Q4 2021 MSCI Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the MSCI fourth quarter 2021 earnings Conference call.
At this time, all participants are in listen only mode.
Later, we will 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 now like to turn the call over to MS. Susana <unk> of Investor Relations you may begin.
Thank you Elizabeth Good day, and welcome to the MSCI fourth quarter 2021 earnings Conference call.
Earlier. This morning, we issued a press release announcing our results for the fourth quarter 2021.
This press release, along with an earnings presentation, we will reference on this call as well as a brief quarterly update are available on our website MSCI dot com under the Investor Relations tab.
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 of the date on which they are made and are governed by the language on the second slide of today's presentation.
For a discussion of additional risks and uncertainties. Please see the risk factors and forward looking statements disclaimer in our midst recent Form 10-K and in our other SEC filings.
During today's call. In addition to results presented on the basis of U S. GAAP. We will also refer to non-GAAP measures, including but not limited to organic operating revenue growth rate <unk>.
Adjusted EBITDA adjusted EBITDA expenses, adjusted EPS and free cash flow.
We believe our non-GAAP measures facilitate meaningful period to period comparisons and provide insight into our core operating performance.
You'll find a reconciliation to the equivalent GAAP measures in the earnings materials and an explanation of why we deem this information to be meaningful as welcome management uses these measures in the appendix of the earnings presentation.
We will also discuss run rate, which estimates at a particular point in time, the annualized value of the recurring revenues under our client agreements for the next 12 months.
Subject to a variety of adjustments and exclusions that we detail in our SEC filings.
As a result of those adjustments and exclusion.
Actual amount of recurring revenues, we will realize over the following 12 months will differ from run rate.
We therefore caution you not to place undue reliance on run rate to estimate or forecast recurring revenues.
Additionally, we will discuss organic run rate growth figures, which exclude the impact of changes in foreign currency and the impact of any acquisitions or divestitures.
On the call today are Henry Fernandez, our chairman and CEO .
Our president and COO and Andy Wichmann, our Chief Financial Officer.
Finally, I would like to point out that members of the media may be on the call. This morning in a listen only mode.
And with that let me now turn the call over to Henry Fernandez Henry.
<unk>.
Thanks Jay.
Hello, everyone.
Thank you for joining us today.
MSCI in the liver.
Exceptional results.
2021.
Especially in the fourth quarter.
Demonstrating the strength of our ambitious strategy.
Key long term investments.
Im consistent execution.
The results also reflect on pressure.
Demand for our solutions.
And then nor most growth opportunities for the years ahead.
To list just a few highlights.
In the fourth quarter.
<unk> achieved organic revenue growth of nearly 20%.
And adjusted earnings per share growth.
Of over 28%.
For the full year.
<unk> organic subscription run rate growth of over 13%.
The record recurring subscription sales of more than $255 million.
And close to 95% retention.
In addition, we generated free cash flow of more than $883 million, which represented a 16% growth rate.
Yeah.
Our strong financial results reaffirm our strategic progress.
MSCI continues to expand its role as a change agent for the global investment industry, while providing the common language and the tools investors use for indexation risk management.
Factors BSG.
Climate.
Other key investment categories.
Across all of our business lines, MSCI is making a big impact.
Im gaining burger recognition.
We saw numerous examples of <unk> during the fourth quarter.
In October Hong Kong exchanges launched a futures contract.
MSCI, China Asia Index the.
The first offshore sector, Badlands, China Asia, future supported and approved by Chinese regulators.
It proved to be the most successful launch ever of our futures contracts based on MSCI index.
In November .
Affirm our status as a leading provider of climate solutions for investors.
During the Cop 26 Finance day, the U N capital Development Fund.
Launched a new ETF linked to the MSCI.
Alignment pathways select index.
Before and after <unk> 26.
We rolled out several new climate tools.
Including an analytical tool that provides carbon emissions data for more than 15, our private companies and nearly 4000 active private equity and debt funds.
This is in addition to the carbon emission data we provide on nearly 10000 public companies.
As the global race to net zero accelerates, we see enormous opportunities to provide data to.
Tools and solutions to support investors and companies de carbonization initiatives.
And the resulting asset repricing.
Put a reallocation.
Our ongoing and incremental investments will help us maximize these opportunities and drive climate progress at <unk>.
The whole of the capital markets industry.
Climate is just one example of the historic changes reshaping the global economy.
At this time Msci's products and services have never been more important to investors and business leaders around the world.
Our gross most client segments and regions. We currently see a strong operating environment.
Among our clients.
We see more confidence that at any point since the 2008 financial crisis.
Our intense clients and briefly is enable us to add wallet share organically.
And emerge as a go to partner for clients seeking to differentiate themselves.
That includes asset managers and asset owners.
