FactSet Research Systems Inc. (FDS) Q1 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the FactSet Q1 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there'll be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your host, Kendra Brown, you may begin.

Thank you, and good morning, everyone. Welcome to FactSet's first fiscal quarter 2022 earnings call. Before we begin, I would like to point out that the slides we will reference during this presentation can be accessed via the webcast on the Investor Relations section of our website at factset.com. The slides will be posted on our website at the conclusion of this call. A replay of today's call will be available via phone and on our website. After 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 are in the appendix to the presentation and in our earnings release issued earlier today. Joining me today are Phil Snow, Chief Executive Officer; and Linda Huber, Chief Financial Officer. Before we get started, I want to let you all know that we are planning an Investor Day in early April, and we will be sharing more information soon. So stay tuned. With that, I will turn the discussion over to Phil Snow.

Thank you, Kendra, and good morning, everyone. Thanks for joining us today. Before I begin, let me start by welcoming Kendra, who recently became FactSet's Head of Investor Relations. Kendra has worked at FactSet for more than two decades, most recently serving as my Chief of Staff. She brings a deep knowledge of the Company and industry expertise to her new role. I look forward to working with Kendra to continue growing our Investor Relations program. I'd also like to welcome Linda to her first earnings call as a member of the FactSet team. We are excited to have her here and have already begun leveraging her deep financial and operational expertise as we continue to execute our growth strategy. Turning to our performance. FactSet is off to a strong start to fiscal 2022, and I'm pleased to share that this quarter had the highest Q1 incremental ASV on record. Building on the momentum from Q4, we grew organic ASV plus professional services by 9% year-over-year in Q1. The strong performance of our sales and client-facing teams carry forward from Q4, increasing the pace of our go-to-market strategy. These teams continue to drive increased retention and expansion rates among our existing clients while achieving a high number of new business wins. The biggest contributors to this quarter's growth were institutional asset management clients as we continue to see strength in our workstation and accelerating growth in our analytics workflow solutions. The last two years of accelerated investments in content and technology continue to drive top line growth. We are seeing increased demand for differentiated content and workflow solutions. FactSet's leading open content and analytics platform is allowing us to meet this demand and capture more share of wallet with our clients. By client type, wins were broad-based. We saw double-digit ASV growth rates from our banking, wealth, hedge fund and corporate clients as well as private equity and venture capital funds and partners. Our investments in content and technology, including deep sector, wealth and analytics solutions continue to support client retention rates and renewals across the board. Overall, we are pleased that our performance resulted in a 13% increase in adjusted EPS from the prior year period. Our adjusted operating margin of 33.6% exceeds our guidance. Linda will walk you through the details in a few minutes. We are now in the final year of our multiyear investment plan, and we remain on track to achieve our goals. Our focus is on our digital platform, scaling our content refinery and creating hyperpersonalized workflow solutions. Within our content refinery, ESG, data for wealth, private markets and deep sector are all fueling workstation growth. We continue to grow our deep sector data, launching real estate and technology, media and telecom in November. Deep sector and our investments in private markets have translated into growth and higher retention within sell-side firms. And our recent acquisition of Cobalt further advances our private market strategy by connecting differentiated data with tracking and portfolio monitoring, providing value to our private equity and venture capital clients. Our workflow solutions, which deliver efficiencies across the front, middle and back office continue to add meaningful ASV. Our analytics APIs are resonating with our clients, and we are increasingly integrating with cloud-based platforms. Earlier this month, we launched over 90 data sets and a number of APIs on Amazon Data Exchange, the first major data and analytics provider to do so. Our trading business continues to grow, bolstered by the recent addition of fixed income support for trade execution. This enables our clients to surface new insights and trade across asset classes with greater speed and efficiency, and was a significant contributor to the growth of our Analytics & Trading business during the quarter. Our product teams are focused on identifying, developing and implementing made-for client workflow solutions for each of our client types. This has been incredibly successful within wealth as our adviser dashboard maintains a healthy pipeline and solid client engagement for FY '22. We see this hyperpersonalization as a key differentiator and are committed to working with our clients to evolve our offering. Looking across our regions, we saw continued strength in ASV growth across all our markets. The Americas was the biggest contributor as organic ASV growth accelerated to 9%, supported by broad-based strength across our businesses. This was driven by strong retention and expansion among asset managers and asset owners. The region also benefited from capturing higher price increases. In EMEA, growth accelerated to 7%, consistently improving over the past three quarters. Research and Advisory had a particularly positive impact driven by improved retention among asset managers and wealth clients and strong workstation sales to new customers. Asia Pacific had another robust quarter with growth accelerating to 14% driven primarily by CTS. We again saw wins across many countries with hedge funds, asset managers and asset owners driving ASV growth. In summary, I am proud of the FactSet team for delivering such strong results to the start of the year. The first quarter, as you know, is historically a slower start to the fiscal year and not necessarily an indication of our performance for the rest of the year. However, our momentum from Q4 has continued, and we are well positioned to deliver on our targets for the year. As such, we are reaffirming our fiscal 2022 guidance and we remain confident in our pipeline and in the value we are delivering to our clients. Looking ahead, we continue to focus on three strategic priorities: scaling up our content refinery, enhancing the client experience through hyperpersonalized solutions and delivering next-generation workflow solutions for clients. And we believe that our people, culture and performance-driven mindset will enable us to execute on these priorities as we accelerate the pace of change. We are committed to investing in and developing the talent experience and the skills of our team as we build the industry's leading open content and analytics platform. Finally, an important milestone in our company's history occurred earlier this week when FactSet became part of the S&P 500 Index. Our addition was, in fact, predicted by our S&P 500 constituent's prediction signal on October 1. Our inclusion is a proud moment for FactSet and a testament to our tremendous growth and our efforts to help our clients do their best work. Our team's creativity, dedication and collaborative spirit make us a trusted partner, and I'm tremendously proud of their drive to create smarter, more innovative solutions for our clients. I'll now turn it over to Linda, who will take you through the specifics of our first quarter performance.

