Q4 2019 Earnings Call
See I fourth quarter and full year 2019 earnings conference call.
At this time, all participants are in listen only mode.
Later, we'll conduct a question and answer session, where we will limit participants to one question and one follow up.
We will have further instructions for you at that time.
As a reminder, this conference call is being recorded.
I would like to now turn the call over to Salli Schwartz.
<unk> Investor Relations and Treasurer, you may begin.
Thank you operator.
Welcome to the <unk> fourth quarter, and we're 2019, earning conference call.
Earlier. This morning, we issued a press release announcing our results for the fourth quarter full year 2019.
This press release, along with our earnings presentation.
Reference on our call.
Where for a fourth quarter updates are available on our website <unk> dot com under the Investor Relations tab.
[music], let me remind you that this call contains forward looking statements.
You are cautioned not to place undue reliance on forward looking statements, which speak only as the gate on wish there need and are governed by the language second but today's presentation.
For discussion of additional risks and uncertainties.
The risk factors.
These statements disclaimer.
Our most recent Form 10-K and in our other FTC filing.
During todays call. In addition to results presented on the basis of U.S. GAAP.
We also refer to non-GAAP measures, including but not limited to organic operating revenue growth rate adjusted EBITDA adjusted EBITDA.
Adjusted.
Free cash flow.
We believe our non-GAAP measures.
Period to period comparison.
Thank you.
Operating performance.
You'll find a reconciliation.
Got it measures.
Materials.
Explanation of why we've seen this information to be mature meaning.
Well, that's how management uses these measures on pages 20, 533 theories presentation.
We've also discuss organic run rate growth figures.
The impact to changes.
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In Texas.
That's true.
On the call today are Henry Fernandez, our chairman and CEO .
Our president and COO.
Chief Financial Officer.
I'd also like what else it numbers in the media maybe on the call. This morning.
With that let me now turn the call liver Henry Fernandez.
Thank you Sally.
Hello, everyone and thank you for joining all shop they.
Before I go through my prepared remarks.
I would like to give you some reflection.
As we enter these new they came.
Well, we should expect from Sci.
As many of you know I've been at the helm RMS yard almost 25 years.
And I can kind of Oregon tells you that today I'm more excited I'm more optimistic about this franchise that I have ever been.
And I'm sure that does not only me, but my partners here bear a linda share on that optimism.
Our franchise getting stronger.
Accelerated pace.
And in terms. So you know what we know for clients all over the world.
Oh, I'm sort of opportunities we help them so what industry bodies would like to go for the last summer from us well government officials on regulators want to learn from us.
Everyone wants to talk to him I see I about how we are helping changes investment industry.
Our strategic investment choices on him Sci.
Lastly, wider and deeper but they are then they werent NDRC.
Because of the more centered rolled up late in the global investment industry.
Our financial model.
There is still down on diversifying what is presenting us with significant new organic copper, Germany, Italy investments was even higher rates of return.
Short to medium term paybacks.
The reason for this is out well, we don't always normally built upon on top of one existing infrastructure on cost base out of mushy I.
I know that infrastructure is more more develops.
Any incremental investment for new things yields and much higher incremental payoff.
And therefore acceleration on internal rates of return.
This is clearly the case in index any as GE for example.
So we are there for both decisioning ourselves to take full advantage of this dynamic.
Hopefully accelerate shareholder value creation throughout this on your thinking.
Well what does reflect chose let me now walk through my prepared remarks.
In the fourth quarter, we deliver strong performance of course, our franchise with year over year growth of 12% No brand revenues.
[noise], 16% in an adjusted EBITDA.
27% I'd just say yes.
In the fourth quarter I, just wonder managed maybe make what do you have linked to MSCI indices sheet, our railcar high of $944 billion.
The Greece, all $119 billion from the third quarter was driven by both.
Strains in the power markets I'm very healthy cash inflows into India linked dormancy I indices.
Since the start of the new year, we have continued to see gross in the U.M. levels in equity ETF linked to I'm actually I indices.
At the end of last week, they exceeded 900 on $50 billion setting a new record.
Closed store the one trillion dollar mark.
Would you be gets to be great to achieve so.
[noise] normally well do you from those two global equity if de <unk> were lower.
So while 29 team.
Compared to 28 Dean.
M.S., Yeah, I actually saw a 48% increase.
In equity DS notes inflows linked to our indices.
Demonstrating the power diversity of our India embarrassing franchise.
[noise] or you're going peacetime at our Investor Day, We're sure we view three pillars of our strategy.
Today I'm excited to give you an update on our progress.
I think time, we told you we won one grow our core base ash.
Total execute even like opportunities.
And then three capture new wave of opportunities in order to serve a wider and deeper variety of clients investment, but I'll, let me set opportunities and therefore and turn fueled the growth for the company and the creation of shareholder value.
We have been delivering on our promise to execute on this area. So girls.
Well, serving as responsible stewards of your capital.
And the core business, we have produced significant growth.
We continue to innovate and now its content.
In response to changing markets on client interest.
You can see evidence of this continuous progress in our wellness Dalglish solutions like our equity market cap indices.
Our equity risk on performance analytics.
Well, that's our multi asset class risk analytics.
