Q3 2023 MSCI Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the MSCI third 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, we will conduct a question and answer session, where we will limit participants to one question at a time.

We will have further instructions for you later on.

I'd now like to turn the call over to Jeremy you Lin head of Investor Relations and Treasurer, you may begin.

Thank you good day and welcome to the MSCI third quarter 2023 earnings Conference call earlier. This morning, we issued a press release announcing our results for the third quarter 2023. This press release, along with an earnings presentation and a brief quarterly update our avail.

On our website <unk> com under the Investor Relations Tab, let me remind you that this call contains forward looking statements, which are governed by the language on the second slide of today's presentation and you are cautioned not to place undue reliance on forward looking statements, which speak only as of the date on which they are.

Aid are based on current expectations and current economic conditions.

And subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward looking statements for.

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 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.

Find a reconciliation of our non-GAAP measures to the equivalent GAAP measures in the appendix of the earnings presentation.

We will also discuss operating metrics such as run rate and retention rate important information regarding our use of operating metrics such as run rate and retention rate are available in the earnings presentation.

On the call today are Henry Fernandez, our chairman and CEO Baer, Pettit, our president and CFO and Andy Welch, our Chief Financial Officer.

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

Thank you Jeremy.

Good day everyone.

Thank you for joining us.

In the third quarter MSCI deliver impressive results in an uncertain environment.

Among other highlights.

We achieved adjusted EPS growth.

21%.

Overall revenue growth of 12%.

Recurring subscription run rate growth of <unk>.

12%.

And then retention rate of 95, 4%.

And maybe do more with global markets.

Rising geopolitical tensions.

A challenging operating environment.

Our highly diversity by all the weather Brian.

So it gave us to drive strong financial performance.

We recognize that in this uncertain environment, our capital allocation decisions are more important than ever.

In the first nine months of this year, we'll return $459 million to the owners of <unk>.

Hi in the form of share repurchases.

And more than two $329 million in the form of dividends.

This signals our confidence in MSCI long term prospects.

And then there'll be a compound or shareholders.

We're also committed to prioritizing high growth and high.

High potential investments.

While maintaining high levels of profitability.

We recently capitalized on two opportunistic strategic acquisitions.

With the completed acquisition of Burgess.

MSCI can now provide additional clarity and transparency highly needed by investors across private.

Public assets in their portfolio.

Over the past 36 years Burgess has created graven private asset transparency.

Well, serving institutional investors, such as Asia funds endowments foundations and family offices.

Combined with our private real estate franchise MSCI now has the world's largest.

Highest quality private asset class database.

<unk> more than 60 trillion dollars of assets.

We believe we now have a unique and a strong foundation of data analytics to build standards.

So Jess benchmark indices.

Four months risk.

The pricing and asset allocation model.

And other tools.

In effect our goal is to develop.

MSCI of private assets.

As for MSCI announced acquisition of drug research.

<unk> is a world renowned source of intelligence on the voluntary carbon market.

We believe this market will play a significant role in helping institutional investors.

<unk> companies reduce climate risk.

All markets thrive on reliable information.

Uniform standards and robust transparency.

As the world pushes for net zero emissions investors need to understand where their companies are making real progress.

And how they are using carbon credits.

Likewise companies need to understand the value of the credits they are buying and selling.

Yeah.

By integrating the data analytics and capabilities of drugs with our own comprehensive climate solutions.

MSCI will have a robust suite of tools to promote clarity.

And consistency in the voluntary carbon market.

Both of these acquisitions mergers and drugs.

MSCI larger business strategy and mission of providing tools for the investment world.

Systematically understand and make sure.

Performance in Reykjavik.

Which leads to more optimal asset allocation.

Portfolio construction.

We aim to capture major trends across the investment landscape.

Including the continued allocations to private assets.

And the growing incorporation of climate as a material driver in the repricing of securities and <unk>.

Reallocation of capital.

Our product lines are increasingly interconnected.

Which means our work in private assets.

Reinforces our work in climate.

And vice versa.

For example, <unk>.

Whether with Burgess, we've previously development tool that offers climate data on around 50000 private companies.

And more than 6000, Brian with equity and private debt funds.

In summary, MSCI continues to benefit from a resilient business model.

European by rigorous financial management.

Strong secular tailwind.

From a recurring revenue business model.

Our mission critical solutions.

We believe MSCI remains well positioned in any operating environment.

And with that let me turn the call over to Barry.

Thank you Henry and greetings, everyone in my remarks today I'll build on what Henry said about Virgin.

Discuss our third quarter results by product line and highlight our regional performance in Asia Pacific.

Our acquisition of <unk>, which we completed earlier this month.

<unk> MSCI to serve investors and managers across all asset classes.

With a world class platform for delivering total portfolio investment solutions and one of the industry's largest private asset databases covering more than 13000.

Bonds.

As Henry mentioned purchased deepens, our existing presence with pension funds and sovereign wealth funds, while helping MSCI and expand our presence among client segments, such as the dominant obligations and family office.

We are well underway with integrating the 650, plus Burgess employees and the roughly 1000 largest clients into our operations and we look forward to providing updates on our progress.

Turning to our Q3 results MSCI achieved another solid quarter of performance across client segments and product lines.

At the client level, we delivered subscription run rate growth of 15% collectively among wealth managers banks and broker dealers.

Hedge funds insurance companies and corporates.

And for our largest client base, we delivered around 10% growth amongst asset owners and asset managers.

As those numbers indicate we have maintained our strength and momentum across all client segments.

Looking at our product lines in index, we posted our 39th consecutive quarter of double digit subscription run rate growth of 11%.

Meanwhile, total direct indexing.

Based on MSCI indexes increased by 68% to $95 million.

We also saw increased index licensing from hedge fund clients were new recurring subscription sales more than doubled reflecting growth from both market cap weighted modules and our flow data.

In addition, MSCI won a big strategic mandate to build client design indexes for one of America's largest wealth managers.

Demonstrates how we continue to capitalize on rising demand for tools to support portfolio customization at scale, a trend that is especially visible in the wealth segment.

Yeah.

Turning to analytics, we delivered subscription run rate growth of 7%.

And over $639 million of run rate and a near record retention rate of 95, 1%.

Globally, we posted recurring sales growth of 30% in enterprise risk and performance driven by a significant number of large deals with asset managers and asset owners. For example, MSCI completed one of our largest ever liquidity analytics deals covering both regular.

