The operator introduces the MSCI Fourth Quarter 2023 Earnings Conference Call and reminds participants that the call is being recorded. Jeremy Ulan, Head of Investor Relations and Treasurer, then begins the call and directs listeners to the press release, earnings presentation, and quarterly update on the company's website. He also cautions against placing too much reliance on forward-looking statements and mentions the use of non-GAAP measures and operating metrics during the call.

In the fourth quarter, MSCI had impressive financial results with a 30% growth in adjusted earnings per share and a 15% growth in organic revenue. The company also saw strong growth in operating metrics, including a 10% organic subscription run rate and a 94% retention rate. There was also record AUM in equity ETF products and non-listed products linked to MSCI Indices. Additionally, the company saw high demand for nonrecurring products, which make up 4% of their revenue.

MSCI's products not only generate subscription sales, but also strengthen client relationships and are a key part of the company's strategy. Despite market conditions, MSCI has consistently delivered strong results and remains committed to investing in organic growth and returning excess capital to shareholders. The company's client-centric approach has led to a high percentage of clients purchasing from multiple product lines, highlighting the value MSCI provides in the capital markets. MSCI is well-positioned to capitalize on secular trends, such as increasing demand for customized portfolios, through its expanded capabilities.

MSCI's indexing tools on MSCI ONE allow for personalized indices, catering to the trend of portfolio customization. The acquisition of Fabric and Burgiss has expanded their capabilities in serving the wealth segment and providing total portfolio solutions. MSCI's private asset class database, covering $15 trillion in holdings, positions them well to benefit from the growing private allocations. The combination of private and public asset class tools allows for a total portfolio view of risks and opportunities, strengthening relationships with multi-asset class allocators. MSCI's climate data, based on granular disclosed data, covers a wide range of companies and asset locations.

MSCI is a leading provider of global intelligence on carbon credit and is leveraging its Climate Value-at-Risk models to assess physical risk on 80% of locations. The recent acquisition of Trove Research has strengthened MSCI's presence among corporate issuers and their advisers. Trove provides key climate data on companies and carbon credit projects, which is crucial for achieving net-zero emissions. MSCI is focused on creating long-term shareholder value through strategic investments and rigorous financial management. The biggest need in the market is for more customized and personalized investment solutions, and MSCI is addressing this by providing highly specialized and scalable outcomes for investors.

The trend of customization in the index industry has increased demand for custom indexes that reflect specific objectives of portfolios. This has been particularly evident in the Wealth segment, where advisors need to integrate their clients' preferences with their house view. MSCI's acquisition of Fabric will enhance their capabilities in delivering customization at scale for wealth managers. In the fourth quarter, MSCI saw significant growth in their wealth franchise and secured business wins from a major global asset manager for their multi-asset class factor models. There is also a rising demand for integrated technology platforms to support compliance with complex regulations, particularly in the areas of climate and sustainability.

MSCI is integrating their content and capabilities on platforms like MSCI ONE, using their analytics franchise to host client portfolios and provide specialized content and insights. In 2023, they helped clients generate 130,000 climate and sustainability reports, and achieved their best quarter and full year on record for recurring sales in equity analytics. Despite challenges in certain product lines, there is still a strong demand for key market data and solutions, including in real assets and private capital. The integration of the Burgiss team has been successful and clients are enthusiastic about MSCI's total portfolio vision. Overall, there is a growing expectation for more detailed data and advanced technology in the investment industry.

MSCI is using artificial intelligence to meet the increasing demand for data and technology. They have made significant progress in this area, including a partnership with Google Cloud that has greatly improved their ESG document acquisition and classification. They plan to continue leveraging AI and open source data to expand their physical asset data coverage. MSCI is focused on creating long-term value while also delivering consistent results for clients. In the index segment, they saw strong growth in subscription run rates, particularly in custom indexes and special packages.

In the fourth quarter, MSCI saw slower growth in its factor and ESG modules due to clients preferring customized approaches. However, the company has a strong track record of growing with its existing client base in index and has a wide range of modules available. MSCI also saw significant cash inflows and market appreciation in ETFs linked to its equity indexes. The company also had strong non-recurring revenues from various use cases, such as unlicensed usage of its content and licenses for structured products and index history.

The company saw strong growth in subscription run rate and net new recurring sales in analytics, with a 7% and 68% increase respectively. The ESG and Climate segment also showed organic run rate growth of 16%, excluding certain factors. Real assets saw a 6% run rate growth, but the retention rate was impacted by smaller clients. The integration of Burgiss, now known as Private Capital Solutions, is progressing smoothly.

In the last quarter, the company recorded $25 million in revenue, which was at the high end of their expectations. They also incurred $4 million in expenses from centralized and shared costs, but this will not affect their overall EBITDA. The company plans to continue investing in the business for long-term growth, while also returning excess cash to shareholders through dividends and pursuing strategic acquisitions. Last week, they refinanced their credit, resulting in more capacity and lower costs. The company currently has $600 million in cash on hand, and they continue to pursue acquisitions that align with their long-term strategy.

The total purchase consideration for Trove and Fabric was $48 million, with the potential for additional performance-related payments. The 2024 guidance assumes flat AUM levels in the first half of the year, with a modest upturn in the second half. Expenses reflect ongoing investments and acquisitions. CapEx includes software development and hardware purchases. Interest expense reflects refinancing of credit facilities. Tax rate includes impact of OECD global minimum tax and windfall benefits. Fourth quarter effective rate included a discrete benefit. Free cash flow guidance reflects slightly higher cash taxes. The company remains well positioned for growth and will provide updates on progress. The first question in the Q&A session is from Toni Kaplan of Morgan Stanley.

