MSCI Inc.

Good day, ladies and gentlemen, and welcome to the MSCI Fourth Quarter and Full Year 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 call is being recorded. I would like to now turn the call over to Sally Schwartz, Head of Investor Relations and Treasurer. You may begin.

Thank you, Operator. Good day and welcome to the MSCI fourth quarter and full year 2019 earnings conference call. Earlier this morning, we issued a press release announcing our results for the fourth quarter and full year 2019. This press release, along with our earnings presentation, which will be referenced on our call, and a brief fourth 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 referred 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 to provide insights into our core operating performance. You'll find the reconciliation to the equivalent gap 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 25 to 33 of the earnings presentation. We will also discuss organic run rate growth figures, which include the impacts of changes in foreign currency and the impact of any acquisitions or divestitures. On the call today are Henry Fernandez, our chairman and CEO, Bear 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 now turn the call over to Henry Fernandez. Henry?

Thank you, Sally. Hello, everyone, and thank you for joining us today. Before I go through my prepared remarks, I would like to give you some reflections as we enter this new decade and what we should expect from MSCI. As many of you know, I've been at the helm of MSCI almost 25 years, and I can categorically tell you that today I am more excited and more optimistic about this franchise that I have ever been. And I'm sure that it's not only me, but my partners here, Bear and Linda, share on that optimism. Our franchise is getting stronger at an accelerated pace. And in terms of what we do for clients all over the world, the type of problems and opportunities we help them solve, what industry bodies would like to know from us and learn from us, what government officials and regulators want to learn from us. Everyone wants to talk to MSCI about how we are helping change the investment industry. Our strategic investment choices at MSCI are vastly wider and deeper than they were 10 years ago because of the more central role that we play in the global investment industry. Our financial model is not only very resilient and diversified, but it's presenting us with significant new organic opportunities of investment with even higher rates of return and short to medium term paybacks. The reason for this is that what we do is normally built upon on top of an existing infrastructure and cost base at MSCI, and as that infrastructure is more and more developed, Any incremental investment for new things yields a much higher incremental payoff and therefore an acceleration on internal rates of returns. This is clearly the case in index and ESG, for example. So we are therefore positioning ourselves to take full advantage of this dynamic and hopefully accelerate shareholder value creation throughout this new decade. Well, with those reflections, let me now go through my prepared remarks. In the fourth quarter, we delivered strong performance across our franchise with year-over-year growth of 12% in operating revenues, 16% in adjusted EBITDA, and 27% in adjusted ETFs. In the fourth quarter, assets under management in equity ETFs linked to MSCI indices hit a record high of $934 billion. The increase of $119 billion from the third quarter was driven by both strength in the global markets and very healthy cash inflows into ETFs linked to MSCI indices. Since the start of the new year, We have continued to see growth in AUM levels in equity ETFs linked to MSCI indices. At the end of last week, they exceeded $950 billion, setting a new record and come close to the $1 trillion mark, which would be great to achieve so. Notably, although inflows to global equity ETFs were lower, throughout 2019 compared to 2018, MSCI actually saw a 48% increase in equity ETF flows, inflows linked to our indices, demonstrating the power, the diversity of our ETF indexing franchise. About a year ago at this time, at our investor day, we share with you three pillars of our strategy. Today, I'm excited to give you an update on our progress. At the time, we told you we will, one, grow our core business, two, execute in-flight opportunities, and then three, capture new wave of opportunities in order to serve a wider and deeper variety of clients, investment problems, and opportunities. and therefore, in turn, fuel the growth of the company and the creation of shareholder value. We have been delivering on our promise to execute on these areas of growth while serving as responsible stewards of your capital. In the core business, we have produced significant growth as we continue to innovate and add content in response to changing markets and client interest. you can see evidence of this continuous progress in our well-established solutions like our equity market cap indices, our equity risk and performance analytics, as well as our multi-asset class risk analytics. In fact, as of December 31st of 2019, we reached a combined run rate for our index analytics segments of almost $1.5 billion, up 13% year over year. In addition to accelerating our core business, we have executed on a number of in-flight growth opportunities to meet the needs of our customers and the investment community more broadly. Let me give you a few examples. First, within our Futures and Options business, we expanded our strategic partnerships with key derivative exchanges in the US and Europe. The run rate from futures and options grew over 56% compared to the prior year. Second, with respect to our ESG business, the October 2019 acquisition of Carbon Delta provided us with an essential climate value at risk capabilities for our ESG franchise. And, of course, the climate change segment of the ESG franchise is an area that we're intensely focused on as the world is focusing on the impact of climate change in a variety of areas, in our case, on portfolios of our clients. So thus far, we are very pleased with the progress we have made with our integration efforts with CarboDelta and the level of client interest that we are already seeing. Third, in fixed income, we recently launched 15 MSCI fixed income ESG and factor indices, leveraging our 30-plus years of extensive experience in fixed income risk and performance analytics, as well as our leadership in index construction and state-of-the-art data capabilities, and, of course, on our expertise in ESG. Finally, in real estate, we continue to grow and expand our offering of private core real estate data and analytics, and are optimistic that our growth in this segment will gradually accelerate. Finally, we have invested a new wave of opportunities that will drive our future growth. Most recently, we entered into a strategic relationship through a significant minority investment in the purchase group, a leading provider of investment decision tools for private asset classes. This was an area of significant focus in our investor day a year ago. Our positioning in private assets is critical to supporting our clients who are increasingly looking for solutions that expand both public and private assets. Our alliance with Burgess is intended to accelerate and expand the use of data, analytics, and other investment decision support tools for investors in private asset classes all over the world. More broadly, we remain committed to providing our clients with tools that would enable them to capitalize on their significant new investment opportunities and challenges. We believe this puts MSCI at the leading age of modern investing. As we enter the new decade, we're proud of what we have built and the tremendous value that our employees have created for our clients and in turn, our shareholders. Before I pass on the call to my partner, Bear, I would like to congratulate him because this month, Bear has celebrated his 20th anniversary of being at MSCI and a partner of mine throughout that time. Mr. Pettit.