Inventory reporting requirements and liquidity risk managed.

Despite pressures on equity managers, we also grew equity analytics by 11% nearly $200 million in private brands.

Can you USG, we delivered 21% run rate growth across our product lines firm wide, taking our run rate to $387 million, while posting a retention rate of 96%.

At the regional level, the regulatory environment continues to eight FTE sales in EMEA.

Our solutions continue helping clients navigate new requirements.

In climate, we achieved 49% run rate growth across our product lines firm wide.

Where are we now have $98 million of run rate <unk>.

<unk> hundred $68 million of subscription run rate growing by 49%, which had a retention rate of 97%.

Operator: Good day, ladies and gentlemen, and welcome to the MSCI third quarter, 2023 earnings conference call. As a reminder, this call is being recorded. At this time, all participants are in a listen to only mode.

In addition.

And MSCI index linked climate Etfs increased by 64% to $71 million.

Operator: Later, we will conduct a question and answer session where we will limit participants to one question at a time. We will have further instructions for you later on.

While MSCI index linked climate equity non ETF AUM increased by 75% to $107 billion.

Jeremy Ulan: I'd like to turn the call over to Jeremy Ulan, head of investor relations and treasure. You may begin. Thank you.

Jeremy Ulan: Good day, and welcome to the MSCI third quarter, 2023 earnings conference call. Earlier this morning, we issued a press release announcing our results for the third quarter, 2023. This press release, along with an earnings presentation and a brief quarterly update, are available on our website, MSCI.com, under the investor relations tab.

Finally in real assets.

<unk> total run rate growth, almost 10% along with a retention rate of $91.

Geographically, our Q3 results were especially strong in APAC.

Where MSCI continues to benefit from the increasing scale and growing breadth of the investment industry reached.

Jeremy Ulan: Let me remind you that this call contains forward-looking statements which are governed by the language on the second slide of today's presentation. Your caution not to place undi-reliant on forward-looking statements which speak only as of the date on which they are made are based on current expectations and current economic conditions and our subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. For discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements to flavor in our most recent form 10K and in our other SEC violence.

For example in real assets APAC achieved 15% run rate growth and growth strong sales with asset owners, including for our real estate index, Intel and performance insights tool.

In index APAC delivered recurring subscription run rate growth of almost 15%.

<unk>, our footprint to approximately $178 million.

MSCI is underlying strength as a company.

It reflects our increasingly diverse range of capabilities and.

Clients across geographies.

Those advantages become even more important during periods of market volatility and uncertainty.

Jeremy Ulan: During today's call, in addition to results presented on the basis of US gap, we also refer to non-GAT measures. You'll find a reconciliation of our non-GAT measures to the equivalent GAT measures in the appendix of the earnings presentation. You will also discuss operating metrics such as run rate and retention rate, important information regarding our use of operating metrics such as run rate and retention rate are available in the earnings presentation.

As a result, we continue to see high levels of client engagement across segments products and regions.

We also see healthy pipeline as we approach the end of the year.

Looking ahead, MSCI and we will remain laser focused on strong profitability, while continuing to invest in our business and with that let me turn the call over to Andy any thanks, Baer and hi, everyone.

Henry Fernandez: On the call today are Henry Fernandez, our chairman and CEO, Mayor Pettit, our president and CEO and Andy Wishman, our chief financial officer. With that, let me now turn the call over to Henry Fernandez. Henry? Thank you Jeremy. Good day everyone and thank you for joining us.

Our attractive financial model enabled us to deliver double digit growth in the quarter across revenue recurring subscription run rate and adjusted EPS in.

In index subscription, we drove 9% run rate growth in our market cap weighted modules high teens growth in custom indexes and mid teens growth in our ESG and factor modules.

Henry Fernandez: In the third quarter, MSEI deliver impressive results in an uncertain environment. And on other highlights, we achieved a just DPS growth of over 21 percent, total revenue growth of 12 percent, recurring subscription run rate growth of 12 percent and a retention rate of 95.4 percent. I'm in turmoil in global markets, rising geopolitical tensions and a challenging operating environment are highly diversified, all whether franchise continues to drive strong financial performance. We recognize that in this uncertain environment, our capital allocation decisions are more important than ever.

We saw strong subscription run rate growth from hedge funds wealth managers and broker dealers of 26%, 19% and 15% respectively.

All of which continue to support steady double digit index subscription run rate growth.

Asset based fee revenues were up more than 12% year over year benefiting from $55 billion of cash inflows and $186 billion of market appreciation over the last 12 months within equity Etfs linked to MSCI indexes.

During the third quarter cash inflows into Etfs linked to MSCI equity indexes were driven almost entirely by Etfs with U S and other developed market exposures.

These cash inflows were supported by roughly $3 billion. It flows into equity Etfs linked to our ESG and climate indexes.

And we continue to gain traction in fixed income with AUM and Etfs linked to MSCI in Bloomberg joined fixed income indexes, reaching nearly $52 billion growing more than 40% year over year.

And analytics subscription run rate growth was 7% with continued strength in our factor models and our risk tools more broadly.

Henry Fernandez: In the first nine months of this year, we return $459 million to the owners of MSEI in the form of shared purchases and more than $329 million in the form of dividends. This signals our confidence in MSEI's long-term prospects and our commitment to be a compounder for shareholders. We're also committed to prioritizing high growth and high potential investments while maintaining high levels of profitability.

Our investments in enhancing our content our capabilities and the client experience, including through climate lab enterprise insights in ESG and climate reporting services are driving new commercial opportunities across analytics.

In our ESG and climate reportable segment, the run rate growth was 25% with 21% growth in ESG research and 44% growth in climate.

Relative to a year ago, we saw a lower new recurring sales in the Americas, which continue to reflect more measured purchasing decisions among U S investors.

However, new recurring sales in both Europe, and APAC were essentially unchanged year over year.

The retention rate in ESG and climate segment remained healthy at 96%, although we did see slightly higher cancels, resulting from client events at smaller institutions.

Henry Fernandez: We recently capitalized on two opportunistic strategic acquisitions. With a completed acquisition of purchase, MSEI can now provide additional clarity and transparency highly needed by investors across private and public assets in their portfolios. Over the past 36 years, Bridges has created greater private asset transparency while serving institutional investors such as patient funds, endowments, foundations, and family offices. Combined with our private real estate franchise, MSEI now has the world's largest highest quality private asset class database covering more than $63 million of assets. We believe we now have a unique and strong foundation of data and analytics to build standards such as benchmark indices, performance, risk, liquidity, pricing, and asset allocation models, and other tools.

