MSCI Inc.

Ladies and gentlemen, and welcome to the MSCI first quarter 2023 earnings conference call. As a reminder, this call is being recorded. 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. I would now like to turn the call over to Jeremy Yulan, Head of Investor Relations and Treasurer. You may begin.

Thank you, Operator. Good day and welcome to the MSCI First Quarter 2023 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the first quarter 2023. 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 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 presentations. 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 rates. 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, Mayor 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. MSCI delivered solid first quarter results in a challenging external environment, confirming the underlying strengths of our franchise, and our proactive financial management. We have not been immune to the market turmoil, but our resilience continues to stand out, as seen in the headline numbers from the quarter, which include adjusted EPS growth of over 5%, organic subscription run rate growth of 12%, and a retention rate of over 95%. On a segment level, we posted our 37th consecutive quarter of double-digit run rate growth in index recurring subscriptions. We also maintained our momentum in equity portfolio analytics, achieving run rate growth of over 10%. Meanwhile, climate continued to drive a wide range of growth opportunities. including with many emerging client segments, such as banks, wealth managers, and insurance companies. MCI delivered 68% climate run rate growth across our product lines and a climate retention rate of over 96%. The difficult environment has certainly affected buying behavior of our clients. In some areas, client budgets have tightened and sales cycles have lengthened, especially for larger purchases. ESG sales have also been affected by regulatory uncertainty in Europe and by a slowdown among wealth managers and retail investors in the United States, although institutional investor demand remains healthy and steady. As we have noted in recent quarters, our AUM link revenue tends to be an early mover in market cycles, while our subscription revenue tends to see a lagging effect. Still, our client engagement levels remains very healthy, and we continue to find a steady demand for our products and services. Even in tough environments, MSCI unique competitive advantages endure. Clients need our data, models, analytics, and research to navigate a rapidly changing investment landscape. With that in mind, we continue prioritizing core investments in areas we believe we can fuel growth while maintaining very rigorous overall expense disciplines. We also recognize that periods of turmoil can spur opportunistic M&A at more attractive valuations than we have seen in prior years, especially as this market cycle persists. We're actively exploring potential bolt-on acquisitions that could accelerate our strategy. Looking ahead, a key driver of that strategy will be the network effects produced by our one MSCI ecosystem. Our content and IP across product lines are already highly interoperable throughout the investment process. For example, clients can use MSCI tools to design an index-based portfolio, implement ESG or climate overlays on that portfolio, and then run analytics on it. All companies at times face short-term wins. Yet we continue to see powerful secular tailwinds for MSCI.