Q1 2023 MSCI Earnings Call

April 25, 2023

Got it.

At this time all participants are in a listen only mode later.

Later, we will conduct a question and answer session.

We will limit participants to one question and one follow up.

We will have further instructions for you at that time.

I would now like to turn the call over to Jeremy <unk> head of Investor Relations and Treasurer you may begin.

Thank you operator, good day and welcome to the MSCI first quarter 2023 earnings Conference call earlier. This morning, we issued a press release announcing our results for the first quarter 2023. This press release, along with an earnings presentation. We will reference on this call as well as a brief quarterly ups.

Dave 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.

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For a discussion of additional risks and uncertainties. Please see the risk factors and forward looking statements disclaimer in our most 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 also refer to non-GAAP measures, including but not.

Limited to 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 well as how 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 exclusions the actual amount of recurring revenue.

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. We will also discuss organic 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 Baer Pettit, 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.

With that let me now turn the call over to Henry Fernandez Henry.

Thank you Jeremy.

Welcome everyone and thank you for joining us today.

MSCI delivered solid first quarter results in a challenging external environment.

<unk>, the underlying strength of our franchise and our proactive financial management.

We have not been immune to the market turmoil.

But our resilience continues to stand out.

As seen in the headline numbers from the quarter.

Which include adjusted EPS growth.

5%.

Organic subscription run rate growth of 12%.

Net retention rates of over 95%.

On a segment level, we bolstered our 37th consecutive quarter.

Double digit run rate growth.

Index recurring subscriptions.

We also maintain our momentum and equity portfolio analytics.

Hi, Jim had run rate growth of over 10%.

Meanwhile, climate continued to drive a wide range of growth opportunities.

Including with many emerging client segments, so just banks.

<unk> managers and insurance companies.

I missed the I deliver 68% climate run rate growth across our product lines.

And our climate with some rate of over 96%.

The difficult environment has certainly affected buying behavior of our clients.

In some areas client budgets have tightened in.

Sales cycles have lengthened.

Especially for larger purchases.

ESG sales have also been affected by regulatory uncertainty in Europe .

And by a slowdown among wealth managers and retail investors in the United States.

Although institutional investor demand remains healthy.

As we have noted in recent quarters.

Our AUM linked revenue tends to be an early mover in market cycles.

While our subscription revenue.

And then to see a lagging effect.

It's still our client engagement levels remains very healthy and.

And we continue to fine a steady demand for our products and services.

Even in tough environment.

MSCI unique competitive advantages and door.

Clients need our data.

Models analytics and research to navigate a rapidly changing investment landscape.

With that in mind, we continue prioritizing core investments in areas. We believe we can fuel growth, while maintaining very rigorous overall expense discipline.

We also recognized the periods of turmoil canvas for opportunistic M&A.

I have more attractive valuations that we have seen in prior years.

Especially at this market cycle per se.

We are actively exploring potential bolt on acquisitions that could accelerate our strategy.

Looking ahead, our key driver of that strategy will be the network effects produced by our one MSCI ecosystem.

Our content and IP.

Gross broker clients are already highly interoperable throughout the investment process.

For example clients can use them, it's AI tools to design an index based portfolio.

Implement ESG of climate overlaid on that portfolio, and then run analytics on it.

All companies at times faced short term wins.

Yet we continue to see powerful secular tailwind for MSCI.

This is true across product lines asset classes.

Client segment.

In a bull market, a rising tide can lift all boats.

In a bear market companies like MSCI differentiate themselves.

MSCI remains confident that we can use this opportunity this market cycle.

Strengthening our client relationships.

We increased our competitive advantages.

With that let me turn the call over to Beth.

Thank you Henry and greetings, everyone. My comments today will focus on our business results. This quarter, what we're seeing and hearing from clients and how we are continuing to deliver on our dual commitment to our shareholders, namely the execution of our long term growth agenda to capture.

More of our addressable markets, while maintaining the profitability of the company.

We finished march with $1 $84 billion of recurring subscription run rate.

With an organic growth rate of 12% after closing more than $56 million of new recurring subscription sales during the quarter.

It has been a slower environment for closing new sales.

You can see from the year over year comparisons in our operating metrics as we continue to see tighter client budgets and longer sales cycles.

While we cannot control the macro environment, we maintain our conviction in the mission critical nature of MSCI data models research and tools.

Our sales pipeline and depths of client engagement across products and regions remained steady and.

And we have some promising larger deals as the teams are working hard to close in the second quarter.

The retention rates across the firm are holding up well in a tough environment with both index and ESG and climate reporting over 96% retention and 94% and 92% retention in analytics and private assets respectively.

This is a reflection of the investments we've been making not only in our products, but also in our client servicing capabilities.

I will now review a few additional highlights across product lines.

In index, we drove 12% organic recurring subscription run rate growth with broad based strength in both our most well established and emerging client segments and product lines for.

For example in market cap weighted index modules, our subscription run rate is now almost $600 million and it grew 11% during the quarter.

Investors are still turning to our market cap indexes to understand their global investment opportunity set across sectors styles.

1%, 92% retention in analytics and private assets respectively.

<unk> and geographies to implement rules based strategies.

This is a reflection of the investments we've been making not only in our products, but also in our client servicing capabilities.

They are also using our indexes to implement customized strategies and to express the investment piece.

Our custom and specialized index modules are now a $108 million of our subscription run rate and grew 13% during the quarter.

I will now review a few additional highlights across product lines.

In index, we drove 12% organic recurring subscription run rate growth.

Our index subscription run rate with asset managers expanded by over 10% this quarter, including from areas, where we have existing strengths such as our core market cap index modules.

With broad based strength in both our most well established and emerging client segments and product lines.

For example in market cap weighted index modules, our subscription run rate is now almost $600 million and it grew 11% during the quarter.

Our subscription run rate with wealth managers as expanded by 23% year over year supported by the licensing of our custom indexes for model portfolios and direct indexing use cases.

Investors are still turning to our market cap indexes to understand their global investment opportunity set across sectors styles sizes and geographies to implement rules based strategies.

In analytics, we drove 6% subscription run rate growth excluding FX.

New recurring subscription sales were almost $14 million during the quarter roughly level with our performance in the same period last year.

There are also using our indexes to implement customized strategies and to express an investment piece.

Our custom and specialized index modules are now a $108 million of our subscription run rate and grew 13% during the quarter.

The current environment emphasizes the mission critical nature of our analytics capabilities for institutional investors.

Our index subscription run rate with asset managers expanded by over 10% this quarter, including from areas, where we have existing strengths such as our core market cap index modules.

And we're able to close several new strategic sales for both our equity risk models and enterprise risk and performance tools.

Specifically in equity portfolio management, we closed nearly $6 million of new recurring sales driven by equity risk model sales to hedge funds, who use our models and tools to actively position their portfolios to benefit from volatility and market dislocation while also manage.

Our subscription run rate with wealth managers as expanded by 23% year over year supported by the licensing of our custom indexes for model portfolios and direct indexing use cases.

In analytics, we drove 6% subscription run rate growth excluding FX.

<unk> downside risk.

During the recent period of market instability, our clients' relied heavily on our analytics models research and tools significantly increasing their usage on our platforms, helping them to better understand potential risks and associated exposures within their portfolios.

New recurring subscription sales were almost $14 million during the quarter.

Roughly level with our performance in the same period last year.

The current environment emphasizes the mission critical nature of our analytics capabilities for institutional investors.

Stress testing factor performance liquidity risk and counterparty risk all remained in the spotlight as clients tried to assess and manage their counterparty and market risk exposure according to potential swings in market sentiment.

And we're able to close several new strategic sales for both our equity risk models and enterprise risk and performance tools.

Across all product lines, our ESG and climate run rate is now $453 million, which grew 20% year over year.

Our firm wide climate run rate is now $84 million, which grew 68% and continues to be one of the most attractive growth engines for us.

<unk> downside risk.

We continue to launch new tools for our clients to better equip them to understand and manage climate risks and opportunities in the context of their investment portfolios.

In the past quarter, we have introduced biodiversity screens and insights as well as multi horizon climate probability of default.

Additionally to keep pace with the growing number of public and private assets. Our clients are invested in we expanded both our asset location database and the coverage universe of our employee temperature, Verizon metric, which helps financial institutions and corporations set and meet climate targets.

Across all product lines, our ESG and climate run rate is now $453 million, which grew 20% year over year.

We believe our continued investments will help clients effectively navigate the evolving regulatory requirements impacting them, which will be a long term catalyst for growth.

Our firm wide climate run rate is now $84 million, which grew 68% and continues to be one of the most attractive growth engines for us.

However in the short term some clients are slowing down buying decisions in order to better understand new proposed or potential regulations.

We continue to launch new tools for our clients to better equip them to understand and manage climate risks and opportunities in the context of their investment portfolios.

As we have previously stated we are preserving investment capacity to secure new growth.

In the past quarter, we have introduced biodiversity screens and insights as well as multi horizon climate probability of default.

Our intention is to preserve as much investment as possible in key areas aligned with client demand and where we believe we can deliver attractive returns such as climate ESG find designed indexes fixed income and the ongoing modernization of the client experience.

Additionally to keep pace with the growing number of public and private assets. Our clients are invested in we expanded both our asset location database and the coverage universe of our implied temperature, Verizon metric, which helps financial institutions and corporations set and meet climate targets.

In parallel we are equally focused on creating greater efficiencies across the company to allow us to fund these important investments.

We believe our continued investments will help clients effectively navigate the evolving regulatory requirements impacting them, which will be a long term catalyst for growth.

As I stated at the outset, we will continue to deliver on our dual commitment to shareholders, which means executing on our long term growth agenda, while maintaining the profitability of the company.

However in the short term some clients are slowing down buying decisions in order to better understand new proposed or potential regulations.

With that I'll turn the call over to Andy Andy.

As we have previously stated we are preserving investment capacity to secure new growth.

Thanks, Baer and hi, everyone.

The financial results in the quarter showcase the attractiveness of our financial model and the effectiveness of our actions.

Subscription revenue, which is 75% of total revenue remains steady with 13% organic growth. While we continue to feel the pressure from year over year declines in AUM related revenue with ABF revenue down 8%.

While the first quarter tends to be seasonally lower for new sales our results in the quarter were softer than last year, reflecting several factors.

In parallel we are equally focused on creating greater efficiencies across the company to allow us to fund these important investments.

Relative to a year ago, we saw some lengthening of sales cycles and fewer larger ticket deals.

These dynamics were particularly pronounced in the Americas and within our ESG and climate segment.

In ESG and climate, the impact of macro pressures and constrained client budgets had a more pronounced impact where the details of pending were recently released regulations have not been fully clarified are interpreted and where there is likely a higher level of more discretionary purchases in certain use cases.

With that I'll turn the call over to Andy Andy.

Thanks, Baer and hi, everyone.

The financial results in the quarter showcase the attractiveness of our financial model and the effectiveness of our actions.

Additionally, in some areas of the firm we saw a modest decline in retention, most notably coming from smaller hedge funds broker dealers and real estate brokers and developers.

Although importantly firm wide retention rates remained fairly strong overall and in line with historical averages.

While the first quarter tends to be seasonally lower for new sales our results in the quarter were softer than last year, reflecting several factors.