Within real assets run rate growth was 10%.

We see momentum in our real estate index, Intel and portfolio offerings, Although we continue to see the impact of industry pressures on our transaction data most notably in client segments, such as real estate brokers and lenders.

While we expect the pressures to continue we are encouraged by the long term opportunity and the momentum we see in many of the market data climate and portfolio offerings, we are providing.

We are also expanding our commercial real estate transaction database to include deals below $2 $5 million and our data universe to include properties that have never transacted.

As a reminder, beginning in the fourth quarter, we will report financial results for purchase in our all other private asset segment to provide an.

Date on the financial impact of purchase we expect <unk> to generate slightly above $90 million of revenue for full year 2023 with revenues of 22 to 24 million expected in the fourth quarter.

Standalone Burgess adjusted EBITDA margin is expected to be around 15% for full year 2023. However, we currently expect about $4 million to $5 million per quarter of allocations to purchase from centralized and shared cost on top of the Standalone adjusted EBITDA.

It is worth noting that these allocations are reallocated from other segments and will not impact firm wide EBITDA.

Given these allocations, we expect contributions from bridges to the adjusted EBITDA for the all other segment to be minimal in Q4, although we expect some margin expansion from purchase next year.

Henry Fernandez: In effect, our goal is to develop the MSEI of private assets. As for MSEI's announced acquisition of TROV research, TROV is a world-renowned source of intelligence on the voluntary carbon market. We believe this market will play a significant role in helping institutional investors and companies reduce climate risk. All markets thrive on reliable information, uniform standards, and robust transparency. As the world pushes for net zero emissions. Investors need to understand whether companies are making real progress.

Meanwhile, as we've done in previous acquisitions, we will exclude certain integration related expenses from our adjusted non-GAAP figures.

More broadly on the capital allocation front, we continued to be opportunistic and capitalize on attractive opportunities as highlighted by our announced acquisition of trove, We expect trove, which has a few million dollars of run rate and which will be included in our ESG and climate segment to be immaterial to our results in the near term.

Turning to our guidance I would highlight that our ranges incorporate the impact of purchase and assume that AUM levels remained relatively stable through the balance of the year.

Expense ranges now reflect both the slightly elevated pace of spend as well as a full quarter of expenses from <unk>, including the small amount of integration expenses that will not be excluded from adjusted metrics.

Our free cash flow guidance remains unchanged.

Henry Fernandez: And how they are using carbon credits. Likewise, companies need to understand the value of the credits they are buying and selling. By integrating the data, analytics and capabilities of trust with our own comprehensive climate solutions, MSEI will have a robust suite of tools to promote clarity and consistency in the voluntary carbon market.

Although we have slightly increased our capex guidance, which continues to reflect a higher level of software capitalization and some elevated hardware purchases related to our hybrid infrastructure approach, which includes maintaining a presence in select on Prem data centers. In addition to leveraging our public cloud partnerships.

Our DNA guidance captures the additional intangible amortization from purchase accounting adjustments related to the acquisitions.

We have slightly lowered and narrowed our effective tax rate guidance, reflecting the impact of a non taxable gain on our investment in purchase of approximately $140 million in the fourth quarter, which will be excluded from our adjusted metrics.

Henry Fernandez: Both of these acquisitions, managers and trucks, advance MSEI's larger business strategy and mission of providing tools for the investment world to systematically understand and measure performance and risk which leads to more optimal asset allocation and portfolio construction. We aim to capture major trends across the investment landscape, including the continued allocations to private assets and the growing incorporation of climate as a material driver in the reprising of securities and the real allocation of capital.

Excluding the impact of this onetime item, we would expect an adjusted tax rate range for the full year that is about 1% higher than the effective tax rate range were 17, 5% to 19%.

Lastly, our interest expense guidance reflects our intention to draw small amount on the revolver to provide some additional liquidity. Additionally.

Additionally, I would highlight that we expect lower interest income on our cash balances as a result of funding purchase as of today. We currently have more than $300 million of cash on hand, which is in line with our minimum global cash balance range overall, we remain well positioned to drive growth.

While we continue to see some budget pressures from clients and a slightly elevated level of client events. We continue to see healthy engagement from our clients and a strong pipeline to finish out 2023, we look forward to keeping you posted on our progress and with that operator. Please open the line for questions.

Henry Fernandez: Our product lines are increasingly interconnected, which means our work in private assets reinforces our work in climate and vice versa. For example, together with Burgess, we previously developed a tool that offers climate data on around 50,000 private companies and more than 6,000 private equity and private debt funds.

Thank you if you would like to ask a question. Please press Star then one on your telephone keypad and again as a reminder, please limit yourself to one question at a time.

The first question is from Alex Kramm with UBS. Your line is open.

Hey, good morning, everyone would like to talk about the index sales during the quarter I think flat year over year I think it was a tough comp in <unk> is generally little bit lower seasonally but just wondering if there is anything in particular you would highlight there.

Henry Fernandez: In summary, MSEI continues to benefit from our resilient business model underpinned by rigorous financial management and strong secular bail wins. From our recurring revenue business model to our mission critical solutions, we believe MSEI remains well positioned in any operating environment.

Both as.

In terms of the third quarter, but also as we think about the fourth quarter and then maybe specifically on index sales. It looks like the custom index run rates was just marginally higher in the third quarter quarter over quarter. So just wondering if that was a big contributor and maybe why thanks.

Sure sure no. Thanks, Alex it's it's Andy here.

I'd say nothing nothing significant to note in the index results I think you hit on probably the relevant points more generally I would say we continue to have pretty good momentum across module types and client segments.

Mayor Pettit: And with that, let me turn the call over to bear. Thank you Henry and greetings everyone. In my remarks today, I'll build on what Henry said about Burgess, discuss our third quarter results by product line and highlight our regional performance in Asia Pacific.

As Barry highlighted at night I provided some more color.

We had about 9% run rate growth in our market cap modules and mid to high teens growth in our non market cap weighted modules.

Mayor Pettit: Our acquisition of Burgess, which we completed earlier this month, positions MSEI to serve investors and managers across all asset classes with a world-class platform for delivering total portfolio investment solutions, and one of the industry's largest private asset databases covering more than 13,000 funds. As Henry mentioned, Burgess deepens our existing presence with pension funds and sovereign wealth funds, while helping MSCI expand our presence among client segments such as endowments, foundations and family office. We are well underway with integrating the 650-plus Burgess employees and the roughly 1000 Burgess clients into our operations, and we look forward to providing updates on our progress.

