MSCI Inc.

Good day and welcome to the MSCI second quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please limit yourselves to one question and one follow-up. We will have further instructions for you at that time. As a reminder, please note this event is being recorded. I would now like to turn the conference over to Jeremy Ulam, Head of Investor Relations and Treasurer. Please go ahead.

Thank you, Vaish. Good day and welcome to the MSCI second quarter 2022 earnings conference call. Earlier this morning, we issued a press release announcing our results for the second quarter 2022. This press release, along with an earnings presentation we will reference on this call, as well as a brief quarterly 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 US GAAP, we also refer to non-GAAP measures including, but not limited to, 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 in the appendix of the earnings presentation. We will also discuss run rates. which estimates at a particular point in time the annualized value of the recurring revenues under our client agreements for the next 12 months, subject to a variety of adjustments and exclusions that we detail in our SEC filings. As a result of those adjustments and exclusions, the actual amount of recurring revenues we will realize over the following 12 months will differ from run rate. We therefore caution you not to place undue reliance on run rate to estimate or forecast recurring revenues. We will also discuss organic growth figures, which exclude the impact of changes in foreign currency and the impact of any acquisitions or divestitures. On the call today are Bear Pettit, our president and COO, and Andy Wishman, our chief financial officer. Finally, I would 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 Bear Pettit. Bear?

