MSCI Inc. (MSCI) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Q2 Performance: MSCI reported a 12% growth in adjusted earnings per share, 10% organic revenue growth, and 21% free cash flow growth. Asset-based fee revenue grew by 18%, driven by record AUM in ETFs and non-listed products linked to MSCI indices.
• High Retention and Sales: The company achieved a nearly 95% retention rate across MSCI and recorded its highest second quarter on record for new recurring subscription sales, which were up 22% year-over-year.
• Strategic Partnerships and Product Launches: Announced a strategic partnership with Moody's and launched several new products, including MSCI private capital closed-end fund indices and MSCI AI Portfolio Insights.
• Growth in New Client Segments: Notable growth in wealth management subscription run rate by 12%, reaching $107 million, and strong quarters with asset owners and hedge funds, showing organic subscription run rate growth of 12% and 15%, respectively.
• Share Repurchase: MSCI repurchased $290 million worth of shares at an average price of $484 per share, continuing its focus on capital allocation and shareholder value creation.

Pessimistic Highlights

• Market Headwinds: Acknowledged the persistence of market headwinds that may affect short-term performance, including elevated cancels expected in Q3 and longer sales cycles.
• Seasonal Softness: Q3 is anticipated to be a seasonally softer quarter for sales, with continued pressure on clients and cautious outlook due to the challenging environment.

Company Outlook

• Guidance Adjustment: Increased guidance for depreciation, amortization expense, and operating expenses by $5 million due to the Foxberry acquisition. The guidance assumes ETF AUM levels increase slightly from June 30th levels through the end of the year.
• Long-term Opportunities: Despite near-term headwinds, MSCI remains optimistic about long-term growth opportunities, driven by strong client engagement and secular trends in the investment industry.

Q & A Highlights

• Q: Can you unpack the strong sales growth in the quarter? (Alex Kramm, UBS)

  A: Sales and cancels can be lumpy quarter-to-quarter. The conditions have not deteriorated, and Q2 sales were solid. However, an inflection has not been seen yet, and pressures on clients and longer sales cycles persist. Q3 is typically softer for sales.

• Q: Can you provide context on the Moody's partnership? (Manav Patnaik, Barclays)

  A: The partnership with Moody's is seen as a win-win, leveraging MSCI's leadership in ESG and Moody's extensive private company database. It aims to expand MSCI's ESG and sustainability coverage for private companies.

• Q: What drives the change in the cyclical challenges faced by asset managers? (Toni Kaplan, Morgan Stanley)

  A: The investment industry is evolving with growth in rules-based systematic investing and active concentrated management. MSCI aims to penetrate traditional active management more and expand in systematic rules-based investing and private asset class investing.

• Q: How do you view the growth profile for direct indexing? (Ashish Sabadra, RBC Capital)

  A: Direct indexing is mainly in the non-ETF passive line and is in its early days. MSCI is well-positioned to benefit from direct indexing, leveraging its indexes, technology, and ESG content.

• Q: Can you discuss the opportunity for private asset benchmarks? (Alexander Hess, JPMorgan)

  A: MSCI is excited about the launch of 130 private capital indices and sees significant growth opportunities in private assets. The company aims to become the leader in private asset class benchmarks, leveraging its extensive data and expertise in index construction.

• Q: How sustainable is double-digit organic growth in Analytics? (George Tong, Goldman Sachs)

  A: The Analytics business has seen good momentum, driven by strong client engagement and innovations. While pressures impacting the broader company may affect Analytics, the long-term opportunities remain compelling.

• Q: Can you discuss the uses of AI in driving revenues and improving cost efficiencies? (Craig Huber, Huber Research Partners)

  A: AI is being used across MSCI for data production, extraction, and new product development, including in areas like GeoSpatial data and risk management. AI efficiencies are expected to be a significant part of future budgeting exercises.