In fact I was on December 31st took 2019 would reject combined run rate for our index analytics segment.
Almost $1.5 billion.
13% year over year [noise].
In addition to accelerating our core business, we have executed on a number of in flight growth opportunities to meet the needs of our customers and the investment community more broadly.
Let me give me a few examples first within our futures and options business, we expanded our strategic partnerships with key derivative of changes in the U.S. in Europe .
Good run rate from futures and options grew over 56% compared to prior year.
Second with respect to worry as Jim business. The October 29.
There are plenty 19 acquisition on carbon Delta provided those without mix at the same Michel Suleiman value at risk capabilities for yes, Gi franchise I.
And of course, the climate change.
Segment of this cheap franchise is an area that were intensely focused on as the world is focusing on the impacts of climate change in a in a variety or areas in our case on portfolio. So Mark Lyons.
So those far we're very pleased with the progress we have made with our integration efforts.
A couple of Delta.
On the level of client interest that we already seen.
There are in fixed income we recently launched.
Dean M. A C I fixing called U.S.G. I'm factor indices, leveraging our 30 plus years subjects extensive experience.
In fixed income risk I'm performance analytics.
As well as our leadership in index construction on the state or the our data capabilities I of course on our expertise and he is cheap.
[noise] finally, and real estate, we continued to grow and expand our offering of private core real estate data analytics.
And are optimistic that our growth in this segment will gradually accelerate.
[noise] finally, we have invested in new wave of opportunities that will drive our future growth.
Most recently, we enter into a strategic relationship through a significant minority investment in the purchase group.
A leading provider of investment decision tools for private asset classes.
This was an area I will say they become focus in our Investor day a year.
Our positioning in private assets is greatly called to supporting our clients. We're increasingly looking for solutions that span both.
Well, we like but I would assets.
Our alliance with Burgess is intended to accelerate.
And expand use of data.
Analytics I know their investment decision support tools for investors in private asset classes or over the world.
More broadly we remain committed to providing our clients with tools that will enable them to capitalize on their significant new investment opportunities and challenges.
We believe this puts a messy I I'd be leading age a more in investing.
As went there the new then Kate we're proud of what we have built.
And the tremendous value that our employees have created for our clients and in turn our shareholders.
Before I pass on the call to my partner Bear.
I would like to congratulate him.
Because this month there has celebrated its twentyth anniversary of being that Im Sci.
Partner of mine throughout that time.
Mr. Patrick Thank you Andrea.
20, very interesting year, as indeed, and doubtless more excitement ahead of us So clearly I share your enthusiasm about the many opportunities to drive growth and shareholder value at MSC right.
And we talked about the three pillars strategy that we discussed with you at Investor Day.
At that event, we also highlighted the secular forces that are transforming the investment industry, including the move from active to index enabled investing.
Increasing globalization, an acceleration of capital flows and the need to incorporate E.S.G. and more specific a climate change considerations into investment processes.
MSC continues to be well positioned to help global investors build modern portfolios that will capitalize on this transformation.
Our sales efforts has led to total organic run rate growth of more than 14% in the fourth quarter year over year.
Gross sales grew above 20% in each of our segments in the fourth quarter and we reached record total gross sales of over $75 million.
The fourth quarters retention rate was down from the third quarter, but in line with last year's fourth quarter rate at 92.9% as a result of a seasonal decline given the concentration of contracts that generally come up for renewal in the fourth quarter.
We're working hard to deliver must have products and solutions to our clients with the aim that such tools become embedded in their processes analysis and thinking about investing.
Our recurring subscription run rate, where we recorded our ninth straight quarter of organic double digit percentage growth saw strength across all geographies, notably in Asia Pacific in Europe .
From a client perspective asset managers and asset owners, which collectively comprised two thirds of our subscription run rate grew above 11% each.
At a segment level index and analytics subscription run rate grew more than 11% and 7% respectively.
Within analytics, we recorded strong recurring sales growth in our equity and multi asset class solutions, notably to asset owners.
Within our own our all other segment, we crossed milestones of $100 million for our ESG research subscription run rate and $50 million for our real estate subscription run rate.
Our ability to achieve these strong results and to deliver attractive returns on our investment dollars validate our disciplined capital allocation approach. Our daily focus is to help clients more effectively and efficiently build portfolios I'd like to walk you through a few.
Apples of this first innovation within our MSG and factor categories has been a key differentiator in the cash inflows to equity Etfs linked to MSC I indexes versus our competitors in 2019, MSC I was the number one in.
Next provider based on cash inflows to equity Ts.
Second.
As we have often communicated there are significant client benefits to integrating MSC I research and content across various investment use cases in the U.S.G. space. This integration has driven our combined SG research and index run rate to near.
Early $150 million in 2019.
Third.
Our continuous investments in modeling new risk categories has helped bolster our analytics growth.
One such example is in the area of liquidity metrics, where our innovative solutions were well received in 2019 and contributed meaningfully to our financial results.
Next our client interactions with major global asset owners in asset managers show us that our real estate offerings are an important inputs to their investment decisions. Further our 2019 client surveys indicate significant improvements in customer satisfaction with regards to our real estate products.
And services.