Thank you, Phil, and hello to everyone on the call. I'm really pleased to be here today as part of the FactSet team. I've been at FactSet for just a few months, but in that short time, it's become clear that the Company has been performing really well from accelerating top line growth and strong free cash flow generation to its long history of consistent and growing shareholder returns. And there's still a lot of runway ahead of us as the investments made over the past two years are paying off and driving growth. There is undeniably a great deal of talent across the organization. I look forward to working with the team to build on FactSet's history of outstanding performance while generating meaningful value for shareholders. Looking now at the first quarter, as you have seen from our press release this morning, we are pleased to report acceleration in our top line with high single-digit growth, both in terms of revenue and organic ASV plus professional services. I'll now share more details on our first quarter performance. First, on ASV, we grew organic ASV plus professional services by 9%. As Phil noted previously, we typically see a seasonal deceleration in Q1. Our performance reflects increased demand for our content and product, higher retention and our ability to realize higher pricing. The marketplace has been supportive with solid workstation growth in banking and greater demands for our portfolio analytics solutions. As market conditions continue to evolve, our subscription-based ASV will continue to support value-based pricing. GAAP revenue increased by 9% to $425 million, while organic revenue which excludes any impact from foreign exchange and acquisitions, increased 9% to $423 million. Growth was driven primarily by Analytics & Trading and Research & Advisory. All regions experienced notable year-over-year growth. For our geographic segments on an organic basis, Americas revenue grew 9%, EMEA also came in at 9% and Asia Pac revenues grew at 14%. Main drivers in the region were analytics, CTS and workstation growth. Turning now to expenses. GAAP operating expenses grew 13% in the first quarter to $302 million impacted by anticipated changes incurred during the period. We recorded a restructuring charge of $9 million to drive a more efficient and empowered organizational structure. Ongoing savings from this realignment will primarily be used for product reinvestment and key talent retention. In addition, we recognized $4 million of expense related to vacating certain office space in New York City. We recently pulled our employees on optimal work arrangements and consistent with what we see in the market, a vast majority prefer a hybrid or remote working model. Given this preference, we are reassessing our real estate footprint to better reflect our new work arrangements. Also in Q1, we incorporated the FactSet Charitable Foundation to facilitate our corporate social responsibility goals. Compared to the previous year, our GAAP operating margin decreased by 230 basis points to 29% and our adjusted operating margin decreased by 70 basis points to 34%. As stated before, this exceeds our guidance on this measure. Our increased expenses were partially offset by lower compensation expense. As a percentage of revenue, our cost of sales was 32 basis points higher than last year on a GAAP basis and 72 basis points lower on an adjusted basis. This reflects increased data and infrastructure costs and higher compensation expense for our existing employee base. These expenses also include our ongoing shift to the public cloud as part of our digital transformation and multiyear investment plan. Lower personnel expenses partially offset these increases. When expressed on a percentage basis of revenue, SG&A was 198 basis points higher year-over-year on a GAAP basis and 145 basis points higher on an adjusted basis. The primary drivers include increased employee compensation, higher bonus accrual and real estate exit costs. This was partially offset by lower stock compensation year-over-year. Turning now to taxes. Our tax rate for the quarter was 10% compared to last year's rate of 16%. This lower rate was due to a tax benefit from the exercise of stock options as a result of our record stock price. This caused the annual estimated benefit to be higher than expected. The lower annual rate was partially offset by higher-than-expected U.S. income. GAAP EPS increased 7% to $2.79 this quarter versus $2.62 in the prior year. Adjusted diluted EPS grew 13% to $3.25, driven by higher revenues and a lower tax rate. A reconciliation of our adjustments to GAAP EPS is provided at the end of our press release. Free cash flow, which we defined as cash generated from operations less capital spending, was $64 million for the quarter, a decrease of 9% over the same period last year. This was primarily due to the timing of tax payments, higher year-over-year employee bonus payments and a reduction in capital expenditures related to facilities build-outs. Our ASV retention remained at greater than 95%. We grew the total number of clients by 14% compared to the prior year, which continues to be driven by the addition of more wealth and corporate clients. Our client retention improved to 92% year-over-year, which speaks to the success of our products and investments and the efforts of our sales teams. For the first quarter, we repurchased 46,200 shares of our common stock for a total of $19 million at an average per share price of $403. We remain disciplined in our buyback program and committed to returning long-term value to our shareholders. We are reaffirming our guidance for 2022. And as we often say, our business is a tale of two halves. While it is clear that our momentum from Q4 has continued and we believe that we are well positioned to deliver on our targets, it's still early in the fiscal year. We remain focused on developing our content, technology and people and delivering value for our shareholders. And with that, we're now ready for questions. Operator?