MSCI largest installed base of clients.
Last year, our subscription run rate among those two client segments.
By 11%.
Excluding acquisitions.
We're also rapidly expanding client segments in end markets. So just wealth managers.
<unk> funds broker dealers.
<unk> companies.
And corporate.
We generated close to $78 million of incremental subscription run rate from those groups in 2021.
Our growth rate of nearly 20%.
Within our products and services, we continued to address the enormous market for indices.
Across asset classes.
Exposure on.
On the investment thesis.
And in Defence MSCI remains a go to provider for tools to support asset allocation portfolio construction.
Performance benchmarking.
Indexation.
And customize outcome.
As we modernize the client experience.
And capitalize on growth opportunities.
Mci continued investing in and executing on our data transformation strategy.
This strategy was a direct result of the feedback we've received from many of you more than a year ago and before the last investor base.
To put this data transformation in context.
MSCI has traditionally used third party data to create indices risk models.
Products.
We will continue to do that in the future, while creating new pathways for clients to access and interact with our products.
But we will also source and collect much more data from alternate and direct source.
So in areas ranging from private equity and fixed income to real estate and.
On climate in order to generate more meaningful and richer insights for our clients.
In effect MSCI has always been a data processing factory.
Now we are rapidly becoming at data building machine.
The value of this transformation committee cannot be overstated.
In a world that increasingly run some data.
MSCI, new capabilities will dramatically enhance our competitive advantages.
And boost our long term growth potential.
Our real data strategy is closely connected to our technology transformation.
We recently launched MSCI developer community.
A cohesive platform for clients to access our Apis and our co.
This platform will help developers and one customized.
Improve their offerings.
On a scale of various use cases, such as integrating front and back office applications.
We're also pleased with our accelerated migration to the cloud.
Last year, we successfully exited one of our on premise data centers.
And we are on track for another exit this year.
Looking at the larger picture.
MSCI is all with their franchise and mission critical solutions position us favorably in every type of operating environment.
That includes periods of sector factor geographic and ESG rotation due to that through our diversified product line.
Periods of elevated inflation due to our pricing power.
In periods of market volatility due to our franchise and risk management.
And index that everybody.
The world and of course, our approach to repurchase of shares.
Today with a strong momentum in a constructive environment MSCI continues making investments that we are confident will deliver.
Tangible near term benefit.
These investments are fueling robust business growth.
Unhealthy knows modernize the client experience.
We believe that they will also help us build on this historic achievements of 2021.
And reach even greater heights.
In 2022.
With that let me pass the floor over to bear bear.
Thank you Henry and greetings, everyone as Henri alluded to our Triple Crown framework, emphasizing the highest returns fastest payback and most highly valued business opportunities is driving accelerated growth across the board as you can see from the record numbers.
<unk>.
On today's call I will provide more detail on some of our investment areas and growth opportunities.
Most of our investments will be in areas, where we have demonstrated leadership and see incredible demand.
Let me start with index, where we are uniquely positioned to serve the global investment community.
We are transforming the ability of our index clients to access monetize and leverage our indexes and calculation capacity.
MSCI currently calculates more than 260000 indexes per day with our investments we expect that number could reach several million index is calculated over the next few years.
Our fourth coming client application called index builder will provide investors with the opportunity to create customized and test indexes around MSCI world class frameworks and content.
This will put an index calculation solution at our clients' fingertips for the first time accelerating our ability to meet their demand.
Customized index subscription modules overall continue to show excellent momentum growing by 18% to $93 million of subscription run rate.
Additionally, customized indexes are a key driver of new growth opportunities within index based products.
We're also investing to stay ahead of clients' needs for direct indexing as demand continues to grow in the wealth industry for personalized tax aware portfolios at scale.
Our strong brand across indexes, ESG and climate factors and analytics coupled.
Coupled with our portfolio construction and tax optimization tools are helping us land several big wins, including with clients, who are licensing our indexes and expanding their use of our ESG content and risk models.
In fact, the AUM of direct indexing licenses to MSCI index is now roughly $60 billion, while our run rate for index direct indexing offerings across the firm is roughly $10 million.
In the climate space clients continue to adopt Msci's, Paris aligned indexes climate data insights physical and transition risk models implied temperature rise measures, our net zero tracker and.
Tcf D align and other reporting tools.
Our climate related run rate across the firm now totals $45 million well more than double from last year.
Following successful product launch of climate lab in October we signed several new clients during the quarter.
Excluding asset owners in EMEA.
These wins also benefit the analytics segment and leverage their reporting infrastructure.
One of our largest current priorities is to build and enhance our core products, including climate lab and our climate models data and research.
As you can see from the numbers ESG at MSCI continues to perform strongly and is a central focus for us in 2022.