While the longer term demand and pipeline remained steady we expect some of these cyclical ESG dynamics to persist in the short term.

Relative to a year ago, we saw some lengthening of sales cycles and fewer larger ticket deals. These.

But overall, we continue to operate from a position of strength with strong momentum and healthy client engagement across our subscription base.

These dynamics were particularly pronounced in the Americas and within our ESG and climate segment.

In index subscription run rate growth was 12% in the quarter.

In ESG and climate, the impact of macro pressures and constrained client budgets had a more pronounced impact where the details of pending were recently released regulations have not been fully clarified are interpreted and where theres likely a higher level of more discretionary purchases in certain use cases.

Client demand for active and passive index strategies remains healthy we again saw a notable strength within our market cap modules as clients continued to integrate index is more heavily into their investment processes and we continue to benefit from a growing trading ecosystem.

Additionally, in some areas of the firm we saw a modest decline in retention, most notably coming from smaller hedge funds broker dealers and real estate brokers and developers.

Since the end of December AUM balances and MSCI linked Etfs have rebounded by over $82 billion <unk>.

Including over $7 billion of cash inflows, which helped asset based fees improved by 6% since year end we.

Although importantly firm wide retention rates remained fairly strong overall and in line with historical averages.

We saw strong flows into both developed markets outside the U S and emerging market funds, both areas, where Etfs based on MSCI indexes had strong market share capture.

While the longer term demand and pipeline remained steady we expect some of these cyclical ESG dynamics to persist in the short term.

Recently, one of our clients completed the largest ETF launch in history based on AUM, which is linked to MSCI is climate action indexes.

But overall, we continue to operate from a position of strength with strong momentum and healthy client engagement across our subscription base.

In index subscription run rate growth was 12% in the quarter.

Treated volumes of listed futures and options linked to MSCI indexes remained slightly elevated but saw some normalization relative to the high market volatility environment last year.

Within those cyclical dynamics, we continue to see the secular buildup volumes, resulting from the growing liquidity and trading ecosystem around financial products linked to our indexes.

Since the end of December AUM balances at MSCI linked Etfs have rebounded by over 82 billion <unk>.

And the growing volumes in listed futures and options have helped drive growth in the broader index derivatives franchise.

Including over $7 billion of cash inflows, which helped asset based fees improved by 6% since year end.

We continue to see healthy client appetite for structured products and OTC derivatives linked to MSCI indexes as well as strong demand from trading firms and hedge funds for our index data.

Saw strong flows into both developed markets outside the U S and the emerging market funds, both areas, where Etfs based on MSCI indexes had strong market share capture.

These areas helped to support both recurring and onetime sales volumes.

And analytics subscription run rate growth was 6% excluding FX, we continue to see strong demand from the buy side for our equity risk models, and our broader equity portfolio management tools.

Recently, one of our clients completed the largest ETF launch in history based on AUM, which is linked to MSCI is climate action indexes.

Treated volumes of listed futures and options linked to MSCI indexes remained slightly elevated but saw some normalization relative to the high market volatility environment last year.

Despite some of the previously mentioned pressures the mission critical nature of our analytics tools. In these environments continues to provide a path of steady growth.

Within those cyclical dynamics, we continue to see the secular build of volumes, resulting from the growing liquidity and trading ecosystem around financial products linked to our indexes.

And our ESG and climate segment, we saw overall organic subscription run rate growth of 30% with growth in EMEA at 34% while growth in the Americas slowed to 24%.

And the growing volumes of listed futures and options have helped drive growth in the broader index derivatives franchise.

Coinciding with the slowdown in new ESG fund launches in the region and some slowdown in client buying decisions related to the previously mentioned factors.

We continue to see healthy client appetite for structured products and OTC derivatives linked to MSCI indexes as well as strong demand from trading firms and hedge funds for our index data.

In climate, we continue to see good momentum and very engaging discussions across client segments. Although some of the factors impacting ESG sales did to a smaller degree also impact climate sales.

These areas helped to support both recurring and onetime sales volumes.

Our climate subscription run rate growth across all products was <unk>, 68%, which was roughly the same as the climate ABF growth rate.

And analytics subscription run rate growth was 6% excluding FX, we continue to see strong demand from the buy side for our equity risk models, and our broader equity portfolio management tools.

In real assets, we continued to deliver double digit organic subscription run rate growth of 10%, we see strong engagement from our clients as they look for insights into the highly dynamic market, including around climate and income risk.

Despite some of the previously mentioned pressures the mission critical nature of our analytics tools. In these environments continues to provide a path of steady growth.

Although we did see some pickup in cancels from smaller clients in the quarter.

And our ESG and climate segment, we saw overall organic subscription run rate growth of 30%.

I will now go over the puts and takes of our 5% growth in adjusted EPS in the first quarter.

With growth in EMEA at 34% while growth in the Americas slowed to 24%.

While asset based fees were lower than last year growth in subscription revenues was a significant driver of the <unk> adjusted EPS expansion year on year.

Coinciding with a slowdown in new ESG fund launches in the region and some slowdown in client buying decisions related to the previously mentioned factors.

The lower share count drove <unk> <unk> of the year over year increase benefiting from the significant level of opportunistic share repurchases, we executed last year.

In climate, we continue to see good momentum and very engaging discussions across client segments. Although some of the factors impacting ESG sales did to a smaller degree also impact climate sales.

I would note that our Q1 adjusted EBITDA expenses of $247 million included about $22 million of seasonally higher compensation and benefits related expenses that we had anticipated and indicated to you previously.

Our climate subscription run rate growth across all products was <unk>, 68%, which was roughly the same as the climate ABF growth rate.

Although we did have some comp related accruals and non comp items that were slightly more favorable than expected.

We remain well capitalized and ended March with a cash balance of nearly $1 1 billion.

Although we did see some pickup in cancels from smaller clients in the quarter.

On client collections, we continue to see slightly longer payment cycles consistent with our prior comments due in part we believe to the opportunity cost of a high rate environment.

I'll now go over the puts and takes of our 5% growth in adjusted EPS in the first quarter.

While asset based fees were lower than last year growth in subscription revenues was a significant driver of the <unk> 16, adjusted EPS expansion year on year.

There were no share repurchases during the quarter, although we continue to be poised for and actively focused on attractive repurchase and potentially compelling bolt on M&A opportunities. We continue to believe this environment could result in some repricing <unk> unlocking of previously unavailable acquisition opportunities.

The lower share count drove <unk> <unk> of the year over year increase benefiting from the significant level of opportunistic share repurchases, we executed last year.

Lastly, I would like to turn to our 2023 guidance.

Our guidance ranges across all categories remain unchanged.

Important to note that we have based our guidance on the assumption that ETF AUM balances declined slightly from current levels in the second quarter and gradually rebound in the second half of the year.

Although we did have some comp related accruals and non comp items that were slightly more favorable than expected.

We remain well capitalized and ended March with a cash balance of nearly $1 1 billion.

While the environment May result in some caution from clients in the next quarter or two we have the financial model and the proactive management levers to drive investment in the very compelling long term growth opportunities, while delivering very attractive financial performance.

On client collections, we continue to see slightly longer payment cycles consistent with our prior comments due in part we believe to the opportunity cost of a high rate environment.

We remain encouraged by the strong client engagement across numerous growth opportunities and we continue to be closely aligned with the long term trends transforming the investment industry.

We look forward to keeping you all posted on our progress and with that operator. Please open the line for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Lastly, I would like to turn to our 2023 guidance.

Our guidance ranges across all categories remain unchanged.

Speakerphone, please pick up your handset before pressing.

To withdraw your question. Please press Star then two.

Please limit yourself to one question and one follow up if you have additional questions you may reenter the queue.

At this time, we will pause momentarily to assemble.

Our first question comes from Manav Patnaik with Barclays. Please go ahead.

We remain encouraged by the strong client engagement across numerous growth opportunities and we continue to be closely aligned with the long term trends transforming the investment industry.

Thank you good morning.

Just wanted to just talk about the ESG slowdown specifically I mean is the the comments around the regulatory delay is that just people.

We look forward to keeping you all posted on our progress and with that operator. Please open the line for questions.

Waiting.

We will now begin the question and answer session to.

I understand why that would impact whether they needed the data that you guys have or not and then just hoping you could just break out the strong growth rates in the ASC like how much of that is the new sales releases.

Ask a question you May press Star then one on your telephone keypad.

Speakerphone, please pick up your handset before pressing.

To withdraw your question. Please press Star then two.

Cross selling upselling and pricing just to help understand which which part of the dynamic is being impacted the most.

Please limit yourself to one question and one follow up if you have additional questions you may reenter the queue.

At this time, we will pause momentarily to assemble.

Hi, Bob Thank you for the question.

First of all let me just level set a little bit.

As Sandy indicated.

Our first question comes from Manav Patnaik with Barclays. Please go ahead.

ESG and climate.

We had a 30%.

Thank you good morning.

Run rate growth in this segment per se.

Just wanted to just talk about the ESG slowdown specifically I mean is the the comments around the regulatory delay is that just people.

With 34% in EMEA.

<unk> over 20% in the Americas.

And we had a 21% run rate growth firm wide <unk>.

Waiting.

In ESG and climate, despite the lower AUR.

No I understand why that would impact whether they needed. The data that you guys have or not and then just hoping you could just break out the strong growth rates in ESG.

Revenues.

That we that we have had given the.

The decline in equity values around the world.

Much of that is the new sales releases.

So in any environment. This has not too shabby numbers too.

Cross selling upselling and pricing just to help understand which which part of the dynamic is being impacted the most.

To begin with that definitely lower than the recent past.

But not bad at all so we're very pleased about that.

Hi, Bob Thank you for the question.

The second point that I'll make before I go directly to your answer.

First of all let me just level set a little bit.

Or is that we're very excited.

As Andy indicated.

But a number of new products that we're launching in ESG and climate.

ESG and climate.

We had a 30% run.

The first of all we are continuing our ESG rating coverage expansion into more equities are more fixed income.

Run rate growth in the segment per se.

With the 34% in EMEA.

Over 20 plus percent in the Americas.

Assets that will bode well for additional sales.

And we had a 21% run rate growth firm wide.

We're very excited about the uptake on the total.

Portfolio carbon footprint being service that we're offering which includes public and private assets and includes corporate bonds for example for banks.

As Jay on climate, despite the lower revenues.

Revenues.

That we that we have had given the.

The decline in equity values around the world.

We have launched a European bank.

So in any environment these have not too shabby numbers.

Regulatory Bravo.

And which for climate risk so thats.

To begin with there definitely lower than the recent past.

Important.

But not bad at all so we're very pleased about that.

We are launching biodiversity settle data.

The second point that I'll make before I go directly to your answer.

Products with with a partnership with a firm on.

Climate risk and we're very excited about the climate Love enterprise.

Is that we're very excited.

Got a number of new products that we're launching in ESG and climate.

In addition to the climate probability of default, we believe that climate will be a major driver.

So first of all we are continuing our ESG rating coverage expansion into more equities are more fixed income.

Analytics out in the future.

So now there is a lot that we can discern about that so now in direct answer to your question on the slowdown there or to Comporting there.

Good assets that will bode well for additional sales.

We're very excited about the uptake on the total.

There are two major regions.