And finally last week, we published the MSC principles of sustainable investing to further equipment investors with a framework to integrate DSG into their investment processes amid the global shift towards sustainable investing.
Overall, we have substantial momentum heading into 2020, and we're confident in our ability to continue delivering for our clients. This confidence underpins our guidance, which Linda will review in addition to going over our financial performance over to you Linda.
Thanks, there and Hello to everyone on the call I'll start with operating revenue where are we recorded $407 million in the quarter up 12% from the prior year looking at each of our business units first an index operating revenue grew approximately 16% growth an asset based fees for the meaningful contributor.
In addition, we saw strength in recurring subsequent subscription revenue driven by continued momentum in developed market module.
And in fact, our custom any ESG indexes second analytics operating revenue increased more than 5% with continued strong growth and nonrecurring revenue from implementation and other services as well as an uptick in recurring subscription revenue finally for the all other segment operating revenues grew 20% reflecting robust.
Growth across our ESG ratings and screening.
And asset based fees revenue grew 18% it was driven by strong MTF revenue average assets under management grew 21% year over year, an equity ETF linked to MSCI indexes.
Sequentially, the average basis point see actually increased slightly by 0.01 basis points. This was due to the next to Dts capturing flows rather than a reversal of the broader decline tranche.
Dts passive funds revenue was up 11% driven by increased contributions from higher fee products, and finally futures and options revenue one of our high growth areas.
Currently $3 million as compared to last year.
As you heard from Henry ending assets under management equity ETF linked to MSCI indexes $934 billion as of December 31, 2019 up 34% versus prior year end and up 14% versus prior quarter.
On a sequential thanks.
I missed the iPhone $56 billion of inflows into funds like to Sci indexes across geographic market exposures, notably those associated with developed markets outside the U.S. Additionally factors in the SG funds accounted for nearly a third of cash inflows into equity linked to our indexes.
On a year over year basis around 40% of 239 billion dollar growth and assets under management at year end was attributable to cash inflows with the balance coming from market appreciation.
Now shifting focus to adjusted earnings per share.
Excuse me, which was $1.67 cents per share in the fourth quarter of 27% year over year, where the two thirds of the growth in adjusted EPS was from higher operating revenue net of operating expenses strong proof point on the earnings power if our franchise.
Remaining started the growth in adjusted EPS was driven primarily by a lower tax rate and reduced share count partially offset by higher interest expense.
Turning now to our balance sheet and capital allocation, we ended the year with $1.5 million and cash and $31 billion of debt.
$53.1 billion into.
In November we issued $1 billion and debt and coupon of 4% and Usfive hundred million dollars as proceeds partially refinance our 5.25 coupon notes due in 2024 of which we currently have $300 million remaining.
Fourth quarter, MSC, I'd had approximately $58 million and dividends to shareholders, but did not repurchase any shares.
Before I turn the call back to Henry I'd like to share select elements of 2020 guidance.
Published in our press release this morning.
And the CS guidance for 2020 based on assumptions about a number of macroeconomic and capital markets actors, particularly related to equity markets.
Option for certain subject to uncertainty and actual results for the year could differ materially from our current guidance for the full year 2020. We currently expect adjusted EBITDA expenses in the range of 750 million to $770 million and capital expenditures in the range of 16 17 million.
As you know we cannot predict asset based fee revenue. However, it is our intention at higher levels of operating revenue will coincide with higher levels of expenses and higher capital expenditures as we invest back in our growing businesses.
Finally, we expect free cash flow to the in the range of 580 $640 million free cash flow in 2020 is projected to decline from 2019, primarily due to factors first the absence of tax benefits, we had related stock based compensation last year and second just increased Kevin.
Expenditures this year a full list our guidance is included in our earnings release published this morning as well it's in our earnings presentation for this call well door available in the Investor Relations Relations section of our website at MSC.
Before we move today I'd like to turn call back over to Henry.
Thank you end up.
I am pleased to announce that we've added two new directors or two or more.
Paul level lent on Sunday run rate.
I've been appointed to serve as independent directors effective February 26 of these here.
Increasing our more from 10 to 12 directors.
Both full I understand they have extensive experience in the investment industry.
Paula is currently the Chief investment officer, both in college and the Us.
One of the best performance endowments and the U.S.
On Sunday is currently the Chief investment officer of the mining group in the UK.
I am confident that will provide diverse and valuable perspectives growing from their combined global experience and their expertise across asset classes on emerging industry trends, including technological innovation.
I would not will move over now to Q on a.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone.
If your question has been answer to you wish to remove yourself from the Q sleeves press the pound too.
And as a reminder, we ask that you please limit yourself to one question and one.
One moment, while we compile the Q and a roster.
And our first question comes from the line of Toni Kaplan with Morgan Stanley .
Thank you.
Could you talk about the decision to make CST ratings available for free on the website I take was that the objective is to broaden the use of the reading.
And has chemically I'd be continue to be the standard there and I guess could you just talk about if that changes that yes tea business model you have it.
Then finally with a lot of new big name providers entering the E.S.T. space do you think they'll be more price competition and yesterday.
Hi, Tony their hair, so look.
Clearly transparency is a critical element and sustainable investing and we have shown our commitment to that both to the broader market and also the company's by making this information available at this level equally.