Our ESG franchise serves different types of investors, including ESG integration investors impact investors and values based investors.
Some focus only on the financial impact of ESG issues, while others concentrate more on ethical and sustainability concerns we offer data and solutions to support each of these use cases.
New clients in the ESG and climate segment comprised more than 50% of new recurring subscription sales during the quarter.
We're proud of the role we have played in the investment ecosystem as the largest ESG ratings provider covering over 14000.
We will continue to expand and deepen our large securities coverage universe and high data quality.
We believe our focus on rules based and transparent methodologies financial materiality of ESG risks and assessing resilience each of those risks has enabled MSCI to transform the investment process for our clients.
Recent conversations about the need for standards and common definition in ESG integration and sustainable investing present further opportunities for MSCI to help our clients.
I would now like to highlight some successes and analytics this quarter.
Our subscription sales grew 72% quarter over quarter.
Year over year, they grew 36% and our retention rate improved to 93, 4%.
This resulted in record high net new recurring subscription sales of $18 2 million for the quarter.
The wins were broad based including with asset owners and asset managers for use cases, where we have leadership such as enterprise risk and performance in equity markets.
We're also leveraging our traditional offerings for target client segments, such as our enterprise risk platform or insurance firms and our fixed income factor models for broker dealers.
Our business wins also consisted of new offerings to solve new use cases, including as I mentioned previously in climate reporting within analytics platforms and climate flat.
Across analytics, we continue to benefit from the enhancements, we have made to portfolio construction and the reporting tools that we have developed.
Including factor and risk models optimization engine and performance attribution tools, while providing our index ESG and climate franchises with critical and differentiated IP.
We're also adding to our coverage footprint and leveraging our existing offerings to serve newer and potentially significant client use case.
Our recent success scaling the hedge fund client segment is a great outcome of this approach where our subscription run rate total of $143 million growing over 18%.
Before concluding I'd like to say a quick word about our data capabilities.
We continued to rapidly incorporate new proprietary and third party datasets to expand and enrich our existing content improve interoperability with external sources and established deep network effects in client stickiness.
This is evident in fixed income indexes and modules, where we have added data on roughly 53 trillion dollars worth of additional fixed income assets.
Meanwhile, through our climate investments, we're rapidly adding data on physical assets target emissions and other key metrics.
We're also investing in the data consumption experience for our clients to that end, we recently launched MSCI data to explore our new cloud native data search and exploration application, which enables clients to access and download datasets across all product lines and index ESG.
<unk> climate analytics and real estate.
Looking ahead, we remain confident that our long term investments will drive future growth opportunities with that in mind, we will continue investing and continue meeting client demands for our offerings using MSCI is rigorous triple Crown framework as our North star.
With that let me turn the call over to Andy.
Thanks, Baer and hi, everyone.
The record results for the quarter and for the year reflect the enormous opportunity set available to MSCI and our long term actions to identify invest in and capture those opportunities.
Each of our product segments index analytics, ESG and climate and all other private assets recorded their highest quarter ever for recurring subscription sales and net new recurring sales.
We drove very strong double digit sales and subscription run rate growth in each of the Americas, EMEA and APAC regions, reflecting our ability to unlock the significant addressable markets in front of us.
Our one MSCI ESG and climate franchise delivered 58% run rate growth year over year, adding $129 million of additional run rate during 2021.
And looking forward our longer term sales pipeline across products and regions looks quite healthy.
Across the firm, our 13% organic subscription run rate growth was fueled by strength across nearly all dimensions geographies and client segments and product segments.
Index subscription run rate grew more than 12% year over year, our 30, <unk> consecutive quarter or eighth consecutive year of achieving double digit growth.
Market cap weighted subscription modules, which represent approximately 75% of index subscription run rate grew 9%, while we recorded strong double digit growth in our investment thesis index modules, particularly in areas like factors, ESG and climate, which collectively drove 28% year over year subscription run rate growth while custom.
The index subscription modules grew 18%.
Analytics recorded 5% organic revenue growth and 7% organic run rate growth with double digit organic growth in both equity portfolio management tools and fixed income portfolio management tools, reflecting our strategic business wins bear described earlier.
Importantly, our strong profitability growth across analytics, if fueling companywide operating leverage and enabling us to make investments in key growth areas across the firm.
In ESG and climate, we drove outstanding organic growth of 53% in revenue and 47% and organic subscription run rate with strong demand from new and existing clients alike.
To put this in context since Msci's acquisition of risk metrics in 2010. It took almost 10 years for the products and our ESG and climate segment to cross $100 million of run rate, which happened at the end of 2019 in the two years since we've doubled that ended in 2021 with nearly $200 million and run rate.
Within all other private assets, we are building momentum with organic revenue growth of 13%, while benefiting from growing traction with our climate offering.
