Q4 2024 Earnings Summary
- MSCI is experiencing strong growth and significant opportunities in the Wealth management segment, with high levels of client engagement and plans to build further credibility and traction.
- The company sees optimism about growth in key areas like Index, Wealth Management, Private Capital Solutions, Fixed Income, and Analytics, which are expected to fuel higher growth in the future.
- MSCI is well-positioned to benefit from the trend of actively managed ETFs replacing mutual funds, as this provides new opportunities to support asset managers with their products and services.
- Slowing subscription run rate growth, with challenges due to lingering impacts from asset management outflows, elevated client events, and pressures working through the system, especially in Europe.
- Increased cancellation rates in certain segments such as Analytics, Real Assets, and ESG, particularly among corporates and corporate advisors, impacting retention rates and net new sales.
- Potential slowdown and uncertainty in ESG (excluding Climate) subscription growth due to regulatory changes in Europe and lack of focus on sustainability in the U.S., leading to reevaluation and potential downward revision of long-term targets.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +8% | The increase was driven by higher recurring subscription revenues (particularly in Index and ESG & Climate) and asset-based fees, reflecting resilient demand for MSCI’s tools. This compares to the prior period, where recurring revenues also saw strong growth, but the current period benefited from additional client uptake across Europe and Asia, aiding overall expansion. |
Index | +8% | Growth in ETFs linked to MSCI indexes and strong recurring subscriptions fueled the Index segment’s performance. In the prior period, Index revenues also grew due to higher AUM, and in the current period, market recovery in major global markets contributed to further increases in asset-based fees, although cyclical trading volumes in futures and options remained mixed. |
ESG & Climate | +12% | This segment continued its strong product adoption, especially in Europe, driving higher recurring subscription revenues compared to the prior period. Although regulatory uncertainties in the Americas somewhat tempered growth, new climate-related offerings and rising investor focus on sustainability helped sustain the YoY improvement. |
Private Assets | +7% | The segment’s steady rise reflects incremental contributions from private capital analytics and ongoing market interest in real estate and private debt indexes. Compared to the prior period, growth was more moderate due to the absence of large one-time licensing deals, but organic demand for deeper private market data and acquisitions (e.g., Burgiss in earlier quarters) supported revenue expansion. |
EMEA Revenue | +13% | EMEA outperformed the prior period’s strong pace, partly due to regulatory tailwinds promoting ESG and Climate solutions, coupled with broad-based uptake of Index and Analytics products. Although the macro environment in Europe remained mixed, MSCI’s focus on helping clients navigate new reporting requirements sustained the YoY climb. |
Asia & Australia Revenue | +19% | The region posted its highest YoY growth, building on an already expanding subscription base from the prior period. Demand for ESG, Climate, and Index products surged in major markets like Japan, while ongoing institutional adoption across emerging Asia provided a lift to recurring revenues and asset-based fees, offsetting any currency headwinds. |
Operating Income (EBIT) | +9% | Higher revenues from subscriptions and asset-based fees, plus efficient cost management, led to EBIT expansion. This followed the prior period’s margin improvement, though increasing operating expenses (due to acquisitions and personnel investments) tempered margin gains. Still, the company’s focus on recurring revenue streams helped maintain operating leverage. |
Net Income | -24% | Despite revenue and EBIT growth, higher overall expenses, increased tax rates, and one-time prior-year benefits not repeating contributed to the decline. Compared to the prior period, when net income was boosted by favorable discrete tax items and lower financing costs, the current quarter saw elevated costs from expansion initiatives and acquisitions, compressing net margins. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Expense guidance | FY 2024 | towards the higher end of expense guidance range | no current guidance | no current guidance |
CapEx | FY 2024 | increased by $10 million | no current guidance | no current guidance |
Free cash flow | FY 2024 | increased by $80 million | no current guidance | no current guidance |
Interest expense | FY 2024 | lowered due to paydown of $125 million on revolver | no current guidance | no current guidance |
Effective tax rate | FY 2024 | 18% to 19.5% | no current guidance | no current guidance |
Adjusted EBITDA expenses | Q1 2025 | no prior guidance | expected to be about $35 million higher sequentially in Q1 2025 | no prior guidance |
CapEx | Q1 2025 | no prior guidance | reflects investments in software development across most parts of the business | no prior guidance |
Free cash flow | Q1 2025 | no prior guidance | expected to be impacted by higher cash tax payments in Q1 2025, including $30 million deferred from 2024 | no prior guidance |