We had about 9% run rate growth from asset managers with solid double digit growth across basically every other major client segments.

As you alluded to recurring sales were largely in line with Q3 of last year cancels were slightly higher.

Although the overall retention rate, we think remains pretty good at 96, 2%.

Just on the the cancels point just to provide a bit more color. There. We did have slightly higher cancels from mainly hedge funds.

And those were driven by client events, which we would expect in this environment.

I'd say, we do and this is something we've seen in recent periods, we do see some budget pressures from the environment and the equity markets more generally.

Although we do have very strong engagement and momentum heading into into Q4, and we see that across client segments.

So as I mentioned, probably nothing too much to read into here. If we continue to see good momentum across the franchise.

Mayor Pettit: Turning to our Q3 results, MSCI achieved another solid quarter of performance across client segments and product lines. At the client level, we delivered subscription run rate growth of 15% collectively among wealth managers, banks and broker dealers, hedge funds, insurance companies and corporates. And for our largest client base, we delivered around 10% growth among asset owners and asset managers involved. As those numbers indicate, we have maintained our strength and momentum across all client segments.

Alright, thanks, very much guys.

The next question is from Alexander <unk> with Jpmorgan. Your line is open.

Hi, guys, maybe stepping back to some comments from last quarter about accelerating product development within ESG and climate.

I wanted to sort of maybe where you stand as far as that goes how the Google partnership fits into that how the trove acquisition fits into that.

And any other considerations, we should keep in mind as far as.

When that might show up in net new.

Mayor Pettit: Looking at our product lines, in index, we posted our 39th consecutive quarter of double digit subscription run rate growth 11%. Meanwhile, total direct indexing AUM faced on MSCI indexes increased by 68% to 95 billion dollars. We also saw increased index licensing from hedge fund clients, where new recurring subscription sales more than double, reflecting growth from both market cap weighted modules and our flow data. In addition, MSCI won a big strategic mandate to build client design indexes for one of America's largest wealth managers.

Sure Hi.

Hi, bear here, so look for sure ESG and climate product.

Investment.

As a central to a lot of our day to day activities and looking forward into next year.

In both areas, we see significant market opportunity as we laid out before.

This includes a variety of things including expansion of the data.

Certain regional expansions, notably in Asia Pacific for ESG, where we've got a lot of demand for new types of data cards Greater company coverage et cetera. So I think in ESG as a steady story driven also by the tailwind brought by regulation.

Mayor Pettit: This demonstrates how we continue to capitalize on rising demand for tools to support portfolio customization at scale, a trend that is especially visible in the wealth segment. Turning to analytics, we delivered subscription run rate growth of 7%, resulting in over $639 million of run rate and a near record retention rate of 95.1%. So, globally, we posted recurring sales growth of 30% in enterprise risk and performance, driven by a significant number of large deals with asset managers and asset owners.

Clearly in EMEA in Europe, which we mentioned in the past but.

But also in other regions increasingly and then finally in climate.

We're definitely at the investment phase there across client segments.

And across different asset classes.

And increasingly.

Going into the comments today.

There is demand for climate information and solutions and private markets as well. So so so I think those are all of those areas are very consistent with our comments from previous quarters.

Mayor Pettit: For example, MSCI completed one of our largest ever liquidity analytics deals covering both regulatory reporting requirements and liquidity risk management. Despite pressures on equity managers, we also grew equity analytics by 11% nearly $200 million in price rate. In ESG, we delivered 21% run rate growth across our product lines from Y, taking our run rate to $387 million, while posting a retention rate of 96%. At the regional level, the regulatory environment continues to aid ESG sales in AMIA, and our solutions continue helping clients navigate new requirements.

And we will we will continue to have a positive impact on the growth story.

Thank you Burton.

If I could just quickly.

A follow up can you maybe comment on how.

One of your competitors shedding head count through a large layoff program might impact their competitive positioning vis vis you guys.

Yes look we're jez you know where we are.

To discuss our competitors specifically, we in all areas.

Boy that I would try to say more broadly that I think that we're in a strong position to compete in the core business.

We are clearly committed to it.

Certain competitors may not be providing exactly the same services that we are in this instance, this competitor that's cutting back in an area, where we've chosen not to compete I think wisely. So I think overall, we're we're very committed to.

Mayor Pettit: In climate, we achieved 49% run rate growth across our product lines per Y, where we now have 98 million dollars of run rate, including 68 million of subscription run rate growing by 49% which had a retention rate of 97%. In addition, AUM in MSEI index-linked climate ETS increased by 64% to 71 billion dollars, while MSEI index-linked climate equity non-ETF AUM increased by 75% to 107 billion dollars. Finally, in real assets, we've posted total run rate growth of almost 10% along with a retention rate of 91%.

Being a leader in this area and were confident that even in a tougher environment. We can continue our leadership position.

Thank you.

The next question is from Toni Kaplan with Morgan Stanley. Your line is open.

Thanks, So much I was hoping you could provide a little bit of extra color on ESP. It sounded from the prepared remarks like Europe.

It was somewhat flattish with America still under pressure.

Wanted to get a sense of if there are any catalysts coming up that you're seeing more stability there that could help.

Drives accelerated growth.

Upcoming quarters. Thanks.

Sure sure Thanks, Tony.

Mayor Pettit: Chereographically, our Q3 results were especially strong in APAC, where MSEI continues to benefit from the increasing scale and growing breadth of the investment industry in the reach. For example, in real assets, APAC achieved 15% run rate growth in growth strong sales with asset owners, including for our real estate index intel and performance insights tool. In index, APAC delivered recurring subscription run rate growth of almost 15%, bringing our footprint to approximately 178 million dollars.

So I would say it's important to firstly underscore that we see very strong engagement across ESG and climate as we mentioned in the prepared remarks, and I think it's clear and you can see this from the retention rate.

That ESG and climate are becoming and probably are mission critical structural parts of the investment process already.

And so I would say the dynamics are pretty consistent with what we've seen in recent quarters. We did to your point see slower growth in the Americas.

Just to put a finer point on that within the ESG and climate segment the growth in the Americas was around 15% versus 35% in.