Additionally, we're seeing strong early traction from RCA, which added $76 million of run rate of $12 31.
As we have indicated previously we expect the annualized adjusted EBITDA margin for the all other segment to be close to the mid teens for full year 2022.
Impacted by some employee retention and integration expenses as well as the reallocation of certain internal costs to the segment.
Turning to asset based fees. Despite your end volatility we observed healthy cash inflows across geographic exposures and product areas in equity Etfs linked to MSCI indexes.
This included healthy inflows into products with emerging markets developed markets ex U S and U S exposures.
AUM in equity Etfs linked to MSCI ESG and climate index as of year end was $227 billion growing a tremendous 114% from a year ago with cash inflows of nearly $34 billion during the quarter, resulting in more than 75% market share in global ESG and climate equity ETF flows.
Period end basis point fees were $2 54 bps.
The quarter over quarter decline was almost entirely driven by mix shift with higher growth in lower fee products.
Solid operating performance and notably strong revenue growth drove nearly all of the adjusted EPS outperformance in the quarter with some puts and takes from higher tax rate and interest expense.
Even in the context of business investments. We've made we drove modest margin expansion during the quarter, which continues to be a key objective excluding.
Excluding results from the RCA business MSCI is adjusted EBITDA margin across the firm would be roughly 59, 3% for the quarter.
Which would imply roughly 150 basis points of margin expansion.
We also continued our track record of delivering strong free cash flows of over $880 million for the full year or growth of over 16%.
This was also higher than our prior expectations as we did not make accelerated incremental cash tax payments in the fourth quarter that we had previously assumed as a result of our latest views of the tax environment.
Turning to capital allocation and our balance sheet.
In December and January month to date through Tuesday, we have repurchased approximately 925000 shares or close to $480 million.
Also Msci's board of directors has authorized the company to Opportunistically explore financing options.
Although any potential financing is subject to market and other conditions and there can be no assurance as to the timing of certain b of a transaction.
As a top priority we remain focused on reinvesting in our business across the triple Crown areas that we've highlighted today, including custom ESG climate and other investment thesis indexes fixed income and private asset content and solutions.
And technology capabilities as well as client coverage product and research enhancements.
Additionally, we will continue to pursue opportunistic M&A and highly strategic growth areas for us.
Turning now to our full year 2022 guidance, which we published this morning.
Our expense guidance range, primarily reflects the investments we are making to fuel continued growth as well as enhance the client experience.
Our projected level of spend assumes relatively flat market levels for the year and as always our expenses may flex up and down depending on market conditions.
As a reminder, we expect normal seasonality in our expenses during the year with certain compensation and benefits expenses typically being higher in the first quarter.
Our free cash flow range continues to reflect our confidence in strong collections and operating performance.
Our tax rate guidance range assumes no significant changes in global tax regimes.
Excluding the impact of combining with the lower margin RCA business, we would expect margin expansion in 2022 across the balance of the company.
In summary, as both Henry and Bear have noted we're seeing unprecedented levels of demand for our offerings and we are focused on capitalizing on those opportunities we.
We have an all weather franchise that positions us well for all operating environments and we're excited for the continued growth opportunities ahead of us in 2022 and beyond with that operator. Please open the line for questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Our first question comes from Toni Kaplan with Morgan Stanley .
Thanks, so much.
Andy you're guiding to about a 15% increase in EBITDA expenses year over year.
Is your expectation that revenue will grow at least in line with the expense increase or is this sort of more of an investment year and also just embedded in the guide are you assuming that market stay at this level or if they are choppy I know you mentioned that you could sort of dial it back but maybe that.
Maybe for future growth at sort of the right decision to make certain investments. So just wanted to hear about some more color on the expense guidance.
Sure sure yes, thanks, Tony.
So just on the comment about growth obviously, we don't provide top line guidance, so I'm not going to touch that but I would highlight that and you see this in our long term targets over the long term positive operating leverage very marginal and positive operating leverage is something.
It's embedded in the business model, but our core focus today is really investing in the very attractive and large opportunities in front of us.
Did that last year and in the <unk>.
<unk> guidance that you see here, we're planning to continue to do that.
I would highlight that the largest driver of the growth in expenses really as those investment dollars so to investing.
In.
All of the attractive opportunities that we've talked about and believe are very compelling long term secular opportunities. We do have some carryover impact from the 2021 hiring and investments and then we're going to continue to invest in 2022.
Behind that it is worth highlighting in noting that there is an impact from RCA getting the full year impact of RCA expenses, which feeds into that expense guidance.
And then the smallest contributor is same store wage increases and we are projecting slightly higher wage increases than we typically do.
But this is the smallest item and we do have a number of levers at our disposal to manage through.
Wage impacts.