Interest expense | Q1 2025 | no prior guidance | assumes current debt levels, does not include additional financings | no prior guidance |
Effective tax rate | Q1 2025 | no prior guidance | expected to include a benefit from discrete items in Q1 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Index & Custom Solutions | Highlighted as a consistent growth driver in Q1, Q2, and Q3: 10% of the index segment in Q3, 17% custom growth in Q2, and 19% in Q1. | Continued strong subscription run rate growth across multiple client segments. Custom index subscription run rate in the mid-teens, with ESG, Climate, and factor indexes contributing meaningfully. | Stable: Remains a primary driver of growth across all quarters. |
Analytics | Q3 saw record recurring sales but faced tighter budgets and notable cancellations. Q2 posted best-ever Q2 for new recurring sales over $21 million. Q1 grew 12% with strong uptake in RiskManager and equity risk analytics. | Strong momentum in fixed income, wealth, and insights with ~7% subscription run rate growth (excluding FX). Concerns persist around lumpy cancellations and implementation timing. | Consistent: Growth remains solid, though cancellations and budget constraints add caution. |
Elevated Cancellations & Slowing Subscription Rates | A recurring issue in Q3 (uptick in cancellations, negative net new recurring sales) , Q2 (elevated cancellations expected to persist) , and Q1 (large one-off bank merger driving ~$7 million in cancellations). | Elevated cancellations reported in Real Assets, Private Assets, and some Analytics pockets; retention in ESG & Climate (~93%) partly affected by down-sales. Overall ~8% organic subscription run rate growth, below historical highs. | Recurring Headwind: Elevated cancels remain a challenge across multiple periods. |
ESG & Climate | Q3 noted lower net new recurring sales and lingering cyclical downturn. Q2 and Q1 also highlighted slower demand in the Americas but stronger take-up in EMEA and Asia. | Cautious outlook with ~93% retention, ~10% run rate growth (excluding FX), and varied regional performance (4% Americas vs. 14% Europe, 11% Asia). | Cautiously Optimistic: Challenges persist, especially in the Americas, but long-term potential remains. |
Private Capital & Wealth Management | Gaining prominence each quarter: Q3 saw 17% PCS run rate growth and private capital fund indices launched , Q2 showed 17% PCS growth and continued wealth momentum , Q1 underscored private solutions (17% run rate) and platform integration for wealth. | PCS achieved ~15% run rate growth; wealth managers’ subscription run rate grew 12%. Notable traction in enterprise deals (e.g., MSCI Wealth platform) and cross-selling analytics. | Rising Importance: Both segments are increasingly central to MSCI's growth strategy. |
Shift Toward Actively Managed ETFs | Not discussed in prior quarters (Q3, Q2, Q1 had no mention). | Seen as a positive, with actively managed ETFs potentially replacing mutual funds; MSCI provides tools to “indexify” these strategies. | New in Q4: Emerges as a trend and an opportunity for MSCI. |
Systematic Rules-based Investing | Cited in Q2 as a key growth area for quantitative and index investing , with no explicit follow-up in Q1 or Q3. | Not referenced in Q4. | Discontinued Mention after Q2; no updates in later calls. |
Operating Expense Pressures | Q3 mentioned expense guidance but not the Q2-specific pressures. Q2 highlighted a $5 million increase from Foxberry amortization and possible high-end expense guidance if ETF AUM grew. Q1 did not reference these pressures. | No explicit Q4 discussion of the Q2 concerns; focus shifted to investment priorities and calibrated spending. | No Longer Highlighted: Q2 pressures were not revisited. |
Future Expansion of Private Assets, Analytics, & ETFs | Q3 emphasized private capital indices launch and strong Analytics growth. Q2 saw private asset benchmarks and robust Analytics margin expansion. Q1 indicated high conviction in these areas with strong pipeline potential. | Anticipated to significantly shape MSCI’s long-term outlook. Private Assets showing 15% run rate, Analytics at ~7% subscription run rate, and actively managed ETFs opening new opportunities. | Major Growth Driver: These three areas are expected to fuel MSCI’s future expansion. |
-
Subscription Growth Outlook
Q: When will MSCI's subscription growth reaccelerate?
A: Despite recent challenges, MSCI is optimistic about future opportunities ( ). There is momentum in areas like Index with strong recurring sales, and growth in wealth management, Private Capital Solutions, Private Assets, Fixed Income, and Analytics are expected to fuel higher growth in the future ( ). -
Pricing Strategy and 2025 Outlook
Q: How are you approaching pricing, and what can we expect in 2025?
A: The contribution to recurring sales from price increases in 2024 was slightly less than in 2023 ( , ). MSCI remains focused on delivering value to clients and is thoughtful and measured with pricing ( , ). There are areas with pricing power, and opportunities will be considered, but dynamics differ across the company ( , ). -
Expense Guidance and Investment Plans
Q: Why did expenses come in at the low end in 2024, and what's the outlook for 2025?