You know central to the notion of PSG investing and sustainable investing is being able to go deep into underlying information relating to companies activities supply chains, and and the enormous diversity of their activities. So we're confident that did by putting this.
On our website it both shows our commitment to transparency into the two giving the market.
Headline information, but that are on our subscription model and the need to access the more detailed research behind the ratings will continue to be you know very important economic driver for us.
Great and seizing pricing.
The more competitive.
At this stage, we don't have a great deal of evidence of that I mean, it's an X as you know it's a it's it's an area of investing that is growing dramatically quickly.
You know, we've we've seen enormous changes even within the last year or two let alone the last five years and so I I'm loath to make a forward looking judgment about that I think you you can see our results are very robust and very continue to be very strong and attractive. So at present, we don't have any evidence of any sort of store.
On pricing pressure.
Got it thanks for my follow up on just one second an update on.
Analytics with good this quarter and so wanted to understand the number of clients adopting the platform was I love. What you had expected originally and I'm just talking about any sort of feature selling operating and cross selling opportunities with that.
Okay great.
Sure. So for the time being beyond is not having a material impact on the analytics numbers and during the course of 2020, it will not be a major can drink contributor to the analytics sales.
We were confident about where the platform is and I think as they as the year progresses. We can keep you updated on the functionality and client.
Uptake so I would say, we're confident with the path for beyond but from a pure sort of accounting revenue point of view for 2020, it should not have a material impact.
Thanks, a lot.
Thank you and our next question comes from the line of Manav Patnaik with Barclays.
Thank you.
Andy just you know the book just deal.
Sounds pretty interesting and I was just wondering if you could help described in the context of going all the partnerships and so forth in looking at like what does that pipeline looks like you know we weren't familiar with the is I'm sure there's plenty of.
These are the ones out there. So just curious on your thoughts on what that looks like.
Yes, so to minus let me start with Burgess and then we can broaden it through other forms of partnerships. So Burgess is.
It is one of the leading if not a leading provider of a private asset class.
Data analytics.
Through running through a sort of integrated unify the knowledge of platform.
There would be not it's a this game for about 30 years 30 plus years.
They serve about a thousand clients in 36 countries.
I importantly on their problem car line is about 10000 funds.
It represents about seven premium dollars of committed capital.
On a a bit on theres transition private equities.
But it's not totally so and that.
Let me give you a little breakdown in that 10000 funds.
Over 6000, those 10000 sense aren't private equities, representing about fourth quarter radio.
Out of the seven.
Yes, I know there growth to 2000 funds, representing say about wanting to have crazy on our in private real assets.
Real save natural resources infrastructure.
And another 1005 minutes or so.
Representing close to a trillion dollars little less is in a private [laughter] saw this is setting credibly rich database.
We can not only help burgess commercialize much more rapidly and that's one of the reasons, we haven't heard much about barges because.
They are they being.
Our company that has been a great deal of time build than their products and we are.
Our lot of our efforts on to help them commercialized product.
But then secondly that we can take a lot of the databases.
Okay I'm Sci on Bill all the things that wouldn't auto build will end this as bill.
Risk models goal of performance attribution models performance measurement models.
Okay and all of that you know for these various subprime it asset classes. So we are exceedingly excited.
About this partnership on on investment.
That will so remember every bit I'd, just say does have a berges what I haven't said is our all private.
Core real estate product line, which we just grows to 50 minutes on a run rate is made up of about two trillion dollars worth though.
Real estate properties.
30, 40 countries in the world and represent thinking about 70000 properties. So so theres some overlap so to speak for between the dual loss, we have roughly nine trillion dollar so.
Of our.
Databases, which I would imagine is.
But it close to 85, maybe 90 or 95% of the entire universe.
Private asset classes in the world, so very exciting about that opportunity.
No more broadly speaking why no the key tenets of MSC I strategy is to build partnerships.
Distribution partnerships.
Research you know academic partnerships to build their models beta partnerships to get data.
I think knowledge of partnerships to help us accelerate our AI and machine learning process as for example.
Like I on those partnerships to be.
The basis for creating ecosystems in which hopefully MSC eyes, the harvest that ecosystem in order for all of us to be serving clients. So we started we always been doing this but we accelerated the the partnership.
Initiative, so about three years ago.
Obviously, we have a very extensive client partnerships as well, but we accelerated the other forms of partnership so you've got a C. O us doing a lot more of this a lot more some partnerships may maybe Joe strategic relationship our change and they are changing.
And can mutual capabilities someone that may or may require some investments on our part it either a minority investments of any type or or or maybe controlled investments.
Okay got it and I guess one of the reason that are asking that and maybe a you know then that you can help you just in terms of the capital allocation should we just see more of these how should we see the balance of buybacks because I guess you know your stock is nearly doubled from the last time you guys made these average or did you disclose 147, so just curious.
I wish you think is that going forward.
Yes, so we have an integrated cockpit on location approach right, which is up.
The quote unquote external capital location.
Richard dividends or share buybacks.
Obviously, a we're always focused on the leverage ratios of the company.
On the objective there is the run the company within the the meaning what amount of capital necessary on this previewed any excess capital.