Mayor Pettit: MSEI's underlying strength as a company reflects our increasing universe range of capabilities and clients across geography. Those advantages become even more important during periods of market volatility and uncertainty. As a result, we continue to see high levels of fine engagement across segments, products and regions, and we also see healthy pipeline as we approach the end of the year.

EMEA in Europe, and 22% in APAC.

It is important to underscore that within ESG and climate EMEA represents close to 50% of the run rate. So the largest region for us is growing at a pretty healthy growth rate of 35%.

As I mentioned sales were fairly flat year over year in EMEA and APAC, although they were softer in the Americas year over year.

I think the dynamics that we're seeing in the U S.

Mayor Pettit: Looking ahead, MSEI will remain laser focused on strong profitability, while continuing to invest in our business.

Continue to play out more investors are being much more measured in how they integrate ESG.

And thats, resulting in longer sales cycles, more deliberate purchasing decisions relative to what we saw a year plus ago.

Andy Wishman: And with that, let me turn the call over to Andy. Any?

Andy Wishman: Thanks, Bear, and hi, everyone. Our attractive financial model enabled us to deliver double digit growth in the quarter across revenue, recurring subscription run rate, and adjusted EPS. In index subscription, we drove 9% run rate growth in our market cap weighted modules, high teams growth in custom indexes, and mid teams growth in our ESG and factor modules. We saw strong subscription run rate growth from hedge funds, wealth managers, and broker dealers of 26%, 19% and 15% respectively, all of which continue to support steady double digit index subscription run rate growth.

But I think given the range of users and use cases.

As well as the strong engagement and retention rates that youre seeing we are quite encouraged by the stability we've seen even in the Americas, even though it is a lower growth rate.

I would say the dynamics in EMEA continue to be the same bear alluded to this but there is some element of regulation being a catalyst. It is also something that is resulting in longer sales cycles as well as investors and broader financial services firms navigate these regulations.

But it's one where we can we can be helpful to them as they think about how they're going to comply and we have solutions and tools that will help on that front.

Andy Wishman: FAC revenues were up more than 12% year over year, benefiting from $55 billion of cash inflows, and $186 billion of market appreciation over the last 12 months within equity ETFs linked to MSEI indexes. During the third quarter, cash inflows into ETFs linked to MSEI equity indexes were driven almost entirely by ETFs with US and other developed market exposures. Sanders. These fashion flows were supported by roughly $3 billion of flows into equity ETF link to our ESG and climate indexes.

There are some environmental impacts as well it is worth noting that.

The equity investors in particular are under pressure and we see some of that translating through to cyclical impacts, but we continue to have confidence in the long term dynamics here and continue to believe this is a big a big long term opportunity set for us.

Terrific. Thank you.

Andy Wishman: And we continue to gain traction and fixed income, with AUM and ETF link to MSCI and Bloomberg joint fixed income indexes reaching nearly $52 billion, growing more than 40% year-over-year. In analytic subscription run rate growth with 7% with continued strength in our factor models and our risk tools more broadly. Our investments in enhancing our content, our capabilities and the client experience including through climate lab enterprise insights and ESG and climate reporting services are driving new commercial opportunities across analytics.

The next question is from <unk> Patnaik with Barclays. Your line is open.

Thank you.

In terms of the pipeline the strong pipeline that you talked about I was hoping you could just.

Contextualize that a bit correct I mean, just if you look at the net new sales numbers with those three quarters. It Hasnt Dean.

That strong so just perhaps what that looks like in Q4, and maybe how that how you see that heading into 'twenty four and then just a quick follow up for Andy just in terms of the margins that you gave us for the fourth quarter, maybe just some color increase the expense guidance and it looks like budgets will be a drag for a bit next year as to just how should we think about.

Andy Wishman: In our ESG and climate reportable segment the run rate growth was 25% with 21% growth in ESG research and 44% growth in climate. Relative to a year ago we saw a lower new recurring sales in the Americas which continue to reflect more measured purchasing decisions among US investors. However, new recurring sales in both Europe and APAC were essentially unchanged year-over-year. The retention rate in ESG and climate segment remained healthy at 96%, although we did see slightly higher cancels resulting from client events at smaller institutions.

If next year margins will just be constrained because of those dynamics.

So so much.

I think you were where you are talking about.

The overall sales pipeline at the FERC may correct, correct extending that yes.

We think it's very healthy.

Were very healthy.

There's nothing there that.

That would be abnormal of where we are today, allowing for the very uncertain.

Andy Wishman: Within real assets run rate growth was 10%. We see momentum in our real-state index intel and portfolio offerings, although we continue to see the impact of industry pressures on our transaction data, most notably in client segments such as real-state brokers and lenders. While we expect the pressures to continue, we are encouraged by the long-term opportunity and the momentum we see in many of the market data, climate, and portfolio offerings we are providing. We are also expanding our commercial real-state transaction database to include deals below $2.5 million and our data universe to include properties that have never transacted.

Byron or everyone for our clients.

And some pressure on them.

Still I am happy to refer to it as either healthy or solid right.

So clearly we're not generally here to try to fine tune that excessively in the context of these calls, but theres certainly nothing there that I would call attention to other than to say, it's solid and healthy maybe pass it over to you asking for.

Sure, Yes, so maybe I can provide some color on the broader expense guidance and then I can touch on <unk>, specifically and the potential impact of the broader margin on the company.

Andy Wishman: As a reminder, beginning in the fourth quarter we will report financial results for purchase in our all other private assets segment. To provide an update on the financial impact of Burgess, we expect Burgess to generate slightly above $90 million of revenue for full-year 2023 with revenues of $22 to $24 million expected in the fourth quarter. The standalone Burgess adjusted EBITDA margin is expected to be around 15% for full-year 2023. However, we currently expect about $4 to $5 million per quarter of allocations to Burgess from centralized and shared costs on top of the standalone adjusted EBITDA.

If you remember last quarter, we commented that AUM levels remain flat.

The increase for the balance of the year wed likely be towards the high end of our expense guidance range.

AUM was largely flat during the third quarter and so our organic expense growth.

Was picking up a little bit as we were picking up the pace of spend and importantly, picking up the pace of investment a little bit and so we are tracking towards the higher end of the range.

That combined with this is probably the bigger impact Burgess expenses, which will be coming in in the fourth quarter. So we will have a full quarter or just expenses in Q4 here are leading to the higher overall expense guidance here.

