The operator introduces the MSCI Third Quarter 2023 Earnings Conference Call and reminds participants that it is being recorded. Jeremy Ulan, Head of Investor Relations and Treasurer, then takes over and directs listeners to the company's website for more information. He also cautions against placing too much reliance on forward-looking statements and mentions the use of non-GAAP measures and operating metrics in the presentation.

In the third quarter, MSCI had strong financial performance with 21% growth in adjusted EPS, 12% growth in total revenue, 12% growth in recurring subscription run rate, and a retention rate of 95.4%. They have returned $459 million to shareholders through share repurchases and dividends and are committed to prioritizing high growth investments while maintaining profitability. MSCI recently acquired Burgiss, a company that provides transparency for private and public assets in investors' portfolios.

MSCI's acquisition of Burgiss and Trove Research have strengthened their position as the world's largest private asset class database and a provider of tools for understanding and measuring performance and risk. The addition of Trove's intelligence on the voluntary carbon market will help investors and companies reduce climate risk and promote transparency and consistency in the market. These acquisitions align with MSCI's larger business strategy of providing tools for optimal asset allocation and portfolio construction, as well as capturing major investment trends such as the growth of private assets and the incorporation of climate as a material driver. MSCI's interconnected product lines in private assets and climate reinforce each other.

In the fourth paragraph, the speaker discusses MSCI's strong business model and recent acquisition of Burgiss, which will expand their presence in serving investors and managers across all asset classes. They also highlight their solid performance in the third quarter, with a 15% growth in subscription run rate among various client segments and a 10% growth among asset owners and asset managers. This demonstrates their continued strength and momentum across all areas of their business.

In this paragraph, the focus is on the company's product lines and their performance. The index division saw a 39th consecutive quarter of double-digit subscription run rate growth, while direct indexing AUM based on MSCI indexes increased by 68%. The analytics division also had strong subscription run rate growth and a high retention rate, with significant deals in enterprise risk and performance. The ESG and Climate product lines also saw strong growth, particularly in the EMEA region due to regulatory requirements. Overall, the company's products are in high demand and are helping clients with portfolio customization and regulatory compliance.

In the third quarter, MSCI saw significant growth in assets under management and index-linked climate ETFs. The company also experienced strong growth in real assets, particularly in the APAC region. MSCI's diverse capabilities and global reach have helped the company maintain high levels of client engagement and a healthy pipeline. Looking ahead, MSCI will continue to prioritize profitability while investing in the business. In the index subscription segment, MSCI saw double-digit growth in revenue, recurring subscription run rate, and adjusted EPS, with strong growth from hedge funds, wealth managers, and broker-dealers.

In the third quarter, asset-based fee revenues increased by 12% due to cash inflows and market appreciation in equity ETFs linked to MSCI indexes. This growth was driven by US and other developed market exposures, as well as investments in ESG and climate indexes. In analytics, there was a 7% growth in subscription run rate, with a focus on factor models and risk tools. The ESG and Climate segment saw a 25% run rate growth, driven by ESG research and climate services. Real Assets also saw a 10% growth, with momentum in real estate offerings, but transaction data was impacted by industry pressures.

The company is facing pressure in the market, but they are optimistic about their long-term opportunities and expanding their databases. They will report financial results for Burgiss in the all other private assets segment and expect it to generate around $90 million in revenue for full year 2023. The standalone adjusted EBITDA margin is expected to be 15%, but there will be additional allocations from centralized and shared costs. The company remains opportunistic in their capital allocation and recently acquired Trove, which will be included in their ESG and Climate segment. Their guidance takes into account the impact of Burgiss and assumes stable AUM levels for the rest of the year.

The company's expense ranges have been adjusted to reflect a slightly higher spending pace and a full quarter of expenses from Burgiss, including integration expenses. Free cash flow guidance remains unchanged, but CapEx guidance has been slightly increased to account for higher software capitalization and hardware purchases. The company's D&A guidance includes additional intangible assets from purchase accounting adjustments. The effective tax rate guidance has been slightly lowered and narrowed, excluding a non-taxable gain from the company's investment in Burgiss. Interest expense guidance reflects the company's intention to draw from its revolver for additional liquidity. The company remains well positioned for growth, despite budget pressures from clients and a slightly elevated level of client events. The company has a strong pipeline for the remainder of 2023. The call is now open for questions.

In response to a question about index sales during the third quarter, Andy Wiechmann, a representative from the company, stated that there was nothing significant to note and that they had good momentum across module types and client segments. They had a 9% run rate growth in market cap modules and double-digit growth in non-market cap-weighted modules, with solid growth in all major client segments. Recurring sales were in line with the previous year, while cancels were slightly higher due to client events, but the overall retention rate was still strong. There were some budget pressures from the market, but the company remains optimistic and sees good engagement and momentum heading into the fourth quarter.

Baer Pettit from MSCI discusses the company's focus on ESG and Climate product development, including expanding data, regional coverage, and investment in private markets. He does not comment on the impact of a competitor's recent layoff program.

The speaker discusses the company's strong position to compete in the core business and their commitment to being a leader in the industry. They also mention that certain competitors are cutting back in an area where the company has chosen to continue, showing wise decision-making. They express confidence in maintaining their leadership position even in a tougher environment. When asked about ESG, the speaker notes a strong engagement and increasing importance of ESG and Climate in the investment process. They mention slower growth in the Americas but highlight strong growth in EMEA and APAC, with EMEA representing 50% of the company's run rate.