And the company.
And then and then the internal capital allocation process is about how do we deployed capital internally for organic investments.
Dot.
The one that's something that Linda can talk to us.
Point in time that we're very focused on and then over say the third element is.
Sort of a external M&A or partnerships on the like.
This are all opportunistic you know they got a common goal.
I will now say that deal we are accelerating that foreign and recently just happens that we do come carbon belltown with on this.
But the dog did whatever yeah. Those are those have extremely attractive returns. Obviously in addition to the organic investments so whatever it doesn't get utilized on a proper on high rate of return with good Paybacks, then get that capital gets written.
Turn to the shareholders and a form of dividends on in the form of opportunistic.
Bind box of our shares.
It's Linda we continue to pay our dividends about 58 million per quarter on our dividends will take another look at our dividend rates. We get later in the years, we usually do.
Partnerships are very important but they don't require huge outlay of cash which is very helpful. They do require huge outlay of work and time.
And focus on the accounting treatment.
Buybacks, we do have some models, Dan about 2.2 million shares frankly at a price lower than where we're trading now we'll continue to take a look at that but that continues to focus on the opportunistic.
I have repurchasing shares that Henry just talked about so that's how we're thinking about this for right now and if we evolve that over the year. He will keep you posted.
All right. Thank you guys.
Thank you next question comes from the line of Alex Kramm, Yes.
Yes, Hey, good morning, everyone I'm just want to ask about the guidance very very briefly here I understand obviously that you don't make a guide revenues because of the asset base side, but clearly you guide operating cash flow and free cash flow and and you just made this comment Linda that there is clearly a level.
Well, that's you know if as it based on better you would spend a little bit more. So can you just help us how you think about that side of the business in terms of what are your budgeting for market performance flows.
Pricing Brad so so we have a better sense of when you would accelerate the spending if markets actually what can you favor. Thanks.
Okay. Alex you are asking for about all the variables we haven't spoken too. So let me see if I can help you with this in a way that follows our guide.
So we started with adjusted EBITDA effect, because we thought this would be more helpful for the shareholders.
We talked about a range of $750 million $770 million.
The magic number for 2019 was $707 million just so you are aware of that.
The.
Keith.
I'd like to Sci Fi is.
Within India has grown rapidly we cited the most recent number at 950, which has been a significant jump up.
From where we were just a few months ago. So we're taking a look at that 950 number Alex and in terms of planning for expense growth, we're taking a moderate or conservative view of further growth in that number jumped up pretty significantly just in the last couple of months.
So hope that helps you and then the $770 million the top end to the range. We watch it very much stress that we're going to Hep C.
Additional increases.
In those any happy.
And able to spend more so we're looking at modest increase spending if we have earned it if we have earned it on the topline and that May take us toward the higher end of the range, but we'll keep you posted we would note very important to note. The first quarter is higher expenditure quarter for us.
Due to tax payments and bonuses.
So if we do more of that it will likely.
Not to come quite as much in the first quarter, but a little bit more tilted toward.
The second and third perhaps that half of the.
So hope that helps you Alex bust.
We would put you back to the longer term guidance targets that we had given an investor day last year as what we're continuing to try to achieve.
So that basically means you're not looking forward to help from the market is the point right did I hear that right.
And where we're being thoughtful and moderate in terms of what expecting from the market because we've seen very good growth already yep. Good and just secondly quickly I think you gave a little bit of color on analytics growth I mean, the sales was very impressive, but maybe you can expand a little bit more in terms of where that is coming from is it a lot of.
Upsells, maybe talk about the regions, you're seeing a customer tied to save a lot of demand I think a yeah I think that would be great. Thank you.
Sure. So I'll make a few comments there Alex so first of all I think we've had we've had generally strong growth across analytics as I said in my comments. So it's not it's not blades not all I would say unevenly distributed.
Having said that.
You know the particularly positive areas have been recently in a combination of in borrow one.
For a lot in asset owners, so for total portfolio analysis of risk and return and with with sort of a if you like an overweight in the numbers to Asia. So so those are those are some of the.
I would say the most recent above average performances.
I would say your and in those it we would we would assume that the strength in in total portfolio analytics will continue the the numbers in Asia. We're a very strong we want to keep pushing them, but they get or they may not persisted quite that level because there were some exceptional deals there.
But but and as I mentioned.
With that my comments about liquidity.
That's that's one example of of various kinds of us serving increasingly specialized use cases, where it where we have a unique offering so I would say good core strength. Some specific outperformance and continued innovation and we want to we want to keep that on that.
Yes.
Sounds good thank you very much.
Thank you next question comes from the line of Bill Warmington with Wells Fargo.
Good morning, everyone.
So first question for you on the on the index business, you talked to the retention rate and how that was.
Flat year over year and that we saw the the downtick on a sequential basis and that was driven mostly by seasonal components now it's a high class problem I'm not trying to pick on a 93% retention rate because that's very strong but I just wanted to know if there was anything behind that downtick and also a question of.
There are where are the investors going.
You know when start when they do leave.
So so the good news Bill is the headline has nothing to see here [laughter] honestly, there really isn't I mean, the Q4 number was pretty much. So thats a total company number the index numbers higher I don't have a right in front of me, but so so the total the total company number was was.