Andy Wishman: It is worth noting that these allocations are reallocated from other segments and will not impact firm wide EBITDA. Given these allocations, we expect contributions from Burgess to the adjusted EBITDA for the all other segment to be minimal in Q4, although we expect some margin expansion from Burgess next year. Meanwhile, as we've done in previous acquisitions, we will exclude certain integration-related expenses from our adjusted non-gap figures.

I would underscore that that range assumes AUM levels remain roughly flat through the balance of the year.

But to your point about the impact on the overall for margin.

Burgess is a lower margin business as we commented on a standalone basis. The margin is in the mid teens.

Andy Wishman: More broadly on the capital allocation front, we continue to be opportunistic and capitalize on attractive opportunities as highlighted by our announced acquisition of TROV. We expect TROV, which has a few million dollars of run rate, which will be included in our ESG and climate segment to be immaterial to our results in the near-term. Turning to our guidance, I would highlight that our ranges incorporate the impact of Burgess and assume that the UN levels remain relatively stable through the balance of the year.

On Burgess and so just bringing that in.

We'll bring the overall firm margin down and so as we start to have Burgess results in in our overall financial results during 2024.

The margin will likely be.

Lower compared to the prior year, having said that we do as I commented believes that there is nice operating leverage positive operating leverage in Burgess given what they do.

Andy Wishman: Spencer. Expense ranges now reflect both the slightly elevated pace of spend, as well as a full quarter of expenses from Burgess, including the small amount of integration expenses that will not be excluded from adjusted metrics. Our free castle of guidance remains unchanged, although we have slightly increased our CAPEX guidance, which continues to reflect a higher level of software capitalization and some elevated hardware purchases related to our hybrid infrastructure approach, which includes maintaining a presence and select on-prem data centers in addition to leveraging our public cloud partnerships.

Very similar to most of the things MSCI does is they generate IP based products and solutions.

That have very attractive margin dynamics and so if we continue to drive the growth that we hope in Burgess that should drive some margin expansion within Burgess, but just looking on an apples to apples basis. The purchase expense base will bring the overall firm margin down.

The next question.

Andy Wishman: Our DNA guidance captures the additional intangible amortization from purchase accounting adjustments related to the acquisitions. We've slightly lowered and narrowed our effective tax rate guidance, reflecting the impact of a non-taxable gain on our investment in Burgess of approximately $140 million in the fourth quarter, which will be excluded from our adjusted metrics. Excluding being the impact of this one-time item, we would expect an adjusted tax rate range for the full year that is about 1% higher than the effective tax rate range, or 17.5% to 19%.

<unk> is from Kelsey Xu with autonomous your line is open.

Thanks for taking my question.

Quick one on ESG and climate right growth looks much stronger for climate compared to ESG. I was wondering if you can comment a little bit more about the key drivers behind the divergence between the performances speaking your two segments.

As you think about the long term growth target for the second overall in the mid to high <unk> range does that look similar across ESG and climate and lastly, flat net new subscription sales growth looks like for a client that ESG separately in Q3. Thanks.

Andy Wishman: Lastly, our interest expense guidance reflects our intention to draw a small amount on the revolver to provide some additional liquidity. Additionally, I would highlight that we expect lower interest income on our cash balances as a result of funding Burgess. As of today, we currently have more than $300 million of cash on hand, which is in line with our minimum global cash balance range. Overall, we remain well positioned at drive growth. While we continue to see some budget pressures from clients in a slightly elevated level of client events, we continue to see helping engagement from our clients in a strong pipeline to finish out 2023.

Sure so.

There were a few questions in there, but I'll try to tackle them and in turn here in turn here so within climate.

It is a distinct offering there is an overlap and it is heavily related to our ESG research and ratings and it feeds into it.

<unk> degrees, depending on the company in the sector, but the solutions, we have in climate are distinct and.

Operator: We look forward to keeping you posted on our progress, and with that operator, please open the line for questions. Thank you.

And so we offer a range of solutions that help clients to integrate climate considerations into their investment process achieve net zero goals and overall climate objectives to navigate specific considerations in specific areas.

Operator: If you would like to ask a question, please press star, then one on your telephone keypad, and again, as a reminder, please them yourself to one question at a time.

Alex Kramm: The first question is from Alex Kram with UBS, your line is open. Hey, good morning, everyone. I would like to talk about the index sales during the quarter. I think flat, year over year. I think it was a tough comp and 3Qs generally a little bit lower seasonally, but just wondering if there's anything in particular you would highlight there, both as in terms of the third quarter, but also as we think about the fourth quarter, and then maybe specifically on index sales, it looks like the custom index run rate was just marginally higher in the third quarter, quarter over quarter, so just wondering that was a big contributor and maybe why.

As well as to understand systematically climate risk and how that can impact the performance of our portfolio.

I would say climate then you can tell this by the run rate, which is $98 million across all product lines at MSCI within our ESG and climate segment.

Around $54 million it is small compared to ESG and so we're still very early in the adoption curve of climate tools clients are still evolving in their thinking.

And just beginning to integrate climate.

Are are really just starting to think about how to navigate everything for regulations to net zero objectives that they have and so we would expect higher growth within climate relative to to ESG.

Alex Kramm: Thanks. Sure. No, thanks, Alex. It's Andy here. I'd say nothing significant to note in the index results. I think you hit on probably the relevant points. More generally, I would say we continue to have pretty good momentum across module types and client segments. I think as bear highlighted, I provided some more color. We had about 9% run rate growth in our market cap modules and mid to high teams growth in our non-market cap weighted modules.

Our ESG.

We've been providing for quite some time and I think is more established its still relatively young compared to other product lines.

But it is more penetrated and I'd say more broadly used on ESG and so we would expect climate to continue too.

To drive outsized growth.

Relative to ESG more broadly.

I think you touched on the long term targets as well I would say we have we haven't made any changes to our long term targets.

Alex Kramm: We had about 9% run rate growth from asset managers with solid double digit growth across basically every other major client segment. As you alluded to, recurring sales were largely in line with Q3 of last year. Cancels were slightly higher, although the overall retention rate we think remains pretty good at 96.2%. Just on the cancels point, just to provide a bit more color there, we did have slightly higher cancels from mainly hedge funds, and those were driven by client events, which we would expect in this environment.

In any area, including in ESG and climate.

As I was commenting on we continue to be very excited about the long term opportunities in in both ESG and climate and as I alluded to on both fronts. We are still very early in the evolution of these areas and there continue to be numerous opportunities for us across client segments asset classes geographies.