[Operator Instructions] Our first question comes from Manav Patnaik with Barclay.

Linda, just a follow-up on that last comment on along, I just wanted to get the visibility you have and just in terms of the sustainability of the revenue growth that FactSet has kind of shown that acceleration over the last few quarters.

Yes. I'll take that one, Manav. So I think we feel very good about the sustainability of the growth rates. The investments that we made in both our digital platform as well as content are really paying off. So, on the content side, the investments in deep sector, ESG, wealth content, these are all driving workstation growth very nicely. And then on the technology side, just the opening up of the platform and the ability to serve up data to clients wherever they want it, whether it's in Snowflake, Amazon, through our APIs, you name it, that, I think, has a lot of runway. And then we just continue to invest in making sure that our software is the best in the industry and that we're creating an interface that is really pleasing to our clients where they can come in, sift through all the noise and really understand sort of what it is that's important to them.

Got it. I guess I was focusing a bit more, Phil, on just the acceleration you've seen in the sell side, most notably. And then obviously, this quarter, the buy side as well. So just -- I don't know how you guys are thinking about sell side continue that? Or are there any signs that's going to start slowing down just more along those lines?

We had a good quarter for the sell side relative to this time last year. However, what I'm most excited about is the acceleration in the buy side. So you can see that the buy side as a whole, the way that we measure it, grew, I think, 200 basis points. The largest segment within that for us, the largest fund type, they're just the institutional asset managers where we've seen, obviously, a lot of pressure over the last few years. But our solutions are resonating with them. They had a very strong quarter relative to the other phone types. I think it was the biggest contributor on an absolute basis relative to last year. So we're really bullish about the buy side and particularly our analytics solutions are beginning to take hold again. So, I think there was some pent-up, I think, demand there on the buy side. And I think as we're sort of learning -- all learning how to operate within a new environment, we saw a lot of deals that have been kind of pushed off beginning to come to fruition.

Our next question comes from Toni Kaplan with Morgan Stanley.

Perfect. And great speaking with you again, Linda. Just wondering if you could talk about how it's going so far and any best practices that you're bringing with you from Moody's and MSCI and really any sort of changes in capital allocation strategy as you think about it from what you've seen so far?

Thanks, Toni, and it's great to hear from you as well. So far, everything is going great. It's been about 10 weeks. And for this quarter, we've been able to pair some pretty terrific top line growth with our start on what we're going to do on working on the margin. So you probably saw, we did a $9 million restructuring charge as well as a $3.7 million real estate charge. And on the margin front, we've talked about the need to focus on four big buckets of cost, which would be compensation, technology, real estate and third-party data. So what you're seeing here is the out-of-the-box first efforts here to make sure we've got the margin plan moving along. And this is a best practice, obviously, that has worked in other places. So the $9 million restructuring charge, we were able to take about 5% off the compensation line. We increased spans of control for the managers, and we reduced the number of layers in the corporation by one. So that efficiency was very, very helpful to us. We've also been very careful about headcount additions. Headcount is about flat for this quarter. And we did invest some of that 5% savings from the comp line back into key talent and high potential employee performance compensation for those folks. On the real estate line, as we said, we've got to take a look at our real estate footprint given that a number of our employees are very excited about continued flexibility. The analysis here is to look at the real estate line, think about what we can best do to get the footprint rightsized. And we haven't come to a conclusion yet on that because we have to make sure that the offices work well for the employees. But we're starting on our margin journey here. You see that the margin exceeded the guidance for the GAAP operating margin. And on capital allocation, we've begun our discussions. No official decisions quite yet. We will be releasing our 10-Q early in January, and we'll see where we get to after that. But so far, so good, good focus on margin, good focus on capital allocation. And we're also looking to be more specific about the returns on our investments that we've made. Not quite there yet on that one, but Phil will be speaking some more about the fact that we've continued to invest through the pandemic, and that is really paying off for us now. We continue to invest where some others pulled back. So, so far, good, and thanks for the question.

Terrific. And as a follow-up, Phil, I just wanted to ask about sort of the product road map from here. You mentioned that the deep sector strategy is gaining some traction. And so I guess, what's next? And how are you thinking about -- I'm sure we'll get some color on that at the Investor Day, but just anything you're excited about into -- in this fiscal year.