Hey, Jeremy, thank you, and welcome, everyone, and thank you for joining us today. I just wanted to say Henry is fine. He just woke up this morning and was feeling a bit under the weather, so he won't be joining us on the call today, but we'll go forward as normal. So before I talk about MSCI's financial performance, I'd like to formally introduce Jeremy as our new head of investor relations and treasurer. Since joining MSCI 12 years ago, he's held a variety of roles supporting our growth strategy, M&A, and partnerships while building out our planning and forecasting processes. We're excited to have him in this role. His experience and institutional knowledge will help investors better understand our strategy and opportunities. Looking back on the second quarter, MSCI delivered strong results in a difficult external environment. Among our headline achievements, we posted record levels of second quarter total new recurring subscription sales and net new recurring sales. This helped us drive 14% organic subscription run rate growth, up from 11% a year ago. It also contributed to adjusted EPS growth of 13.5%. Meanwhile, MSCI achieved a 95.5% retention rate, up from 94.4% in the second quarter of 2021. On the capital front, we repurchased another $277 million worth of shares at an average price of $404 per share, bringing our total for the year to nearly $1.1 billion. We also raised $350 million through a term loan, giving us greater flexibility in the months ahead for bolt-on acquisitions and opportunistic share buybacks. We did all this against the backdrop of historic inflation, rapidly rising interest rates, and market volatility. As we always say, MSCI prides itself on being an all-weather franchise. Any company can appear successful during a bull market. Moments like this show which companies are truly resilient. Time and again, MSCI has met the challenge. During periods of instability, our data and research become even more relevant. Today, we are well positioned to capitalize on repriced assets and help investors navigate financial turbulence. We are also well-positioned to make small, bolt-on acquisitions if the right opportunities emerge. MSCI is focused on strategic accelerators, and our team is monitoring the market for possibilities. Even as we continue investing in long-term growth, we will remain vigilant about protecting our profit margins. Despite the macro environment, we have not seen a slowdown in demand for our solutions, In fact, we see continued strength across most segments and geographies. To help us become even more client-centric, we recently hired Christina Bondolofsky as our new Chief Marketing Officer. Christina brings decades of experience from world-class brands such as Hewlett-Packard and Coca-Cola. Her work at MSCI will deepen our relationships with stakeholders across the board. Looking ahead, we recognize the challenges posed by global market trends. But as I said earlier, these are the moments when MSCI thrives. I'd now like to drill down into a few areas in greater depth, including climate, analytics, and fixed income. Before I do so, in view of the external environment, I thought it was important to lead with what MSCI is seeing from our clients. Despite all the market turmoil, we continue to have strong growth across client segments. Our pipeline remains robust, and we have no evidence that it is slowing. During this period of economic and financial turbulence, our clients understand that MSCI solutions can play a critical role in helping them adapt and manage their investments. Our second quarter performance confirms the strength of our diversified and durable franchise. Let me spotlight some of the segments and geographies where MSCI recorded especially strong growth. In our index business, we posted double-digit subscription run rate growth in all regions, along with custom index subscription run rate growth of 23%. In ESG and climate, we delivered organic subscription run rate growth of 47%, recurring net new sales growth of 26%, and our second best quarter ever for recurring sales. Meanwhile, total assets under management in ETFs linked to our ESG indexes increased by 15%. Among banks, hedge funds, and wealth managers, we posted total subscription run rate growth of 17%, excluding RCA. In terms of specific products and services, we delivered robust analytics growth with net new sales increasing by 68%. This growth was driven by sales in equity factor models and risk management solutions, as well as a 17% reduction in cancels. We also posted a strong retention rate for analytics of 94% and recurring sales growth of 15%. In addition, our listed futures and options trading volume increased by 37% with strong growth from world, Euro, and IFA contracts. There's no question that climate represents one of the fastest growing parts of our franchise. Let me discuss a few concrete milestones from the second quarter. Just last month, MSEI launched our new total portfolio footprinting tool, which helps a growing range of financial institutions measure carbon emissions across their lending and investment portfolios. With this tool, we have extended our climate analysis to municipal bonds and securitized products. and we will be better able to provide modeling for loans, infrastructure, and private assets. MSCI also completed an agreement with a prominent general partner to provide climate analytics on a portfolio of private companies. In addition, we completed our first climate lab enterprise deal with a major asset manager that cuts across analytics, ESG and climate, and private assets. The larger pipeline for Climate Lab Enterprise continues to gain momentum. We're also pleased that one of the most innovative climate tools we launched in 2021, our implied temperature rise metric, was named ESG Assessment Tool of the Year for Investment Decisions and Insights by Environmental Finance. To cite one final second quarter milestone, MSCI released the latest iteration of our net zero tracker, which illustrates how listed companies align with different temperature rise scenarios. Climate is now driving growth across the company, including in our analytics business. In the second quarter, MSCI launched a series of new equity factor models, including the first models to offer sustainability, crowding, and machine learning factors. The sustainability factor includes both ESG and carbon efficiency components. This is a significant model update aligned with our strong index franchise. We will make these models available through several distribution channels, including Snowflake's data cloud. Using Snowflake will help us dramatically accelerate the client onboarding process. We're also developing capabilities to create an even better user experience by combining analytical results from Risk Manager and Bar01. This will greatly enrich our content and capabilities. We are further enhancing the user experience in analytics through our investment solutions as a service application. ISAS gives clients greater flexibility in how they interact with our analytics while reducing MSCI's time to market for new products and services. It represents a pivot away from our legacy applications. All of this reflects our broader focus on client centricity. As part of that focus, we continue to make progress in expanding our direct indexing capabilities. We want to help clients to be able to personalize their investment strategies at scale through client-designed indexes. As I mentioned earlier, MSCI delivered custom index subscription run rate growth of 23% in the second quarter. And we're seeing growing traction of custom indexes as the basis of index-linked products within our asset base fee revenue. We're also building momentum in fixed income. In fact, during the second quarter, our fixed income franchise posted 35% growth, run rate growth. MSCI will continue investing in fixed income to help our franchise reach the next level. With that in mind, we were delighted to team up with Market Access Holdings on innovative portfolio analytics solutions and co-branded fixed income indexes. Through this partnership, MSCI's portfolio analytics and fixed income indexes will integrate the all-to-all pricing developed by Market Access, including their tradability and liquidity scores. Meanwhile, investors will use Market Access and our ESG ratings to help create more liquid and sustainable fixed income portfolios. In closing, I would just like to reiterate that during this period of volatility in financial markets, we continue to see strong demand for our solutions. And with that, I will turn the call over to Andy. Andy?