Both on the.
<unk> expense line item, but also at the top line.
Where we have a value based pricing approach, which positions us very well for inflationary environments.
Sure that's helpful and then.
You spoke about that.
Staying in data and could you just talk about how differentiated your ESG data is versus competitors and how hard do you think it will be for others to replicate once you make these targeted investments and I think this is particularly interesting topic, because I think the perception is that.
You have this leading brand.
Sort of helps with client relationships and benchmarking, but I think the common perception around data is that.
Data could become more commoditized or things like that so just talk about how important it is to have this.
Differentiated ESG data and how you get to that thanks.
So thanks, Toni so it's absolutely critical.
So I think that at this stage roughly 45% of our ESG data comes from alternative sources. So we're highly dependent both on I would say the expertise and depth and breadth of our research.
And our data environment. The combination of both of those so I think we are we're very far from a stage where data in either ESG or climate is anything like a commodity.
We're doing a lot of interesting and new research in this area, where we're stepping up our investment dramatically and that includes in both.
Our infrastructure for managing all of that data. It includes the software, which enables us to go directly to issuers and makes it very easy for them to send us that data and it also includes precisely those alternative data techniques such as natural language processing.
Thing that.
<unk> allow us to go broader and deeper to look for topics such as controversies in the ESG area and new client new sources of information and climate. So so this is really central to what we do at.
At MSCI generally and in ESG and climate and we're very confident that it will be central to our competitive advantage for.
Quite a number of years to come.
That's great. Thank you.
Our next question comes from Alex Kramm with UBS.
Yes, Hey, good morning, everyone.
Another question on ESG.
<unk>.
It seems like recently there's been.
An increase off of articles and whatever call of popular press around E.
ESG about firms like you and maybe how some of these ESG scores are not really a reflection of what people think they are they are they are buying or getting into when the investing in ESG products. So I don't think thats, a new topic and maybe this is just noise and maybe it's a sign of your success, but.
I'm just curious how you view these kind of things out there and then more importantly.
Are you seeing any impact from your clients.
More more scrutiny from them are they asking more questions or is that not just having an impact at all and are you seeing any potential regulatory scrutiny increasing year. Two so I know, it's a loaded question but.
But curious if you have any any any color.
Yes, Bill Thanks for that question.
First of all the there has been no impact on our on our clients.
<unk> planned request.
If anything because of the controversy that has been created in simple terms, our preference you call. It.
Clients have become more intrigued because one of the tenants.
Just for borders was that the Mci is the.
The leading provider models, so people want to come to us because of that.
Secondly, they are indicated in the prepared remarks.
Are we at MSCI served.
<unk> number of different type of investors.
In ESG and climate with serve investors that are looking to integrate ESG and climate considerations.
Investment process and therefore.
They only focus on financial risks associated with ESG controversies in ESG issues, where climate issues in security selection or.
Oh pricing.
In their portfolios right.
The second type of investors are.
Impact investors.
Those are very different than the ones that are looking for financial metrics. Only these are investors that are looking to as the name says to make an impact and what they do on some of them may be willing to give up that returns and the demand.
The mandate that they had been receiving as a studio CRA.
So I think we'll do that.
Third type of investors as values based investors.
Religious organizations.
And the like in which they want to they only want to be investing what they believe in and are willing to give up a substantial return sometimes or.
Or that or increased risk in their portfolios collateral. We serve every one of those types of investors. So I think a lot of what has been brisk.
I'm done and this kind of.
Coastal versus in the media is.
Is it particular dual <unk> weighting that are largely used by this.
People are looking for financial metrics.
So I think that every one that we have talked to the consequence of this.
Articles.
Completely recognize the differences between one thing and another.
Many of them have indicated that it is very incredible.
Incredible.
People that think that they can take fiduciary money and go out and fight social confidence with the fiduciary money went.
That is number five on their mandate. So a lot of what does that equals have been allocating it for people like you.
On this call all to go out and invest in low on getting lower returns on the basis of.
Helping different parts of the world.
And that is that's not what is the reason you're mandates and how people more money. So there are others that do that and we serve all types of investors, we don't tell them what to keep providing the tools to achieve their investment objective not ours.
Thanks for that.
Moving on and maybe staying on the segment, but maybe a little.
<unk>.
On climates $45 million I think the run rate you gave pretty impressive can you can you maybe help us break this down a little bit into where the what the biggest chunks of those revenues. Those run rates are and you just mentioned that around cop 2026, you have been introducing new products. So just wondering where most of.
That is coming from and then maybe in the next couple of years as you invest until all of these new products, where you actually think in the future most of the growth is going to be coming from.
Yeah, Hi, Alex Bear again, so look the the biggest driver is clients needing to report to either within certain organized frameworks, such as Tcf D or to their investors and to look at the climate exposure.