Yes. Thanks, Toni. There is still quite a bit of work to do to finish off the work that we set out three years ago. So we're on track for deep sector. So we -- as I talked about in the script, we released a couple more industries there. So we've got a few more to go. We continue to build out our ESG coverage. So, we're very excited about the Truvalue Labs acquisition that's growing at a good clip. And one of our -- one of the things we do well when we acquire data like that is just continue to build it out in terms of coverage. So there's a lot of effort behind that. And then on the private market side, that's a relatively new area for us. We're super excited about the Cobalt acquisition. But we're just going to continue to build out what we can offer there from both the data and workflow standpoint. So I'd say on the content side, those are still very exciting and still a ton of runway, and we think we can take a lot of market share once we complete all of those. And then I would say on the software side, it's really this concept of next best action. So we've seen a lot of interest in our adviser dashboard, which has been sold to a number of wealth firms. And that really, as we've spoken about, allows an adviser to sift through the noise and sort of understand what he or she may want to do as the first 10 things on any given day. We're going to extend that concept to other firm types and other workflows. So it's still early days for that, but we do think that, that's going to be an important differentiator for us as a firm.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

Congrats on the solid results. I just wanted to hold down further on analytics. Phil, obviously, you mentioned pretty good pent-up demand and pretty good momentum, strong demand for your end products. I was just wondering if you could talk about how big is the opportunity where you are in exploring those opportunities. And then as we think about these implementations, are you replacing an existing third-party systems or in-house applications? I was just wondering if you could also talk about whether you're gaining market share. So, any incremental color on the analytics front?

Thanks, Ashish. And as you know, it's a broad portfolio of solutions and products we have there. So maybe I'll break it down. In terms of our front office solutions, what we have in there are our trading capabilities and we put our new Quant research environment in there. And both of those are doing very well. So we're seeing very good adoption of the front office solutions. And I think the release of our fixed income trading capabilities should provide some good upside in the future. So on the front office side, we feel good there. We've put a lot of effort into integrating those assets that we bought a few years ago. We've released our portfolio management platform, and we're seeing a ton of interest. In the middle office, we had a very good quarter as well. In fact, a lot of what drove analytics was good old portfolio analysis, and we saw very good uptick there, and that had been sort of flat for a while. So that's sort of a testament, I think, to us continuing to invest in that product and some of the work we've done there to just continue to execute well on the sales front. So, we just see a ton of opportunity. I mean it's, I think, around a $600 million business today. I think that's what we reported at the end of last fiscal year, but it's really nice to see the growth rate of that segment of our business, which has been differentiating for FactSet and should be moving forward. There's a lot of excitement amongst the team and that's what's been driving, I think, the improved relative performance on the buy side.

That's very helpful color. And Linda, maybe a follow-up question. Thanks again for providing that color on the cost or cost takeout opportunity and margin expansion opportunity as well as capital allocation. I was wondering when do you plan to provide like an update on the mid or long term? Should we expect that at the Investor Day? And maybe if I can just ask on the margin front itself, how do you think about the margin expansion opportunity as you think about these four buckets of cost take out?

Ashish, maybe I'll start with your second question first. On the margin opportunity, it's quite clear that FactSet has some room to go and to improve on the margin front. So what we're going to do is we're going to look at all four of these buckets very carefully, benchmark them and see what action we should take. And what you've seen this quarter, as I said, is a start on that path. So our guidance for this year is 32.5% to 33.5% adjusted operating margin. We're ahead of that for this quarter, which is really good, very hard to predict the margin sequentially. So we're just going to stick with the annual guidance. And we have a very sharp eye on the margin focus at this point. On capital allocation, I think you're right, as we move toward Investor Day, which is currently scheduled for April 5, we'll see what happens as every day is a new day with COVID. We would like to talk a little bit more about this. I think directionally many of the companies in this space are sort of investment-grade companies in the BAA, BBB space. I think we'll think about that a little bit further, and we'll give you a little bit more guidance as we move through the next earnings call and Investor Day.

That's very helpful color. Yes. No, it was very helpful and congrats once again.

Thank you.

Our next question comes from Alex Kramm with UBS.

I think you mentioned, Linda, value-based pricing opportunities a couple of times in your prepared remarks. Can you flesh that out a little bit more? I think you've talked recently about the inflationary environment potentially helping you. But when I look about the next quarter, that's usually when you have your Americas increase, I think that added 1.5% to pricing last year. So clearly, I don't think you can reprice across the whole book. So maybe talk a little bit about how much of your ASV actually is -- you can reprice? And then obviously, how you feel about that 1.5% from last year, this year in a higher inflationary environment?

Sure, Alex. Let me start and then Phil will pick up from there. So one of the things that is important to note is that most of our contracts indicate that we can take price increases if warranted at 3% or up to the rate of inflation. Now we're not obviously going to price up to the rate of inflation, which recently has been quite a bit higher. But I think it's important to note that the sales team, led by Helen Shan has done a good job of upping the realization on the price front for us, being very careful to provide appropriate value to our customers. So with that, I'll probably turn it over to Phil and let him speak a little bit more about what we see in the future for price.

