MSCI Inc. Q1 FY2025 earnings call

Key managerial messages: - Financial performance: Delivered strong metrics with organic revenue growth 10%, adjusted EBITDA growth 11%, and adjusted EPS growth almost 14%. Repurchased $275 million worth of shares in Q1 and through April 21st. - Operating metrics: Durable retention with a retention rate over 95%, organic subscription run rate growth 8%, and asset-based fee growth revenue 18%. - Product and client segment performance: Gained momentum in custom indices with Foxbury's F9 platform integration. Had strong performance across client segments like hedge funds, asset owners, banks/broker-dealers, and wealth managers. Partnered with Moody's to develop independent credit risk assessments for private credit. Climate-related AUM in ETF and non-ETF products linked to MSCI Inc. climate indexes grew 50% to $387 billion in Q1. Index subscription run rate growth varied by client segment, with hedge funds, wealth managers, and banks/broker-dealers seeing 22%, 16%, and 11% growth respectively.

In the first quarter, MSCI Inc. achieved organic revenue growth of 10%, adjusted EBITDA growth of 11%, and adjusted earnings per share growth of nearly 14%. The organic subscription run rate grew by 8%, and asset-based fee revenue increased by 18%. The retention rate was over 95%. At the product level, index had a retention rate of over 96% and analytics over 95%. For client segments, hedge funds, asset owners, banks and broker-dealers, and wealth managers all had strong quarters. Specifically, in the index segment, subscription run rate growth was 9%, with asset managers growing nearly 7% and asset owners growing over 10%; custom index subscription run rate growth was 15%; asset-based fee growth revenue was 18%, with ETF and non-ETF AUM linked to MSCI Inc. indices showing strong growth, including the highest Q1 cash flows into ETF products linked to MSCI Inc. indices since 2021.

Guidance remains unchanged. Assumes market levels gradually increase throughout the year. If markets remain at current levels, expenses are expected to be at the low end of current guidance ranges. The effective tax rate excluding potential discrete items is expected to be in the range of 19% to 21% each quarter for the rest of 2025. The capital allocation policy, including share repurchases, continues as part of a robust approach.

Risks: Market uncertainty could impact deal closures, with some deals pushed from Q1 to Q2 but it's uncertain if they'll close if market conditions continue. Sustainability and climate segment faces short-term subdued demand due to regulatory complexity and investor caution in certain regions like the US. Potential for lumpiness in cancellations if market volatility persists.

Q: Toni Kaplan asked about the selling environment and if deals are being pushed out.

A: Baer Pettit said some deals didn't close in Q1 but believed they would close in Q2, pipeline is decent, clients have high engagement with demand for transparency, analytics, etc.

Q: Manav Patnaik asked about preparing for a wide range of outcomes.

A: Andy Wiechmann explained levers like incentive compensation, non-comp expenses, and hiring pace to calibrate expenses based on market levels.

Q: Alex Kramm asked about the impact of international investing.

A: Henry Fernandez said there's a marked change in international investing, with benefits for the business in terms of data, models, and transparency.

Q: Ashish Sabadra asked about pricing trends.

A: Andy Wiechmann said pricing contribution from renewals and new sales in Q1 was roughly in line with last year, factoring in enhancements and client health.

Q: Owen Lau asked about circumstances for deals to proceed.

A: Baer Pettit said not really linked to trade war, just normal business with deals sometimes bumped, but continuity in client talks.

Q: Alex Hess asked about non-ETF AUM.

A: Andy Wiechmann said non-ETF passive AUM ended at $3.9 trillion, with healthy growth in areas like direct indexing and custom mandates.

Q: Faiza Alwy asked about retention rates.

A: Andy Wiechmann said lower cancellations in Q1, healthy retention in core segments, but potential lumpiness in cancellations if market uncertainty continues.

Q: Kelsey Zhu asked about analytics new sales growth expectations.

A: Henry Fernandez said client need for data, stress testing, etc. is positive, but need to weigh against potential client spending.

Q: Scott Wurtzel asked about sustainability and climate segment inflection point.

A: Henry Fernandez said demand changing to more underlying data, regulatory burden, and climate demand evolving, hopeful for pickup after softness.

Q: Craig Huber asked about ESG growth by region and climate growth.

A: Andy Wiechmann said sustainability and climate subscription run rate growth varied by region, climate run rate growth 20% overall.

Q: Jason Haas asked about first quarter EBITDA expenses below expectations.

A: Andy Wiechmann said lumpy expenses in first quarter related to compensation and benefits, expenses on track for guidance.

Q: David Motemaden asked about sales not closing in Q1.

A: Baer Pettit said deals across product lines, some larger deals didn't make it, but belief they will close in Q2.

Q: Joshua Dennerlein asked about Moody's partnership.

A: Henry Fernandez explained partnership process, Andy Wiechmann said financial impact this year likely immaterial.

Q: George Tong asked about sustainability and climate new sales decline.

A: Andy Wiechmann said muted demand in US and Europe, regulatory complexity, but long-term opportunity remains.

Q: Russell Quelch asked about retention rate improvement cause.

A: Andy Wiechmann said due to mission-criticality of tools, proactive client engagement, not tied to pricing.

Q: Gregory Simpson asked about private capital solutions.

A: Henry Fernandez said bullish on private capital solutions, underpenetrated market, advancing leadership in transparency.