MSCI Inc. Q4 FY2024 earnings call

• Index: Ecosystem linked to MSCI indices central, with climate index ETF launch and large index deals. Custom index capabilities like Foxberry F9 integrated.
• Wealth: Strong growth in subscription run rate, analytics, climate and ESG, and new enterprise deal for MSCI Wealth Manager.
• Hedge Funds: 15% subscription run rate growth excluding FX, large deals with multi-strategy hedge funds, conversions of one-time sales to recurring subscriptions.
• Banks and Broker Dealers: 7% subscription run rate growth, strong in index with new recurring sales.
• Asset Owners: 11% subscription run rate growth, strong in climate and private assets, large climate index mandate, private capital solutions run rate growth 15%.
• Analytics: 7% subscription run rate growth, impact of FX and timing of implementation-related revenues, momentum in fixed income and wealth.
• ESG and Climate: 10% subscription run rate growth excluding FX, retention rate over 93%, benefits from data quality and new content.
• Private Capital Solutions: 15% run rate growth, retention rate 92%, impact of client events and vendor consolidation in real assets.

For the full year, MSCI achieved organic revenue growth of almost 10%, adjusted earnings per share growth of 12.4%, and free cash flow growth of 21%. In the fourth quarter, organic subscription run rate growth excluding FX was 8% and 7% on a reported basis, asset based fee run rate growth was 15% with a retention rate of 93%. Index segment: Ecosystem linked to MSCI indices remains central, with milestones like a large asset manager client launching a climate index ETF and large index deals with investment banks. Wealth segment: 12% subscription run rate growth excluding FX, 14% in analytics, 28% climate run rate growth, 67% ESG and Climate recurring sales growth, and closed a large enterprise deal for MSCI Wealth Manager. Fixed Income segment: 15% run rate growth, including a large fixed income portfolio management analytics deal and a federal government contract for agency mortgage-backed security analytics.

2025 guidance: Expense outlook assumes gradually increasing market levels, Q1 2025 adjusted EBITDA expenses expected $35M higher than Q4 2024. CapEx reflects software development investments. Free cash flow guidance includes higher cash tax payments in Q1. Effective tax rate expected 19%-21% beyond Q1.

• Market levels and fund inflows impacting client budgets.
• Lingering pressures on active managers, especially in Europe.
• FX headwinds affecting run rate.
• Timing lumps in implementation-related revenues.
• Client down sales and cancels in ESG and climate segment.

Q: Toni Kaplan with Morgan Stanley asked about ESG ex-climate growth.

A: Henry Fernandez discussed European commitment to sustainability, product evolution, and global trends in ESG.

Q: Manav Patnaik with Barclays followed up on cancels and budget environment.

A: Andy Wiechmann talked about constructive market environment, pickup in pipeline, and shift in dynamic.

Q: Alex Kramm with UBS asked about pricing conversations and impact.

A: Andy Wiechmann spoke about pricing focus on value creation, positioning relative to competitors.

Q: Ashish Sabadra with RBC inquired about sales cycles and index trends.

A: Andy Wiechmann discussed sales cycle improvement, momentum in custom indexes and non-market cap weighted products.

Q: Alexander Hess with JPMorgan asked about subscription business inflection.

A: Andy Wiechmann talked about opportunities in growth areas and secular trends.

Q: Owen Lau with Oppenheimer asked about Analytics segment.

A: Andy Wiechmann explained FX impact, momentum in fixed income and wealth, and outlook.

Q: Kelsey Zhu with Autonomous asked about private assets declines.

A: Andy Wiechmann discussed PCS and real assets dynamics, traction in new logos and innovations.

Q: Scott Wurtzel with Wolfe Research asked about Wealth segment roadmap.

A: Henry Fernandez spoke about opportunities in scaling wealth portfolios, private assets, and credibility build.

Q: Craig Huber with Huber Research Partners asked about AI.

A: Henry Fernandez talked about AI in data operations, product innovation, and efficiency.

Q: Faiza Alwy with Deutsche Bank asked about geography and data conversions.

A: Henry Fernandez discussed geographic differences and data conversion trends.

Q: George Tong with Goldman Sachs asked about cancels and net new sales.

A: Andy Wiechmann talked about expected cancels, lingering impacts, and retention rates.

Q: Russell Quelch with Redburn Atlantic asked about Moody's partnership.

A: Henry Fernandez discussed Moody's partnership components and early impacts.

Q: Jason Haas with Wells Fargo asked about expense guidance.

A: Andy Wiechmann explained expense drivers, guidance assumptions, and investment focus.

Q: David Motemaden with Evercore ISI asked about pricing.

A: Andy Wiechmann spoke about pricing focus on value and client constructive approach.

Q: Gregory Simpson with BNP Paribas asked about active managed ETFs.

A: Baer Pettit said it's positive, aligning with MSCI's strengths in index and analytics.

Q: Alex Hess of JPMorgan asked about M&A opportunity.

A: Henry Fernandez discussed focus on organic growth with opportunistic bolt-ons.