<unk> is across their portfolios or for example, within a given index or an index exposure. So we're really working.
The around the clock as it were to meet a lot of those demands now there are some components of that there are elements of physical risk.
In climate risk.
There are building blocks of those type of the climate exposures or climate reporting needs, but overwhelmingly today.
You want to put it in very plain English people want to know what is going on in their portfolio and their security exposures as it relates to the climate transition and to keep them on either the portfolio itself or in the interest of their their investors.
Two two record where they are on the path to net zero, where many of them have set goals and targets right. So so really if you think about that it's an enormous effort for transparency and understanding in a category, where the underlying data and assets is extremely broad.
So that's where really our work is going on.
Helpful. Thank you.
Our next question comes from Manav Patnaik with Barclays.
Thank you I just wanted to follow up <unk> talked about how I think.
We moved from one you shut down one on premise center I suppose and we're going to do another one.
I was just hoping you could give us a little bit more color.
You bet.
I guess, maybe some more stats and perhaps.
One the quality or some other milestones to track with the tech transformation.
Yes, Hi, Manav, so look I'm not going to go into like every data center on this call [laughter].
Directionally, what I would say is first of all which we're very excited about we have moved all of our ESG climate and products into the cloud they were the first.
Theyre clearly amongst our newer areas relatively but what that allows us to do is to work in an environment, where in keeping with the previous topics. We've just been discussing here, we can enormously accelerate innovation right. So so so we're very excited about that.
Because it really means that it is a critical step forward in ensuring that we keep up with this enormous demand and that our investments are not merely in the data underlying data our research people, but also in the infrastructure supporting all of that so I think generally we're very happy with.
The cloud progression.
We I think 2022 is going to be an even more important year for us.
And really critical and on top of that we're doing this on kind of a cash spending neutral basis across where we were before so I think it's a great story for innovation. It's a great story for the future of the company and we'll keep you guys updated as we make progress.
Got it.
And then just the board authorization to explore financing.
Should we read that as basically.
From a debt to buy back more shares or is this more.
Refinancing ahead of late.
I was just curious how you think comes from by law.
Yes, I'd say, it's consistent with the approach we've taken in the past where as we Delever, we look for opportunities communities to take the leverage back up.
In this case it would be new capital also new money additional cash coming in and that would be used for general corporate purposes, including potentially repurchases potentially some targeted MBNA.
But it's really just taking advantage of an attractive financing market. If we see it and if we do we're confident that we can get a good return on that capital.
There it goes towards continued repurchases debt.
Centrally attractive levels or M P&A organic corporate purposes.
Thank you.
Our next question comes from Ashish <unk> with RBC.
Thanks for taking my question, so just focusing on analytics, you've called out pretty good subscription sales in that business. How should we think about the growth trajectory, there and getting to your longer term.
<unk> targets and analytics any color would be helpful. Thanks.
Yeah. So look we are we're pleased with the quarter we had.
We I think we've got some strong plans and some of the growth areas that we've mentioned and analytics before such as fixed income.
We are really doing a lot of work also to ensure that the upside that we have in ESG and climate is translated into our analytics business.
And I think we're just generally really being in a very client focused mode.
And.
And they paid off in Q4 so.
We hope to be able to continue to show positive numbers as we go into the next quarter.
We always have a certain amount of lumpiness, there, but I think with the the continued.
Improvements in both our content and our platforms.
We will we intend to continue to show that we can move the run rate up and with that the revenue with time.
That's very helpful color and maybe just a quick follow up question on future contracts on the MSCI, China Index I just wanted to get a more broader perspective, how big is the derivative revenues are based on currently MSCI indices and how do you think about that over the mid to long term how big is.
That opportunity.
And where we are in that process. Thanks.
So the opportunity is very very large.
In the context of the creation of.
The creation of a new market.
There are two types of opportunities one in selected area.
To create single country single currency.
Index futures and options on the structure of products that come out of that.
Those are that's traditionally what we have been doing.
But in the last five seven years or so.
We have opened up with our partners in derivative exchanges the market for multi country.
Multi currency index futures options.
And.
And those are being used for structural provokes an over the counter product creation.
Investment vehicles. So so that that is in the context of the emerging market index futures and options the <unk> futures and options the European one trading.
Europe et cetera.
Annualized so we are very pleased with.
That opportunity is multiples multiples.
What we have right now is just going to just take time to grow and I look at the market and the work on the exchanges have to do to promote those products.
So we continue to do that now this particular product China Asia future.
Futures.
As im access product.
No.
You can either go directly to the mainland.
Praised the local index futures.
Craig another futures that trades in Singapore or come to Hong Kong and Luca.
The benefit of this future and the recent Florida tremendous success is that even those narrow 50 stocks. It is.
