MSCI Inc. Q3 FY2024 earnings call

Financial strength: Total revenue up 16%, adjusted EPS up 12%, free cash flow up 46%, with $199M in share repurchases year-to-date. Product segments: Diverse lines with ABF revenue driving growth, strong retention in asset managers. Key drivers: Growth among wealth managers via index use and tech platform; progress in private capital solutions; commitment to climate solutions. Wealth management: Major index win with global bank's private banking arm, direct indexing run rate growth 22%, wealth platform driving client engagement. Private capital: Partnership with Moody's for ESG coverage, new Head of Private Assets, private capital fund indices launched in July. Climate: Positioned as climate data provider, carbon emission data on private companies, and new Carbon Project Ratings introduced.

Total revenue grew 16%, with adjusted earnings per share up 12% and free cash flow up 46%. Asset Based Fee (ABF) revenue grew nearly 20% due to record AUM in ETF and non-ETF products linked to MSCI indices, including $18.6 billion in Q3 ETF cash flows. Index new recurring subscription sales grew 5%, analytics grew almost 11%. Asset owners had 11% organic subscription run rate growth, hedge funds 15%. ESG and climate net new recurring sales were down, but secular need for ESG integration and decarbonization remains. Asset managers had new recurring subscription sales down 5% YoY but 96% retention. Wealth managers saw $112 million wealth subscription run rate, growing 11% organically. Private capital solutions had 17% run rate growth, private capital fund indices cover over 13,000 funds with $11T AUM. Climate solutions supply carbon emission data on 60,000+ private companies and 7,500+ private equity/debt funds, with introduction of MSCI Carbon Project Ratings.

If markets remain at current levels or higher, expect to be towards higher end of expense guidance range for 2024. Increased CapEx guidance range by $10M for data center hardware. Increased free cash flow guidance range by $80M due to cash collections and tax timing benefits. Narrowed effective tax rate forecast to 18%-19.5% based on refined discrete items.

Subdued demand in ESG and climate is cyclical and may be prolonged. Asset managers facing fee compression and tighter budgets, with elevated cancel activity and longer sales cycles expected in near term. Market volatility impacting client spending and sales cycles.

Q: Recent management changes in ESG and private credit.

A: Strengthening senior team to deepen in areas with long-term opportunities, bringing in Luke and Richard for private assets and ESG/climate.

Q: Budget environment and pricing in 2025.

A: Gradual improvement in dialogues, but elevated cancel activity and longer sales cycles; moderating price increases, focusing on value delivery.

Q: Cancellations and sales in 4Q.

A: Q4 cancels expected to be elevated vs last year; sales see tighter budgets but early constructive dialogues with AUM run-up.

Q: Product gap vs execution gap.

A: Assess competitive situation, industry economics, and client events; high transparency on product pipeline and competition.

Q: ESG and Climate cyclical headwinds.

A: Secular trends strong, cyclical downturn expected to moderate as focus returns to social/environmental issues.

Q: Fixed income and multi asset analytics.

A: Strong growth, enhancing fixed income performance attribution, developing reputation for high-quality analytics.

Q: Private assets expansion.

A: Collecting deeper data, AI scaling, enhancing benchmarking and measurement in private markets, Luke's leadership aiding strategy.

Q: Net new recurring subscriptions.

A: Strong sales in Index and Analytics, but elevated cancels; early signs of improvement in client dialogues.

Q: Competitive displacement in analytics.

A: Displacing competitors in ESG/Climate and Index, solid execution in competitive framework.

Q: Inflection point for new sales.

A: Varying dynamics across segments, encouraging momentum in wealth, asset owners, but active managers still recovering.

Q: Analytics revenue outlook.

A: Revenue growth driven by large implementations, expect revenue growth to align with run rate; FX and technical items impact run rate delta.

Q: Expense guidance despite AUM growth.

A: Balancing investment in growth areas with profitability, constant calibration of expenses.

Q: Custom index opportunity.

A: Exciting growth opportunity, integrating Foxberry acquisition, competitive advantage in models and research.

Q: RCA business performance.

A: Impacted by low real estate transaction volume, seeing signs of pick-up in transactions.