Pretty much flat the index numbers or continue to be very strong and so really there's the good news is there's really no. There's no story that we see there we see conditions being fundamentally what they have been hurt.
Got it and then a question on my follow up on the analytics business. There was a a slug of nonrecurring revenue. There that you had mentioned came from implementation. That's why didn't know if if that was a four runner of some acceleration in the analytics business or.
With that sure. So so in fact, let me talk about nonrecurring sales a little more broadly. So so last year. There was roughly a 50 50 split in nonrecurring sales between equity index and analytics. So in equity index. The main drivers of that or they can.
Renewed strengthening of what Henry as called the third pillar of derivatives in equity index, which is which are made up of of structured products and ODC over the counter licenses. So so so that is the main thing there and those those revenues are nonrecurring.
During but we think that category will continue to grow in analytics to come back to your point the key drivers there our implementation and managed services on a roughly two thirds one third basis, so structurally in analytics as our larger more complex deals grow.
So and also as we service this efficiency theme that we've discussed with you in the past that asset managers, where we're getting increasingly involved in helping them manage data et cetera. Then the the managed services linked to that in setting all of that infrastructure up we'll continue to go up.
A final point about those again, it's a category, which should grow but just to reemphasize. What we've said in the past it will be lumpy. It is if there are certain types of deals which will have this attached to it there are certain types, which won't and so it's a category, which directionally should grow but.
We'll be fairly lumpy Q on Q type of thing.
Sounds like Linda has to create a new category of recurring nonrecurring.
[laughter] just.
Just the money coming in [laughter] alright, Thank you very much.
Thanks, Phil.
Thank you and our next question comes from the line of Joseph Foresi with Cantor Fitzgerald.
Hi, I wanted to go back to high as Chief for second.
Yes.
[laughter] spell out words I guess.
[laughter], Yeah, if you know anything about I see I'll take that too but [laughter].
But on the U.S.T. side, maybe you could just take a step back in frame for US what you know how you see that evolving it's obviously a red Hot space you know what products do you think are going to move in the short term, how you're going to price them and then how you think about competition in that space right now and.
Where you see going.
So some of it the.
Yes, yes, GE investing or sustainable investing.
It's a major.
Permanent secular trend in the world.
A great win by Ah think of it as the shrinking of the.
Shrinking of the world in terms of dissemination of information going acuity communication transparency of what's happening.
And on the like this.
And the in the world like that which societies around the world.
Our have access to a lot more information on a lot more transparency on a real time basis about what's happening in all institutions of society.
Those societies are going to hold those institutions accountable for their actions.
This is not just about investors on companies, it's about already called institutions me the religious educational.
So on and so forth. So our so 10 years from now and the investing industry I don't think that there will be a category called sustainable investing.
Because everything that people will go we'll have to have an element of sustainable investing in that and their investment processes. So so MSC I want to be the leading provider.
By far in the world of all the tools necessary to make that transition.
On to get to that to that point.
And on and that is from his G research to understand what what DSG components of companies are so somebody wants to come with at least on say exclude this exclude that we know what we're talking about is Jude ratings is cheap emphasis of all types in equities and fixed income.
Oh I'm delighted.
By the way, it's your ratings in equities and fixed income in real estate and private companies and private debt.
On the light and yes, chief risk models or less risk models that take into account also he is Gi and all the other factors that they do I know that so we are extremely well positioned on them Sci to be the leader in this because we already have gross in the whole broke range can I just described.
We are really a multi asset class a firm and we already play a central role in the investment industry. So.
So there will be competition, because there's a very Boston large field.
For sure, but I think our our position in the marketplace are the quality of what we do all the the the combination of all the things that we do for people.
As opposed to only one thing to one area or another dozen another supplier can do will create enormous moat around our franchise and.
That's what we're going in for here and that's where we're putting enormous investments into that now that's the as you category as a whole within the U.S.G. you on climate change we just eventually.
Maybe a next few years climate change and the impact on portfolios around the world may even be come beta or if any as GE itself right now we put it into a subset of Oh, yes, she investing but there may be call me when beer that U.S.G. investing itself on a category over to on.
So while we're taking steps to be the leading provider of climate change tools and the world as they affect portfolio say effect repricing of assets.
Hey affected authentication of investors.
Got it and then on the fixed income indexing.
Over the last couple of years, we've heard different data points of how Underpenetrated is and what the opportunity is out there.
Can you talk about what the barriers to entry are from a penetration standpoint is this now.
Real viable product that you think is going to equal that of equities over a long period of time and.
And how do you go about.
Converting people on the indexing side.
Yes so.
Let me just take this opportunity to to say something that we say a lock inside him Sci.
We're not in the index business, we're not in the analytics business, we're not in the rest business, we're not in the data business.
We are in the business of help in portfolio apparel, helping investors build better portfolios with right now happens to be a combination of all of that and we'll continue to be a combination of all of that but there will be some other elements over time like private asset classes that will be integral part of helping investors built.
At our portfolios. So we have no interest in sort of launching a fixed income index for the sake of throwing another way to the marketplace. What we're looking here to do is to see we see a need for fixed income investors in the world to do to look at.