Yes. Thanks, Linda. Alex, yes, so I think we have got good pricing power and Linda mentioned that Helen did -- she put in a massive amount of work, frankly, in the last two years to sort of rationalize a lot of the SKUs that we had on FactSet. In fact, I was told at one point that there were more FactSet SKUs than molecules in the universe, which worried me a little bit. So we've done a great job to rationalize that. And Helen is certainly for new business, making sure that we're using these new packages. And it has made the lives of the salespeople so much easier. It's -- they have less to worry about in terms of making sure the packages are customized for clients. It's helping us be more efficient. I think it's providing more value in the marketplace and sort of clients are sort of -- it's an easier choice for them. So, I do think its early days on this, and we're not going to jam it all through at once, but we're just going to move our way through this in a systematic way and make sure that we're keeping the health of our clients and the great relationships we have with them as a top priority.

Okay. Great. And then I guess, secondarily, just coming back to the margin, obviously, decent severance action taken this quarter. And you said some of these savings are going to be reinvested. So any other color you can give us in terms of how quickly you're going to reinvest these savings? I mean, I look at last year, and I know your margin was decent in the first quarter, but it was down year-over-year. And I don't know what the cadence for the rest of the year is going to be. But I guess my question would be, should we expect the near-term margins to come up a little bit as you realize these savings and then they get reinvested later on this year. So any help you could provide us would be helpful here.

Yes. Alex, it's as I said, tough to predict the margin quarter-over-quarter. This first quarter has run exceptionally strong in terms of sales, as Phil has detailed. One of the things that we noted as a result of that, which makes it difficult to talk about the margin quarter-over-quarter is the performance plans and the bonus plans associated partially with the sales team and with the rest of the corporation. So for example, last year, we put up $15 million for the performance plan. And this year, in fact, that number is $21 million, just to show you the difference in the strength between Q1 this year versus last year. So we will continue to work hard on making progress on the margin. We took some of these charges earlier in the year so that we are hopeful that the run rate will improve as we move through the year. But in terms of headwinds, we've got some choppiness coming from what the Fed has discussed and potentially as the semicon situation continue. So, we think we're doing and taking the right actions on our part, Alex, but it's kind of hard to tell with this market environment being as choppy as it is. But we're really pleased with the first quarter and the progress that we've made, and we've taken the tough steps here. So, we're optimistic and keeping a close eye on everything. I don't know, Phil had anything more he wanted to add.

No, that's good. Thanks.

Our next question comes from Shlomo Rosenbaum with Stifel.

Phil, maybe you could talk a little bit more about the margin journey. Just historically, FactSet had a certain philosophy in terms of reinvesting incremental margin over a certain level to drive long-term revenue growth. With the discussions today and talking about room for margin to go up, is there -- is that a -- is that same philosophy continuing, but the idea is that we have a higher margin level that we're kind of -- or range we're targeting? Or is there some kind of different approach that you're taking towards the margins in terms of balancing the margin versus the target revenue growth for driving long-term value for the Company.

Yes. So thanks, Shlomo. Good to talk to you. Yes, we will continue to reinvest in our product. We've done that over the last four decades. And as a technology and content company, it's so important that we do that. So we took that step back a couple of years ago. We're marching back to levels that we had back then. But I do believe that a big piece of the thesis here was to invest in the technology in a way, which would make FactSet more efficient. So we do think there's a lot of efficiency to be gained by what we put in, in terms of the tech stack. And we just have to balance over time how much of that we leverage in terms of margin versus reinvesting in the business.

And Shlomo, I would add, we've increased on the margin by 50 basis points for this year. We would hope that, that would be a trend to continue, but stay tuned year-over-year. I think one of the other things we're going to have to watch and if we can't fight measure yet is the management of the product portfolio efforts under Christi. And with that, we're going to focus a little bit more on how profitability. Is there anything we need to trim or prune and just make sure that we have the product focus correctly in order. Phil may want to say a little bit more about this. But we suspect that if we get that piece right, we may be able to find some more margin. And we're just not sure yet you just announced this change recently.

Yes. So I think maybe in your follow-up conversations with Kendra and Linda later, they can provide more detail here. But part of the restructuring, we also reorganized the Company in a way where we're thinking about product management a little bit differently. So we elevated the Chief Product Officer role under Christie Canopy and that did result in some changes in terms of how a different function well organized.

Okay, great. And just for my follow-up, can you just talk a little bit about what you're seeing in terms of just employee churn. I just did note that some of the investment is to make sure to invest in retention of key personnel and it's a secret across Wall Street that there's a lot of movement going on right now. What are you seeing internally? I mean there was only in you mentioned in terms of headcount, you cut a tight rein, I don't usually see a net new additions in one quarter of just six people. I was wondering how much of that was purposeful and how much is really trying to manage the churn that might be going on?

Yes, Shlomo, I think a lot of that just has to do with us becoming more efficient as a company. Linda mentioned that we went through the spans and exercise where we added one span of control on average for managers, and we removed one layer from the organization. So I would attribute most of it to that. But like any company, right, we're very cognizant of the war for talent. We're really focused on making sure that the employee value proposition affected is as strong as it's always been and making sure that we're hiring and retaining the critical roles and functions that we need to succeed in the future.

