of how we serve our clients. And as you pointed out, I think there will be some ongoing savings from T&E. I mean it's hard to imagine FY '21 being a full-blown T&E year, like it might have been 2 years ago. So I think there are some things that we'll have to think about right in terms of how we want to deploy those savings. A lot of that or some of it is built into our financial plan already. But I think like every company, we're all learning as we go along here in terms of how much travel there'll be, what it means for the office of the future. None of that gets figured out right away, but it's something that we're thinking about seriously and will impact our business over time.

So 2 of the things I thought that were -- that really impressed upon me were how quickly the sales force was able to adapt remotely in terms of -- it felt like they really didn't miss a step at all in terms of just the close rate. So maybe talk to that a little bit. And then the other thing, it feels like, structurally, there's going to be a higher level of content demand from your clients, just given the increased frequency and data usage and the positive outcome as a result of that. And I think, again, those are 2 really nice tailwinds to the business that probably are more structural. So maybe talk to that a little bit.

Sure. So I think it's -- we found it very easy to get virtual meetings set up with our clients. In fact, it's -- in some ways, it's easier than trying to get somebody to commit to you coming to their site and gathering everyone for a meeting and figuring out what day that's going to be exactly. So it's been great to -- from our clients to continue to talk to us, have conversations about new opportunities. And like I said in my previous comments, executing on existing pipeline was seamless. And we're finding that we're able to generate new opportunities and -- as we talk to clients in this virtual environment. So that's one thing. You mentioned increased data usage. I think that's true, Kevin. I think what's also important to consider is how are our clients are going through that technology transformation. So more important than ever for our clients is to commit to technology and moving through their own digital transformations. And that's a journey we're on ourselves internally, plus one we've committed to as part of our 3-year plan. So I do think that's a big piece of it as well, and we're finding that a very interesting thing about technology. They were anyway, but we -- but the conversations, I think, have sort of ramped up a little bit as a result of what's happened in the last 8 months and so on. On the data usage side, I think that's just a continuation on the slave of everything that we've seen in the industry over the last even 10 years is there's going to have to be more and more data consumed, particularly by the buy side, to be competitive as they search for new ideas to compete with passive strategies. So we've been investing in content, integrating content well and thinking of new ways that we can deliver content to clients to serve that need. So those are the 2 big things that clients are focused on, not just more content, but also their own digital transformation.

So one thing I feel like is an underappreciated part of the FactSet story is your ability to kind of maintain and shift some incremental market share. Maybe talk about the competitive environment a little bit. And I think, quite frankly, one of the questions we often get is, to what you just alluded to, the shift from kind of active to passive. You've been able to manage through that with very consistent organic growth and improving client retention. Maybe talk to that a little bit. Again, I think one of the more underappreciated parts is the relative stickiness of the market share. And obviously, as I think about the competitive dynamics, there's Bloomberg; there's Thomson Reuters, which is now Refinitiv; yourself; and then S&P Cap IQ. And everyone's got their kind of strengths, and I think that really is part of the market share story. But maybe remind us of that because, again, I think that's one of the parts of the story that maybe the market doesn't fully appreciate.

Yes. I think the competitive advantage that FactSet has, I would call it, integration. So -- and that's in a couple of dimensions. It's the integration of the content. So all of the content within our ecosystem is very well connected to a permanent security ID. And every time we do a content acquisition or we partner with a content provider or we decide to collect it ourselves, we try to do that within the context of making sort of one library of suite of content that's easy for clients to get to. And that is sometimes, I believe, underappreciated. The second integration is really of the workflow of our clients. So FactSet really is one platform. We're not separate pieces of business. And if you want to do research, whether it's fundamental or clients, portfolio management, order and execution, performance and risk, client reporting, all of that works very well together. And what our clients are all going through is this need to rationalize what it is their spending and the data and analytics within their own organizations. So I think FactSet is very well positioned to do that. Our clients are not looking to have hundreds of providers anymore. They're looking for a couple of key sort of platform providers. And then for some very unique content or technology, they will add on to that. But within our clients themselves, they are going through this consolidation of their own vendors that they deal with. And I'm very confident in our strategy and the way that we are positioned to kind of help them with those initiatives they have, and those are a lot of the conversations that we're having today.

That makes a lot of sense. I'm going to ask another question on that, but I was just e-mailed one. I just want to -- from the audience within The context of just the market environment. The investment banking layoffs at Wells, Citi, GS, were those within kind of the context of kind of what you would have expected? Or just any thoughts around that, I guess, again, within September-October at Wells Fargo, Citi and Goldman. There were some cuts across the bank.

Yes. I don't think -- when I think about the cuts that they had, I don't believe those were in the areas of our business that would affect us particularly. So we service a couple of key workflows within investment banking. But from what we've seen, there's been some continued hiring there, and we feel like we've got a very good strategy to continue to take market share in that part of our business.

Great. I want to go back to the competitive environment a little bit, just because, obviously, there's been -- Refinitiv is in the process of changing hands for the second time. There's been some speculation about some potential transactions being de-backed. And you folks obviously acquired TruvaLue Labs recently. Maybe talk to that. And then just the competitive environment overall, it seems like there's more potential consolidation, how you see yourself poised to benefit from that. And just any thoughts as you look to kind of specifically enhance the business model, whether it's ESG or just other areas of the business as you think about it going forward?

Yes. So we're going to focus on our core strength, which is what we just spoke about, so the integrated offering, the technology transformation and the way that we service our clients. So we feel like we're in really good shape to continue to do that. When these things happen in the industry, it does obviously create some potential disruption that our clients have to think about what it means for them moving forward and so on. So very often, in these times, we can capitalize on that disruption. And in terms of our own M&A strategy, we're going to stick to the formula that -- this worked very well for FactSet in the past, which has continued to just look for good, unique tuck-in acquisitions that we can add to the integrated platform, whether that's content or a little bit of technology. So we feel really good about our own strategy. And no matter what's going on within the competitive environment, we feel like we've got a differentiated approach that will allow us to continue to be successful.

And as I think about one of the kind of, I think, bigger swing factors in the growth will be as you kind of enhance the growth prospects within the core research business. Maybe talk to that a little bit because I know that's been a lot of the incremental investment. And again, I know that's such a critical part in terms of the distribution engine. Maybe talk to that a little bit in terms of -- as that relationship has evolved from kind of the traditional workstation, if you would, to more of a workflow and just the incremental opportunity as the technology evolves over the course of time.