It is sector balance is constructed in a way that represent the broad market of China and rather than the top 50 companies in the country right. So.
We don't think the representation from the major area major industries in China.
It has been incredibly successful and on the heels of that.
Clients have lunch.
Etfs.
On that inside China and in Hong Kong.
We have converted certain other plans around in the U S and Europe from all around this is to this one.
All in when you include the notional amount got it.
And open interest in the futures contract and you include the assets that have been raised.
We're already off course with $10 billion.
Short period of time, so that bodes well for continuation of that.
Our approach to use.
Ashish you reference the futures and options listed futures and options run rate.
12, 31 was $54 million.
Over the counter derivatives opportunities that are very closely related but different show up in our nonrecurring index revenue and there is also some portion in the recurring subscription revenue as well. So the geography, there was just slightly different on the over the counter products.
That's very helpful color. Thank you very much and congrats on the solid results.
Thank you.
Our next question comes from Owen Lau with Oppenheimer.
Thank you for taking my question. So the retention rate right to us pretty is pretty strong at 94, 4% and fourth quarter. It's typically a weaker quarter for retention could you. Please talk about what drove that strength was it driven by a maybe a shift in client mix or was it driven by.
By healthy capital markets any more color would be helpful. Thank you.
Yes, so look I think it's.
I think it's a mixture of things in all of these circumstances.
We've.
We've clearly been continue to invest in the quality of our products continuously.
We've also been extremely focused from a client coverage point of view on client retention and put enormous amount of effort into making sure that we contact clients that we monitor their use of our products.
That were regularly ensuring that they're getting value out of them.
And so I think it's probably those two things maybe.
In a reasonably good environment to at the end of the year overall, but I think it's for sure.
Open believe both the quality of the products and the extreme client service focused on client retention.
Got it.
Then on RCA could you please give us some more update on RCA in terms of the pipeline and retention rate and based on all the information we have in terms of like people May go back to office or working in hybrid in your conversation with clients. How do you expect the demand in retention of our CA.
In 2022, thank you.
Yes, so maybe just that enough.
We're giving out those exact numbers yet going forward, but maybe on a slightly higher level. We're we're really pleased with the integration process with RCA. We did some internal surveys in the aerospace team is extremely enthusiastic about being part of MSCI.
We're in the process of integrating both what you could crudely called the front and the back office.
And we're putting together a very clear combined real estate go to market strategy.
So far everything is going well.
And I think what we've got here to all the real estate clients, whether they were MSCI there are.
It really shows our commitment to both the asset class.
And.
The very shortly I think we'll see a lot of cross fertilization of content and data, which will give us even better client offerings.
Okay. Thank you very much.
Yeah.
Our next question comes from Craig Huber with Huber research.
Thank you question on pricing as you know historically your recurring subscriptions and indexes two thirds of the growth there historically be from volume one third from pricing I'm. Just curious in this higher inflation environment are you still thinking pricing would be about a third of the growth for this year, maybe roughly 4% or was a little bit more of upside there.
Yes, so we're clearly in everything we do have enormous pricing power.
That is that is undisputed.
Autumn Sci and our clients understand that too.
For us though it's.
We also have a responsibility.
To ensure that our interest continued to be aligned with clients in the context of.
How we deliver value and how do we do price increases relative to.
The way they run their cost structure under bid.
So we've been very prudent in terms of balancing act clearly as as we have been making enormous investment in the data that goes into it.
Into the products.
The tools are being refined and models are being refined the client experience is getting better the resources unplanned serving a much larger our indicators.
A few minutes ago and.
All of that means that we're giving higher value to clients and then secondly, as certain areas of our business.
Inflation.
Higher inflation, particularly wage inflation.
Bound.
Putting higher price increases this year that in prior years, but in a way that.
That is consistent to the approach we always done.
Never jumped in the market never.
Any kind of situation, we are trying to be constructive at the same time being financially.
And on delivering.
Delivering.
Getting a return for the investments that we've made in a lot of our pumps.
And then my other question. Please on the index business for margins. This year, assuming that the markets are roughly flattish as I think you alluded to that sure.
Basic expectation here do you think there's more.
Margins there you expect to hold them flat, maybe slightly up for the year, how should we think about margins in indexes. Please given all the investments you guys are doing there.
Yes so.
You highlighted correctly, our baseline assumption here is that markets remain relatively flat for the year.
I would say our top objective is really investing in the long term very attractive opportunities, we see in front of us and index, we're not trying to solve for specific index margin per se.
Really our top priority trying to drive leadership in these key key large big market.
Just regarding more generally your upturn and downturn playbook, it's a constant calibration. So it is not only based on where AUM levels are at any point in time, but it's looked at it's based on the outlook and it's based on the success, we're seeing in the areas we're investing in.