The speaker discusses the challenging market environment for their company, particularly in the Index division. They mention flat markets, volatility, and outflows for their largest client base of active managers. Despite this, they have seen positive momentum and growth across various modules and client segments. They expect longer sales cycles and tighter budgets, but are focused on creating value for their clients to drive continued success. A question is then asked by Alex Kramm from UBS.

The speaker, Alex Kramm, asks about the slowdown in the ESG and Climate segment and if there are any signs of improvement. Andy Wiechmann responds that despite the slowdown, there is still a strong level of engagement from clients and growth has been slower in the Americas compared to Europe and Asia. Clients are taking a more measured approach to integrating ESG and there may be delays due to regulation, but the outlook is still positive.

The speaker discusses the opportunities and innovations in the Climate segment, including plans for nature and biodiversity data sets, geospatial data, and risk enhancements. They also mention the challenges of more measured purchasing decisions and cyclical pressures in the market. In the Analytics segment, there has been high demand for risk assessment and navigation tools, leading to a record retention rate. There have also been successes in the ERP sub-segment.

The company's Enterprise Risk and Performance offering has been successful, with traction in partnerships and favorable feedback on user experiences. There has been strong growth in factor models and early traction in the risk insights offering. The company expects some lumpiness in sales and cancels moving forward, but the long-term dynamics are encouraging. The company plans to scale the physical asset business and has a concrete road map for the ESG and Climate business. The company may have been behind competitors in this area, but they plan to monetize it through a consumption-based model.

The company's Climate opportunity is expected to have a significant impact on the economy and industries, leading to expansion and deepening of capabilities. The company's recent move in this area is driven by client demand and leverages their strengths in data science and AI. The business model for this is the same as usual, with a subscription-based approach. In the previous quarter, non-recurring revenue was up in both Index and Analytics, driven by unlicensed usage of content in Index and large implementation and on-time deals in Analytics. These non-recurring sales and revenues are expected to contribute to recurring revenue going forward.

During the quarter, the company signed a large contract to address unlicensed usage of their Indexes by a client over a long period of time. This resulted in a one-time sale and revenue. The company also sees contributions to non-recurring sales and revenue from licensing their Indexes for structured products and over-the-counter derivatives. They also have non-recurring sales from data packages and implementation-related services. The company's business model remains the same, but they see growth opportunities in non-recurring revenue and sales. On the Analytics side, they completed several implementation-related services, which are also non-recurring in nature. For certain products, such as enterprise risk solutions, the company defers revenue until the implementation is complete.

The integration of Burgiss into MSCI has been successful, with strong operational and commercial performance. The team has been seamlessly integrated and there is a big opportunity to expand globally in private capital solutions. The company expects to continue delivering strong numbers in the future.

The operator introduces a question from Kelsey Zhu of Autonomous about the company's expenses guidance. The company's CFO, Andy Wiechmann, explains that the expense guidance range is affected by market performance and business performance. He also mentions that there will be a contribution from acquisitions and organic expense growth is expected to be in the mid to high single digit range. Additionally, there will be higher expenses in the first quarter due to seasonally high payroll tax and benefits.

The company is monitoring the market and will continue to invest in the business for long-term growth. They will also strive to maintain attractive profitability and free cash flow growth. The company has implemented measured price increases, with a larger percentage of new recurring sales coming from these increases in 2023. They will continue to consider various factors, including inflation and client health, when determining future price increases.

During a conference call, a question was asked about the impact of regulations on ESG demand and how the outcome of the U.S. election could affect it. The speaker, Baer Pettit, stated that while there have been some delays in product issuance due to changes in regulations in Europe, the overall regulatory framework in the EU is driving growth in the ESG market. He also mentioned that the approach to ESG by major asset owners in the U.S. has not changed and remains central for them. Pettit also noted that there is an increase in interest in ESG in Asia. When asked about expenses, the speaker stated that they have been following a "downturn playbook" and making investments accordingly.

The speaker is curious about how much runway the company has for expense savings and how they plan to approach investments. The company is focused on driving efficiencies and investing more in the business, but will be measured and ensure sustained improvements before increasing investment. They have attractive opportunities in new solutions, client segments, and technology-enabled capabilities, but will maintain discipline and prioritize areas with near-term returns. The long-term value creation of the company will depend on incremental investment in growth areas such as customization, climate risk, ESG, private assets, and analytics.

The company is focused on expanding its business by creating new products and services, reaching out to new client segments, and investing in AI technology to increase efficiency. They are also monitoring their market share in the ETF market, but it is difficult to assess their market share in other areas.

The company's key focus is on maintaining growth in key segments and being innovative in opportunities related to customization. They are investing in this area both organically and through acquisitions. Another key focus is global geographic diversification, which has been a strength for the company. The sales force has been effective and efficient in cross-selling, contributing to the company's growth. The company is confident that they can maintain their growth trajectory through innovation and serving clients well.

The speaker is asked about the company's plans for internal investment spending and if it includes extra spending on the sales force. They explain that their current lead salesman has had a great impact on client relationships and they will continue to invest in their client coverage organization. The company sees this as a central strength and is focused on improving productivity while also investing in the organization's reach and scale. The other speaker adds that MSCI has made significant progress in many areas.

The speaker is proud of the reach and dialogue MSCI has with clients around the world. They have built relationships with CEOs and CIOs and expanded their client coverage organization. They are focusing on industrial scale and tightening up their organizational structure and using technology to understand client buying patterns. They have a lot of potential for growth in new areas such as wealth management, corporates, and private equity firms. There are no further questions from the audience.

Henry Fernandez thanks everyone for joining the call and highlights the company's success in the fourth quarter and full year. He emphasizes their focus on clients and pricing and their excitement for future opportunities. He also invites anyone to reach out for further dialogue and concludes the call.

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