A an index or a model portfolio. If you think that way that incorporates the the securities CNN re weighted alone is two lines or we waited a long factor lines.
If I if SG. It right now is is less of an outside generating.
Tool a lot of any some risk management tool and if we think that is GE as big an equity issue would be much bigger in fixed income because as you know when you invest in a fixed income instruments. The best you can all forward and get paid back Youre pretty simple and therefore risk management becomes much more central to the investment process a fixed income on there.
For years GE to become more central.
To that process. So that's what we're solving for in the launch of this things on with data is in consultation with clients all over the oral on use cases that we want to use on all of that and just on just one just more slightly a tactical observation.
Following up from Henry is kind of slightly more strategic view you know we've been talking to clients in the last number of weeks since these index as of mid launch and leading up to launch we've had very positive feedback across a range of different client types and and so I would say that from our.
Client interactions very recently in the tree last week the last few weeks.
We've had a very positive reception these numbers will not be material, Tennessee I in the short run, but I hope that over the course of the year, we'll be able to give you more color related to benchmark wins product launches you know related to these indexes.
Thank you.
Thank you. Our next question comes from the line of Craig Huber with Huber research.
Thank you couple of questions.
The 6% to 9% guidance I guess because for this new here of EBITDA expenses can you just quickly highlight fully where the incremental spend is going towards in terms of what growth initiatives internally you touched a lot of a bunch of difference would be linked quarter. The top three or four with its incremental dollars are going towards the first question like you sure Craig.
The first thing is that the technology underpins all of our investment.
And we pair the technology investments with the product investments to ensure that we can deliver for our clients some of the product investment areas are.
Yes, GE as Henry has described at length.
Fixed income where things are going very well index innovation is also very good area for us and futures and options is growing very rapidly.
Also our analytics business is doing really well on margin close to 35%, which is an incredible accomplishment. So funny as areas for investment and those would be some of the major once again.
Only towards the high end of the expense growth range. If we are in our way into it with.
Good fortunes in the ABS.
Yes look I think importantly that flexing between six and 9%, we always see accounting wise call that'd be the expenses.
Well this or not I mean their expenses of course, but there are investments more importantly, and.
And we are also extremely focused on offset.
With that methodology or investment, which we call the triple Crown methodology.
Which is on send that we went up by us.
A lot of our investments and our internal capital allocation on investments out three three grounds why is high very high risk adjusted internal rates of return.
Secondly, the shorter to pay back to better.
And number three in areas that the multiple of EBITDA.
That is yield that by those investment is the highest.
So there will be a balance.
It will oversee the you've got to do and all of it but the huge emphasis is in that triple Crown territory.
And my next question guys can you give us the annual run rate if you would for each of yesterday at the ended the year the future in options segment, and then fixed income.
Give us three numbers handy.
I don't really if we do not have that Hendi I'm sure you probably can look at the slides.
View on that Craig as we're looking for anything else.
Fiona.
Billings and a half are still cash that you have on the bench I know you touched on this earlier, but the appetite for a sizable acquisition given all your internal growth initiatives you shouldn't see it here last hour I assume is fairly low for announce a large acquisitions on a fair statement.
Yeah, I think thats.
Probably fair Thanks, we like where we are.
We do have an amount of dry powder, but as you see we're moving in the partnership.
Well as investing that has served us very well and.
I think you're in the right sic code one housekeeping matter, while we continue to look for something here.
On the Burgess partnership.
I want to reiterate that as a minority stake and we will not consolidate the financials and urgent our share of its income is going to flow to other income other expenses will be expressed.
Net line on that so just wanted to make sure that as you're looking at where we are with Burgess you know where to look so fairly best Greg Saudi follows up with offline.
Okay. Thank you guys.
Thank you next question comes from the line of Henry Chen with BMO.
Hey, good morning, everyone.
I wanted to ask about the the core.
Index business.
I guess be on or not beyond but separate from the the more dynamic DST and factors just on the index.
Pretty simple question, what's what's driving that stable.
Kind of 10, 11% growth.
Okay, and I and I say that just kind of given the the flows in the active side or are pretty much there I guess and.
And so I'm just kind of curious you could frame you know whether that's like.
I just.
Continue.
Like Tam available and like asset owner their wealth managers are replacing.
Providers are just adding new product is kinda is pretty simple question, what's driving social.
So therefore, I mean, when you look at index.
Okay.
We are we haven't completely sort of broken roll out like this way maybe willing to future, but the if you look at the index product line.
You can.
You can then categorize that index product line.
Into a three or four buckets right.
You can say the market got be Thisis.
That's what we call the act where my family.
And no DSG indices oversee a which are having he asked you overlay the factor indices Island overlay.
And then you did then you split.
The products into the use cases, which is is being used for active management purposes. I E. Benchmarking is being used for passive management purposes or is it being used for the remedies or structural products.
That's a therm build our third leg, so a little bit of a matrix.
So, but if you if you focus on the market cap indices.
And then obviously there is a.
Further breakdown of market cap to develop market cap on the emerging market cap because those.
Those modules and the subscription Saab different sales cycles and the market cap in this is what what's driving the growth is continue globalization of the equity markets are the world.
