Q4 2023 Earnings Summary
- MSCI continues to achieve strong growth in its Index segment, with 9% run rate growth in market cap modules, 20% growth in custom and specialized modules, and 11% growth in factor and ESG modules, demonstrating robust demand across multiple client segments.
- The successful integration of Burgiss (now MSCI Private Capital Solutions) has resulted in recurring sales of $6.2 million in Q4 and an ending run rate of $98 million, growing in the high teens versus the same period last year, indicating significant expansion potential in private capital solutions globally.
- MSCI is investing heavily in innovation, particularly in customization, AI, and Climate solutions, positioning the company for future growth. The Climate opportunity is considered "enormous", and MSCI is broadening and deepening capabilities, applying data science and AI to meet client demand.
- Slowdown in ESG and Climate segment growth, particularly in the Americas with only 9% growth, due to clients taking a more measured approach and longer sales cycles ,.
- Expectations of 'lumpiness' in sales and cancellations in the Analytics segment, especially due to higher concentration of broker-dealers and hedge funds facing cyclical pressures.
- Market headwinds causing tighter budgets and longer sales cycles, leading the company to be cautious about increasing investment levels despite significant opportunities, which may impact future growth.
-
Index Business Outlook
Q: Do market headwinds persist for Index sales into 2024?
A: Despite tough market conditions with flat markets and outflows, MSCI continues to see momentum in Index sales. In 2023, we achieved 9% run rate growth in market cap modules, 20% growth in custom and specialized modules, and 11% growth in factor and ESG modules. Growth across client segments included 9% among asset managers, 15% from wealth and broker-dealers, and 22% among hedge funds. We anticipate longer sales cycles and tighter budgets, but the trend toward indexation and demand for our tools remains robust. -
ESG and Climate Segment Slowdown
Q: Are there signs of improvement in the ESG and Climate segment slowdown?
A: Growth in ESG and Climate has slowed, particularly in the Americas at 9%, compared to 25% in Europe and close to 20% in Asia. Clients are taking a more measured approach due to longer sales cycles and cyclical pressures. However, client engagement remains strong, especially around Climate, and we're optimistic due to a rich pipeline of new offerings, including nature and biodiversity datasets and geospatial data. We expect these headwinds to persist for a couple more quarters but remain positive on the long-term outlook. -
Nonrecurring Revenue Increase
Q: What drove the increase in nonrecurring revenue in Index and Analytics?
A: We signed a large contract addressing unlicensed usage of our indexes, leading to a significant nonrecurring revenue boost in Index. A client had been using our indexes without a license over a long period, and the settlement resulted in past fees being recognized. In Analytics, nonrecurring revenue was up due to the completion of several implementation-related services, which are recognized upon completion. These nonrecurring revenues are inherently lumpy and not indicative of ongoing recurring revenue trends. -
Expense Guidance Factors
Q: What factors influence the expense guidance range?
A: Our expense guidance assumes markets remain flat in H1 2024 with a slight rebound in H2. We'll adjust expenses based on market conditions, using upturn and downturn playbooks to manage investment accordingly. Acquisitions, notably Burgiss, contribute significantly to expense growth, with organic expense growth in the mid- to high single digits. Additionally, there are seasonal expenses in Q1, with $10–15 million higher payroll taxes and benefits. -
Analytics Business Growth
Q: What trends support sustaining high single-digit growth in Analytics?
A: Heightened market uncertainty has increased demand for our risk and performance solutions. We achieved the highest-ever full-year retention rate in Analytics. Successes include strong performance in Enterprise Risk and Performance (ERP), traction with liquidity analytics, and favorable feedback on enhanced user experiences. Factor models and equity analytics showed strong momentum, and the new Risk Insights offering gained early traction. While we anticipate some lumpiness due to client concentration among broker-dealers and hedge funds, long-term dynamics remain encouraging. -
Burgiss Integration Progress
Q: How is the integration with Burgiss progressing?
A: We're pleased with the Burgiss integration, benefiting from our prior minority stake and familiarity with the business. Our senior executive, Jay McNamara, now co-heads the business, revitalizing client activity and go-to-market strategies. The Burgiss sales team was already trained in the MSCI way, facilitating seamless collaboration with MSCI's client coverage team. We see significant global opportunities to expand in Private Capital Solutions and anticipate strong numbers in 2024. -
Scaling Physical Asset Climate Business
Q: How are you scaling the physical asset business within Climate offerings?
A: We recognize the enormous Climate opportunity and are broadening our capabilities in areas we weren't previously present. Client demand is high, and we're applying data science and AI to develop new solutions. The business model remains subscription-based, integrated with our normal sales approach, enriching our capabilities across the board.