A: Expenses in 2024 were lower due to factors like bonus accruals and timing items ( ). For 2025, expenses are expected to increase, especially in Q1, driven by compensation and benefits ( ). MSCI plans to invest in key growth areas but will continue to drive efficiencies and calibrate spending based on market levels and performance ( ). -
AI Impact on Efficiency and Innovation
Q: How is AI contributing to cost efficiency and product innovation?
A: AI is reducing data acquisition costs and speeding up time to market, such as mapping private credit data more efficiently ( ). It's driving product innovation with AI analytics insights, thematic discovery, and enhancements in climate and ESG data ( ). While AI may not inherently enhance pricing power, it will drive sales and growth in 2025 ( ). -
Cancellation Trends and Subscription Sales Outlook
Q: What are the trends in cancellations and subscription sales, and when will they improve?
A: Cancellations in Q4 were in line with expectations, with lingering impacts from client events and budget constraints ( ). Elevated cancels occurred in Real Assets and certain ESG segments ( ). MSCI is encouraged by the outlook but expects some lingering noise and elevated cancels ( ). -
ESG ex Climate Outlook
Q: How is the growth outlook for ESG excluding Climate?
A: MSCI is bullish on ESG ex Climate, seeing no let-up in European institutions' commitment to sustainability despite regulatory adjustments ( ). Demand is present, and MSCI is evolving its product line to meet it, with early signs of growth in Asia-Pacific as well ( ). The U.S. focus on sustainability is less due to the new administration, but client interest remains ( ). -
Wealth Segment Strategy and Growth Outlook
Q: What are your priorities to maintain strong growth in the Wealth segment?
A: MSCI sees significant opportunities across product lines, aiming to help wealth managers scale portfolios and improve analytics for CIOs and advisers ( ). There's an opportunity to move Private Asset products into the Wealth segment, and 2025 is expected to be a pivotal year with significant deals and increased credibility as a solutions provider ( ). -
Private Assets Performance and PCS Growth Outlook
Q: What's driving the decline in Private Assets retention rates and net new sales, and when will PCS reach 20% growth?
A: PCS saw steady subscription run rate growth at 15%, with some volatility in sales and cancels ( ). There's softness in recurring net new sales but good traction with new clients and opportunities with new benchmarks and content leveraging AI ( ). In Real Assets, continued dynamics and impacts from a large down sale affected performance ( ). -
Impact of Actively Managed ETFs on MSCI
Q: How does the rise of actively managed ETFs affect MSCI's opportunity with active managers?
A: It's a positive development for MSCI, as active strategies becoming more rules-based align with MSCI's strengths in indexes and portfolio analytics ( ). MSCI can help asset managers make active strategies more rules-based and assist in portfolio construction and risk management ( ). -
Custom Index Growth and Sales Cycles
Q: What are the trends in sales cycles and the custom index business?
A: Elevated markets are improving client confidence, though sales cycles remain long in many areas ( ). MSCI is seeing strong momentum in custom indexes, with growth in the mid-teens, and AUM linked to non-market cap indexes grew close to 35% ( ). -
Analytics Segment Performance and Outlook
Q: What's driving the performance of the Analytics segment, and what's the outlook?
A: Organic subscription run rate growth remained steady at around 7%, excluding FX impacts ( ). There's momentum in fixed income, wealth, and insights offerings ( ). Revenue growth was slightly below run rate growth due to lower implementation-related revenues, expected to continue in the short term ( ). -
Partnership with Moody's in ESG and Private Credit
Q: How is the partnership with Moody's impacting sales growth and product opportunities?
A: The partnership includes Moody's subscribing to MSCI's ESG data, MSCI using Moody's data to create ESG scores on over 100 million entities, and an intention to explore collaboration on private credit ( ). It's early days, and the impact on sales growth is yet to be seen, with potential to increase the scope ( ). -
M&A Opportunities and Focus on Organic Growth
Q: How do you assess M&A opportunities, and what's your focus?
A: MSCI is primarily focused on organic growth with opportunities in new use cases and product development ( ). They consider acquisitions if they offer high returns comparable to organic investments and are open to strategic bolt-ons in strategic areas ( ). -
Geographic Trends and Data Sales Conversions
Q: What are the differences in client trends between the U.S. and internationally, and did data sales conversions have an outsized impact?
A: Pressure on asset managers is lingering more in Europe, affecting sales and cancels ( ). In the Americas, there's positive change with market levels up ( ). Conversions of onetime data sales to subscriptions are normal, with no outsized impact in the quarter ( ). -
Cancels and Budget Environment
Q: How do you view cancellations and the budget environment compared to last year?
A: Rising markets are supportive, with encouraging signs in client buying behaviors, especially in the U.S. ( ). MSCI doesn't expect the same level of cancels as last year but anticipates some volatility ( ).