Our ESG and climate and sales are happening is clearly the Americas and EMEA.

Portfolio carbon footprint things services that we're offering which includes public and private assets and includes corporate bonds for example for banks.

And the Americas, especially in the U S. We have seen.

We have launched a European bank.

A meaningful slowdown in sales.

Regulatory Bravo.

Due to some of the geopolitical.

Hey, Jeff where climate risk so thats.

Geopolitical issues or political discussions.

Important.

Discussions that are going on about ESG.

We are launching biodiversity settle data but.

And the institutions that we deal with.

Products with with a partnership with a firm.

They are all continuing to subscribe to the product line and they are continuing to integrate ESG and climate into their portfolio.

Climate risk and we're very excited about the climate lobby enterprise.

In addition to the climate probability of default, we believe that climate will be a major driver.

They're trying to stay low key so that they don't get into the crossfire of the political system.

Analytics out in the future.

So now there is a lot that we can discern about that so now in direct answer to your question on the slowdown.

And while we have seen is definitely a slowdown in retail demand wealth managers.

There are two components.

There are two major regions.

Mutual fund launches and the like because a lot of the asset managers again trying to.

Our ESG and climate and sales are happening is clearly the Americas and EMEA.

Seth.

The whole political landscape on being cautious not to get caught in the middle of that.

And the Americas, especially in the U S. We.

We have seen.

Meaningful slowdown in sales.

We believe that that's gonna proceed maybe for a year or more.

Due to some of the geopolitical.

Given the elections coming up.

Geopolitical issues that political in the lab.

Discussions that are going on about ESG.

At some point is going to have to revive because ESG and climate are an integral part of the investment.

And.

The institutions that we deal with there.

Universe.

They are all continuing to subscribe to the product line and they are continuing to integrate ESG and climate into their portfolio.

In EMEA.

Our sales have held that pretty steady.

From prior quarters.

Brian to stay low key so that they don't get into the crossfire of the political system.

No meaningful reduction in sales.

But obviously in EMEA the regulators have.

And while we have seen definitely a slowdown in retail the mad wealth managers.

Have come up with a new system as to what is on ESG fund and what is not so similarly to what I was saying in the America institutional demand remains pretty steady and very robust.

Mutual fund launches and the like because a lot of the asset managers again trying to.

The retail demand.

Seth.

The whole political landscape on being cautious not to get caught in the middle of that.

Is going through a little bit of an adjustment as to what is inadequate nine fund what is a medical aid fund so.

We believe that that's gonna proceed maybe for a year or more.

Clients are sort of sorting out.

Their product line.

Given the elections coming up.

Up to a lot of that on and we believe that once they finish that process, they're going to start launching.

But at some point is going to have to revive because ESG and climate are an integral part of the investment.

ESG.

And climate funds because the fundamental demand in EMEA continues to be very strong. So in a nutshell. We continue we're very excited about this segment.

Universe.

Is that in EMEA and.

Our sales have held that pretty steady.

From prior quarters.

No meaningful reduction in sales.

The growth has slowed down a little bit.

In addition to because of the.

But obviously in EMEA the regulators have.

Cautionary budget.

Budgets that exist in the world.

Have come up with a new system as to what is on ESG fund what is not so similarly to what I was saying in the America institutional demand remains pretty steady and very robust.

Plus these other things.

Political situation in the U S and the regulatory situation in EMEA, but.

The fundamental demand is there. This is a product that is here to stay.

The retail demand.

Basically.

It's actually the integration of impact investing and all of that and it's just a question on <unk>.

Is going through a little bit of an adjustment as to what is the medical <unk> what is the medical aid fund so.

When we begin to see.

Clients are sort of sorting out.

And return to higher growth rates.

Their product line.

Up to a lot of that and we believe that once they finish that process, they're going to start launching.

And Manav just very quickly on the composition of new recurring sales to your question. The strong majority of new recurring sales continue to come from.

ESG.

And climate funds because the fundamental demand in EMEA continues to be very strong.

New clients and new services or Upselling, our existing clients I'd say the breakdown between.

Shall we continue we're very excited about this segment.

Between those is roughly even so roughly even contribution from new clients and new services.

The growth has slowed down a little bit.

In addition to because of the.

I would highlight price is contributing in a slightly higher percentage than what we've seen in the past to new sales.

A cautionary budget.

Budgets that exist in the world.

Plus these other things.

Political situation in the U S and the regulatory situation.

Okay. That's very helpful. Thank you just on the M&A.

But.

The fundamental demand is there. This is a product that is here to stay especially.

You guys mentioned it a few times in terms of.

The valuations coming down and exploring bolt ons I was hoping you could just elaborate a bit more on that it sounds like it would be a series of small to mid sized tuck ins and indeed in the obvious areas of ESG and data and so forth or just hoping you.

It's actually the integration of impact investing and all of that and it's just a question on <unk>.

When we begin to see.

And return to higher growth rates.

And Manav just very quickly on the composition of new recurring sales to your question. The strong majority of new recurring sales continue to come from.

You could give a little bit more color there.

So we've had one of.

These are all smaller bolt on acquisition.

New clients and new services or Upselling, our existing clients I would say the breakdown.

There is nothing sizable or transformation that we can see on the horizon.

Between those is roughly even so roughly even contribution from new clients and new services.

Obviously, they can change at any point, but we don't see that happening so but.

I would highlight price is contributing in a slightly higher percentage than what we've seen in the past to new sales.

We have been as Youll have seen those we've been relatively muted in our.

Okay. That's very helpful. Thank you just on the M&A.

Acquisition.

In the last few years.

You guys mentioned it a few times in terms of the.

Because we're very disciplined buyers.

The valuations coming down and exploring bolt ons I was hoping you could just elaborate a bit more on that it sounds like it would be a series of small to mid sized tuck ins and in the in the obvious areas of ESG and data and so forth or just hoping.

If an asset is very strategic.

Has to have financial.

Underpinnings to it he has to how it has to make sense financially.

We saw a lot of our competitors bidding up assets to levels that we would not want to participate in in the past so.

If you could give a little bit more color there.

We're waiting to see if there is.

The environment bring down those valuations.

So those would have been up.

These are all smaller bolt on acquisition.

That makes more sense and obviously only in the strategic areas that we're interested in so that's why we wanted to emphasize that.

There is nothing sizable or transformation that we can see on the horizon.

And especially in the context of the.

Obviously that can change at any point, but we don't see that happening.

The comp itself by the lack of repurchases.

We have been as Youll.

Because we don't have a huge amount of cash and we have wanted to preserve.

You'll have seen those we've been relatively muted in our.

Cash.

Acquisition.

For these opportunities when and if they call them.

In the last few years.

Because we're very disciplined buyers, even if an asset is very strategic.

Okay fair enough. Thank you.

The next question comes from Toni Kaplan with Morgan Stanley . Please go ahead.

Has to have financial.

Underpinnings to it he has to how it has to make sense financially.

Thanks, so much.

We saw a lot of our competitors bidding up assets to levels that we would not want to participate in in the past so.

Just wanted to follow up on the ESG questions.

You know I guess definitely understand.

We're waiting to see if there is.

You just mentioned on the political environment in retail et cetera.

Environment bring down valuations.

I guess do you see ESG getting worse before it gets better or is it.

Did that make more sense and obviously only in the strategic areas that we're interested in so that's why we wanted to emphasize that.

Should we just expect sort of a.

Maybe modest environment for that next year.

And especially in the context of the.

The conference of the lack of repurchases.

Thank you for that Tony first of all let me let me just reiterate.

We don't have a huge amount of cash and we have wanted to preserve cash.

That our ESG, Brian Jai.

Cash for.

Is very diversified ESG and climate franchise is very diversified across.

For for these opportunities when and if they come.

Okay fair enough. Thank you.

Gross region.

Our gross.

So customers, what we call client segment, where there is an institution manner.

The next question comes from Toni Kaplan with Morgan Stanley . Please go ahead.

Institutional investor manager managers institutional money versus.

Thanks, so much.

Just wanted to follow up on the ESG questions.

Our manager managing.

You know I guess definitely understand.

Individual wealth wealth money.

What you just mentioned on the political environment in retail et cetera.

Across banks.

And our growth regions of the world.

I guess do you see ESG getting worse before it gets better or is it should we just expect sort of Uh huh.

And use cases, so this is very varied.

On the <unk>, so what I wanted to make sure. We all recognize is that the U S marketplace is clearly important one.

Maybe.

Just environment for the next year.

But within the U S marketplace, you got to break it down into what is going on with the.

Thank you for that first of all let me let me just reiterate.

That our ESG, Brian Jai.

With managers, who are managing retail money versus people, who are managing institutional money.

Is very diversified ESG and climate franchise is very diversified.

The banks, who have a different driver.

Region.

Versus the hedge funds and all of that so therefore, it's up.

Our gross.

Types of customers.

What we call client segment, where there is an institution.

It's a lot of different areas that we need to do to look at mice that are sent that MSCI is that the.

Institutional investor manager of managers institutional money.

Versus non.

Area of the market diabetes asset managers managing <unk>.

Manager managing.

The visual of wealth wealth money.

Mutual fund money or ETF money or wealth money.

Our gross bank.

And our growth regions of the world.

It's going to stay subdued.

And for a couple of reasons, one the client segment and over half of them are blue and half with MRO.

And use cases, so this is very varied.

On the lifestyle.

What I wanted to make sure. We all recognize is that the U S marketplace is that purely important one.

I read some of them are going to have different views as to what this product line should be.

But within the U S marketplace, you've got to break it down into what is going on with the.

Secondly, a lot of asset managers are trying to stay below the radar.

Screen of a lot of these political wins.

Managers, who are managing their money versus people, who are managing institutional money versus the banks, who have a different driver.

I don't want to be attacked so they don't want to be making a lot of fanfare about new product launches launching et cetera. So in the U S is going to stay a little bit subdued on that segment of the market, but it will not be on the institutional market and it will not be a climate for banks for example.

Versus the hedge funds and all of that so therefore, it's up.

It's a lot of different areas that we need to do to look at my sense are sent that MSCI is that.

A climate risk for banks and others.

The area of the market that it is asset managers managing.

In EMEA I think I think this process of Av.

Reclassifying funds and Reorders.

Mutual fund money or ETF money or wealth money is.

Reordering things.

It's going to stay subdued.

It may take a few months or few quarters, and then the demand will pick up again.

And for a couple of reasons, one the client segment and over half of them are blue and half of them are.

In the context, obviously of a total operating environment.

We're being we're beginning to see a lot of traction in Asia.

I read some of them are going to have different views as to what this product line should be secondly.

All client segments and that is Virgin territory for us.

Secondly, a lot of asset managers are trying to stay below the radar.

Great very helpful.

Screen of a lot of these political win.

Also ask just in this vertical.

Current environment.

Don't want to be attacked so they don't want to be making a little fanfare about new product launches launching et cetera. So in the U S is going to stay a little bit subdued on that segment of the market, but it will not be on the institutional market and it will not be on climate for banks for example.

How youre thinking about investment in ESG products. So I know long term view is that.

The trends are positive, but I guess in.

Maybe near term.

Do you shift your investment towards other areas or have you been shifting your investment towards other areas.

Climate risk for banks and others.

In EMEA I think I think this process of.

In light of what's been going on.

