MSCI Inc. (MSCI) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day, ladies and gentlemen, and welcome to the MSCI First Quarter 2021 Earnings Conference Call. . I would now like to turn the call over to Salli Schwartz, Head of Investor Relations and Treasurer. You may begin. Sallilyn Schwartz: Thank you, operator. Good day, and welcome to the MSCI First Quarter 2021 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the first quarter 2021. This press release, along with an earnings presentation we will reference on this call as well as a brief quarterly update are available on our website, msci.com, under the Investor Relations tab. Henry Fernandez: Thank you, Salli. Hello, everyone, and thank you for joining us today. When we spoke at our Investor Day in February, I pointed to our 50-plus year track record of building standards and our continued role in transforming the global investment world. MSCI's mission remains to enable investors build better portfolios for a better world. Our excellent first quarter performance demonstrates the financial benefits of our mission, and the ongoing strategic and disciplined investments we have made in the client experience in our client segments and in our solutions and capabilities. For the quarter, we achieved total revenue growth of 15%, adjusted EBITDA growth of 21%, and adjusted earnings per share growth of 30%. We also generated free cash flow of $205 million, doubling year-over-year. Baer Pettit: Thank you, Henry, and greetings, everyone. I'll echo Henry's enthusiasm for the strong momentum with which we've started the year. Total subscription sales across MSCI reached a first quarter record high. Asset-based fees also achieved a milestone, surpassing $500 million in run rate. As I highlighted during our Investor Day presentation, our very deep client relations are central to our successful commercial model. In our 2020 client survey, MSCI's global Net Promoter Score, a leading indicator of client retention and loyalty, increased to 45 points, up 6 points compared to 2019 and above the average scores for the financial services, enterprise software and SaaS industries. In the first quarter of 2021, net new recurring subscription sales were nearly $34 million, growing 46% year-on-year driven by ESG and climate as well as double-digit growth across analytics, index and private assets. Accordingly, MSCI's subscription run rate expanded 11% or nearly $140 million versus the prior year. This included a remarkable 42% increase, or nearly $44 million, in ESG and climate's run rate as well as a more than $60 million increase in index's subscription run rate. MSCI's total retention rate in the first quarter was 96.3%, up 130 basis points year-over-year. Henry noted our efforts with wealth managers. As you are aware, this is one of our newer but very promising client segments. At the end of the first quarter, we had a $64 million run rate from wealth managers, up 28% year-over-year. We also continue to see strong growth and continued momentum in our more established client segments. For example, subscription run rate from asset managers and asset owners, which together comprise about 2/3 of total subscription run rate, were up 11% year-over-year. Andrew Wiechmann: Thanks, Baer, and hi, everyone. As Henry and Baer noted, we are encouraged by the favorable economic and market backdrop, and we are seeing a fairly healthy client environment. We're excited by the strong start to the year and the momentum we have developed across the business. In index, we recorded subscription run rate growth of nearly 11%, now marking the 29th consecutive quarter of double-digit growth. And as Baer noted, asset-based fee run rate surpassed $500 million. In analytics, we saw a nice improvement in the retention rate to a record level, underscoring the leading and mission-critical nature of our solutions. Furthermore, analytics continues to be a key enabler of our integrated franchise by helping build and distribute products in index, ESG and climate and private assets, ranging from calculation tools to modeling engines, and flexible content delivery. This was the first quarter we presented ESG and climate and all other private assets at separate reportable segments. ESG and climate experienced a further acceleration in growth, growing 38% in revenue and 42% in run rate. Run rate in all other private assets, which currently consists of our real estate business, grew 15% as we are seeing strong traction with our revamped enterprise analytics offering in Europe. We showed operating leverage across all segments during the quarter. In index and ESG and climate, revenue growth outpaced investment spending. And in analytics and real estate, we had relatively flat expenses benefiting from continued savings in lower travel and entertainment expenses. Within our asset-based fee revenue, we saw solid performance across all components, with 27% growth year-over-year, fueled by exceptional growth in ETFs linked to our indexes. Assets under management and ETFs linked to our indexes reached a record level of more than $1.2 trillion at quarter end and a further record of approximately $1.26 trillion as of last Thursday. The exceptional growth in AUM during the quarter was driven by cash inflows of nearly $62 billion into equity ETFs linked to MSCI indexes, representing 23% of all cash inflows into equity ETFs with continued strength in both developed markets outside the U.S. and emerging market exposures, where we captured more than 30% and 50% of all inflows during the quarter, respectively. On a product level, ETFs linked to MSCI, ESG and climate equity indexes experienced cash inflows of nearly $25 billion during the quarter, representing 70% market share of all global ESG and climate equity ETF flows. We are pleased to see the broader adoption of factor objectives with $10 billion of inflows into value and momentum factor ETFs linked to our indexes, which more than offset the flows we saw out of minimum volatility products. Our strong commercial and top line success during the quarter translated into strong financial results. Our 30% adjusted earnings per share growth year-over-year was primarily driven by the significant revenue growth with additional benefits from operating leverage and share repurchases at attractive prices. Turning to our balance sheet. We ended the quarter with a cash balance of approximately $1.75 billion after issuing $500 million of notes due 2030 at a coupon of 3.58%. In mid-April, we used the offering proceeds along with cash on hand to redeem all $500 million of our 2026 notes that had a coupon of 4.75%. Pro forma for the redemption, we had about $1.2 billion of cash and a total debt to adjusted EBITDA leverage ratio of 3.3x, within our targeted range of 3.0 to 3.5x. With our leverage in the middle of our targeted range, I want to highlight that we continue to monitor the markets and may raise additional debt if we see an attractive opportunity. We continue to be highly confident in our capital position and our capital allocation priorities have not changed. We remain focused on reinvesting in the business as a first priority, dividends growing with adjusted EPS and truly opportunistic MP&A and share repurchases with a strong focus on maximizing returns to shareholders. This quarter, we returned more than $200 million to shareholders through dividends as well as share repurchases at an average price per share of $407.70. I'll now turn to our guidance. As we mentioned last quarter and at Investor Day, our pace of investment may flex up or down based on the trajectory of our asset-based fees. More specifically, we highlighted that our initial expense guidance was based on the assumption of relatively flat market levels for the year. The strong trajectory year-to-date with AUM up nearly 15% as of last Thursday together with the favorable outlook gives us confidence to activate our upturn playbook. We have, therefore, increased our expense guidance range, reflecting our intent to continue to invest in Triple-Crown investments to support future growth. As you know, continued investment in Triple-Crown areas remains a top priority for us. At the same time, we remain committed to positive operating leverage and modest margin expansion. We also reduced our tax rate guidance, taking into account the low rate in the first quarter, in large part driven by a windfall benefit from the vesting of stock-based compensation as well as our current view on a number of discrete items. We increased our free cash flow guidance primarily to reflect our strong asset-based fees and collections in the first quarter. In summary, the overall operating environment within many parts of the investment industry is healthier than it has been in recent quarters. And MSCI remains uniquely positioned to help investors across their most mission-critical needs. The first quarter