We do have some self adjusting expenses and comp and some discretionary areas.
Then we can go to pretty easily but generally the last thing we want to do is impact those key investment areas and so at any point in time, we may decide to pull back on expenses, if the market goes down.
But if the market goes up we're likely going to start to invest even more in these very attractive opportunities. So it's tough to be more prescriptive than that but I would say, it's an ongoing calibration.
And something that we are continually focused on and having discussions around.
Let me also add.
Yes, let me Greg Let me also add that the when we say market remember that.
Did that our asset based fee business is completely diversified across.
Geographies, whether it's Japan, and Asia ex Japan, whether it's Europe .
<unk>, Canada and emerging markets all of that is diversified and highly diversified with respect to a market cap in the monarch indices ESG indices climbing.
Sarah.
And.
And it's diversified.
Asset based fees from the what we call the institutional passive on the list.
So when you look at the total.
Finally, we are assuming that when you put all of that together in a blender.
That is going to be flattish as our base assumption.
That doesn't mean that there is not a huge sector rotation.
Dosing goes up and the other thing goes down that there will be money flowing to the U S. Maybe from a merger market.
Whether more money goes to ISG on climate and it comes out of other parts. So it's very important.
We recognize that this is not one market like the U S.
It is the totality of the <unk>.
Absent the downs when you will look at all of that so we're very comfortable that this is a conservative assumption in a year in which it started with a lot of volatility, but but hopefully the fundamental earnings on economic growth like we saw today in the U S will continue to improve and eventually set.
For a more constructive about appreciation of equity assets.
Great. Thank you guys.
Our next.
Western comes from Keith <unk> with Northcoast research.
Good morning, guys. Thanks for the question.
Sales have been phenomenal this year booked recurring as well as nonrecurring I. Appreciate the investments you guys have made in new products and whatnot. Maybe that's also maybe changes to the sales force to help contribute to that and makes us more sustainable over the long run.
So I think in a narrow sense we haven't.
<unk>.
Any changes.
But we have fantastic leadership, and our client coverage organization.
So I'd just like to call out <unk> and his team who have done really an outstanding job.
Across the globe.
<unk>.
It's just it's just exciting to be around the organization because we have just really smart positive energetic liters.
I mentioned earlier that this is not only in sales.
But in client service and everything we do with our consultants to help our clients.
So I just think we've.
We have made as ever in any client coverage organization. We've made some tweaks to how we approach certain client segments. We're very focused on senior client relationships, which as we have been for a number of years. So all of those things, bringing cumulative benefit over time, but just across the board I think we've got a great team we've got.
Great leadership, we've got people are really committed and.
That's what we're getting from it.
Got it I appreciate that and then just as a follow up you guys recently announced the strategic alliance our relationship with <unk> Financial group can you provide a bit more color on the arrangement that is that a partnership of any time or every type of how is it working.
And so.
We have a large.
A number of partnerships.
With experts in various fields.
But we are expanding our knowledge of areas such as Biopharma.
The clean energy or.
Prompted technologies and the like we have a partnership with a number of entities there.
With respect to <unk>, that's one partnership purely that we have announced.
With respect to blockchain and crypto.
Crypto currencies and the like.
We are we're not yet in a position to talk about the launch of any products.
Waiting all aspects of that market and what value I can.
Brain what opportunities for.
To serve our clients in the investment industry. We can provide so that's a continuation of a philosophy that we have had about building partners.
Our experts in various fields.
Alright, thank you.
That concludes today's question and answer session I would like to turn the call back to Henry Fernandez for closing remarks.
Well as you can see.
Here from as you can see from the numbers on here from us.
And from the commentary we continue to have enormous opportunities in front of all sentiment Ci.
If anything I've said is in a number of forum that into 2006 years since I created the company out of various product lines.
Have not seen this level of opportunities.
Ever.
<unk> always been bullish as you all of you know in the.
And the development of MSCI and the opportunities that we have had but we're just.
We're just seeing it all over the place and then the GI is becoming a central location where come to us for a lot of idea.
In terms of turning them into products and services for the global investment industry. So we're very much of a nexus.
Of innovation and idea.
So we will continue to capitalize on a lot of that incredible momentum with.
With investments in.
In some cases significantly heavy investment in the in the Triple Crown framework that we have created in order to have a very high rates of return fast payback and in areas of significant value. So our internal asset location is very demanding and very robust and in some cases.
Our crude oil.
And those areas, where we see very attractive opportunities.
And we are very comfortable in the position that we're in right now and the expansion of the.
So we thank you very much for your attention and for your support and we look forward to speaking to all of you on various signs.
Also by menu.
This concludes today's conference call. Thank you for participating you may now disconnect.
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