<unk>.

Reclassifying funds.

Hi, Toni Baer here, so look maybe just using a slightly different I can't control myself.

Reordering things.

It may take a few months or few quarters, and then the demand will pick up again.

Look is Jane climate is still grew 30% in this quarter.

In the context, obviously of a total operating environment.

That's a very attractive growth rate and for sure.

We're being we're beginning to see a lot of traction in Asia.

We can sustain that sort of growth rate on the run rate we have.

All client segments and that is Virgin territory for us.

Great very helpful. I wanted to also ask just in this quarter.

That remains a very significant opportunity and adding the that amount in dollars and run rate every quarter for sure will continue to require a lot of investment.

Current environment.

How youre thinking about investment in ESG products, So I know long term <unk>.

Is that.

The trends are positive, but I guess in.

And as Henry pointed out.

Maybe near term.

We have continuous demand across a variety of client segments geographies et cetera. So there certainly isn't anything between this quarter and the last which changes our view that this is a structurally important opportunity right.

Do you shift your investment towards other areas or have you been in shifting your investment towards other areas just in light of what's been going on.

Hi, Toni Baer here, so look maybe just using a slightly different.

Control myself.

So we have to balance it with with the environment.

Look ESG and climate still grew 30% in this quarter.

That's a very attractive growth rate and for sure.

And Henri alluded to.

Certain strange if you want to call it that but certainly from our perspective. This is this is a growth opportunity. It is structurally so and we have a lot of client demand for continued data and improvements in the product line.

We can sustain that sort of growth rate on the run rate we have.

That remains a very significant opportunity and adding the that amount in dollars and run rate every quarter for sure will continue to require a lot of investment.

Let me just add something else here and that is <unk>.

And as Henry pointed out.

And climate is.

One category that we use within that category. You also have to look at the ESG component, which obviously has climate are part of that is climate, but you have to look at the climate tools themselves.

We have continuous demand across a variety of client segments geographies et cetera.

So there certainly isn't anything between this quarter and the last which changes our view that this is a structurally important opportunity right. So we have to balance it with the environment.

On a standalone basis, and we've been able to.

We began to.

Create more disclosures about that for all of us on the climate side.

Run rate grew 68%.

And Henri alluded to.

About $84 million to $85 million and run rate, we believe that in the next few years then broaden in the next five to 10 years.

Certain strains if you want to call it that but certainly from our perspective. This is this is a growth opportunity. It is structurally so and we have a lot of client demand for continued data and improvements in the product line.

Climate is going to be the biggest opportunities that all of the walls.

<unk> going to be faced with.

The whole world is to figure out the whole world of the capital market seems to be the best.

Let me just add something else here and that is <unk>.

The industry and the finance insurance industry will need to deal with climate risk in their portfolio the cannibalization of their portfolios and the like so we continue to make steady investments in that area, because we want to be.

And climate.

One category that we use within that category. You also have to look at the ESG component, which obviously has climbed a part of that is climate, but you have to look at the climate tools themselves.

One of the undisputed leaders on climate.

On a standalone basis, and we've been able to.

And the consequent growth that we can see and value creation.

We began to.

Makes sense. Thank you.

Create more disclosures about that for all of us on the climate side.

Your next question comes from Alex Kramm with UBS. Please go ahead.

Run rate grew 68%.

About $84 million to $85 million and run rate, we believe that in the next few years then broaden in the next five to 10 years.

Yes, Hey, good morning, everyone. Just wanted to talk about the sales environment in particular, what happened in the first quarter.

Clearly the second half of March got very volatile with some of the bank issues. So knowing salespeople I know, sometimes those those sales can happen right at the end of the quarter. So just wondering if if that was a big headwind at the time, if you're actually seeing some of the.

Climate is going to be the biggest opportunity is that all the walls.

Are going to be.

Faced with.

The whole world is to figure out the whole world of the capital markets the investment industry.

Finance and insurance industry will need to deal with climate risk in their portfolio.

<unk> opportunities got pushed into the second quarter or if somewhat you just saw at the end of the first quarter actually it's just a.

<unk> of their portfolios and the like so we continue to make steady investments in that area, because we want to be.

A look at what may be to come and things actually get worse from here near term on the sales side.

One of the undisputed leaders on climate and the consequent growth that we can see and value creation.

Definitely.

Unless youre absolutely right.

Makes sense. Thank you.

A lot of stress in the system.

Your next question comes from Alex Kramm with UBS. Please go ahead.

That happens in the last two weeks of a quarter in terms of clients.

Yes, Hey, good morning, everyone. Just wanted to talk about the sales environment in particular, what happened in the first quarter.

Making our budget.

Budgetary decisions.

Trying to close on sales.

Clearly the second half of March.

And.

Banking is.

Volatile with some of the bank issues, so knowing salespeople I know, sometimes those those sales can happen right at the end of the quarter. So just wondering if.

<unk> on the banking crisis.

Took place around that time, there probably was some.

Smaller.

Impact in delaying some sales at that time.

If if that was a big headwind at the time, if you're actually seeing some of the <unk>.

But it wasn't anything that we spend a little time on so that delta of that within total data.

<unk> opportunities got pushed into the second quarter or if somewhat you just saw at the end of the first quarter actually it's just a.

Pretty serious too.

The closing of the sales in the quarter.

A look at what may be to come and things actually get worse from here near term on the sales side.

On the banking crisis.

Sure Sir.

I have a huge direct effect on us because.

Definitely.

Alex you are absolutely right.

It has been concentrated in some of the smaller banks. So obviously with the exception of <unk>, which was noteworthy.

A lot of stress in the system.

Happens in the last two weeks of a quarter in terms of clients.

Difficulties, the bigger banks, which are our plans are extremely well capitalized are extremely regulators.

Making.

Their decisions.

So we're not as.

Concerned about them, but I think the overall banking, Greg does add to the stress in the overall financial system.

To close on sales.

And.

Banking is.

<unk> on the banking crisis.

Took place around that time, there probably was some smaller.

That's the uncertainty.

It will add to cautious man and a little bit of risk aversion. So so thats likely to to add one more variable.

Impact in delaying some sales at that time.

But it wasn't anything that we spend a little time on so that tells you about within sort of data.

The environment that we have depicted here.

We remain.

But it's serious too so.

So the closing of the sales.

With respect to our.

Water.

Our pipeline of sales it remains pretty solid it remains pretty healthy.

No.

Great.

Sir.

Dosing I'd like you to direct effect on us because.

With the caveat that the larger deals.

It has been concentrated in some of the smaller banks. So obviously with the exception of <unk>, which was noteworthy.

Have slowed down.

What we call the big ticket items have slowed down.

We'll need that sales cycles are longer.

And difficulties the bigger banks, which are our clients are extremely well capitalized are extremely regulators.

And it may be a little bit of a pickup in cancellations.

But we're not looking into the into the near future I am thinking that we have a big problem coming our way.

So we're not as concerned.

Concerned about them, but I think the overall banking, great those and to the strength and the overall financial system.

Okay, Great and then secondarily you made some comments about still very focused on profitability and growing profitability.

It adds to the uncertainty.

It will add to cautious man and a little bit of risk aversion. So so thats likely to to add one more variable.

I think over the last few months I've heard you speak a little bit more.

The environment that we have the big bet here.

When it comes to profitability in terms of EPS earnings per share and not as much on on margins or EBITDA margins. So just curious.

We remain.

With respect to our.

Our pipeline on sales it remains pretty solid it remains pretty healthy.

When it comes to EBITA margin, which in a lot of US care about are you still very committed when you talk about profitability on on growing core margins or are you thinking more holistically or.

The caveat that the larger deals have slowed down.

What we call the big ticket items have slowed down.

What's your latest thinking about profitability.

Currently the sales cycles are longer.

That's a great question, because as you know a large shareholder and MSCI. So.

And it may be a little bit of a pickup in cancellations.

But we're not looking into it.

When I look at myself as a shareholder at the end what again is about the long term growth of the <unk>.

For the near future I am thinking that we have a big problem coming our way.

Okay, Great and then.

Adjusted EPS.

On.

Secondarily, you made some comments about still very focused on profitability and growing profitability.

And that's what's going to if we have very healthy growth in adjusted EPS over years and years.

I think over the last few months I've heard you speak a little bit more.

With the healthy top line and healthy.

EBITDA margins and the like.

When it comes to profitability in terms of EPS earnings per share and not as much on on margins or EBITDA margins. So just curious.

<unk>.

The market will reward those with good multiples.

Valuation so we're beginning to focus a lot more on that but it's not at the exclusion of clearly top down goal.

When it comes to EBITA margin, which in a lot of US care about are you still very committed when you talk about profitability on on growing core margins or are you thinking more holistically or.

Top line growth is not at the exclusion of our EBITDA and our EBITDA margin is just a little bit of a mixing of the variables the problem.

What's your latest thinking about profitability.

That's a great question because.

The past.

As you know a large shareholder in MSCI so when.

Ross has been that we saw.

When I look at myself as a shareholder.

So focus is obsessed with EBITDA and EBITDA margin.

At the end what again is about the long term growth of the.

When neglected the EPS growth the comp.

So I thought that was wrong.

Adjusted EPS.

And.

Because our shareholders that's what they eat.

And that's what's going to if we have very healthy growth of adjusted EPS over years and years.

<unk> growth, that's what the value of the company on the basis of that obviously there are a lot of other things.

With that would help the top line and healthy.

That make up that but that's a little bit of it is not an exclusion is just a people.

EBITDA margin and the like.

People think of emphasis.

<unk>.

The market will reward those with good multiples.

Alright, thanks for clarifying.

Valuation so we're beginning to focus a lot more on that but it's not at the exclusion of clearly top down goal.

The next question comes from.

Ashish <unk> with RBC capital markets. Please go ahead.

Offline growth is not at the exclusion of our EBITDA and our EBITDA margin is just a little bit of a mixing of the variables the problem.

Hi, Thanks for taking my question Ben in your prepared remarks, I believe you mentioned there was some promising larger deal that the teams are currently working on to close in the second quarter. I was wondering if you could just provide some more color on those deals which are the uncertain end market is it focused more on index analytics are or ESG any color on those.

The past.

Ross has been that we saw.

So focus is obsessed with EBITDA and EBITDA margin that at times when neglected the EPS growth.

Thanks.

So I thought that was wrong.

No look I think it's the normal mix Ashish.

Because our shareholders, that's what they eat they eat it.

Hi.

<unk> growth, that's what the value of the company on the basis of that obviously there are a lot of other things.

I don't think that Theres any particular color. There are some important stuff we have for sure and analytics some larger ESG deal than index. So so.

That make up that but that's a little bit of it is not an exclusion is just a people.

It was more to make a broader observation.

People think of emphasis.

Alright, thanks for clarifying.

And picking up from from from Henry's observations that we haven't seen a decline in our pipeline.

The next question comes from Ashish <unk> with RBC capital markets. Please go ahead.

We've got we had a few things.

Thanks for taking my question Dan in your prepared remarks, I believe you mentioned there were some promising larger deal that the teams are currently working on to close in the second quarter. I was wondering if you could just provide some more color on those deals.

Referencing the larger deals that had a slightly longer.

<unk>.

The sales cycle than we thought and again referencing also Alex's question. So it was more of a general observation just to say we've got some we've got a healthy pipeline going into the next quarter.