was a very strong start to 2021 for MSCI. While the environment is likely to remain somewhat volatile, we believe we are well positioned for the longer-term with our attractive all-weather business model, client-centric approach and laser-focused on establishing and solidifying standards for the investment industry. With that, operator, please open the line for questions. Operator: . Our first question comes from Manav Patnaik with Barclays. Manav Patnaik: Henry, I was hoping, just on your comments on the thematic side of your priorities. Can you just help size perhaps how big that is for you guys? And how we should think about the potential there, really? Henry Fernandez: It's fairly large, Manav. And when we sit back and look at the great business that we have built in market cap indices for equities and then we look at what we can build with nonmarket cap indices ranging from ESG and climate and factors and thematics and the combination of all of that, in equities, and we translate all of that to fixed income and eventually translate all of that to equity and fixed income together in balanced indices, the opportunity is massive. And if you were to think about the ultimate goal is every investor has a portfolio, and every portfolio needs an index of some sort. So we believe that the opportunity for market cap indices should be much bigger than for what we have built in the opportunity for nonmarket cap indices, it should be much bigger than the opportunity for market cap indices that we've created. Manav Patnaik: Okay. Got it. That's helpful. And then just on capital allocation, right? It sounds like, obviously, Triple-Crown investments remain one, the partnerships, obviously, continue to be a focus to you guys. I was just curious, like, in terms of just outright M&A, like is that - how much of the pipeline or priorities that even for MSCI at the moment. Henry Fernandez: So we continue to be extremely focused on organic investment opportunities. We have a very wide, deeper and higher range of investment opportunities that we have ever seen, honestly. I think the set of opportunities in all aspects of what we do are accelerating from climate to ESG to nonmarket cap indices to fixed income to what we can do with more technology to the data, especially in ESG and climate, et cetera. So very, very focused on organic investment, and accelerator of the organic investment is clearly the partnerships. We cannot do it all together. So we look for partnership with people that have data, that have models, that have technology, that have distribution, et cetera. Some of those partnerships may involve some investment on our part in their capital structure. That hasn't traditionally been the case, but we may, we're open to that. Now we reviewed the overall sort of M&A landscape. Always, it's a fiduciary duty to do that, both small and large companies. And obviously, we look at it, we analyze it, but we continue to remain very focused on our strategy of building one MSCI with organic investments on selected bolt-on acquisitions. Operator: Our next question comes from Alex Kramm with UBS. Alexander Kramm: I think you may have addressed some of this already, but the strength in ESG and climate sales, can you flesh this out a little bit more? You, obviously, mentioned some of the regulatory changes in Europe, and it seems like they also have benefited. But can you maybe isolate those? Was that a very big contributor? Do you think that's sustainable for the near term? As, I guess, more people have to get ready to comply? Or is it really just more of the same when it comes to ESG sales? So just a little bit more color would be helpful. Baer Pettit: Sure, Alex. So look, I think, that in terms of ESG, it is an acceleration of the - that everything we've discussed previously on these calls. What was really striking is we had an asset owners' survey in the last quarter. And it's actually in the North America and the U.S. and Canada that ESG and climate are - were the #1 concern of asset owners. So that is, for sure, an important I would say, change or acceleration in addition to the things you mentioned, the regulatory context in Europe, et cetera. And I think the other thing that's clearly happening is the weight of climate increasing in the ESG and climate mix we've had extraordinary amount of interaction with clients related to climate adjusted portfolios, transition risk, 1.5-degree alignment, et cetera. So the ESG trend is strong and is continuous. And the conversations and the client interest related to climate are going up even more dramatically in tandem. Alexander Kramm: All right. Great. And then secondarily, also coming back to the thematic points that you made this quarter. I guess one of the things I'm curious about is on the market cap weighted indices, you've done a great job, obviously, establishing network effect. And that's why you have great economics there. And in some of those areas of thematic, like factor and ESG, it seems like you're establishing that network effect, and it's very institutional. But in some of those new areas, like, I don't know, high tech and pharma that you talked about, it seems to me a little bit more like retail-ish, and maybe I'm taking the wrong approach here. But I just wonder how easy it is to really establish network effect and actually extract good pricing or if that kind of stuff gets competed away as there may be like 25 different pharma indices and 30 tech indices and nobody really cares what they do. So I guess, just talk to that a little bit more like why you think you would have a special sauce in those areas. Henry Fernandez: Yes. No, that's a good question, Alex, because we ask ourselves that same question over and over again. And the first thing to note is that there has been significant institutional investor interest in these areas. The way that I normally would explain that is that there are - compared to maybe 10, 20 years ago or so, there are very large structural changes going on in the global economy and the global investment universe that are not totally reflected in market cap indices, for example. So the traditional way that institutional investor invest will be benchmarked to a market cap index at MSCI, for example, on their equity portfolios. But those new areas of clean energy and biotech and more high tech and all of that are not yet reflected in the asset allocation of those indices because they're on the comp. So what we are seeing is a lot of those institutional investors are looking to put a segregated amount of their assets into those themes and those areas in order to sort of anticipate what is going to come in the future. So a lot of what we're doing in this area is largely for institutional investors, not necessarily for retail investors. Hopefully, we'll get that as well, but that's the direction of travel. And therefore, do we believe that we can build a large network effect as it relates to that because it's similar to ESG and climate, a lot of investors are taking parts of their portfolio - institutional investors are taking part of their portfolio and allocating to ESG biased investment products with our indices or climate biased portfolios and the network effect associated with that. So we think we can continue to build that - this powerful franchise across the board. Now the other part of the ecosystem is how do we build benchmark for active indices, for passive, and then the construction also of the development of derivative products whether it's structured products or whether it's over-the-counter options and swaps and listed options and listed futures with the dialogue that we're hiring with our partners in the broker-dealer community and the investment banking community and the exchange community with respect to ESG and climate and thematic is off the chart. It's always been, in the past, market cap weighted indices. The majority of the discussion today is about thematic indices, and it's about ESG and climate indices. