The operator introduces the MSCI First Quarter 2024 Earnings Conference Call and turns it over to Jeremy Ulan, Head of Investors Relations and Treasurer. Ulan reminds listeners that the call is being recorded and that forward-looking statements and non-GAAP measures will be discussed. He also mentions the presence of Henry Fernandez, Baer Pettit, and Andy Wiechmann on the call.

In the first quarter, MSCI had solid financial results and achieved milestones in key product and segment areas. However, new recurring sales were flat and cancels were elevated due to market pressures. On the financial side, MSCI had organic revenue growth, adjusted earnings per share growth, and free cash flow growth. The company also saw record AUM levels in MSCI index-linked products, indicating improving client conditions. Operationally, MSCI had high recurring sales in analytics and among hedge funds, as well as double-digit subscription run-rate growth among asset owners. However, there were also lingering impacts from market volatility and changes in interest rate expectations, leading to elevated cancels.

The company experienced a high level of cancels due to a client event in Europe, but expects this to decrease. Despite a tough operating environment, the company saw double-digit growth among various client segments and regions, with a strong focus on climate and ESG products. The company's diverse mix of clients, products, and regions helped stabilize performance. They are focused on capitalizing on industry trends and recently acquired a London-based index provider.

The acquisition of the Fabric platform and other recent acquisitions have enhanced MSCI's capabilities and solutions for the wealth segment. The company's carbon markets team has also expanded their climate solutions and engagement with clients beyond institutional investors. Despite market volatility, MSCI expects to maintain high levels of revenue growth and profitability in the future. In the first quarter, the company experienced elevated cancels due to industry consolidation, cost pressures, and fund closures, but their retention rate was 94%, with the majority of cancels stemming from non-client events. Clients who use multiple MSCI product lines have a retention rate of 93% or higher.

As the demand for Index Investments increases, MSCI's product ecosystem linked to their indexes is a competitive advantage. In the first quarter, assets under management in equity ETF products and non-listed products linked to MSCI indexes reached record highs. MSCI also saw growth in their index subscription, particularly in Asia-Pacific and hedge funds. The acquisition of Foxberry will enhance their custom index solutions and provide a new interactive experience for clients. There is a trend towards greater customization in all product lines and client segments, such as wealth managers using advanced technology platforms. MSCI's acquisition of Fabric has also boosted their ability to serve the wealth segment. Clients are now seeking highly specialized insights and integrated content, supported by advanced technology.

The demand for MSCI's analytics team and products has increased due to market volatility and geopolitical uncertainty. In the first quarter, Analytics saw a 12% revenue growth and a 27% recurring sales growth among banks. There is also a growing demand for climate and sustainability regulatory solutions, which MSCI has been focusing on and achieving a 33% run rate growth for ESG Regulatory Solutions. The company has also seen success in their Private Capital Solutions, with a 17% run rate growth and a 96% retention rate. They are expanding their solutions in EMEA and driving new sales of existing products.

In the first quarter, MSCI reported double-digit organic revenue growth, adjusted EBITDA growth, and adjusted EPS growth. This was driven by record AUM balances in ETF and non-ETF products linked to MSCI indexes. However, there were headwinds due to a slow-moving business cycle and a concentration of client events. Cancels in the index and ESG and climate segments were higher compared to the previous year, mostly due to corporate events and a large global bank merger.

In the first quarter of the global bank merger, there were a large number of cancels, but it is expected to decrease in the coming quarters. Retention rates with asset owners and asset managers were high, and there is a strong pipeline of new sales opportunities. Index and ABF revenues saw growth, with most of the inflows coming from developed and emerging markets. Analytics also saw growth, thanks to investments in innovations. The revenue for Analytics this quarter included a large contribution from catch-up revenue items related to client implementations.

The company's ESG and Climate reportable segment saw organic run rate growth of 13%, while real assets saw a more subdued growth of 4%. The company remains focused on disciplined capital allocation and has a strong cash balance. They recently closed on the acquisition of Foxberry and their 2024 guidance remains unchanged. The first quarter effective tax rate was lower due to favorable discrete items and higher excess tax benefits, but for the rest of the year, the company expects a quarterly effective tax rate of 21-22%. The company is confident in their client-centric approach and multiyear investments to drive growth in the future. The operator then opened the line for questions.

During a conference call, Toni Kaplan from Morgan Stanley asked about the closures reported by the company. The speaker, Andy Wiechmann, confirmed that the majority of the closures were related to a large global bank merger and that there may be some smaller closures later in the year. He also mentioned that retention rates for asset managers and owners remain high. He provided more details on the cancellations, stating that $7 million was due to corporate events, $4 million from the global bank merger, and an increase in hedge fund-related events and ESG and climate events.