Solutions and so we continue to believe there is a big long term opportunity in ESG and climate. There are some cyclical factors that play which are impacting growth in the short term.

Alex Kramm: I'd say we do, and this is something we've seen in recent periods, we do see some budget pressures from the environment and equity markets more generally. Although we do have very strong engagement and momentum heading into Q4, and we see that across client segments. As I mentioned, probably nothing too much to read into here. We continue to see good momentum across the franchise.

And other dynamics that we've talked about but overall, we continue to think there is a big long term opportunity where we are.

Alex Kramm: All right. Thanks very much, guys.

I believe quite well.

Well prepared to capitalize.

<unk>.

I gave some of this color to an earlier question I think your last question was about.

ESG versus climate growth in Q3.

And in my prepared remarks, I did I did touch on that a bit the ESG growth was around 21%.

Alexander Hess: The next question is from Alexander Hess with JP Morgan. Your line is open. Hi, guys.

Within Q. This is the subscription run rate growth for ESG was around 21%. This is within our ESG and climate segment and within climate. It was around 45% for the run rate within our ESG and climate segment associated with our climate tools I think Barry mentioned, the overall run rate for climate is $98 million.

Bear: Maybe stepping back to some comments from from last quarter about accelerating product development within ESG and climate. One of those sort of maybe where you stand as far as that goes, how the Google partnership fits into that, how the TROV acquisition fits into that and any other considerations we should keep in mind as far as when that might show up in net new. Sure. Hi, Bear here. So look, for sure ESG and climate product investment is a central to a lot of our day to day activities and looking forward into next year.

That was growing closer to 48% and that cuts across tools in every product segment that we have out.

Thanks, so much.

The next question is from Ashish Sabedra with RBC capital markets. Your line is open.

Thanks for taking my question.

I wanted to focus on pricing.

A significant tailwind to net new this year I was wondering a lot of companies are talking about normalizing pricing as we get into next year.

Bear: You know, in both areas, we see significant market opportunities as we've laid out before. And this includes a variety of things including expansion of the data, certain regional expansions, notably in age of Pacific, for ESG, where we've got a lot of demand for new types of data cuts, greater company coverage, etc. So I think in ESG, it's a steady story driven also by the tailwinds brought by regulation, you know, clearly in in America and Europe, which we mentioned in the past, but also in other regions increasingly.

Wondering if you could comment on how do you think about the pricing trend as we get into 'twenty four and have you seen any pushback on pricing.

Thanks, Neely from Nike.

Yes, so we have.

To this point, we've been successful at rolling out.

Higher price increases, although it's modest increases relative to what we've done in the past I would say in the third quarter price increases.

Contributed a comparable amount to what they have contributed in recent quarters. So across all product areas price increases represented mid to high 30% of recurring.

Bear: And then finally in climate, you know, we're definitely at the investment phase there across client segments and across different asset classes and and increasingly, you know, tying into the comments today, there's demand for climate information and solutions in private markets as well. So, so, you know, so I think those all of those areas are very consistent with our comments from previous quarters. And we'll continue to have a positive impact on the growth story.

New recurring sales.

Within the index it was 40% plus.

She is consistent with what we've seen in recent quarters.

Clearly.

There are varying degrees of pushback, depending on the product and region and client type and we are very cognizant of the fact that.

Many of our clients are feeling pressure in the current environment and so.

We try to be very measured and try to ensure that we are delivering value together with any price increases. So we are very focused on ensuring that we're enhancing our solutions.

That we are rolling out price increases on but also oftentimes we are delivering more.

Bear: Thank you, Bear. And if I could just quickly get a follow up in, can you maybe comment on how your one of your competitors shedding head count through a large layoff program might impact their competitive positioning. Yeah, look, we're, as you know, we're, we're low to discuss our competitors specifically in all areas, you know, we avoid that. I would try to say more broadly that I think that we're in a strong position to compete in the core business, you know, we're clearly committed to it.

Product more usage additional.

Additional solutions to clients together with price increases to ensure that we are adding value to them. We do monitor the overall market one of the inputs one of many inputs into our pricing equation is the broader inflationary environment. If inflation does continue to moderate.

That will be an input into us potentially moderating price in the future, but it's something that we continue to calibrate and as I said the biggest factor is ensuring that we can deliver value to our clients when we do roll out price increases.

Bear: You know, certain competitors may not be providing exactly the same services that we are in this instance, this competitor was putting back in an area where we've chosen not to compete, I think wisely. So I think overall, we're, you know, we're very committed to to to being a leader in this area. And we're confident that even in a tougher environment, we can continue our leadership tradition.

That's very helpful color. Thank you.

The next question is from Owen Lau with Oppenheimer. Your line is open.

Hey, good morning, Thank you for taking my question.

Alexander Hess: Thank you.

I wanted to go back to expense guidance and asked a question a bit differently.

So you raised the full year opex items by about $40 million and based on my math Burgess talks about $200 million per quarter. This year.

Toni Kaplan: The next question is from Tony Kaplan with Morgan Stanley. Thanks so much. I was hoping you could provide a little bit of extra color on ESG. It sounded from the prepared remarks like Europe maybe was somewhat flatish with America still under pressure. Just wanted to get a sense of if there any catalyst coming up, if you're seeing more stability there that could help drive accelerated growth in upcoming quarters. Thanks. Sure. Thanks, Toni.

During the quarter $5 million of acquisition.

Stones.

My question is how about the rest of the group.

Expense inquiries on how much of that.

Incremental expands.

2024, thank you.

Got it.

Want to get into 2024.

At this stage, that's something we will cover when we release our Q4 results.

As we typically do.

I would just point to and I made this comment to the earlier question.

Toni Kaplan: So I would say it's important to firstly underscore that we see a very strong engagement across ESG and climate as we mentioned in the prepared remarks. And I think it's it's clear and you can see this from the retention rate that ESG and climate are becoming and probably are mission critical structural parts of the investment process already. And so I'd say that dynamics are pretty consistent with what we've seen in recent quarters.

Our prior adjusted EBITDA expense guidance was $9 65 to 995.

We had said a quarter ago, if AUM levels remain flat or increase we'd be towards the higher end of that range and so AUM levels over the third quarter as I mentioned have been relatively flat and so we on an organic basis, we're tracking towards the high end of that range and then as you said the.