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: Hopefully, this isn't too much of a repeat of a prior question. But Henry, you mentioned the - with climate, we're looking at a paradigm shift. And so maybe you can just expand on how you see this sort of playing out. So is this a significant bump in the next couple of years as people integrate climate and ESG into their thinking on investing? Or is this something that, over time, you can keep building new solutions and what you do best, like just trying to understand how sustainable this is or if this is just a massive like couple of year growth spurt? Henry Fernandez: Well, it is fairly front loaded. And the - but it's not front loaded and then it peters out or slows down. We're going to be talking about this for the next 10, 20 years in a big way, point one. Point two is that it cuts across everything we do from indices to analytics. We're repositioning a lot of our analytics for climate impact on - climate risk in the portfolios, climate reporting and all that. It clearly affects the private asset classes. We talked about real estate and how do we decarbonize, how do we look at climate change in the context of properties in cost of cities and all of that and of course, in the ESG climate segment as well. So it cuts across everything that we do. And this is - if you were to think of what is the #1 largest opportunity of MSCI in the next few years and going on for a decade or 2, it will be climate. And therefore, we want to position MSCI as the leading provider or a leading provider of climate solutions to the whole global investment industry as a whole. And we also have an opportunity to expand significantly into the issuer market, which has not been traditionally a place where we have been with corporates and other forms of issuers to help them in this incredible transition that will take place. So this is a massive opportunity for us. And it's not like back dated, it's not like back ended, it's now, and you're seeing the dialogue that is going on. You're seeing the momentum in our sales from, obviously, a very small base, but it's going to be a massive opportunity for us and is now. Toni Kaplan: That's great. And maybe, Andy, this might be for you. Just looking at the guide for a second. You raised free cash flow by about 5% at the midpoint for the full year. I don't know what your 1Q expectation was, but I'm guessing that 1Q came in better. So just is the higher guide a reflection of the beat? Like why weren't the trends that you saw do really well in 1Q continue for the rest of the year? Andrew Wiechmann: Yes. Yes. Thanks, Toni. So maybe I can spend a second on Q1 and answer your question about the strong performance, and then I can extrapolate to the full year. As you alluded to, we did have very strong cash flow performance in the first quarter. The story was really around collections for us on 2 fronts. One, business growth was stronger, so very strong growth across the business. But two, also a very strong collection performance for us. The first quarter also we did benefit from some shifts in interest payments, which was affected by the recent financings that we've done but those will normalize throughout the full year. The biggest impact for the full year, to your point, is that the picked up business growth, I think, the collections activity will normalize quarter-to-quarter, but the bigger impact is really just the stronger business growth, which we tried to reflect in the guide. Operator: Our next question comes from Craig Huber with Huber Research Partners. Craig Huber: My first question, can you - Henry, your - can you maybe touch on this. Futures and options, just give us an update there, if you would, please, in terms of going forward, what we should expect there. Are there new additional exchanges, for example, looking to get involved with there? What's like game plan to get this area moving because one of your major competitors, obviously, gets a lot more revenue north of 15% of the revenues from this area and you guys' is much smaller, but it's a heck of an opportunity for you as I view it? Henry Fernandez: Yes. So let me give you the business answer, and then Andy can provide some commentary on the financials. This is an area of significant expansion in all of MSCI with our exchange partners around the world. As we have noted before, most of the market for listed options and futures in the world, it's a single-country, single-currency index futures. And in some cases, when it is multi-country, it's single currency futures and options. So this is an area of prime for innovation, prime for expansion and creativity, which is what we're doing with our exchange partners in all regions of the world. And we're now also increasingly doing certain partnerships in emerging markets. We announced, obviously, our partnership with the Colombian Exchange, for example. We've had a partnership with the Saudi Exchange and the like. So that's something that we'll continue and innovate. While we're now talking to a lot of our exchange partners, as I said in the prior - my prior comments, are how do we go from market cap weighted indices to ESG index futures and options to thematic. We recently launched a China tech index, for example, that we're in the process of licensing to an exchange for listed futures and options. And that would be an example of the expansion of the thematic into derivatives. And the other thing is that all of that is also related to the activity we have with banks and broker dealers and their activities in structured products, and in swaps, and in over-the-counter options and all of that, which that's also expanding significantly. We are becoming a large provider of basket trading - basket building indices for broker dealers and banks for them to then do their over-the-counter structured products. So it's a whole ecosystem that we're building. Andy, on the financials? Andrew Wiechmann: Yes. So Craig, as we've talked about in the past and as Henry just underscored, continue to be very bullish about the opportunity for us longer term in both listed and over-the-counter derivatives. In the current quarter, there was some points to flag here. Importantly, the comp, it's a tough comp. So when you look at the first quarter of last year, that was a period of highest volatility and as a result, highest volume in derivative contracts traded. And so when you just do that comparison, there was a drop in year-over-year volumes and given that we price and get paid based on the contract volume that will impact the revenues that we receive. It is worth noting the run rate could pick up, which you probably noticed. That was as a result of some of the repricings of agreements with our exchange partners. It's worth noting, this is the last quarter where you will see that benefit. So that was baked in as of Q2 of last year. So going forward, you won't see that pricing benefit in our run rate and will be much more tied to the contract volumes. I would highlight that specifically, one area where you're seeing contract volumes pick up, but it's still behind is the transition from SGX to Hong Kong exchanges. We're seeing the franchise and complex Hong Kong exchanges start to build up. But relative to where the volumes were on SGX, it's a little bit lighter today. And so when you start to do historical comparisons, volumes will look a bit lower. But over the long term, we continue to be very bullish in this area, and that will translate not only through to the asset-based fee component, but also help to drive some of the index subscription revenue as well, which is where we see the over-the-counter piece. Craig Huber: Then also, guys, if I could just ask you, institutional passive products direct into indexing, can you maybe size that for us as a percent of your revenues? How big of an opportunity you view that right now? And is the game plan in Europe, how is that evolving versus the U.S.? Andrew Wiechmann: Yes. I mean non-ETF passive, as we call it, which it's really comprised of a few areas, what we call institutional passive. There's also index-based mutual funds, which are more retail-oriented, generally. And then increasingly, the areas like direct indexing, which will show up or could show up in that revenue stream. It's an area that's been strong growth and extremely resilient, which you can see by the growth rate, which we've seen actually double-digit growth in each of the last 6 quarters within the non-ETF passive line despite the market volatility. Relative to ETF, we actually see fewer redemptions and outflows and periods of volatility. And as we've mentioned in the past, the fees have been quite resilient in this area. We're seeing tremendous growth in nonmarket cap mandates and nonmarket cap non-ETF launches and products there, where the fees tend to be a little bit more resilient during certain areas, actually, we get higher fees. Just to dimension it for you, there's now about $2.7 trillion of assets under management in non-ETF index funds linked to our indexes. And just - you can tell by the run rate continues to be a strong growth area for us, and it's a big focus for us, an increasing focus for us. And we see enormous opportunities across all regions. And one of the big drivers here really is the transition to ESG and climate. And so we're seeing tremendous growth in the non-ETF AUM bucket in ESG and climate indexes. So overall area we're focused on and should continue to grow for us. Operator: Our next question comes from Owen Lau with Oppenheimer. Owen Lau: So MSCI continues to gain traction in corporate. Henry, you mentioned some numbers on the prepared remarks. Could you please talk about what specific products driving the growth there and also the outlook? Henry Fernandez: Yes. So a