MSCI Inc.

Good day, ladies and gentlemen, and welcome to the MSCI Second Quarter 2023 Earnings Conference Call. As a reminder, this call is being recorded. At this time, all participants are in a listen-only mode, and 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 Uland, Head of Investor Relations and Treasurer. You may begin.

Thank you. Good day and welcome to the MSCI second quarter 2023 earnings conference call. Earlier this morning, we issued a press release announcing our results for the second quarter 2023. This press release, along with an earnings presentation we will reference on this call, as well as a briefly 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 amounts 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. As a final housekeeping item, beginning on our next earnings call for the third quarter, we will request our analysts to ask one question at a time during the Q&A portion of our call in order to reflect the growth in our brokerage coverage and allow broader participation. As always, analysts will be welcome to ask more questions by adding themselves back to the queue, and our goal is to devote more of our earnings calls to the Q&A segment. With that, let me now turn the call over to Henry Fernandez. Henry? Thank you, Jeremy.

Good morning, everyone, and thank you for joining us today. During the second quarter, MSCI delivered another solid performance against a fluid market environment. We achieved adjusted EPS growth of 17%, organic revenue growth of 13%, and organic subscription run rate growth of 11%. We also maintain our laser focus on profitability, demonstrating rigorous financial and capital management. Our capital allocation framework has not changed. We will opportunistically buy back shares, support our dividend policy, and accelerate our strategy through bolt-on acquisitions. Most notably, our share repurchases since the beginning of the second quarter have totaled nearly $460 million. MSCI has repurchased close to 50 million shares, or nearly 40% of our total shares outstanding from the end of 2012, and we intend to keep the same focus and discipline. All of this confirms the strength and durability of our business. One of our consistent differentiators is that MSCI can be nimble and flexible in significantly adjusted expenses up and down, depending on the operating environment. This helps stabilize our profitability through periods of market turmoil. More broadly, MSCI continues to benefit from our globally diversified and integrated franchise. In the second quarter, we deliver our 38th consecutive quarter of double-digit subscription run rate growth in index. We also had a strong quarter in analytics, posting our highest second quarter retention rate ever of over 95% and recurring net new sales growth of 46% in equity portfolio management. In addition, we deliver 70% climate run rate growth across our product lines, along with a climate rotation rate of over 97%. Our ESG run rate growth firm-wide grew 18%, and the retention rate from our ESG and climate product segment remained resilient at 97%. This shows that despite tightening budgets, our clients continue to make ESG and climate a top priority. During my recent client trips to Asia, the Middle East, Western Europe, and parts of the U.S., ESG was the most popular topic clients wanted to discuss. For that matter, When the IBM Institute for Business Value recently surveyed corporate executives across 22 industries, 76% of them said ESG is now central to their business strategy. This reinforces our belief that ESG risks and opportunities are investment risks and opportunities. With all of that in mind, MSEI is working to accelerate our ESG and climate product launches. Our climate solutions continue to drive growth across the company, and they have helped us build momentum across client segments. This gets to a larger point, the integration and interoperability of our product line. what we call our one MSCI ecosystem, can dramatically increase value and efficiency for our clients. We further amplify those benefits through our open architecture for clients and other outside parties and through MSCI's role as a standard setter, industry connector, and innovation hub. All of this represents our greatest competitive advantage as a company. It highlights our unique position in the industry, our unique mix of capabilities, and our unique range of client segments. Indeed, MSCI is now well-placed to capitalize on major trends shaped in the industry. Those trends include the acceleration of the adoption of index investing, the continued shift to outcome-oriented, rules-based, technology-driven portfolio construction, the rising demand for sustainable investments and climate solutions, the growing role of regulation, and the increased allocations to private assets. As our strategy evolves to capture new opportunities, which will require new investment, MSCI will stay firmly committed to financial discipline and high profitability. Those commitments have always anchored our strategy in the past, and they will continue anchoring our strategy in the future.