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    MSCI Inc (MSCI)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$515.17Last close (Apr 22, 2024)
    Post-Earnings Price$479.00Open (Apr 23, 2024)
    Price Change
    $-36.17(-7.02%)

    What went well

    • MSCI is focusing on the continued growth of its index expansion, including opportunities in derivative products, non-market cap indices in ESG, thematic, climate, and factors, as well as growth from direct indexing in wealth management by enabling portfolio customization using indices.
    • The company sees significant potential in fixed income indexation and in providing transparency, performance, and risk tools for private assets, capitalizing on the shift in private credit from balance sheets to fund structures, which increases demand for transparency tools.
    • MSCI is expanding into client segments beyond active managers, such as banks, hedge funds, corporates, and asset owners, where it sees enormous growth opportunities, particularly in non-asset management segments.

    What went wrong

    • MSCI experienced elevated cancellations in the first quarter due to client events, and there is uncertainty about when retention rates will rebound, indicating potential instability in client relationships.
    • Clients' tighter budgets and lengthening sales cycles are impacting sales and buying decisions, which could delay revenue recognition and affect short-term growth.
    • Declining basis point fees in the Index segment, from 2.50 to 2.48 basis points, suggest margin pressure due to a mix shift towards lower-fee products, potentially impacting future profitability.

    Q&A Summary

    1. Elevated Cancellations
      Q: Do you expect elevated cancellations to continue?
      A: The majority of cancellations related to a global bank merger occurred in Q1, totaling $4 million of the $7 million in client event cancellations. Retention rates among asset managers and asset owners remain healthy at 95% and 97%, respectively. We don't expect this level of cancellations to continue moving forward.

    2. Sales Cycle and Bookings
      Q: When will engagements convert to bookings amid lengthening sales cycles?
      A: We're seeing longer sales cycles and budget constraints impacting buying decisions. Despite this, client engagement remains strong, and we have a solid pipeline. Once pressures alleviate, we expect encouraging growth, but it may take time to work through.

    3. Custom Index Products Growth
      Q: What's your outlook on custom index products growth?
      A: Custom index products saw run rate growth of 19%. Use cases are broad, spanning asset owners, asset managers, and structured products linked to our wealth segment strategy. We see a large upside and are excited about our acquisition of Foxberry to accelerate growth.

    4. Balancing Investments and Margins
      Q: How are you balancing investments with margin performance?
      A: We aim to maintain high profitability while investing in future growth. We keep investment levels high despite headwinds by focusing on efficiency. Maintaining short-term profitability helps us focus on high-return investments. We're not planning to significantly change EBITDA margins.

    5. Investment Focus Areas
      Q: Where are you focusing investments to drive long-term growth?
      A: We're focusing on growth of index products, including derivatives, ESG, thematic, and climate indices. We're also investing in direct indexing in wealth management and fixed income indexation. Sustainability, ESG, and climate remain important, along with tools for private assets as private credit evolves.

    6. Decline in Basis Point Fees
      Q: What's causing the decline in basis point fees in the Index segment?
      A: Basis point fees declined from 2.50 to 2.48 basis points due to mix shift. There's a lower contribution from higher-fee international products and higher contribution from lower-fee U.S. products. Over time, we expect fees to gradually come down due to mix shift, but asset growth should offset this.

    7. ESG and Climate Demand
      Q: How will new regulations affect ESG and Climate demand?
      A: Regulations like CSRD in Europe are important tailwinds, notably in EMEA and jurisdictions like Australia. We focus on financial materiality in ESG, which is not a political issue. Demand is increasing, and we're confident in bringing value to investors with our insights.

    8. Application of AI
      Q: How will AI benefit your products and efficiencies?
      A: AI brings efficiencies by helping us complete tasks faster and reinvest in growth opportunities. We're applying AI in product areas, launching Analytic Insights to help clients gain direct insights from complex data. Being data-rich, AI allows us to deliver greater insights to clients.

    9. Capital Allocation Strategy
      Q: How are you prioritizing share buybacks versus M&A?
      A: Our approach hasn't changed; we pay a steady dividend growing with EPS. We aim to generate value with excess capital, monitoring for strategic M&A. Sometimes the best opportunity is investing in MSCI through share buybacks when we see attractive stock opportunities.

    10. Private Markets Growth
      Q: Is the Burgiss 20% growth target still on track?
      A: We saw 17% run rate growth in private capital solutions. Integration is on track, and we're seeing encouraging signs, including outsized growth in EMEA and good traction in Asia. We're optimistic about long-term opportunities in private capital solutions.

    11. Client Retention and Multiple Products
      Q: Has the percentage of clients subscribing to multiple products changed?
      A: We've historically seen higher retention with clients subscribing to multiple products. This remains key, with 85% of subscription run rate from clients subscribing to multiple product lines. Our interoperable solutions and strategic selling drive higher retention and growth.

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