lot of what we're doing there so far is selling the underlying data and ratings, which, as you know, are organized along industry lines, sector lines, to the corporate. So if you're a corporation, and you want to know what your rating is and you want to compare that rating and the underlying - sort of the underlying information in the reports to other participants in your sector, in your industry, and if you want to do cross sectoral comparisons, for example, then that's what you're getting. So that's the corporate themselves. Now we also, as I noted, sell the information and the ratings to the corporate advisers. That could be accounting firms, could be investment banks, could be a strategy consulting firms, et cetera, could be specialized advisers that are trying to help those entities figure out how to deal with all their ESG disclosures, their ESG data capabilities and increasingly, obviously, as time goes by, their net zero pledges that they need to make, et cetera. So this is a very fertile ground for us. As you know, just in ACWI IMI, there are 9,000 companies and therefore, calling on - or having 50 out of the 9,000 is a small, very small penetration. Now increasingly, we're also going to be - but we're not there yet, but we're also going to begin to help many of these corporate entities think through with respect to climate, what their data projections should be, what their position with respect to emissions should be with data, models, analytics, that was what Baer was referring to on that platform that we're building on top of Microsoft. So again, another area of fertile growth for us. Owen Lau: That's very helpful. And then for the adjusted EBITDA expense guidance, Andy, you raised the guidance by around $15 million to $20 million. Could you please talk about how much of that was driven by top line growth and how much of that is driven by the reopening of the economy like higher T&E and maybe health care cost? Andrew Wiechmann: Yes. Well, the two are related. It was definitely driven by the top line growth and most notably in acceleration in the ETF growth rate in AUM in ETFs linked to our index as well as accelerations in key parts of our business-like climate and ESG, as you can see by the tremendous success that we're having there. Just as a reminder, when we set our guidance at the beginning of the year, we said that was based on the assumption of relatively flat market levels. Clearly, markets have improved thus far this year, and we feel pretty bullish about the outlook for the balance of the year. And so those two inputs feed into our calculus in terms of how much we want to go to our upturn playbook. And so the increase in guidance is really reflecting the momentum we're seeing in our business, but also the more bullish outlook that we see in the economy and the markets and our clients, more broadly. And so we are turning to our upturn playbook to invest in the Triple-Crown areas we've talked about in the past and the areas that are driving our growth. So it's in areas like nonmarket cap weighted indexes, areas like climate and ESG as well as the data and technology that supports both of them in areas like research and go-to-market that are going to help continue to fuel these growth engines for the company. And so we're really, as we said and said we would do and as we've done in the past, accelerating our investments when we see the opportunity to do it. And we think this environment lends itself to it. Operator: Our next question comes from Simon Clinch with Atlantic Equity. Simon Clinch: I was wondering if I could follow-on from the opportunity on the corporate customer side. Just kind of curious as to how to think about how those customers are coming sort of entering this business with you in terms of size. So when you take on a new corporate customer, are they keep coming in? And is the ultimate opportunity for that individual customer to spend multiples of what they spend today? Is that very much present and the real opportunity for you as well as just growing the number of customers? And I have a follow-on to that as well. Henry Fernandez: Yes. So the - clearly, since we are - this is a new client segment for us. We're trying to start with a very direct and value-added and narrow set of offerings, which is the ESG ratings and all the information and the data that goes with the ratings of that particular corporate and the comparison of that ratings to others in their industry and across industries. And we have established a specialized sales force of a handful of people around the world to do that. And as we build momentum and more success, we're going to reinvest a lot of the incremental revenues into expanding the sales force and the client coverage of that. On top of that, there are significant opportunities to expand and have multiples, large multiples of the revenue that we're getting as we go into other products and services that we can provide those companies such as what I was talking about in climate, but we're not there yet. We're trying to make sure we go on a systematic approach to this one step at a time in a new area that we are covering but I would anticipate that there will be a fairly rapid expansion of our products out there, our sales force, and our run rate and our sales and our run rate and obviously, more to report on that in coming quarters. Simon Clinch: That's great. And just to follow-on with that. I mean when you talk about the advisory entities that you're selling to as well and the distribution platforms, are you viewing those as effectively opportunities to expand much faster without given the limitations of your existing sales force? Or do you view them as completely new separate customer sets to those corporate customers, the direct corporate customers that you're targeting as well? Baer Pettit: No, we clearly view those as separate, right? So I think when you refer to the advisory firms, that's in the wealth segment, overwhelmingly. So that's a discrete from the corporate segment. And it's really - we believe it's a pretty large opportunity for us. If that's what you meant by the... Simon Clinch: So yes. I must have missed it. All right. Yes, that makes sense. Henry Fernandez: Let me just clarify. Let me just clarify, if you don't mind. I think what you were referring to, which is the comment that I made is, there are advisers to companies such as the accounting firm, such as the investment banks, such as - and all of that, that are - their advisers to the CEO, to the CFO, the Treasurer and the Board of Directors of those companies and trying to understand the ESG, the landscape, their ratings, their disclosures, what data they need to provide, et cetera, et cetera. So what we view this corporate advisory entity is in 2 categories, is the category augmenting our sales force into the corporates. And secondly, for them to provide advice with the data and the tools to the companies that we're not in a position to be advising them as to what to do to enhance the ratings or enhance their disclosures and things like that. So that's the - we have different type of adviser networks like financial advisers and investment advisers and whatever in the corporate advisory segment, we're talking about the advisers to the companies and it's in both categories. We're augmenting what we're doing, using them as a channel and therefore, hopefully, relying on them to be providing advice to the companies as to what to do with the data and the ratings, right? Operator: . Our next question comes from Keith Housum with Northcoast. Keith Housum: Andy, just trying to unpack the upturn playbook a little bit more and trying to understand the $15 million to $25 million additional expenses. As you think about the rest of the year, how does that compare to, I guess, what your original plan was in terms of, I guess, how should percentage grow? And then what is also taking consideration, I guess, a return to a more normalized work environment, if any? Andrew Wiechmann: Yes. So it - just to dimension that, as I said before, and we've mentioned the original guidance was based on the assumption of relatively flat market levels. ETF AUM is up nearly 15% on the year. Non-ETF passive is up strongly, and we expect to continue to rally strongly. And so just those 2 line items alone are driving some pickup in our revenue above kind of that baseline assumption when we set the guidance back at the beginning of the year. And then we're seeing strong growth in areas like ESG and climate. And so when you look at the growth, the increase in expense guidance, the midpoint going up about $20 million, to your point, that's an increase in expense growth rate of 2.5%, which is relatively modest in the grand scheme of the impact on revenue that the pickup in ABF has for us. And so, we continue to be able to drive strong positive operating leverage but really continue to