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

So deep sector has obviously been a key driver of both retention and new business definitely appears to be helping the corporate channel. Just wondering, if you can discuss the competitive landscape for these data assets? And just wondering how unique your data is relative to other providers and how it is differentiated?

Well, one of the differentiators, David, is I think just a great job that FactSet does connecting any data that we have on our -- in our refinery to the other data sets. So there's a ton of value to just making sure that we're linking all of this deeper data to everything with our entity data map. And we just see very broad-based demand, obviously, for more detailed data as people are looking for alpha in terms of their investment process. So, we're not just seeing demand for this in banks. As you pointed out, we're seeing demand for it in corporations. We're seeing demand for it on the buy side. So I would just say we're just competing generally in the market with us, but we're moving quickly. The visualization that we provide for the content is going over very well with our clients. We're making the data available through feeds and APIs, which is important as well. So we're just sort of treating it maybe as the next generation of fundamental data essentially for our clients.

Okay. Got it. And then just on the real estate side. So my sense is that any reduction is not in guidance today. So would any savings represent potential upside to the margin guide? Is that fair?

David, it's possible that, that would be the case. I would just caution that some of the leases that we have are longer term. And so it's going to take us a bit of time to think about the collection of leases that we would want to change. So directionally, yes, and we may have some more to say about this as we finish our analysis as we move forward.

Our next question comes from Owen Lau with Oppenheimer.

Just a quick one from me. Could you please provide some update on the opportunities in ESG and the progress of offering this service to clients?

Yes. So thank you, Owen. Yes, we see a lot of opportunity, like I think many firms do on the ESG front. So we acquired Truvalue Labs about a year ago. We've done, I think, well, continuing to sell that product. And we've also done a good job of integrating it into the FactSet ecosystem. So you can now use ESG as an overlay, for example, in your portfolio analytics process. And just to remind everyone, the differentiator for Truvalue Labs is really that it's an outside in look at a company, and it's more of a real-time evaluation of how that company is doing. So we're really stepping on the gas here in terms of building out the coverage for this, which we think will be important. I'm just very optimistic about using ESG like throughout the system, like depending on the business or firm type or workflow, everyone's going to want to look at it one way or the other. So it's still relatively early for us, but we're very pleased with our progress.

Sorry. So just for me to understand that, do you think it's better to build in-house? Or do you think it's better to buy the service from an outside party?

Well, we offer both. So I think in true FactSet fashion, we're Swiss about this. We're very open. We probably have up to 20 different ESG providers within FactSet. So what I see mostly when I talk to clients is the -- more than half of them are building their own solution, but they're using different elements of different providers, ESG solutions. It's still not clear sort of exactly where we're going with ESG just in terms of regulation and so on. So I think there's still a lot of opportunity here. So most firms are building their own dashboards. If they want to just take Truvalue Labs, that's fine with us, but more often than not, they're integrating more than one. And because it's all on FactSet and it's connected with our entity data map, we make that very easy for them, right? They don't have to manage all of these fees themselves. And that's one of the things that make us so sticky.

Our next question comes from Hamzah Mazari with Jefferies.

This is Mario Cortellacci filling in for Hamza. You guys mentioned Omicron earlier, just sound like it's on the margin side. But maybe you could walk us through how to think about Omicron in terms of, I guess, delayed office reopenings. Does it could potentially push out maybe sales or the implementation of analytics packages? Or is there any indication on any impact to the sales cycle?

I don't think so. I mean we've obviously performed exceptionally well over the last two years. So we figured this out to do it remotely. And we do want to offer our employees the best balance in terms of their own lives. So it's a moving target for everyone. We -- our offices are open for business, and our employees can come in if they're vaccinated. And then I think we've probably got to take another pause here and just sort of make sure that we're paying attention to local regulations by city, state or country and just doing the right thing by our employees. But in terms of us running our business and working with our clients, I don't see it's going to change anything.

Great. And then just my follow-up is around sales force productivity. So maybe you can give us a sense for how it's trended or how it's trending today? And I guess how much more room there is for improvement there? You guys mentioned that you guys -- your employee base is being very efficient, but maybe, again, any indication there? And then also, what are your sales hiring plans for the remainder of the 2022 fiscal year?

So our sales productivity, I believe, is going up, and I do think there's more runway there. So Helen certainly hit the ground running as Chief Revenue Officer. She's doing a great job there. She's made a few moves to sort of restructure the sales force by firm type where we can and focus on different types of clients. So we've invested a lot in our information systems over the last few years. As I mentioned, we've done a lot to sort of rationalize the packages on FactSet. Helen is putting some great incentives in there in place for the sales team, which I think were effective in Q1. So there's a lot of levers that we're pulling. And obviously, it's great. The sales team is having a lot of success. So we've got a great team at FactSet on the sales front and client service. It's a big team. It might be an order of a couple of thousand people that we have facing off against our clients, but they're all working very well together, having fun and it's great to kind of see this momentum. So we will certainly keep hiring, but we have essentially created a lot of really good salespeople at FactSet from people that come up through the consulting and specialty ranks and what makes FactSet salespeople so effective is just how well they know our product.

