MSCI Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Organic revenue growth 9%, adjusted EBITDA growth 10%, adjusted EPS growth over 15%. Repurchased $1.25 billion of shares in Q3, year-to-date repurchases over $1.5 billion, with $3 billion authorized for future repurchases.
• Index Franchise: Q3 underscored depth and versatility, with 27% recurring net new subscription sales growth in Index, including 43% growth in the Americas. Total AUM in MSCI-linked products reached $6.4 trillion.
• Analytics: 16% recurring net new sales growth, driven by hedge fund adoption of risk tools and equity models.
• Private Assets Innovation: Launched private credit factor model, MSCI PACS taxonomy; growth in private capital solutions across client segments.
• AI Integration: Employees use AI daily; AI permeated operations, data capture, and product building, saving costs and enabling rapid product development.

Segment Performance

• Index Franchise: Recurring net new subscription sales growth of 27% in Index, including 43% growth in the Americas. Total AUM in investment products linked to MSCI indexes reached $6.4 trillion globally, with $2.2 trillion in ETF products and $4.2 trillion in non-ETF products. ABF run rate hit a new record high of nearly $800 million.
• Analytics: Recurring net new sales growth of 16%, driven by strong adoption of risk tools and equity models by multi-strategy hedge funds.
• Private Assets: Launched a private credit factor model and MSCI PACS (private asset classification standard). Private Capital Solutions saw growth across client segments.
• Client Segments:
  • Hedge Funds: 21% recurring net new subscription sales growth, with strong demand for equity factor and risk management solutions.
  • Wealth Managers: Nearly 11% subscription run rate growth, driven by private asset data and unified solutions.
  • Asset Owners: 9% subscription run rate growth, driven by Analytics, Private Capital Solutions, and Index.
  • Banks and Broker-Dealers: 9% subscription run rate growth, with a record level of Q3 recurring sales.
  • Asset Managers: Just over 6% subscription run rate growth, with highest Q3 new recurring sales in Index.

Guidance

• Increase in the low end of expense guidance range due to strong growth in AUM levels linked to MSCI indexes.
• Interest expense guidance reflects previous notes issuance during Q3.
• Free cash flow guidance increased due to business growth and tax benefits.

Risks

• Risks associated with forward-looking statements, which are subject to economic conditions and uncertainties that may cause actual results to differ materially from forward-looking statements. Discussed in the opening remarks regarding risks and uncertainties in SEC filings.

Question and Answer

• Q: About private credit strategy and Moody's partnership A: Henry discussed private credit innovations, including creating terms and conditions, credit assessments with Moody's, taxonomy development, and index launches in private credit.
• Q: About new client segments and marketing A: Henry talked about strategy with active asset management, expansion into client segments (hedge funds, wealth managers, etc.), and new products driving growth.
• Q: About AI leverage A: Henry discussed AI use in data, models, distribution, cost savings, with employees using AI daily and AI permeating operations.
• Q: About pipeline and sales cycle A: Andrew Wiechmann mentioned encouragement from Q3 results fueled by product innovation, healthy pipeline, and stable market dynamics.
• Q: About non-ETF and fixed income A: Andrew Wiechmann and Henry discussed lumpiness in revenue, AUM in fixed income ETFs ($90B), and ongoing innovation in fixed income indices.
• Q: About active ETFs A: C. Pettit and Henry talked about economics, competitive advantages of active ETFs, and no cannibalization of existing business, with AI enhancing financial models through AUM fees.
• Q: About AI impact on margins A: Henry discussed AI reducing expenses, retooling operations, and not requiring significant investment, with AI enabling cost savings and revenue growth.
• Q: About competitive moat A: Henry discussed data capture, proprietary models, and content distribution as barriers, with clients trusting MSCI's branded and reliable products.
• Q: About EMEA performance A: Andrew Wiechmann noted sluggishness in EMEA due to slower client rebound, but strong position and global product innovations driving future growth.
• Q: About share repurchase authorization A: Henry and Andrew discussed plan to use free cash flow and debt to utilize $3B repurchase authorization, with opportunistic buying based on valuation.
• Q: About pricing strategy A: Andrew Wiechmann stated price increases align with value delivered, varying by product line and client segment, focused on long-term client partnerships.
• Q: About time line for improvements A: Andrew Wiechmann mentioned momentum from new products, with $25M sales year-to-date from recent releases, and AI enhancing financial profile through scale and productivity.
• Q: About active ETFs cannibalization A: C. Pettit and Henry explained no cannibalization, as active ETFs often involve quantified strategies where MSCI plays a role, with incremental revenue from AUM fees.
• Q: About GP client base A: Henry discussed private assets strategy, focusing on institutional LP, wealth LP, and GP products, with growth opportunities in private capital solutions.