Sales were flat in EMEA and APAC, and softer in the Americas, due to investors being more cautious about integrating ESG. However, the company remains encouraged by the stability and strong engagement and retention rates. The dynamics in EMEA are similar, with regulation being a catalyst but also resulting in longer sales cycles. There are also environmental impacts. The company has confidence in the long-term opportunity and a strong pipeline, but net new sales numbers have not been as strong in the first three quarters. The company is optimistic about Q4 and heading into 2024.

The speaker, Baer Pettit, confirms that the sales pipeline at the firm is healthy and solid, despite the uncertain environment caused by the pandemic. Andy Wiechmann adds that expenses are increasing due to a pick-up in spending and investment, and the full quarter of expenses from Burgiss in the fourth quarter. This will lead to higher overall expense guidance.

The speaker discusses the impact of acquiring Burgiss on the firm's margin and the growth potential for the ESG and Climate segments. They mention that bringing in Burgiss will lower the overall firm margin, but there is potential for margin expansion within Burgiss. They also address the difference in growth rates between ESG and Climate, stating that Climate is a distinct offering and has stronger growth potential. They also mention that the long-term growth target for the firm is in the mid- to high 20s range and that they do not provide separate net new subscription sales growth for Climate and ESG in Q3.

The overlap between ESG research and ratings and climate solutions is heavily related, but the two areas are distinct. MSCI offers a range of solutions to help clients integrate climate considerations into their investment process and achieve Net Zero goals. Climate is a smaller segment compared to ESG, but it is expected to drive higher growth due to the early adoption of climate tools by clients. MSCI has not made any changes to its long-term targets in either ESG or Climate and believes there is a big opportunity for both in the long-term.

The speaker discusses the factors that are currently impacting growth in the short term, but remains optimistic about the long-term opportunities. They mention the growth in ESG and Climate segments and the success of price increases in the third quarter.

The speaker discusses how they are mindful of the varying pushback on price increases depending on products, regions, and client types. They aim to provide value with any price increases and monitor the market and inflation. They have raised their full year OpEx guidance by $40 million, with $20 million per quarter for the Burgiss acquisition and $4-5 million for acquisition-related expenses. They decline to comment on the recurring expense for 2024. Their previous adjusted EBITDA expense guidance was $965 million to $995 million.

The company's AUM levels have remained flat, resulting in organic growth tracking towards the high end of expectations. The increase in expenses, including Burgiss expenses, will bridge to the new expense guidance. The company expects similar seasonality in ESG and Climate sales in the fourth quarter. Growth in the Americas for ESG and Climate slowed to 15%, while EMEA saw healthy growth at 35%. The company did not provide specific reasons for the slower growth in the Americas, but indicated a healthy pipeline for the fourth quarter.

In the Americas, there are consistent themes in the integration of ESG into investment strategies, with a focus on aligning with overall objectives, optimizing risk-adjusted returns, differentiating from competitors, addressing client and investor objectives, and preparing for upcoming regulations. This has led to more measured purchasing decisions, longer sales cycles, and lower sales, but overall engagement is healthy. In the Analytics segment, run rate growth has accelerated.

Baer Pettit, a representative from a financial company, is answering a question about their investments and growth in certain segments. He mentions three key areas of focus: the front office, content, and climate risk. While they are not completely satisfied with their growth, their retention rate of 95% shows that clients are still using their tools. They are consistently improving their products through technology and content integration, and have a good client engagement. However, the uncertain and volatile market environment can affect their growth.

The Burgiss acquisition has provided MSCI with a strong foundation for developing their private asset classes. The integration of Burgiss will occur in three parallel tracks: integration of support functions, alignment of data and technology, and new product development. A main focus will be on developing better benchmark indices for private assets, which is a frequently asked question from clients.

The speaker discusses three pillars of expansion for the company, including the intersection of private assets and climate, underselling the Burgiss product line, and integrating and creating new products. They also mention being focused on capital allocation and prioritizing buybacks and M&A, and give growth numbers for ESG in the US and EMEA for the quarter.

The company believes that capital allocation is crucial for long-term growth and they focus on both internal and external capital allocation. In periods of high asset prices, they are disciplined and tend to buy back shares instead of making expensive acquisitions. However, in times of uncertainty, they are able to make financially disciplined acquisitions. They also mention their focus on financing and currently, they are reducing their debt.

The company has implemented a downturn playbook in the past and has the ability to take out more costs if needed. They are financially disciplined and have plans in place to protect profitability in the event of a downturn.

The company's expenses in all four segments were down in the third quarter, but this is not indicative of a trend. The company is committed to high levels of profitability and investment in both good and bad times. In the ESG and Climate segment, expenses have been below the medium-term guidance, but the EBITDA margin is above 30%. There may have been changes in investments or a slowdown in costs in this segment.

Andrew Wiechmann, S&P Global's CFO, stated that there are no changes in the company's plans or outlook for investing in ESG and Climate, which continues to be an attractive growth area with big opportunities. He also mentioned that expenses and margins may fluctuate based on various factors, but there are no changes to the company's long-term targets. Henry Fernandez, S&P Global's CEO, added that despite the uncertain economic and geopolitical environment, the company is well-positioned to thrive and is excited about the opportunities in all of its product lines, including index, analytics, ESG and climate, and private assets. He also mentioned the potential in voluntary capital markets and looks forward to updating investors on the company's progress in the future.

The operator ends the conference call by thanking the participants and informing them that they may now disconnect.

This summary was generated with AI and may contain some inaccuracies.