Our next question comes from Andrew Nicholas of William Blair.

This is actually Trevor Romeo in for Andrew. First, I just wanted to touch on the retention side. It was nice to see client retention increased to 92%, which I think was the highest in several years. Just wondering if you think you have room for that metric to increase further and maybe what might be a realistic target for client retention?

So it's great to see the improvement. And again, this is really just the dedication and focus of the sales and client service teams and how well they've been able to operate in this environment. So I know that retention has been something that Helen has been stressing extremely strongly with the sales team, and she's thought about sort of how to distribute that work there, how to kind of allocate the work amongst teams and it's really paying off. And again, it just points to, I think, the strength of our products, how well we've worked with our clients in this environment. There's multiple reasons why that number is increasing. And FactSet is just becoming stickier and stickier and a critical part of so many of our clients' workflow.

Okay. Great. And then I think you touched on this a bit in the prepared remarks, but the ASP growth in Asia has been quite a bit stronger than the other two regions in the past few quarters. Is there just anything you can call out there that's benefiting the Asian markets, in particular, more than the others?

I would just say that, that market has grown faster than the other two for a long time. It's -- FactSet is a mature company. We just entered the S&P 500, but Asia is still our newest market. And we do see a lot of opportunity out there in terms of leveraging some of the solutions that we've built. And I think active management, it seems to be more alive and well in every region, but I think it's probably a little bit easier to be an active manager in Asia than it might be in some other regions. And in FactSet, that we have solutions for everybody, but we have great solutions for active managers.

Our next question comes from Kevin McVeigh with Credit Suisse.

And congratulations on the S&P admission. That's a fantastic outcome. I don't know should be for Phil or Linda, but -- so can you unpack the ASP a little bit? I mean it sounds like you're going to be in a period of probably better pricing and the retention is going up. I mean, should that imply some upside to that? And then just can you unpack the pricing a little bit? How much of it is just kind of the rate of inflation as opposed to maybe the remixing of higher value-added services, right? Because there's obviously the core pricing, but then maybe there's a service component to it. So can you help us understand that dynamic a little bit?

Sure. So I think for the first question, our success or acceleration was very broad-based this quarter. So we saw strength across every region and we saw relative strength across all three of our business lines. And as I mentioned, we saw very strong growth, double-digit growth in many of the firm types that we sell to. So I would just point to the investments that we've made in technology and content apply to all of these different areas. That's one thing. And then in terms of price, usually, our major price doesn't go in price increase until Q2 for clients in the Americas, in Q3 for EMEA and Asia Pac. So I would just say, up to this point, it has to do with price realization across these new packages that we've created. Hopefully, that answers your question.

It does. And then just real quick, because obviously, the cloud is kind of transforming your business. Where are you focused internally on that? And then more importantly, like where are your clients, right, because obviously, you enabled a lot, but from a cloud adoption perspective, can you help us frame where you folks are internally? And then where your client are externally in terms of cloud adoption? That may be stock, but is there any way to frame that a little bit?

Yes, I can't give you percentages for the clients. I mean for FactSet, we're more than halfway through our program to move to the public cloud. It's a multi-cloud strategy. And we're also, as you know, partnering very well with firms like Snowflake and Amazon, which we've both been public about that. So the reason that we're moving so quickly there is our clients are moving quickly to the cloud. Almost every single firm you talk to is going through some form of digital transformation. So the fact that we're so focused on this, and we've made so much progress, really allows us to sit down with these clients and have our tech teams face off and talk about the technology stack, what we can do to help them and what we can do to help them rationalize their spend across content technology providers, but also content providers. So I think it's sort of non-negotiable. We all have to be doing it. I'm very excited that we sort of decided we were going to do it aggressively two years ago. And again, I think that just speaks to some of the success that we're seeing now, particularly over the last few quarters.

Our next question comes from Keith Housum with Northcoast Research.

A question for you on the growth. I guess, Phil, can you talk to the growth that you guys experienced this quarter and how it compares to prior quarters in terms of growth from existing customers versus new customers that you're adding?

Yes. So I think we saw relative to Q1 of last year, we saw improvement in terms of expansion, retention and new business. So again, I think it was very broad-based. On the new business front, you can see we added a lot of new logos this quarter. A lot of those were driven by corporates, but we did see a good uptick across some other firm types as well. But again, I think it just speaks to that we're firing on all cylinders here and every way that you look at our business and how we're measuring it, we're seeing good momentum.

Great. And I just kind of want to kind of reconcile that in the past two to three quarters, you've spoken to the strong momentum that you're seeing in the pipeline. Perhaps talk about the pipeline this quarter perhaps compared to the fourth quarter we just passed. And then how does that kind of compare with, I guess, recognize some comments that Linda made in terms of caution with Omicron and the other reserve. Is your optimism the same level you've had in the past few quarters?