drive investment in these key growth engines for the firm and continue to accelerate these Triple-Crown opportunities. To your second question about the return to kind of a pre-COVID world, I would highlight in the first quarter, there was about a $3 million benefit from COVID-related expense benefits. Obviously, that starts to go away in future quarters where a year ago, we were getting those benefits as well. But we do have some assumption about a return to normalization, but it's not a full return. So just to give you some numbers to dimension that. Keith Housum: Got you. And then coming back to that $20 million increase in the upturn playbook. As you look at your operating expenses, how much of your operating expenses are currently invested in future growth if it's the data centers or new solutions, new products? Andrew Wiechmann: Yes. I broaden it to our - and we talked about this at Investor Day, to our investment portfolio or change the business expenses, which is about $150 million of expenditures and so that's against our total expense base plus CapEx. We define our expenditure pool. So of that total pool, call it about $150 million is in these kind of change the business Triple-Crown areas, and these are the areas that we're going to really be accelerating. Henry Fernandez: What I would add also is that the expense growth in our business as usual, right, maintain the business is not very high, it's relatively muted. And therefore, our game plan in the context of continuing to have modest leverage - operating leverage expansion or margin expansion, right, is to increasingly squeeze the operating expenses of the - running the business in order to transfer more and more of investment of money into the investment plan so therefore, the investment numbers are growing clearly much more rapidly than the overall expenses in running the existing business. And all of you know this, but I'd just like to clarify one more time is that sometimes we talk about expenses. And I just want to be very pointed that the large majority of this incremental EBITDA expenses are investment in Triple-Crown investment types. And as you know, the Triple Crown is in areas of high growth like index and ESG and climate with high rates of return and fast paybacks and hopefully, in areas that have high multiples of valuation. Operator: Our next question comes from Sameer Kalucha with Deutsche Bank. Sameer Kalucha: The thing I wanted to get some color on was the investment solutions as service initiative that you announced on the Analyst Day, you announced there were 4 services that were going to be launched in 2021. Just wondering if the launch was on track. That's one. And number two, would the pricing be any different when customers use your solutions as a service versus regular contracts that they have right now? Would there be any difference in pricing and margins? Henry Fernandez: So to some extent, some of that is a relabeling of what we currently do. Investment solutions of service, data management as a service, data as a service. And in some cases, it's a new product and a new service. So for example, ESG data as a service is definitely a major expansion of what we're trying to do. During the lead up to Investor Day, as you know, we had a number of discussions with shareholders and analysts as to what they would like us to consider and work on. And the #1 category was for us to expose our ESG and climate data way beyond the ratings products and the screening products and the index products, right? So that would be an expansion. Another area of expansion is data management as a service to our - to many of our clients, including our analytics clients, in which data management in their internal workflow is one of the biggest pain points. We're very good at that. So we are expanding that capability to do that, not only as a support to selling of our products and services like analytics, risk and performance analytics, but also on a standalone basis. So that would be an expansion. So when you think about that totality, what is a relabeling. Obviously, the pricing will be about the same as before. And what is a new service, we will definitely be looking at a new pricing of that. All of this falls into the category of something that we had talked about before, which is what we call colloquially at MSCI, went in the kitchen, right? We have a great kitchen that creates great food, great experience. We want to expose that kitchen to people as well, right? Operator: Our next question comes from Greg Simpson with BNP Paribas. Gregory Simpson: Is it possible to find out if you have any updates on the partnership with Burgiss? I think you've said you've got quite a few products and solutions you've been working on. So I'm wondering if you had any more color on the time line around any launches. As it seems the industry trend towards private market seems to really be intensifying right now. Baer Pettit: Sure. So I think the same thing we've been focusing on is just working with Burgiss on running and optimizing their business day-to-day. We - there's a new President at Burgiss, as we've mentioned before, Jay McNamara, he used to be at MSCI. So a lot of our emphasis is just as working with them as a partner to grow the business every day, every week. Additionally, this quarter, we've been doing a lot of work on our private market strategy. And that has a variety of different avenues in it related to both working together on their data platform, working on plans for ESG and climate for private companies and our future path in areas such as real estate, which span across both assets that we have at MSCI and those in Burgiss. So there's a lot of work coming on there, and we'll likely have more products coming out during the second half of the year that come out of the work that we're doing at present. Gregory Simpson: And then just quickly, on the firm-wide ESG and climate run rate, which, I think, is now $254 million. Is it to have some color on how this splits by geography, if possible? Andrew Wiechmann: Yes. I'm going to - we'll have to follow-up on that question. I'm not going to provide the exact breakdown right now by the 2 components. As you would imagine, on the index side, there is a heavy component that is asset-based fee-related and a lot of that tends to be U.S.-listed products. And very attractively, a lot of that is - flows into U.S. exposure funds, which, as you know, is a place where we historically haven't had a strong presence, but it continues to be a driver of us capturing market share on flows into U.S. exposure products. Overall, I'd say the run rate is pretty well spread across geographies with a heavy emphasis on EMEA and Americas. But they're all growing at a nice clip. And as Baer mentioned in his prepared remarks, the EMEA run rate on the climate and research side has been growing at an incredible clip. Operator: Our next question comes from Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: Just one question from me. Is there an opportunity for MSCI to develop crypto indices and other crypto solutions? And how might the massive energy consumption of the crypto economy impact your decision-making on that front? Henry Fernandez: Yes. So we have been studying that, deeply investigating all of that. And they are, as you know, well, at the top of the house, and the top of the thing is if there are 2 types of currencies. There is the Central Bank and digital currencies. And which China, obviously, is leading the pack there, and we're evaluating what impact of that would be on the pricing of financial assets, for example. And then there is the cryptocurrency, which is a little more like a gold type of investing. So we're definitely looking into that to see what impact - we haven't come up yet with the right products or the right indices. We're analyzing that importantly. And the second part, yes, cryptocurrencies have a role to play in climate change because of the energy consumption there. So that's another area that we're looking into is how do we combine the topic of cryptocurrency with the topic of climate change. So more to come on that in the future. Operator: There are no further questions. I'd like to turn the call back over to Henry Fernandez for closing remarks. Henry Fernandez: Well, thank you, everyone, for listening. As you can see, we have enormous opportunities in front of us. We are very relatively bullish on the operating environment. And therefore, we'll step up our pace of investing and continue to do that at the same time as having some modest margin expansion. So thank you very much, and we look forward to your question, your comments also to Salli and the team. Operator: Ladies and gentlemen, this does conclude the conference. You may now disconnect. Everyone, have a great day.
MSCI Ratings Summary
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Related Analysis