Continued expansion of the use cases inside an organization so.
We have traditionally charged by number of people they use the indices by vendors on all of that we're now moving to a little bit more of a bundled products, but when do you have a if an organization has let's have 100 professionals that we're using the indices and they want to go up to 302 or 300 professionals I want to use the indices.
There has to be a commensurate amount of.
Of new out new fees, what is also driving the growth of the market cap in this this is custom indices.
This our market cap in business and we somebody said can you exclude these can you exclude that can you put another thing like this can you do it so that is a high level of growth that is happening.
That is that it's happening there now and the up into the F. category of course market up in this has continued to grow.
As well you know obviously, the we've seen higher growth and he asked you.
In business and meet the F. an office in fact, or if you have so there is a whole category or things that maybe future discussions we can try to put on sort of a landscape for monovisc, but that.
That's a that's another area that overseas is happening is new client segments right does that our new client wealth management is a new client segments that are you said not now.
This as a hedge funds.
Equity as I'm sure hedge funds are being measure.
Given the performance of equity loan equity longshore hedge funds or lack of performance as you say relative to a.
To up to two non leveraged non I'm, sorry, non shored strategist.
These people are now being increasingly measured against the market cap indices, so they need to subscribe to the information and so on and so forth.
Got it.
That makes sense and and so just a follow up on I guess, specifically that the.
Yes.
Yes, and GE data.
A lot of good color on framing MSC as Roland I guess.
Just to help us understand so in the.
In the market cap or traditional investment products, it's very much performance, driven I guess or measurement of return attribution <unk>. How do you think about with he has he given the.
I guess my question of measurement of.
Of the impact or.
He has de risk it is sort of unclear will go over time in over time.
If you have any as you portfolio, you're going to do all the things that you're going to normal before you you're going to say how do I mentioned performance what does he have traditionally for for the let me give an example.
As gene on climate change driven which is.
Well, no very well and the energy sector, particularly oil and gas has been an underperformer. So what do you do your performance measurement attribution you have to say what parts of the oil and gas industry are driving your performance on what part are not.
On the flip side or that is what kind of outperformance or you're getting on alternative energies.
From solar to win.
We are et cetera. So so again you know it these are all being gone right now with certain obviously a degrees, but that's it's still going to be in a different same thing on factors is you we know that momentum on as being a big you know a driver of returns on quality.
On growth relative to value.
That's an example, so.
So you want to analyze our portfolio on the basis of what is by perform as a confusion.
Well, how much of that is coming from.
Performance of momentum versus lack of performance and value we provide all those tools and that's why this franchise is getting stronger and stronger.
Got it okay. Thanks, so much.
Thank you and our next question comes from the line of Chris So.
William Blair.
Hey, guys.
Two quick ones first on Burgess is there anything else you can say at this point around the the actual impact to EPS. It sounds like it's going to be.
Immaterial, but anything else you give us there.
Not really I mean, it's a good service monarch company compared to all right. So the hope is that is going to grow a lot, but it's still early days.
Yes in fact, we're picking up some expenses from purchase and the integration, it's Linda but.
We don't expect to see significant.
Results on this particularly immediately.
Okay fair enough.
And then just the other ones just on the index subscription business going back to that a couple of questions ago.
To put a finer point on that how much of the growth.
Yes came from what you would characterize as pricing in 2019, how much do you expect to come from pricing in 2000.
Sure Chris one of the things, we'd like to say on the entirety of the subscription growth parts business.
It's about one third price increases and two thirds volume for existing and new clients, so less than a third really on price increases.
Okay. So consistent.
Yep.
Alright, thank you.
Sure.
[laughter].
Thank you next question comes from the line of Keith Housum.
It goes research.
Good morning, guys quit for you I just elaborate Burgess, yes, a minority interest, but you guys will have access to other data I guess is a rig operating agreement and then agreements or your work structure with Burgess is that going to be exclusive so they know what else can partake in their data.
Yes, so so it'd be it's not as we always talk about two things, we always talk about the investment and this strategic.
Partnership with them.
The go over say Honda Dan.
The the investment is we're just we're just shareholder with.
With that with the owner on the founder of the company.
Jim coaches and.
No the err on the job sort of data usage on a partnerships on the like a those are subject to separate negotiated agreements one by one as to how do we divide up cost if we are in general.
Working when I jump broke how we divide up revenues on all of that on those are being worked on right now right.
But those would be exclusives, though no one else no competitor can come in there and try to do.
10 or data so to speak.
Largely but not portfolio.
Okay got you and then just as follow up question. This is just more of a reminder for me when it comes to your is to show passive fees, that's an oh, one core delay correct.
Yes that is correct okay, great. Thank you.
Thank you I'm showing no further questions at this time, so with that I'll turn the call back over to CEO Henry Fernandez for closing remarks.
Well I'd like to thank you again sales for the opportunity at the present.
Given the last 10 years of a great performance and obviously the anticipation of what we can do in the next 10 years.
I would like to make sure you all recognize.
How much we buy new belief.
That you on on our shareholders are put in August the trust and confidence.
And running a this great franchise on being good stewards of capital and.
We hope we never to disappoint in all of that so I think you very much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. They all disconnect.
Wonderful day.
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