Yes. I think I feel very, very good about our pipeline. And as we've mentioned historically, sometimes it's hard to see out more than six months. But I would say relative to this time last year, Q2 and Q3 are looking good, and looking good across institutional asset management, which, again, I view as sort of a key firm type for us. So we've got, think, decent visibility on the next six months. But because Q4 is such a big quarter for FactSet and it's a little further out and some of the things that Linda mentioned and the fact that it's Q1, we just feel that it's important that we sort of give ourselves a little bit of time before we revisit guidance.

Our next question comes from George Tong with Goldman Sachs.

And Linda, welcome to FactSet, and excited to work with you again.

Thanks, George.

Yes. So maybe first question for you, Linda. FactSet previously had a longer-term target of high single-digit annual organic ASV plus professional services growth. What are your qualitative views on FactSet's longer-term ASP growth outlook given your experience as CFO of other info services companies in your time so far at the Company?

Yes, George, I think the numbers that we put up probably speak more strongly than any of our opinions and the fact that we've been able to do 9% this first quarter has really been a very strong statement to the growth potential for the Company. Phil's also been really modest and hasn't mentioned that, that growth is very broad-based. This is not being done on the back of one or two mega deals or anything like that. It is singles and doubles again and again and again with clients who are telling us that the investments that we've made over the past two years when many other providers stood still or pulled back, that time has really given us -- and the money has given us the opportunity to really have the best-in-class products for our clients, which is really very, very exciting. Secondly, in terms of how we did this quarter and if you bring it down to the EPS line, looking at our comparison of this year over last year, it's a pretty impressive performance. Last year, on the adjusted diluted EPS, we were at $2.88. This year, we're at $3.25. And we looked at some of the flash reports and a lot of that was attributed to tax and a lower tax rate because of options exercise. That's true. But if you take the beat of $0.37, about half is from the operating side and about half is from the tax side. So even if we had no change in tax rate, we would have beaten by about $0.20. So we feel pretty good about that, and we think it's a testament to the strength of the business. So the next steps are increased focus on the margin, which I talked about, increased focus on the capital allocation and just really make sure that we're running the Company as efficiently as we can. It hasn't been spoken to, George, but last year, in addition, we had $18.5 million in CapEx we spent in the first quarter. This year, it's down to $8.6 million. Part of that last year was the build-out of our Manila office. But with that gone, CapEx has come down a bit. So as Phil said, we kind of see the hump here in terms of this investment program that we've had. But while there were a lot of doubters two years ago, it seems to be paying off. So we're pretty excited about all of that. I hope that helps.

Got it. Yes, very helpful context. And then, Phil, in fiscal 2021, research, organic ASV plus professional services growth was 5.7%. And this was meaningfully higher than the average of 1% growth between fiscal 2017 and fiscal 2020. So far in fiscal 2022, can you elaborate on the trends within research that may be similar or different to those that you saw in fiscal 2021? And whether you believe mid-single-digit plus growth is sustainable within research?

Yes. Thanks, George. So yes, research had a very -- a tremendous quarter. So I think we've continued to see strength with sell-side analysts in Q1. It wasn't the primary driver of ASV by any means, but it certainly helped. And I think it just really speaks to all of the great work. The research and advisory team has put in over the last few years just to get more content into the platform and to build out just fantastic reports for all of you that use our product. So I am optimistic about this part of the market. I think when we started talking a few years ago, right. We talked about having that great balance between enterprise and analytics solutions and the desktop. But it's really nice to see the core FactSet workstation really coming back strongly. And there's just a ton of opportunity out there for us in terms of desks that we feel we can go capture now.

Our next question comes from Craig Huber with Huber Research Partners.

In your buy-side set of clients, you obviously include corporations in there and other, what percent overall now of your revenues are corporations? Maybe how is that piece doing versus a year ago, please?

We don't break that out, Craig, as a number, but I can tell you that it's growing very quickly. It's probably the fastest growing firm type we have. And again, I think because of the investment that we've made in new content sets, I think we can appeal to more workflows within corporations than we might have historically.

But also, can you go a little bit deeper in the deep sector data that you guys are providing. You talked about some new sectors you want to roll out here, I guess, sooner rather than later. What sectors have you rolled it out for so far? And what are your aspirations there?

I think that's probably -- so we've spoken publicly about those. It's a pretty long list. But I think in your follow-up conversations later today, I think we can certainly give you more detail.

And I'm not showing any further questions at this time. I turn the call back over to Phil Snow for any closing remarks.

Great. Thank you all for joining us today. In closing, I want to reiterate how pleased we are with this quarter's performance. As a company, we are ending the calendar year strong. We saw the highest incremental Q1 ASV in the Company's history. And we celebrated the fantastic achievement of joining the S&P 500 Index. And we also welcomed Cobalt Software and its talented team to FactSet. Please be well this holiday season. And if you have any additional questions, call Kendra Brown, and we look forward to speaking with you next quarter. Operator that ends today's call.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect, and have a wonderful day.