MSCI Inc.

Ladies and gentlemen, and welcome to the MSCI fourth quarter 2022 earnings conference call. As a reminder, this call is being recorded. 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. We will have further instructions for you at that time on how to join. I would like to now turn the call over to Jeremy Ulan, Head of Investor Relations and Treasurer. You may now begin.

Thank you, operator. Good day and welcome to the MSCI fourth quarter 2022 earnings conference call. Earlier this morning, we issued a press release announcing our results for the fourth quarter of 2022. This press release, along with an earnings presentation, will be referenced 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 U.S. 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 rate, 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 Henry Fernandez, our Chairman and CEO, 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 Henry Fernandez. Henry? Thank you, Jeremy.

Welcome, everyone, and thank you for joining us today. In the face of significant global hell winds, MSCI delivered strong fourth quarter results to cap off another successful year. And on our fourth quarter highlights, we posted organic revenue growth of 7%, including organic subscription revenue growth of 16%, despite a reduction in our AUM link revenue. This growth combined with our intense focus on expense management, drove adjusted EPS growth of 13%. In terms of capital management, we repurchased more than $70 million worth of MSCI shares. You should also note that our board of directors has approved increasing the dividend by 10% to $1.38 per share. For 2022 as a whole, we posted organic revenue growth of 9%, including organic subscription revenue growth of 15%. We also achieved adjusted EPS growth of 15%, and our share repurchases total nearly $1.3 billion. We delivered these results despite historic levels of market volatility. which makes us cautiously optimistic about the year ahead. MSCI continues to benefit from our diversified all-weather franchise, which allows us to thrive in all environments. In 2022, over 97% of our revenue came from three recurring revenue streams, including Recurring subscription revenue, which was about 74% of the total. Recurring AUM link revenue, which was 21%. And recurring listed futures and options transaction-based revenue, which was about 3%. While the external environment created headwinds and more variability for AUM, our subscription and transaction-based derivatives businesses perform well through difficult operating conditions. We have once again demonstrated the balance, adaptability, and resilience of our franchise, which has enabled us to continue making critical investments in long-term secular growth areas. These investments are helping MSCI expand and enhance our solutions to meet the needs of an increasingly diversified and diverse client base. There we'll talk about our solutions in greater detail. For now, I would like to explore the strategic backdrop for both our 2022 results and our 2023 priorities. MSCI continues to see enormous growth opportunities across product lines, asset classes, and client segments. At times like this, investors become even more reliant on high-quality data, models, analytics, and research to help them understand fast-moving market change. MSCI is constantly monitoring for signs of pressure that our clients could face, from reduced budgets and longer sell cycles to increased layoffs and fewer new fund raises. That being said, we are cautiously optimistic on the path forward. Our strategy continues to capture major structural shifts in the investment world. For starters, indexed investing is increasingly popular across regions, asset classes, and investor types. The reason is simple. Indexed investing gives investors an efficient mechanism to express their investment thesis and preferences and to focus on asset allocation. During periods of financial turmoil, the unique strength of MSCI's index business become even more salient. We can offer one-stop shop for different types of indices across many layers including asset classes, exposures, styles, and investment themes. I have spoken before about the massive potential of direct indexing in particular. I want to emphasize that MSCI dramatically strengthened our direct indexing market position in 2022. For the full year, we increased our total number of direct indexing clients by 200%. The indexed investing trend reflects a broader shift toward outcome-oriented investment strategies. ESG investing is a big part of that. As you know, ESG has become a hot button political issue, especially in the United States. However, political noise is different from investment reality. And the reality is that ESG risks are financial risks. That is why, even as the partisan debate gets louder, investors continue to make ESG integration a priority. For example, The Index Industry Association recently surveyed investment fund companies across the U.S., U.K., Germany, and France. An overwhelming majority of the respondents said that ESG had become more important to their investment strategy between 2021 and 2022. These findings are reinforced by client demand for MSCI's ESG solutions which has remained strong. No single issue has done more to elevate ESG than climate change. In 2022, climate risk became increasingly visible as countries around the world suffer from record heat waves, record drought conditions, and record flooding. What is true of ESG risk in general is true of climate risks in particular. They can be material financial risks. Investors understand that. For example, in a recent Deutsche Bank investor survey, more than three quarters of respondents said that climate change either is already having a severely negative impact on the global economy or will have such an impact over the next 10 years if left unchecked. Investors recognize that climate change is also not only a risk, but an opportunity. Consider a recent report from the International Energy Agency on Renewable Technologies. The IIA now projects that the world will add, quote, as much renewable power in the next five years as it did in the past 20, end quote. MSCI is determined to become the undisputed leader in climate-related investment tools. To support these ambitions, we continue to make key investments across asset classes and geographies. As a result, MSCI is now well positioned to help all types of clients achieve their net zero pledges. In 2022, we saw especially strong growth in climate sales among non-traditional client segments, especially corporates, banks and traders, wealth managers, and hedge funds. We have also developed innovative climate tools for private assets, an area where we continue to see tremendous possibilities for growth. One example is the carbon footprinting of private equity and private debt funds tool that we launched with Burgess toward the end of 2021. The key enablers for all of this remain our data and technology. MSCI's ongoing tech-driven data transformation is helping us improve the client experience in so many different ways. Last month, we expanded our strategic partnership with Microsoft to support our new MSCI One technology platform, which is built on Microsoft Azure. Just last week, MSCI announced another strategic partnership with Google Cloud to build an investment data acquisition and development platform. This new platform will make it easier for ourselves and our clients to translate raw data into actionable insights. As I mentioned earlier, the importance of our data, models, analytics, and research only increases during periods of market turmoil. Our solutions play an essential role in helping investors navigate today's volatile landscape and build better portfolios. At the same time, MSCI's resilient all-weather franchise continues to allow us to invest for the future while maintaining strong profitability growth. Just one final note before I turn the call over to Bear. Earlier this morning, we issued a press release announcing that Bear has been appointed to the MSCI Board of Directors effective immediately. I would like to congratulate him on his well-deserved appointment. As many of you know, Bear and I have been close business partners for 23 years, and he has been instrumental in building MSCI into what it is today. Bear's unique skills experience and strategic thinking will significantly strengthen the board's effectiveness and ability to continue to create shareholder value. I would also like to be clear that my role is not changing at all. I have no plan or timetable to retire or step down as CEO or chairman of the board. I remain extremely engaged and energized by the company's tremendous growth prospects. If anything, I am more excited today about our significant opportunity that I have been at any time in the 27 years that I've been leading this business. I look forward to continuing to partner very closely with Bayer for many more years as CEO and President, and now as fellow board members. Again, congratulations to Bear, whom I now will turn the call over to. Bear?