MSCI Inc.

Good day, ladies and gentlemen, and welcome to the MSCI Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session where we will limit participants to one question and one follow-up. We will have further instructions for you at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Sally Schwartz, Head of Investment Relations and Treasurer. You may begin. Thank you.

and welcome to the MSCI Third Quarter 2019 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the third quarter. This press release, along with our earnings presentation and a brief third quarter update, are available on our website, msci.com, under the Investor Relations tab. Let me remind you that this call contains forward-looking statements. You are cautioned 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 in 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. You'll find a reconciliation to the equivalent GAAP measures in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures on pages 21 to 29 of the earnings presentation. 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 today are Henry Fernandez, our Chairman and CEO, Sarah Pettit, our President and COO, and Linda Huber, our Chief Financial Officer. I would also like to point out that members of the media may be on the call this morning in a listen-only mode. With that, let me turn the call over to Henry Fernandez. Henry?

Thank you, Sally. Hello, everyone, and thank you for joining us today. Before I start, I would like to say that we're very pleased to have Sally with us on her first earnings call at MSCI. So congratulations to you, Sally, and we're fortunate to have you. In the third quarter, we again saw strong performance across our franchise, with year-over-year growth of 10% in revenue, or 12% on an organic basis, 13% in adjusted EBITDA, and 24% in adjusted EPS. In addition to these exceptional financial results, we achieved several significant milestones. We struck new long-term agreements with BlackRock Intercontinental Exchange, Deutsche Börse, and Charles River Development, and we acquired Carbol Delta. This agreement aligned us well with key strategic partners and provided us with important capabilities that will continue to enhance our growth and competitive differentiation. On BlackRock, we extended our successful strategic relationship with them for another 10 years through March of 2030. As you are well aware, there are strong secular drivers of access into ETS, and this new agreement creates a tremendous opportunity for MNCI. Our renewed contract with BlackRock aims to maximize long-term revenue growth by further balancing and aligning the price-volume mix in our arrangement with them. More specifically on the deal, the current license fee rates BlackRock pays to MSCI will be reduced for ETFs with total expense ratio below certain levels according to a phase implementation period. In these ETFs, our current fee rate has become a much larger percentage of total fees than originally anticipated. Therefore, the new agreement corrects for that. The aggregate reduction to our total asset base fee run rate as of September 30 of this year, associated with this adjustment, is not material, based on the AUM as of September 30th, and based on the most recently confirmed total expense ratios of these ETFs that are subject to this adjustment. Any potential future reductions in total expense ratios of licensed BlackRock ETFs may reduce the license fee rates payable to MSCI for those ETFs. These fee reductions are balanced by the potential for incremental assets to flow into licensed BlackRock ETFs. As you know well, we have seen substantial growth in ETFs over the past decade, with global ETF assets up again thus far in 2019 by approximately 20%. Our continued aim with BlackRock has been to more closely align our mutual opportunities and successes in the ETF marketplace, and this agreement fully reflects that approach by them and by us. We're very excited about the path we see in front of us, and we believe we're extremely well positioned to benefit from MSCI's ongoing innovation and product development, as well as the underlying trends that support the continued flows into ETFs. We also recently expanded our strategic relationship with the Intercontinental Exchange, or ICE, who, as you know, is a leading operator of global derivative exchanges and clearinghouses and a provider of fixed income data. In addition to extending the existing license agreement for listed futures based on MSCI indices, we license to ICE our ESG data for their fixed income index construction, and we license from ICE fixed income pricing and reference data to use across MSCI, including for MSCI fixed income indices. We similarly just renewed our strategic relationship with Eurex, one of the world's leading derivative exchanges and part of Deutsche Börse Group in Germany. We not only extended the terms of our license agreement for the existing MSCI index listed futures in Europe, but also expanded the agreement to include futures on MSCI ESG indices to capitalize on the growing interest in sustainable investment. These types of strategic relationships are mutually beneficial. They drive innovation and they deliver increased value for our clients and the industry as a whole. Similar to our focus on driving value through close strategic relationships with a wide variety of leading industry players, We continue to selectively pursue highly strategic, bolt-on acquisitions of companies like Carbon Delta, which enhance our capabilities in key growth areas, generate attractive returns, and drive long-term growth and differentiation for MSCI. We're extremely excited by the opportunities that will result across all of these developments. I will now turn the call over to my partner, Bear Pettit, who will provide more coverage on our continued progress in those two areas of index derivatives and ESG, including the carbon delta acquisition.