MSCI Inc. (NYSE:MSCI) Quarterly Earnings Preview

  • Earnings per share (EPS) is estimated at $3.87, marking a 9.94% increase year-over-year.
  • Revenue is expected to rise by 8.78% from the previous year, reaching approximately $744.5 million.
  • MSCI's financial metrics reveal a price-to-earnings (P/E) ratio of 38.49 and a price-to-sales ratio of 14.86.

MSCI Inc. (NYSE:MSCI) is a leading provider of critical decision support tools and services for the global investment community. The company offers a range of products, including indexes, portfolio risk and performance analytics, and environmental, social, and governance (ESG) research. MSCI's competitors include firms like S&P Global and FTSE Russell, which also provide financial data and analytics.

On April 22, 2025, MSCI is set to release its quarterly earnings, with Wall Street estimating earnings per share (EPS) at $3.87 and revenue at approximately $744.5 million. The Zacks Consensus Estimate aligns with this EPS figure, reflecting a slight decline of one cent over the past 30 days. However, this still marks a 9.94% increase compared to the same quarter last year, highlighting MSCI's growth trajectory.

The anticipated revenue of $739.69 million, as per the Zacks Consensus Estimate, represents an 8.78% rise from the previous year's corresponding quarter. This growth is attributed to the strong adoption of MSCI's Climate and ESG solutions, which have gained traction despite market uncertainties. Analysts have revised the EPS estimate upward by 0.2% over the past 30 days, indicating a positive reassessment of MSCI's performance.

MSCI has a history of surpassing earnings expectations, having exceeded the Zacks Consensus Estimate in each of the last four quarters with an average earnings surprise of 3.13%. This track record suggests that MSCI may continue to perform well, although the stock's movement will depend on whether the actual results meet or exceed expectations. The management's discussion during the earnings call will be crucial in assessing the sustainability of any immediate price changes and future earnings projections.