The uncertain end market is it focused more on index analytics are or ESG any color on those fronts.

And we're very focused on trying to close.

No look I think it's the normal mix Ashish.

That's very helpful color.

And maybe just a quick follow up as we think about the sales slowed down on the subscription growth obviously subscription growth has been really robust.

I don't think that Theres any particular color too.

So we have for sure and analytics, some larger ESG deal than index. So so.

12%, despite the macro challenges, but how should we think about some of these things slow down headwind on subscription growth, but on the other side. You also have ABF improving as the EUM fund flows improve so any puts and takes on the top line as we think about going forward. Thanks.

The point was more to make a broader observation.

And picking up from from from Henry's observations.

We haven't seen a decline in our pipeline.

We've got we had a few things.

Yeah, Ashish and Henri alluded to this in his prepared remarks, we have this nice balance in our topline where the ABF revenue tends to lead a cycle and the subscription revenue tends to be impacted on a lagging basis.

Referencing the larger deals that had a slightly longer.

<unk>.

I don't want to overemphasize that we might be seeing some some lagging into.

We're very focused on trying to close.

<unk> on the subscription base right now.

That's very helpful color.

But there probably are some impacting it although it is important to underscore that our retention rates remain quite healthy.

And maybe just a quick follow up as we think about the sales slowed down on the subscription growth obviously subscription growth has been really robust.

In line with historical averages here, particularly in index and analytics and ESG is even 96% plus.

12%, despite the macro challenges, but how should we think about some of these being.

Slowdown headwind on subscription growth, but on the other side. We also have ABF improving as the EUM fund flows improve so any puts and takes on the top line.

It is quite a diverse book of business and the two biggest pieces of it index and analytics are actually remaining quite strong here in the outlook is okay on those fronts.

Think about going forward. Thanks.

And so.

Yeah, Ashish and Henri alluded to this in his prepared remarks, we have this nice balance in our topline where the ABF revenue tends to lead us cycle and the subscription revenue tends to be impacted on a lagging basis.

In the short term there could continue to be some impacts on the operating metrics, which impacts the subscription growth, but I'd say overall, we've got quite a resilient franchise.

To your point about asset based fees to the extent the market starts to recover and has a sustained recovery.

I don't want to overemphasize that we might be seeing some some lagging impacts on the subscription base right now.

That just adds to some of the momentum we have in the business and the resilience we have on the business I would underscore as I mentioned in the guidance comments that we have a cautious outlook in the short term. So our guidance is based on the assumption that ETF AUM decline in the second quarter, and then rebound gradually in the back half of the year.

But there probably are some impacting it.

Though it is important to underscore that our retention rates remained quite healthy.

In line with historical averages here, particularly in index and analytics and ESG is even 96% plus.

Sure.

But any upside there is obviously beneficial to us and creates capacity for us to invest more.

And it is quite a diverse book of business and the two biggest pieces of it index and analytics are actually remaining quite strong here in the outlook is okay on those fronts.

Very helpful color. Thanks, Thanks, Andy.

The next question comes from Alexander.

And so in.

J P. Morgan. Please go ahead.

In the short term there could continue to be some impact on the operating metrics, which impacts the subscription growth, but I'd say overall, we've got quite a resilient franchise.

Hi, Good morning, all just wanted to touch again on the retention rate briefly 95, 2% I believe that was up somewhat from for Q can you comment maybe how much of that sequential quarter on quarter improvement was driven by.

To your point about asset based fees to the extent the market starts to recover and has a sustained recovery.

That just adds to some of the momentum we have in the business and the resilience we have in the business I would underscore as I mentioned in the guidance comments that we have a cautious outlook in the short term. So our guidance is based on the assumption that ETF AUM decline in the second quarter, and then rebound gradually in the back half of the year.

Any sort of improvements or changes in the client environment or was that just seasonal factors there.

Yes.

I would say the seasonal aspects do play a meaningful role given that we have the largest portion of renewals taking place in the fourth quarter retention rates tend to drop a bit there.

Sure.

But any upside there is obviously beneficial to us and creates capacity for us to invest more.

So I wouldn't read too much into the sequential dynamics.

Just mentioned.

Very helpful color. Thanks, Thanks, Andy.

We are encouraged that the the overall retentions are in line overall retention rate is in line with historical averages.

The next question comes from Alexander.

J P. Morgan. Please go ahead.

And so we've just seen some pullback from the high levels that we saw a year ago, but overall, they're in pretty good position.

Hi, good morning, all.

Just wanted to touch again on the retention rate briefly 95, 2% I believe that was up somewhat from for Q can you comment maybe how much of that sequential quarter on quarter improvement was driven by.

As Barry mentioned really where we are seeing the pickup in cancels as in ESG and climate and real assets.

And from a client standpoint, it's really showing up with smaller clients and within areas like broker dealers and banks hedge funds real estate agents and developers.

Any sort of improvements or changes in the client environment or was that just seasonal factors there.

So it's kind of around the edges and some of the structural stuff and client events that we would typically see in these types of environments.

Yes.

I would say the seasonal aspects do play a meaningful role given that we have the largest portion of renewals taking place in the fourth quarter retention rates tend to drop a bit there.

Thanks Eddie.

And then maybe as a follow up you briefly mentioned.

So I wouldn't read too much into the sequential dynamics as I just mentioned.

Real assets just wanted to maybe get an update.

Date on anything that's gone on there with with Burgess group with RCA for.

We are encouraged that the the overall retentions are in line overall retention rate is in line with historical averages.

A couple of years out now from some pretty pretty large spend on on those areas would just be nice to get an update on traction in the market and anything else you can maybe provide us with on those businesses.

And so we've just seen some pullback from the high levels that we saw a year ago, but overall, they're in pretty good position.

Sure I'll make a few comments so first of all if we look at the data.

As Barry mentioned really where we are seeing the pickup in cancels as in ESG and climate and real assets.

Overall run rate is in real estate, just clearly been a very challenging environment across the globe.

From a client standpoint, it's really showing up with smaller clients and within areas like broker dealers and banks hedge funds real estate agents and developers.

In view of that we were pretty pleased actually to have.

8% run rate growth or 10% ex FX.

So it's kind of around the edges and some of the structural stuff and client events that we would typically see in these types of environments.

So for example transaction volumes in the U S, which is clearly critical for us in that part of the market.

Thanks Eddie.

And then maybe as a follow up you briefly mentioned real assets just wanted to maybe get an.

Have been down 70%.

An update on anything that's gone on there with with Burgess groove with RCA for.

And some of our other important markets like the UK has been hit very hard, but we've had actually really decent retention rate. There. So I think allowing for the very challenging environment, we're pretty happy with the results.

A couple of years out now from some pretty pretty large spend on on those areas, where just be nice to get an update on traction in the market and anything else you can maybe provide us with on those businesses.

And we'll have to see Theres, certainly, sometimes a little bit of a lag.

Sure I'll make a few comments so first of all if we look at the data.

From let's say the <unk> III pricing to other private markets, we could still be in a choppy environment for real estate for some time, but in view of that I think the resilience of our franchise is pretty strong and people need our data and analytics precisely to understand the.

The overall run rate is in real estate, just clearly been a very challenging environment across the globe.

In view of that we were pretty pleased actually to have.

8% run rate growth or 10% ex FX.

<unk> and risk in these changing markets.

So for example transaction volumes in the U S, which is clearly critical for us in that part of the market.

So that's that and I think emerges we don't really have anything to add from the last quarter.

So I think that those are my summary comments right.

It had been down 70%.

Thanks, guys.

The next question comes from Owen Lau with Oppenheimer. Please go ahead.

Yes. Thank you for taking my question. So broadly speaking how does so we opening of China and the comeback of some Chinese stocks impacted AUM and the flow of MSCI linked index in the Asia Pacific Region, and then maybe could you also please talk about occupancy update.

And we'll have to see Theres, certainly, sometimes a little bit of a lag.

Let's say the <unk> III pricing to other private markets, we could still be in a choppy environment, our real estate for some time, but in view of that I think the resilience of our franchise is pretty strong and people need our data and analytics precisely to understand the perform.

On the opportunity in the Asia Pacific region, and how MSCI would approach these opportunities. Thank you.

Thank you Owen.

Clearly the opening of China from a long protracted COVID-19 lockdown.

<unk> and risk in these changing markets.

So that's that and I think I'm Burgess, we don't really have anything to add from the last quarter.

It is positive.

For our business.

So I think that those are my summary comments.

In all of Asia.

Thanks, guys.

Not only in China, but all of Asia, because as you know China has a.

The next question comes from Owen Lau with Oppenheimer. Please go ahead.

A meaningful economic and.

Hum.

Yes. Thank you for taking my question. So broadly speaking how does store opening of China.

At the two impact.

Balance of the countries in Asia, So that's been very positive.

Despite the fact that the lockdown.

Come back of some Chinese stocks impacted AUM and the flow of MSCI linked index in the Asia Pacific Region, and then maybe could you also please talk about or give us an update on the opportunity in the Asia Pacific region, and how MSCI would approach these opportunities. Thank you.

Knockdown, we call human Z client mainland China.

You will recall.

You will know we have been managing to grow.

Our.

MSCI.

With China.

Yes.

We've been able to grow the business.

In like China, and on a run rate growth basis about 97%.

Thank you Owen.

Clearly the opening of China from a long protracted lockdown.

This quarter compared to half two last year. So that is that's a positive.

It is positive.

Now we have two total China itself at mainland China is a very small almost non material run rate for us.

For our business.

In all of Asia.

Not only in China, but all of Asia, because as you know China has a meaningful economic and.

The assets that are linked to.

To directly do.

And I did do impact.

MSCI China in visits.

The balance of the countries in Asia, So that's been very positive.

Not significant obviously the big effect is the part of the emerging market index that is made up of China and the recovery there is going to bode well for the overall emerging market index and the assets associated with that.

The fact that the.

<unk> knockdown, we call UNC client mainland China.

As you all know we have been managing to grow.

<unk>.

MSCI.

So that's going to be a positive.

China.

Yeah.

For us.

We've been able to grow the business name.

So that's a little bit of the.

The breakdown of the various components. So we're very we're very optimistic that the recovery in China the asset the equity values.

Mainland China.

Run rate growth basis about 19%.

In this quarter compared to half two last year.

Cruising in China, and the on the opening up of the country will have overall positive effects for our business.

So that is that's a positive.

Now we have two total China itself at mainland China is a very small almost non material run rate for us.

But as I said is not a huge base.

With the except for the part of MSCI.

China in the emerging market index.

The assets that are <unk>.

To directly do.

And just to put a finer point on the ETF flows.

MSCI China in visit.

We did see pretty healthy flows into international markets, both developed markets outside the U S. But the Henry's point also when to EM exposure and those are two areas, where we have nice market share capture on the EM flows we actually captured about 60% of new flows into.

Not significant obviously the big effect is the part of the merger market index that is made up of China and the recovery there is going to bode well for the overall emerging market index and the assets associated with that.

Marketing, so that's going to be a positive.

Emerging market Etfs.

And clearly China is a big big component of that.

For us.

So that's a little bit of the.

Got it that's very helpful. And then can I go back to the guidance for a little bit and I think.