The first quarter saw a lot of events happening at once, but it is not expected to continue in the future. A question was asked about the asset management market, and the response was that budgets were set last year and there is strong engagement among asset managers. They are seen as a key opportunity for growth and there has been steady growth of 8% with asset managers.

The speaker discusses the growth in key areas that asset managers are moving towards and expects sustained momentum in equity markets to continue driving buying behavior. They also mention large and growing demand in other segments and hope for continued growth. In regards to visibility, they mention having some insight into overall activity and expecting elevated levels of pressure from clients, but did not anticipate the concentration of cancellations in the first quarter. They do not expect this level of cancellations to continue going forward.

The company expects a rebound in retention rates and solid client engagement, but longer sales cycles and budget constraints are affecting growth. They see opportunities in new solutions and less cyclical client segments. In terms of index subscription growth, there was a lower contribution from price increases in new sales, and the company remains cautious with pricing increases.

The majority of new subscription sales were due to cross-selling and upselling to existing clients, which is expected to drive growth in the future. The company saw growth in all client segments, including asset owners, wealth managers, and hedge funds. The ESG and Climate segment may benefit from new regulations in Europe, but there may be some headwinds from politicization in the U.S. The company aims to bring its focus on ESG back to financial materiality. 85% of subscription run rate is from clients who subscribe to multiple product lines.

The speaker discusses the historical pattern of high retention rates and engagement with large clients, which has been a key part of their strategy for many years. They attribute this success to their strategic selling efforts and the interoperability of their solutions. The figures on Slide 9 demonstrate the importance of this in driving growth. The speaker also mentions the strong run rate growth of 19% in the custom index products segment.

During a conference call, a participant asks Baer Pettit about the potential market size and growth for their product. Pettit responds by stating that the range of use cases for customization is broad, including asset owners, asset managers, and structured products. He also mentions the acquisition of Foxberry, which will help accelerate their growth by providing a new software interface. The next question is directed to Henry.

Henry Fernandez discusses how MSCI balances reinvestments for long-term growth with near-term margin performance. They aim to maintain high levels of profitability while also increasing investments for future revenue growth. They believe that having short-term pressures can actually be beneficial in focusing on high return investments. This allows the company to continue operating efficiently while also investing in new growth opportunities.

The speaker discusses how the company's focus on maintaining high levels of short-term profitability versus long-term growth is similar to the Fed's dual mandate. They also mention that they are not planning to significantly increase or decrease their EBITDA margins. The speaker then answers a question about areas of investment for long-term growth, stating that everything they do at MSCI has potential for growth, with a particular focus on the continued growth of their index franchise.

The company believes there is great potential for derivative products in ESG, thematic, climate, and factor indices. They also see potential in fixed income indexation. The company's focus is on both systematic investing and active management, with a strong position in index investing. They also prioritize sustainability and ESG, which they see as an investment risk and opportunity rather than a political philosophy. While there may be challenges in the US and Europe, they see growth potential in Asia. Lastly, the company is positioning itself as a provider of transparency, performance, and risk tools for private assets.

The biggest revolution in the world right now is private credit moving from balance sheet structures to fund structures. This will require transparency tools for investors, which is where the company comes in. The company is also focused on fixed income portfolio management, providing more tools for analytics and insights, and expanding into non-asset management clients. The basis point fees in the Index segment have been declining, but there may be mix dynamics at play. The company expects growth opportunities in the non-asset management segment.

The company saw a slight decline in basis points due to a shift in product mix, with lower fees for US products and a decrease in AUM. However, this is not unusual and is offset by growth in assets and opportunities. The fee dynamics for non-ETF passive products have been more stable, particularly in areas like custom indexes. The company is excited about the potential benefits of AI in their products, which could lead to higher prices and cost-cutting opportunities.

The speaker makes observations on the topic of efficiencies and cost-cutting, stating that they prefer to see it as efficiencies rather than cost-cutting. They are focused on applying AI in various product areas and have a launch coming up this quarter. They believe the real benefit of AI is their data-rich environment and their clients' desire for greater insights. They plan to bring out new capabilities using AI throughout the year. When asked about capital allocation, they mention potential M&A opportunities and state that their views may have evolved given the recent performance of their stock.

The speaker discusses MSCI's approach to capital allocation, stating that they pay a steady dividend and look for opportunities to generate value with excess capital. They also mention their belief in the company's future value and their approach to share repurchases. The speaker then addresses a question about private markets and mentions a 17% run rate growth in private capital solutions and their optimism for the long-term opportunities in this area. The Q&A session then concludes and the conference is turned back over to MSCI's Chairman and CEO.

Henry Fernandez thanks the audience for their questions and reiterates MSCI's long-term goals and commitment to growth despite current challenges. He mentions a decrease in client cancellations and an increase in demand for their services, highlighting the resilience of their business. The call concludes.

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