MSCI's financial metrics provide insight into its market valuation. The company has a price-to-earnings (P/E) ratio of approximately 38.49, indicating the price investors are willing to pay for each dollar of earnings. Its price-to-sales ratio stands at about 14.86, reflecting the market's valuation of its revenue. The enterprise value to sales ratio is around 16.34, suggesting how the market values the company's total worth relative to its sales. Despite a negative debt-to-equity ratio of -4.93, MSCI's current ratio of approximately 0.85 suggests its ability to cover short-term liabilities with short-term assets.

MSCI Inc. (NYSE:MSCI) Quarterly Earnings Preview

  • Earnings per share (EPS) is estimated at $3.87, marking a 9.94% increase year-over-year.
  • Revenue is expected to rise by 8.78% from the previous year, reaching approximately $744.5 million.
  • MSCI's financial metrics reveal a price-to-earnings (P/E) ratio of 38.49 and a price-to-sales ratio of 14.86.

MSCI Inc. (NYSE:MSCI) is a leading provider of critical decision support tools and services for the global investment community. The company offers a range of products, including indexes, portfolio risk and performance analytics, and environmental, social, and governance (ESG) research. MSCI's competitors include firms like S&P Global and FTSE Russell, which also provide financial data and analytics.

On April 22, 2025, MSCI is set to release its quarterly earnings, with Wall Street estimating earnings per share (EPS) at $3.87 and revenue at approximately $744.5 million. The Zacks Consensus Estimate aligns with this EPS figure, reflecting a slight decline of one cent over the past 30 days. However, this still marks a 9.94% increase compared to the same quarter last year, highlighting MSCI's growth trajectory.

The anticipated revenue of $739.69 million, as per the Zacks Consensus Estimate, represents an 8.78% rise from the previous year's corresponding quarter. This growth is attributed to the strong adoption of MSCI's Climate and ESG solutions, which have gained traction despite market uncertainties. Analysts have revised the EPS estimate upward by 0.2% over the past 30 days, indicating a positive reassessment of MSCI's performance.

MSCI has a history of surpassing earnings expectations, having exceeded the Zacks Consensus Estimate in each of the last four quarters with an average earnings surprise of 3.13%. This track record suggests that MSCI may continue to perform well, although the stock's movement will depend on whether the actual results meet or exceed expectations. The management's discussion during the earnings call will be crucial in assessing the sustainability of any immediate price changes and future earnings projections.

MSCI's financial metrics provide insight into its market valuation. The company has a price-to-earnings (P/E) ratio of approximately 38.49, indicating the price investors are willing to pay for each dollar of earnings. Its price-to-sales ratio stands at about 14.86, reflecting the market's valuation of its revenue. The enterprise value to sales ratio is around 16.34, suggesting how the market values the company's total worth relative to its sales. Despite a negative debt-to-equity ratio of -4.93, MSCI's current ratio of approximately 0.85 suggests its ability to cover short-term liabilities with short-term assets.

MSCI Inc. (NYSE:MSCI) Surpasses Earnings Estimates

  • Earnings Per Share (EPS) of $4.18, exceeding the estimated $3.95 and showing significant growth from the previous year.
  • Revenue reached approximately $743.5 million, with a 7.7% increase in operating revenues year-over-year.
  • Financial Ratios highlight MSCI's valuation and financial health, with a P/E ratio of approximately 40.87.

MSCI Inc. (NYSE:MSCI) is a leading provider of decision support tools and services for the global investment community. The company offers a range of products and services that help investors make informed decisions. MSCI competes with other financial data and analytics firms, providing essential insights to its clients.

On January 29, 2025, MSCI reported earnings per share (EPS) of $4.18, exceeding the estimated $3.95. This performance also surpassed the Zacks Consensus Estimate of $3.96 per share, as highlighted by Zacks. The EPS showed a significant improvement from the previous year's $3.68 per share, indicating strong growth.

MSCI generated revenue of approximately $743.5 million, slightly below the estimated $745.4 million. Despite this, the company achieved a 7.7% increase in operating revenues compared to the same period in 2023. Organic operating revenue grew by 7.4%, and recurring subscription revenues rose by 7.5%, demonstrating robust business performance.

The company's operating margin stood at 54.5%, with an adjusted EBITDA margin of 60.8%. Despite a 23.1% decrease in diluted EPS to $3.90, the adjusted EPS increased by 13.6% to $4.18. Asset-based fees saw a significant increase of 20.8%, contributing to the company's financial strength.

MSCI's financial ratios provide insight into its valuation and financial health. The price-to-earnings (P/E) ratio is approximately 40.87, and the price-to-sales ratio is around 17.57. The enterprise value to sales ratio is about 19.04, while the enterprise value to operating cash flow ratio is approximately 36.64. The debt-to-equity ratio is -6.14, and the current ratio is approximately 0.93, indicating a unique financial structure.

MSCI Inc. (NYSE:MSCI) Surpasses Earnings Estimates

  • Earnings Per Share (EPS) of $4.18, exceeding the estimated $3.95 and showing significant growth from the previous year.
  • Revenue reached approximately $743.5 million, with a 7.7% increase in operating revenues year-over-year.
  • Financial Ratios highlight MSCI's valuation and financial health, with a P/E ratio of approximately 40.87.

MSCI Inc. (NYSE:MSCI) is a leading provider of decision support tools and services for the global investment community. The company offers a range of products and services that help investors make informed decisions. MSCI competes with other financial data and analytics firms, providing essential insights to its clients.

On January 29, 2025, MSCI reported earnings per share (EPS) of $4.18, exceeding the estimated $3.95. This performance also surpassed the Zacks Consensus Estimate of $3.96 per share, as highlighted by Zacks. The EPS showed a significant improvement from the previous year's $3.68 per share, indicating strong growth.

MSCI generated revenue of approximately $743.5 million, slightly below the estimated $745.4 million. Despite this, the company achieved a 7.7% increase in operating revenues compared to the same period in 2023. Organic operating revenue grew by 7.4%, and recurring subscription revenues rose by 7.5%, demonstrating robust business performance.