A breakdown of the various components. So we're very we're very optimistic that the recovery in China the asset the equity values.

Andy you mentioned that you assume that ETF.

Greasing, and China and the on the opening up of the country will have overall positive effects for our business.

<unk> declined slightly in the second quarter and then we found in the second half, but I remember I remember previously you mentioned that the market would decline in the first half of this year I'm. Just wondering is there any change in assumptions here and then I think broadly speaking what does it take for MSCI to tenants.

But as I said, it's not a huge base.

With the except for the part of MSCI.

China in the emerging market index.

And just to put a finer point on the ETF flows.

We did see pretty healthy flows into international markets, both developed markets outside the U S. But the Henry's point also when to EM exposure and those are two areas, where we have nice market share capture on the E. M flows, we actually captured about 60% of new flows into.

Dial up or dial down the free cash flow guidance for this year.

Let's say the market.

Stay at current level. Thank you.

Sure.

I'd say overall, we continue to have a cautious outlook in the near term, which you can see by the the ETF AUM assumption that's underlying our guidance.

Emerging market Etfs.

And clearly China is a big big component of that.

Just to reiterate what you alluded to we're assuming the markets decline from the current levels during the second quarter here and then rebound gradually in the second half of the year.

Got it that's very helpful. And then can I go back to the guidance for a little bit and I think.

Andy you mentioned that you assume that ETF.

Just to your question about what it would take for us to dial up or dial down.

<unk> declined slightly in the second quarter, and then rebound in the second half, but I remember I remember previously you mentioned that the market would decline in the first half of this year I'm. Just wondering is there any change in assumptions here and then I think broadly speaking what does it take for MSCI to kind of like.

I would say, it's a constant calibration and something we are actively focused on.

Although the markets performed better during the first quarter then the assumption we had outlined in our original guidance at the beginning of the year, we still continue to have a cautious outlook in.

In the near term.

Dial up or dial down the free cash flow guidance for this year.

And so we are being cautious on expenses and the pace of hiring now where we're being a little bit more measured and we continue to be disappointed on the non comp expense front to ensure we're able to invest in those critical growth areas and attractive long term opportunities.

Let's say the market.

Stay at current level. Thank you.

Sure.

I would say overall, we continue to have a cautious outlook in the near term, which you can see by the the ETF AUM assumption that's underlying our guidance.

We do have I would say further levers on the downside if we need to.

And we can we can further slow or even stop head count growth and we can further tightened non comp on the downside, but importantly to your question. If we do see a sustained improvement.

Just to reiterate what you alluded to we're assuming the markets decline from the current levels during the second quarter here and then rebound gradually in the second half of the year.

Just to your question about what it would take for us to dial up or dial down.

In the markets, where we're ready to accelerate investment and spend and so it would be really a calibration and a determination that we see that sustained momentum in the markets and confidence that we are.

I would say, it's a constant calibration and something we are actively focused on.

Recovering here and if we see that then I think you could see us dial up the pace of.

Spend in.

I don't want to comment specifically on what that would mean for free cash flow. There's a lot of puts and takes there, but I would say all of the guidance is is a reflection of the outlook that we have and we've currently got a cautious outlook.

In the near term and so we are being cautious on expenses and the pace of hiring now where we're being a little bit more measured and we continue to be disappointed on the non comp expense front to ensure we're able to invest in those critical growth areas and attractive long term opportunities.

Got it thank you very much.

The next question comes from George Tong with Goldman Sachs. Please go ahead.

We do have I would say further levers on the downside if we need to.

And we can we can further slow or even stop head count growth and we can further tightened non comp on the downside, but importantly to your question. If we do see a sustained improvement.

Alright. Thanks, Good morning, I wanted to drill down further into the selling environment, you talked about being tighter client budgets longer sales cycles outside of ESG can you elaborate on where in the business youre seeing the most impact from that and how client sentiment has trended exiting the quarter.

In the markets, where we're ready to accelerate investment and spend and so it would be really a calibration and a determination that we see that sustained momentum in the market and confidence that we are.

Yeah sure so.

Listen the way it manifests itself.

Recovering here and if we see that then I think you could see us dial up the pace of spend.

Underscoring points that we've made.

Because im trying to stick to what we're seeing here, which is fewer large ticket deals lengthening of sales cycles.

Spend in <unk>.

Don't want to comment specifically on what that would mean for free cash flow. There's a lot of puts and takes there, but I'd say all the guidance is is a reflection of the outlook that we have and we've currently got a cautious outlook.

An elevated cancels, particularly among smaller clients and particularly in just ESG and real estate.

These impacts are most pronounced in those two segments, where I think there are some segment specific factors Henry outlined some of the factors impacting ESG and Baer talked about some of the factors impacting real estate.

Got it thank you very much.

The next question comes from George Tong with Goldman Sachs. Please go ahead.

Hi, Thanks, Good morning, I wanted to drill down further into the selling environment, you talked about being tighter client budgets longer sales cycles.

I do want to underscore that index and analytics.

See some of those dynamics to a small degree but are generally holding up okay.

Upside of ESG can you elaborate on where in the business Youre seeing the most impact from that and how client sentiment has trended exiting the quarter.

And there are continue to be a number of large in key areas not only in index and analytics, but also an ESG and real estate, where we continue to see strong momentum.

Yes sure so.

Listen the way it manifests itself just.

And many of those are the core aspects of those parts of the business.

Just underscoring points that we've made.

Geographically the dynamics were most notable in the Americas, but I'd say that was heavily driven by the impact in ESG and climate.

Because im trying to stick to what we're seeing here, which is fewer large ticket deals.

<unk> of sales cycles and.

An elevated cancels, particularly among smaller clients and particularly in just ESG and real estate those impacts are most pronounced in those two segments, where I think there are some segment specific factors Henry outlined some of the factors impacting ESG and Baer talked about some of the factors impacting our real estate.

But overall pipeline is steady as Baer said.

We do expect some of these dynamics to continue in the short term.

I think we see the indications that the engagement with clients on these big secular trends continues to be quite healthy.

Got it that's helpful and then.

Eight.

You talked a little bit about the analytics business holding up relatively well organic revenue growth of 6% in the quarter. It is a bit below the long term target of high single digit growth do you expect the growth there to accelerate over the course of the year would you expect that to stay where it is and what are some of the puts and takes of underlying trends youre seeing in the analytics.

I do want to underscore that index and analytics.

See some of those dynamics to a small degree but are generally holding up okay.

And there are continue to be a number of large in key areas not only in index and analytics, but also an ESG and real estate, where we continue to see strong momentum.

And many of those are the core aspects of those parts of the business.

Business.

Yes.

Geographically the dynamics were most notable in the Americas, but I'd say that was heavily driven by the impact in ESG and climate.

I don't think there is a dramatic change we had a few large deals that didn't quite make it this quarter.

<unk>.

We didn't we didn't do quite as well as we would've liked in fixed income this quarter, but actually we've got a really good pipeline there and that business is going from strength to strength a little bit of a mixed bag. So I don't think we know.

But overall pipeline is steady as Baer said.

We do expect some of these dynamics to continue in the short term.

But I think we see the indications that the engagement with clients on these big secular trends continues to be quite healthy.

We don't see anything dramatic we'd like to do a little better than we did this quarter for sure.

Got it that's helpful. And then you talked a little bit about the analytics business holding up relatively well organic revenue growth of 6% in the quarter. It is a bit below the long term target of high single digit growth do you expect the growth there to accelerate over the course of the year do you expect to stay where it is and what does.

Got a decent pipeline, including some of the larger deals that I alluded to.

In my earlier comments.

And I think it was so I think overall we're.

We're working the pipeline, we'd like to see the growth a bit higher than it than it is here, but we don't expect anything dramatic from where we are right now.

Some of the puts and takes of underlying trends youre seeing in the analytics business.

Yes, So look I don't think there is dramatic change.

Got it very helpful. Thank you.

Had a few large deals that didn't quite make it this quarter.

The next question comes from that.

I'll buy that Deutsche Bank. Please go ahead.

Well thank you so.

So Andy I wanted to just put a finer point on it.

We mentioned some favorability this quarter and I know you've maintained your expense guide that you've talked about.

I'd also add that there are further downside and upside library. So curious has anything changed over the last few months as it relates to.

This quarter for sure.

Got a decent pipeline, including some of the larger deals that I alluded to.

In my earlier comments to Owen I think it was so I think overall.

Your investment spending relative to the expenses that you're incurring in how youre viewing that.

We're working the pipeline, we'd like to see the growth a bit higher than that it is here, but we don't expect anything dramatic from where we are right now.

For the rest of the year.

So nothing too significantly as I said, we did have a roll forward of the ETF AUM assumptions that underlie our guidance at the beginning of the year to where we are now clearly the market has performed a bit better in the first quarter than we had baked into the original guidance, but we continue to have this.

Got it very helpful. Thank you.

The next question comes from.

I'll buy that Deutsche Bank. Please go ahead.

Yeah.

So Andy I wanted to just put a finer point on the <unk> investments.

Cautious outlook and assume that the markets will pull back a little bit here in the short term.

And some favorability this quarter.

And then rebound in the back half of the year and say it. So I'd say the overall view on expenses and pace of spend is generally consistent.

I know you've maintained your expense guide that you've talked about.

Also in that there are further downside.

With where we started the year I'd say, we continue to have that degree of caution here.

Alright.

Curious has anything changed over the last few months as it relates to.

And we've moderated the pace of head count growth. Although you probably saw we continue to to grow and thats in the key areas key growth areas for the firm.

Your investment spending relative to the expenses that you're incurring.

<unk>.

Are you viewing that.

Let me just add.

The rest of the year.

That's something because we keep we have referred a number of times too.

So nothing too significantly as I said, we did a <unk>.

All forward of the ETF AUM assumptions that underlie our guidance at the beginning of the year to where we are now clearly the market's performed a bit better in the first quarter than we had baked into the original guidance, but we continue to have this cautious outlook and assume that the markets will pull back a little bit here and there.

So our outlook in terms of that book value equity asset values.

I want all of you to understand that there is no magic.

<unk>.

Significantly better insight than that you have about what could happen to equity values.

In the foreseeable future.

Short term.

And then rebound in the back half of the year and say so I'd say the overall view on expenses and pace of spend is generally consistent.

The.

The emphasis on this is so that we manage our expense base.

Is that we manage our investment plan and therefore in when we when we say when we say we're predicting the following.

With where we started the year I would say we continue to have that degree of caution here.

And we've moderated the pace of head count growth. Although you probably saw we continue to to grow and thats in the key areas key growth areas for the firm.

Order to give you a sense of.

What is our mindset in order to manage our expenses and our investment plan.

We want to be in a position that if we get positively surprised that.

Let me just add.

That's something because we give we have referred a number of times too.

Is that the equity values are higher than we thought it will be we can rapidly.

To our outlook.

Do an upturn playbook on invest more but what we don't want to be is going into <unk>.

In terms of that book value equity asset values.

I want all of you to understand that there is no magic.

A difficult environment with a blow to the expense base and having two.

Significantly better insight than that you have about what could happen to equity values.

Radically alter.

Our expenses and our investments and the like so that's a little bit of the mindset of what we're trying to do here, but there is no. We don't have any major insights that the market will go down in the second one on the third quarter. We just use this as a mechanism to manage our expense base.

