MSCI Inc.

Mr. Davis, gentlemen, and welcome to the MSCI second quarter 2019 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session where we will limit participants to one question and one follow-up. Further instructions will follow at that time. As a reminder, this conference call is being recorded. I would like to now turn the call over to Mr. Andrew Wisham, Chief Strategy Officer. You may begin.

Thank you, Shannon. Good day and welcome to the MSCI second quarter 2019 earnings conference call. Earlier this morning, we issued a press release announcing our results for the second quarter, which is available on our website, along with our earnings presentation and a second quarter update. A copy of the release, second quarter update, and the slide presentation that we have prepared for this call may be viewed at msci.com under the investor relations tab. Let me remind you that this call contains forward-looking statements. Your cautions not to place undue reliance on forward-looking statements which speak only as of the date on which they are made and are governed by the language on the second slide of today's presentation. For discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10-K and our other SEC filings. During today's call, in addition to results presented on the basis of U.S. GAAP, we also refer to non-GAAP measures. including but not limited to organic operating revenue growth rates, adjusted EBITDA, adjusted EBITDA expenses, adjusted EPS, and free cash flow. We believe our non-GAAP measures facilitate meaningful period-to-period comparisons and provide insight into our core operating performance. We will also discuss organic run rate growth figures, which exclude the impact of changes in foreign currency and the impact of any acquisitions or divestitures. On the call with me today are Henry Fernandez, our Chairman and CEO, Bear Pettit, our President, and Linda Huber, our Chief Financial Officer. With that, let me now turn the call over to Mr. Henry Fernandez. Henry? Thank you, Andy.

Hello, everyone. And thank you for joining us today. Before I start, I would like to say that we're very pleased to have Linda do her first quarterly report to you all on MSCI. I hope you treat her well and she does a good job, right? Thank you. So our strong performance and momentum in the quarter is being driven by continuous strength in all of our offerings. accelerated by the incredibly attractive opportunities we see across a broad range of new growth frontiers. During the first half of each year, our board and the management team conduct an annual strategic planning process where we explore in great detail relevant client dynamics, industry developments, and all of our MSCI capabilities, with a goal of prioritizing the most attractive focus areas for the firm. This year, we came away from the process with an overwhelming sense of excitement about the future of MSCI, and we reaffirm our belief that we are only scratching the surface of what is possible to achieve with this franchise. We see data management, advanced analytical models, and sophisticated technology becoming increasingly critical to the investment industry. And the role and the value of MSCI is growing every single day. An important discussion internally then has become how we fuel the investments necessary to pursue the many opportunities we have while preserving our high profit margins. As we have discussed in the past, we have a very rigorous focus on allocating our capital to the highest returning projects through our internal capital allocation process. We think of our internal spending across two broad categories. Run the business expenses and change the business investments. Run the business expenses relate to supporting the existing products and capabilities in their current form. Well, change the business investments relate to enhancing the existing business and even more importantly, creating new growth areas for us. A top priority for us is to increase investments allocated to change the business activities. We do this by improving efficiency and productivity and therefore squeezing and reducing expenses across run the business activities. This way we can continue to allocate investments to the highest returning projects and consequently grow faster and be even more profitable. We spent a little bit of time talking about all of this at investor day. We see a long runway of opportunities and growth for our current run business activities. But we're also extremely excited about the growth potential for the change in business activities. Some examples of these are, first, new high growth areas of content creation, such as ESG and factors for both equity and fixed income. fixed income analytics and indices, and real estate and other private asset classes. A second example is new client areas such as wealth management, key geographies such as Asia, and new index licensing opportunities such as futures and options listed on exchanges, and OTC derivatives issued by banks and broker dealers. And a third example is new distribution channels, and new content-enabling technology that allows for those distribution channels to prosper. These are all very attractive investment areas in their own right. In addition to complementing and driving even more value to our existing index analytics franchises. Over the last several months, we have had several notable developments that reinforce our conviction around this change to business investment areas. Let me highlight a few of these developments, first across content creation dimension. In the first half of the year, 40% of inflows into all U.S. exposure equity ETFs went into ETFs linked to MSCI indices. Primarily driven by a $9 billion inflow into ETFs linked to our factor indices. Globally, there was a total of $14 billion of inflows into ETFs linked to our factor indices. By leveraging our cutting edge fixed income factor model, we rolled out a new tier multi-asset class factor framework, which allows clients to seamlessly analyze their portfolios from the highest level of factors all the way down to the most granular ones across any asset class and within a one cohesive tier framework. If you think of analytics, This quarter, we added a series of new corporate credit curves, which broaden and enhance our fixed income and multi-asset class capabilities. One last example in this content creation category is that we have internally launched a series of fixed income factor indices that we expect to release to the market later this year. In looking at the client and product dimensions, let me highlight a few of the new developments that have given us conviction about our investment plan. We continue to deliver double-digit organic subscription run rate growth of 13% across Asia, 11% within real estate, and 19 and 25% for indexes and products sold to wealth managers, respectively. In Q2, the notion of value trading in listed futures and options linked to MSCI indices reached a record level of $1.4 trillion, with contract volume at near record levels of 29 million contracts. This has been fueled by a strong traction in listed futures and options based on our flagship indices, such as the emerging market and the IFA indices. which together grew in total 24% year over year. But in addition to that, we also have new launches in futures contracts, especially in the MSCI Saudi Arabia index. We think the market for multi-country, multi-currency, listed and over-the-counter derivatives is potentially very significant and we intend to be one of the largest index providers in this area. All the cases that I have cited are good examples of areas where our recent investments and innovation have driven highly profitable long-term growth in relatively new areas in addition to our existing trajectory of growth in the rounded business areas. Let me now turn the call over to Bear, who will do a deeper drive into one of our specific areas of growth that I briefly mentioned, which we're extremely excited about. In this quarter, this focus will be on the index ecosystem and the critical role that index-linked derivatives can play in that. Bear? Thank you, Henry.