The company's operating margin stood at 54.5%, with an adjusted EBITDA margin of 60.8%. Despite a 23.1% decrease in diluted EPS to $3.90, the adjusted EPS increased by 13.6% to $4.18. Asset-based fees saw a significant increase of 20.8%, contributing to the company's financial strength.

MSCI's financial ratios provide insight into its valuation and financial health. The price-to-earnings (P/E) ratio is approximately 40.87, and the price-to-sales ratio is around 17.57. The enterprise value to sales ratio is about 19.04, while the enterprise value to operating cash flow ratio is approximately 36.64. The debt-to-equity ratio is -6.14, and the current ratio is approximately 0.93, indicating a unique financial structure.

MSCI Inc. (NYSE:MSCI) Price Target and Financial Performance Overview

On October 29, 2024, Toni Kaplan from Morgan Stanley set a price target of $662 for MSCI Inc. (NYSE:MSCI). At the time, MSCI's stock was priced at $578.93, suggesting a potential increase of about 14.35%. MSCI is a leading provider of critical decision support tools and services for the global investment community. It competes with firms like S&P Global and FTSE Russell.

MSCI recently held its Q3 2024 earnings conference call, featuring key executives like CEO Henry Fernandez. The call, attended by analysts from major financial institutions, provided insights into MSCI's financial performance. The company reported a 15.9% increase in revenue, reaching $724.71 million, surpassing expectations of $714.59 million. This growth is driven by increased index operating turnover and strong demand for its analytical products.

The company's earnings per share (EPS) for the quarter were $3.86, exceeding the Zacks Consensus Estimate of $3.77. This is an improvement from the $3.45 EPS reported in the same quarter last year. Such positive financial results may support the optimistic price target set by Morgan Stanley, indicating confidence in MSCI's continued growth.

Despite the positive earnings report, MSCI's stock price on the NYSE is currently $578.93, reflecting a decrease of 2.745% or $16.34. The stock has traded between $573.37 and $631 today. Over the past year, MSCI's stock has seen a high of $631 and a low of $439.95, with a market capitalization of approximately $45.53 billion.

The trading volume for MSCI stands at 1,143,148 shares, indicating active investor interest. As MSCI continues to deliver strong financial performance, the market will closely watch how the stock price aligns with the new price target set by Morgan Stanley.

MSCI Inc. (NYSE:MSCI) Price Target and Financial Performance Overview

On October 29, 2024, Toni Kaplan from Morgan Stanley set a price target of $662 for MSCI Inc. (NYSE:MSCI). At the time, MSCI's stock was priced at $578.93, suggesting a potential increase of about 14.35%. MSCI is a leading provider of critical decision support tools and services for the global investment community. It competes with firms like S&P Global and FTSE Russell.

MSCI recently held its Q3 2024 earnings conference call, featuring key executives like CEO Henry Fernandez. The call, attended by analysts from major financial institutions, provided insights into MSCI's financial performance. The company reported a 15.9% increase in revenue, reaching $724.71 million, surpassing expectations of $714.59 million. This growth is driven by increased index operating turnover and strong demand for its analytical products.

The company's earnings per share (EPS) for the quarter were $3.86, exceeding the Zacks Consensus Estimate of $3.77. This is an improvement from the $3.45 EPS reported in the same quarter last year. Such positive financial results may support the optimistic price target set by Morgan Stanley, indicating confidence in MSCI's continued growth.

Despite the positive earnings report, MSCI's stock price on the NYSE is currently $578.93, reflecting a decrease of 2.745% or $16.34. The stock has traded between $573.37 and $631 today. Over the past year, MSCI's stock has seen a high of $631 and a low of $439.95, with a market capitalization of approximately $45.53 billion.

The trading volume for MSCI stands at 1,143,148 shares, indicating active investor interest. As MSCI continues to deliver strong financial performance, the market will closely watch how the stock price aligns with the new price target set by Morgan Stanley.

MSCI Inc. (NYSE:MSCI) Surpasses Earnings and Revenue Estimates

  • Earnings Per Share of $3.86, beating the estimated $3.78 and showcasing MSCI's ability to exceed market expectations.
  • Revenue reached approximately $724.7 million, surpassing the estimated $716.2 million, indicating strong demand for MSCI's products.
  • The company's Price-to-Earnings (P/E) ratio stands at approximately 41.85, reflecting investor confidence in MSCI's financial health.

MSCI Inc. (NYSE:MSCI) is a leading provider of decision support tools and services for the global investment community. The company offers a range of products, including indexes, portfolio risk and performance analytics, and ESG (Environmental, Social, and Governance) research. MSCI competes with other financial data providers like S&P Global and FTSE Russell.

On October 29, 2024, MSCI reported earnings per share of $3.86, surpassing the estimated $3.78. This performance highlights MSCI's ability to exceed market expectations, as the company also reported a revenue of approximately $724.7 million, exceeding the estimated $716.2 million. The revenue rose by 15.9% compared to the previous year, driven by a surge in index operating turnover and strong demand for its analytical products.

The company's earnings per share of $3.86 also surpassed the Zacks Consensus Estimate of $3.77, marking an improvement from the $3.45 per share reported in the same quarter last year. This growth underscores MSCI's strong financial performance and its capacity to deliver value to its shareholders.

MSCI's financial metrics provide further insight into its market position. The company has a price-to-earnings (P/E) ratio of approximately 41.85, indicating that investors are willing to pay over 41 times the company's earnings over the past year. The price-to-sales ratio stands at about 18.25, suggesting that investors are paying $18.25 for every dollar of sales generated by the company.

Despite a negative debt-to-equity ratio of -6.17, which may indicate a unique financial structure, MSCI maintains a current ratio of approximately 0.95. This suggests that the company has slightly less than enough current assets to cover its current liabilities, reflecting its financial management strategies.