In the foreseeable future.

<unk>.

The emphasis on this is so that we manage our expense base is.

Is that we manage our investment plan and therefore in when we when we say when we say we're predicting the following.

Understood. Thank you for that and then just a follow up on the climate side, you mentioned sort of obviously slowing new sales on ESG and climate segment.

Order to give you a sense of.

What is our mindset in order to manage our expenses and our investment plan.

We want to be in a position that if we get positively surprised.

And then you mentioned the political environment in the U S and some regulatory uncertainty in Europe . It sounded to me my takeaway is that that's more on the ESG side as opposed to the climate side.

Is that the equity values are higher than we thought it will be we can rapidly.

<unk> playbook on invest more but what we don't want to be is going into.

But curious if that's the right takeaway and any further color you might have on that.

A difficult environment with a blowdown expense base and having two.

Yes, so that's a good question first of all.

Radically alter.

Our expenses and our investments and the like so that's a little bit of the mindset of what we're trying to do here, but there is no. We don't have any major insights that the market will go down in the tech one of the third quarter, we just use that as a mechanism to manage our expense base.

You also have to look at the ESG and climate sales in the context of.

And overall costs.

Embar man a cautious environment.

Spending by our clients all over the world because they are.

They don't know what the direction of equity values or financial markets.

Understood. Thank you for that and then just a follow up on the climate side, you mentioned sort of obviously slowing new sales on ESG and climate segment than you.

Don't know yet when interest rates are.

We're gonna start thinking what the level of potential slowdown or recession, maybe et cetera et cetera.

So therefore.

Mentioned, the political environment in the U S and some regulatory uncertainty in Europe . It sounded to me my takeaway is that thats more on the ESG side as opposed to the climate side.

Any any broad offline, we'll have to take into account that.

That the overall spending of clients more cautious now than it has been.

But curious if that's the right takeaway.

Last 12 months or so so secondly, with respect to ESG and climate, yes.

That color you might have on that.

A lot of the.

Yes, so that's a good question first of all.

Some of the political issues in the U S.

You also have to look at the ESG and climate sales into context.

Are referred to as ESG, but when you when you really hear the politician. Sometimes they are referring to social interest in ESG, and sometimes they're referring to oil and gas or oh climate risk issues.

And overall costs.

Embar man cost yield environment of spending by our clients all over the world because they are.

They don't know what the direction of equity values or financial markets or.

And the like so that so the caution about the U S market, even though you hear it.

They don't know yet when interest rates are going to see.

ESG alone.

Thinking what the level of potential slowdown or recession, maybe a tennessee.

If you go to if you go to Florida, a lot of it is about social and the ESG to go to a lot of it is about the environmental part of the climate part of ESG. So we think that the.

So therefore.

Any any broad offline, we'll have to take into account that.

The overall spending of client more cautious now than it has been.

This additional demand.

In the last 12 months or so so secondly, with respect to ESG and climate, yes, a lot of the.

The increase on climate.

In the U S and across the board, but the individual retail demand, maybe a little bit a little bit slower in Europe climate is.

Some of the political issues in the U S.

Are referred to as ESG, but when you when you really hear the politicians.

The climate tools are.

In demand all over the place because Europe as we all know is a leader in trying to figure out how to decarbonize their economies, how to renewable efforts and they're pushing the asset managers to take climate into account. So 68, 70% growth rate on climate is not bad.

Sometimes they are referring to social interest in ESG, and sometimes they're referring to oil and gas or climate risk issues.

And the like so that so the caution about the U S market, even though youll hear it as ESG alone.

It slowed down clearly.

Barry If you go to if you go to Florida, a lot of it is about social and in the ESG. If you go to a text US a lot of it is about the.

From a year a year ago, but we're very very optimistic about the prospects of climate tools.

In the world for Us.

The environmental part of the climate part of ESG. So we think that the.

Great. Thank you.

This additional demand.

The next question is from Craig Huber with Huber Research partners. Please go ahead.

We'll increase on climate.

In the U S and across the board, but the individual retail demand, maybe a little bit little bit slower in Europe climate is.

Great. Thank you.

Climate front can you just tell us quickly if you would.

What data and what analytical tools do you guys think you have in climate that really sets you guys. Apart from your peers out there and obviously you've talked about long term do you think you.

The climate tools are.

In demand all over the place because Europe as we all know is a leader in trying to figure out how to decarbonize their economies. How do I think there is renewable efforts and they're pushing the asset managers to take climate into account. So 68, 70% growth rate on climate is not bad.

Client run rate will eventually get larger than the rest of the ESG. So what really makes you stand out from a data standpoint and tools from climate.

Yes, so I think there is a.

Alrighty.

And of course, we'd be very happy.

Down clearly.

Offline, because it's a longer discussion, but fundamentally it's the breadth of depth, but we cover in terms of climate companies excuse me and securities.

From from a year a year ago, but we're very very optimistic about the prospects of climate tools.

In the world for Us.

Great. Thank you.

Our modeling of climate, including some of our more sophisticated indicators like in my temperature change.

The next question is from Craig Huber with Huber Research partners. Please go ahead.

And then in physical risks the competitive landscape is such that it's a little checkered depending on what part of the.

Great. Thank you on the climate front can you just tell US quickly if you would.

What data and what analytical tools do you guys think you have in climate that really sets you guys. Apart from your peers out there and obviously you've talked about long term you think.

The market you're in.

But those are some of the highlights it's obviously.

It's a large question, which we'd be very happy to spend more time with you offline.

Your client run rate will eventually get larger than the rest of the ESG. So what really makes you stand out from a data standpoint and tools from climate.

Craig If you don't mind I, just want to underscore one point, which I think you know, but it is really an important differentiator for us at $84 million of climate run rate cuts across all product segments for us and so the ability to offer solutions.

Yes, so I think there is.

There is a variety of things.

Things and of course, we'd be very happy to take this offline because it's a longer discussion, but fundamentally it's the breadth and depth is what we cover in terms of climate companies excuse me and securities. It's our modeling of climate, including some of our more sophisticated indicators like Empire.

Across almost every part of the investment process really differentiates us from from other providers out there. So clearly index is a big part of it which I know youre aware, but our leadership in index is more generally and our leadership in climate.

It has to be a leader there our ability to provide climate risk insights across analytics, where we have the clients' portfolios, we're helping them with risk already really give us a leg up on anyone else trying to do climate risk in our portfolio or enterprise level.

Temperature change.

And then in physical risks the competitive landscape is such that it's a little checkered depending on what part of.

The market you're in.

But those are some of the highlights but it's obviously it's a.

And then in areas like private assets, just given our capabilities and unique data we have on that front gives us real a real leg up.

A large question, which we'd be very happy to spend more time with you offline.

Craig If you don't mind I, just want to underscore one point, which I think you know, but it is really an important differentiator for us that $84 million of climate run rate cuts across all product segments for us and so the ability to offer solutions.

So the total franchise that we have is a real competitive advantage that I want to make sure people don't lose sight of.

Thank you for that and my second question, you, obviously capture cost guidance unchanged here.

Often companies when they go into a much tougher what do you think is a tougher environment will cut their cost base significant I'm curious given that you have added cautionary comments right now you did not though.

Cost outlook for the year.

Is the environment basically how you were thinking it was say three months when you put out your initial guidance did not trim your cost outlook.

Cause us to be a leader there our ability to provide climate risk insights across analytics, where we have the clients' portfolios, we're helping them with risk already really give us a leg up on anyone else trying to do climate risk in our portfolio or enterprise level.

Okay I think we are.

We are extremely comfortable with our outlook.

Cost base our expense base.

We divided up into running the business expenses.

Then in areas like private assets, just given our capabilities and unique data we have on that front gives us real a real leg up.

And what we called change the business expenses.

More pure investment plan.

The total franchise that we have is a real competitive advantage that I want to make sure people don't lose sight of.

We have put its there.

Last few quarters.

Majority of our investment plan.

Thank you for that my second question, you, obviously capture cost guidance unchanged here often companies when they go into a much tougher what do you think is a tougher environment will cut their cost base significant I'm curious given that you have added cautionary comments right now you did not though.

And we've done that by squeezing run the business expenses.

Variety of ways to free up.

Resources.

So we're very very comfortable we believe we have scale.

<unk> cost outlook for the year.

The expense base of the company to do the operating environment to be cautious operating environment that exists today, even with a lower operating environment that exists today in the event that it dramatically move down we have a lot of levers that we can apply but if anything we believe.

The environment basically how you were thinking it was three months when you put out your initial guidance did not trim your cost outlook.

Okay I think we are.

We are extremely comfortable with our outlook.

Cost base our expense base.

That.

We divided up into running the business expenses.

The probability of loss.

The triggering an upturn playbook is broadly higher than downturn playbook, but we don't know I mean the obvious.

And what we call change the business expenses, which is more pure investment plan we.

We have to see what happens in the next few quarters. So we are extremely comfortable the only think to remind everyone.

But it's there in the last few quarters.

The vast majority of our investment plan.

Is that MSCI is a very diversified client diversified franchise.

And we've done that by squeezing run the business expenses.

And a variety of ways.

Resources.

We tend to not focus on that.

So we're very very comfortable we believe we.

Diversify about client segments from asset owners lots of managers.

We have scale the expense base of the company to do the operating environment to the cautious operating environment that exists today, even with a lower operating environment that exists today in the event that it dramatically moves down we have a lot of levers that we can apply.

From wealth managers are banks and insurance companies will now corporates on hedge funds banks the regions of the world, We're doing well in EMEA right now.

Relatively well through.

So the Americas to the Asia Pacific region, the product lines and public assets equity analysis zinc Goldman.

But if anything we believe that.

Private assets.

The probability of loss.

ESG and climate is overlay to all of what we do.

Triggering an upturn playbook is broadly higher than downturn playbook, but we don't know I mean, obviously, we have to see what happens in the next few quarters. So.

We have a lot of.

Performance tool, we have a lot of risk tools, we have different forms of pricing, whether it's subscription whether it's <unk> whether.

We are extremely comfortable the only think to remind everyone.

Whether it is transaction volumes in futures and options, we have a very diversified employee base.

Is that MSCI is a very diversified client base.

85% of our employees are spread.

By franchise.

Got it.

Half a dozen or so big emerging markets of the world, 35% are in developed markets. So whenever there is an issue of labor tightening or increases in expenses and wages in a particular location. We are in all of their locations.

We tend to not focus on that.

Diversify about client segments from asset owners, so lots of managers to from wealth managers are banks and insurance companies will now corporates on Haynesville as a bank the regions of the World, We're doing well in EMEA right now relatively.

A lot of hey, just between dollar versus non.

And the like so that's why we are very comfortable with this expense base because of the nature of the franchise that is diversified and the nature of our cautiousness going into the market.

Relatively well in the B.

So the Americas through the Asia Pacific region, the product lines and public assets equity analysis zinc Goldman.

Private assets.

ESG and climate is overlay to all of what we do.

Great. Thank you.

We have a lot of.

Performance tool, we have a lot of risk tools, we have different forms of pricing, whether it's subscription whether there is whether.

The next question comes from Chris So credit with.

Partners.

Go ahead.

Whether it is transaction volumes in futures and options, we have a very diversified employee base.

Yes, thanks for having me on.

I appreciate what you're baking into guidance in terms of asset values, but wondering to what degree the guidance assumes lower retention rates to come in subscription revenues and the rest of the year and particularly in Q4. Please.

5% of our employees are spread.

Got it.

I'll hop on dosing or so big emerging markets of the world, 35% are in developed markets. So whenever there is an issue of labor tightening or increases in expenses and wages in a particular location. We are in all of their locations.

Sure.

Yeah.

Yes, I would.

As you know the subscription basis.

So moving Beast and so.

A lot of hate just between dollar versus non.

Even adjustments to the retention rate around the edge is our sales don't have a meaningful impact in the current year. So I'd say the bigger impact for this year is really around asset base fees.

And the like so that's why we are very comfortable with this expense base because of the nature of the franchise that is diversified and the nature of our cautiousness is going into the market.

Okay cool Thanks, Sandy and then just following on from that.

Great. Thank you.

Related what are you assuming you can do on pricing to offset any increase in cancellations or inflation in the cost base. Please.

The next question comes from Chris So credit with.

Partners.

Sure, Yes, I would say that.

Go ahead.

Yes, thanks for having me on.

Price increases continue to be at a higher level than than they've been.

I appreciate what you're baking into guidance in terms of asset values, but wondering to what degree the guidance assumes lower retention rates to come on subscription revenues in the rest of the year and particularly in Q4. Please.

In recent years and they can continue to contribute a larger percentage of new recurring sales.

We have been successful with capturing price increases with clients.

Sure.

Yeah.

Yes, I would.

We actually in the first quarter, probably even saw a slightly higher contribution to recurring subscription sales then than we even saw last quarter.

As you know the subscription basis.

So moving Beast and so.

Even adjustments to the retention rate around the edge is our sales don't have a meaningful impact in the current year. So I'd say the bigger impact for this year is really around asset base fees.

I'd say, we will continue to be measured on this front and ensure that we are delivering value.

Our clients in connection with price increases.

But where we are delivering value, we will continue to extract price and seem to be getting traction with it.

Okay cool Thanks, Sandy and then just following on from that.

Related what are you assuming you can do on pricing to offset any increase in cancellations or inflation in the cost base. Please.

Okay. Good stuff. Thanks.

The next question comes from Greg Simpson with BNP Paribas. Please go ahead.

Sure Yes.

I would say that.

Price increases continue to be at a higher level than than they've been.

Alright, I appreciate you taking my questions.

In recent years and they contribute continue to contribute a larger percentage of new recurring sales, we have been successful with capturing price increases with clients.

Just ask if you can share some thoughts on the potential indications.

MSCI longer term what are you doing today, what applications are you exploring actively.

Broad question, just would be interested to hear your thoughts here.

Yeah.

We actually in the first quarter, probably even saw a slightly higher contribution to recurring subscription sales then than we even saw last quarter.

Sure. So look we're actively quite a few projects going in AI across.

I would say we will continue to be measured on this front and ensure that we are delivering value to.

Everything from client service, where we think it has great applications and reading our enormous amounts of methodology books and and complex.

Our clients in connection with price increases.

But where we are delivering value, we will continue to extract price and seem to be getting traction with it.

Formula.

And et cetera, and then giving clear answers we're working on it with it in ESG and all of the data applications that can go there.

Okay. Good stuff. Thanks.

As a whole list of it but we're extremely focused on it.

The next question comes from Greg Simpson with BNP Paribas. Please go ahead.

And we.

Alright, I appreciate you taking my questions.

We'd love to tell you more.

On a slightly different context, but we're definitely very focused on the use of AI across the business.

Just ask if you can share some thoughts on the potential indications.

So MSCI longer term what are you doing today, what applications are you exploring actively.

Great. Thank you and it seems like fixed income as an asset class that are you seeing a lot more interest from investors in this higher rates environment.

Broad question, but just would be interested to hear your thoughts.

I think <unk> got some centrally run rates.

Sure. So look we're actively quite a few projects going in AI.

Can you just talk about which parts I Michelle that comes into our opportunities to add more scale here since it's.

Across.

Everything from client service, where we think it has great applications and reading our enormous amounts of methodology books.

But you understand these small towns.

The business.

Yes for sure. So it's both a very important part.

And complex.

In our analytics story, both on a standalone basis, and as part of multi asset class risk.

Formula.

And et cetera, and giving clear answers, we're working on it with it in ESG and all of the data applications that can go there.

And we're really.

We're doing a lot of innovation and index for clearing starting from a tiny base.

As a whole list of it but we're extremely focused on it.

But we've got some really.

Exciting things going on there related to ESG and climate relating to liquidity.

We.

We'd love to tell you more.

Slightly different context.

Definitely very focused on the use of AI across the business.

I'm actually seeing a client this evening.

For dinner are related to some credit and fixed income opportunities. So we think.

Great. Thank you and it seems like fixed income as an asset class that are you seeing a lot more interest from investors in this higher rate environment.

It's an area where people are very excited to see.

So you've got some centrally run rates.

Is it bringing things forward and I think it will be an important part of our growth story going forward.

Can you just talk about which parts I Michelle that comes into.

<unk>.

More scale.

Alright, thank you.

But you wont necessarily smallpox.

Yes, yes for sure. So it is both very important art.

This concludes our question and answer session I would like to turn the conference Morocco, Victor Henry Fernandez for any closing remarks.

In our analytics story, both on a standalone basis, and as part of a multi asset class risk and.

And we're really.

Doing a lot of innovation index for clearing starting from a tiny base.

Thank you for joining us this morning.

We've got some really.

As you heard us say, our all weather franchise continued to perform well.

Citing things going on there related to ESG and climate relating to liquidity I am actually seeing a client this evening.

In this.

The challenging operating environment.

These are times Gwen.

For dinner are related to some credit and fixed income opportunities. So we think it's an area where people are very excited to see.

When companies.

Differentiate themselves is our times of opportunity sometime.

Sometimes more than that.

And that's what we are fully intending to to capitalize on and will be more than happy to keep you abreast of all of that and not in future calls. Thank you very much again and have a great day.

Is it bringing things forward and I think it will be.

And part of our growth story going forward.

Alright, thank you.

This concludes our question and answer session I would like to turn the conference Morocco Winter Henry Fernandez for any closing remarks.

The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.

Thank you for joining us this morning.

As you heard us say, our all weather franchise continued to perform well.

And this is John .

Challenging operating environment.

These are times Gwen.

When companies.

Appreciate themselves these are times of opportunity.

Sometimes more than that.

And that's what we are fully intending to to capitalize on and would be more than happy to keep you abreast of all the all of that and not in future calls. Thank you very much again and have a great day.

The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.

[music].

Good day, ladies and gentlemen, and welcome to the MSCI first quarter 2023 earnings Conference call.

As a reminder, this call is being recorded.

At this time all participants are in a listen only mode later.

Later, we will conduct a question and answer session.

We will limit participants to one question and one follow up.

We will have further instructions for you at that time.

I would now like to turn the call over to Jeremy <unk> head of Investor Relations and Treasurer you may begin.

They are available on our website MSCI 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.

Emitted to adjusted EBITDA, adjusted EBITDA expenses, adjusted EPS and free cash flow.

Uses these measures in the appendix of the earnings presentation.

As a result of those adjustments at exclusions, the actual amount of recurring revenues, we will realize over the following 12 months will differ from run rate and we therefore caution you not to place undue reliance on run rate to estimate or forecast recurring revenues. We will also discuss organic 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 Baer Pettit, 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.

With that let me now turn the call over to Henry Fernandez Henry.

Thank you Jeremy.

Welcome everyone and thank you for joining us today.

MSCI the neighbor solid first quarter results in a challenging external environment.

Confirming the underlying strength of our franchise and our proactive financial management.

We have not been immune to the market turmoil.

But our resilience continues to stand out.

<unk> seen in the headline numbers from the quarter.

Which include adjusted EPS growth of over 5%.

Organic subscription run rate growth of 12%.

And that retention rate of over 95%.

On a segment level, we bolstered our 37th consecutive quarter.

Double digit run rate growth in index recurring subscriptions.

We also maintain our momentum and equity portfolio analytics.

Achievement run rate growth of over 10%.

Meanwhile, climate continued to drive a wide range of growth opportunities.

Including with maybe emerging client segments, such as banks wealth.

Wealth managers and insurance companies.

I missed the I deliver 68% climate run rate growth across our product lines.

Climate, what they'd some rate of over 96%.

The difficult environment has certainly affected buying behavior of our clients.

In some areas client budgets are tight.

And sales cycles have lengthened.

Especially for larger purchases.

ESG sales have also been affected by regulatory uncertainty in Europe and.

And by a slowdown among wealth managers and retail investors in the United States.

Although institutional investor demand remains healthy.

As we have noted in recent quarters, our AUM linked revenue tends to be an early mover in market cycles.

While our subscription revenue.

To see a lagging effect.

It's still our client engagement levels.

It means very healthy and.

And we continue to fine a steady demand for our products and services.

Even in tough environment MSC.

MSCI unique competitive advantages and door.

Clients need our data.

Models analytics and research to navigate a rapidly changing investment landscape.

With that in mind, we continue prioritizing core investments in areas. We believe we can fuel growth, while maintaining very renewables overall expense discipline.

We also recognized the appearance of turmoil konigsberg opportunistic M&A at <unk>.

More attractive valuations that we have seen in prior years.

Especially at this market cycle per se.

We are actively exploring potential bolt on acquisitions that could accelerate our strategy.

Looking ahead, our key driver of that strategy will be the network effects.

Used by our one MSCI ecosystem.

Our content and IP it goes across product lines are already there.

Operable throughout the investment process.

For example clients had used them SDI tools to design an index based portfolio implement.

Implement ESG <unk> climate overlaid on that portfolio and then gone in there.

<unk> on it.

All companies at times faced short term wins.

Yet we continue to see powerful secular tailwind for MSCI.

This is true across product lines asset classes.

Client segment.

In a bull market.

<unk> tide can lift all boats.

In a bear market.

Companies like MSCI differentiate themselves.

I missed the I remain confident that we can use this opportunity this market cycle to strengthening our client relationships and our increase our competitive advantages.

With that let me turn the call over to Beth.

Or more of our addressable markets, while maintaining the profitability of the company.

We finished march with $184 billion of recurring subscription run rate.

With an organic growth rate of 12% after closing more than $56 million of new recurring subscription sales during the quarter.

It has been a slower environment for closing new sales.

As you can see from the year over year comparisons in our operating metrics as we continue to see tighter client budgets and longer sales cycles.

While we cannot control the macro environment, we maintain our conviction in the mission critical nature of MSCI data models research and tools.

Our sales pipeline and depths of client engagement across products and regions remained steady.

And we have some promising larger deals as the teams are working hard to close in the second quarter.

This is a reflection of the investments we've been making not only in our products, but also in our client servicing capabilities.

I will now review a few additional highlights across product lines.

In index, we drove 12% organic recurring subscription run rate growth with broad based strength in both our most well established and emerging client segments and product lines.

For example in market cap weighted index modules, our subscription run rate is now almost $600 million and it grew 11% during the quarter.

Investors are still turning to our market cap indexes to understand their global investment opportunities across sectors styles.