Toni Kaplan: We did two points these slower growth in the Americas. You know, just to put a finer point on that within the ESG and climate segment, the growth in the Americas was around 15% versus 35% in in Europe and 22% in APAC. It's important to underscore that within ESG and climate, MIA represents close to 50% of the run rate. So the largest region for us is growing at a pretty healthy growth rate of 35%.

<unk> expenses before before you layer on things.

Things like allocations and the integration expenses.

We'll add $20 million or so in that vicinity.

Additional expense and so that that's how you bridge to the new expense guidance that we've put out.

Alright.

And just one quick question on ESG and climate seasonality. So over the past few years I think.

Toni Kaplan: You know, as I mentioned, sales were fairly flat year over year in MIA and APAC, although they were softer in the Americas year over year. I think the dynamics that we're seeing in the US continue to play out where investors are being much more measured on how they integrate ESG. And that's resulting in longer sales cycles, more deliberate purchasing decisions relative to what we saw a year plus ago. But I think given the range of users and use cases, as well as the strong engagement and retention rates that you're seeing, we're quite encouraged by this debate.

Net new recurring subscription sales of ESG and climate was quite strong in the fourth quarter should we expect similar seasonality to continue this year. Thank you.

Yes, I Wouldnt I don't want to give.

Specific color on segments.

As Barry mentioned earlier that the pipeline is healthy I would say given the nature.

Of our business and as you alluded to we do see some seasonality.

In the fourth quarter based on what you've seen in past years. I think there are a number of factors that feed into that include including client budgets and they were purchasing decisions. We also have annual incentive plans.

Toni Kaplan: The ability we've seen even in the Americas, even though it is a lower growth rate. I'd say the dynamics in MIA continue to be the same. Bear alluded to this, but there's some element of regulation being a catalyst. It is also something that is resulting in longer sales cycles, as well as investors and broader financial services firms navigate these regulations. But it's one where we can be helpful to them as they think about how they're going to comply and we have solutions and tools that will help on that front.

That feed into that and we also have the highest concentration of client renewals taken.

Taking place in the fourth quarter. So for all those factors, we tend to see a higher fourth quarter, that's not always the case.

But as we had mentioned there is a healthy pipeline going into Q4.

Sounds great. Thanks, a lot.

The next question is from George Tong with Goldman Sachs. Your line is open.

Toni Kaplan: There are some environmental impacts as well. It is worth noting that the equity investors in particular are under pressure, and we see some of that translating through to cyclical impacts. But we continue to have confidence in the long-term dynamics here and continue to believe this is a big, a big long-term opportunity set for us. Sure. Okay. Thank you.

Alright, thanks, good morning.

In ESG and climate, you mentioned growth slowed in EMEA, what does the 15% growth in EMEA was healthy at 35% can you elaborate on what youre seeing in the Americas and when you would expect to see catalysts for improved growth.

Yes sure.

So I'd say, we're seeing consistent themes in the Americas compared to what we've seen in recent quarters. So.

Manav Patnaik: The next question is from Anav Patnik with Barclays. Your line is open. Thank you.

As.

Manav Patnaik: Bear, in terms of the pipeline, the strong pipeline that you talked about, I was hoping you could just contextualize that a bit for us. I mean, just if you look at the net new sales numbers with those three quarters, it hasn't been that strong to just perhaps what that looks like in Q4 and maybe how you see that heading into 24. And then just a quick follow-up for Andy, just in terms of the margins that he gave us for the fourth quarter, maybe just some color you increase the expense guidance and it looks like Burgess will be a drag for a bit next year. So just how should we think about if next year margins will just be constrained because of those dynamics?

Investors.

Managers broader financial services firms are integrating ESG and launching ESG strategies.

Or plan to launch ESG strategies, they have to focus on a range of considerations, including how it aligns with their overall investment objectives. So what is the impact that ESG considerations will have on risk and return and how do I optimize my risk adjusted returns.

By incorporating ESG into my investment process, how do I differentiate relative to my competitors, how do I address the ESG objectives for that to my clients have or that the investors have.

And then for new products that they launch how do they communicate their approach to ESG.

Bear: So, Manav, I think you were talking about the overall sales pipeline at the firm. Is it a dramatic correct understanding that? Yeah, we think it's very healthy. You know, we're very healthy. There's nothing there that, you know, that that would be abnormal of where we are today, allowing for, you know, the very uncertain environment for everyone for our clients and and and some pressure on them, you know, I still am happy to refer to it as either healthy or solid, right.

And how do they again position themselves relative to the other products in the market and how do they prepare for.

<unk> coming regulations, which is not just a factor in EMEA, but it's something that U S investors have to deal with as well.

And so it is a it's a complex environment for them to integrate ESG. The good news is we're in a good position to help them navigate that and so when we say our clients are engaging strongly.

Have those conversations with us, but because of that complexity because of all those factors that feed into their buying decisions. We are seeing more measured purchasing decisions longer sales cycles, ultimately a lower amount of sales.

Andy Wishman: So, so clearly we're not generally here to try to fine tune that excessively in the context of these calls, but there's certainly nothing there that I would call attention to other than just a solid and healthy and maybe pass it over to you Andy for the rest. Sure. Yeah. So, so maybe I can provide some color on the broader expected. And then I can touch on Burgess specifically in the potential impact to the broader margin on the company.

But overall the engagement level is healthy, but we do expect these complexities and longer sales cycles too.

To continue and persist for some time in the Americas.

I think the factors that play on top of the cyclical factors.

We will probably persist for some quarters here.

Andy Wishman: If you remember last quarter, we commented that if AUM levels remain flat or increased for the balance of the year, we'd likely be towards the high end of our expense guidance range. AUM was largely flat during the third quarter and so our organic expense growth was picking up a little bit as we were picking up the pace of spend. And importantly picking up the pace of investment a little bit and so we were tracking towards the higher end of the range that combined with and this is probably the bigger impact Burgess expenses, which will be coming in in the fourth quarter.

The next question is from Phase <unk> with Deutsche Bank.

<unk> Your line is open.

Yes, hi, good morning. Thank you so women a bit more color on the analytics segment, you've seen the run rate growth accelerate here.

Would love to hear more about where you might have invested.

Andy Wishman: So we will have a full quarter of Burgess expenses in Q4 here are leading to the higher overall expense guidance here. I would underscore that that range assumes AUM levels remain roughly flat through the balance of the year. But your point about the impact on the overall firm margin. Burgess is a lower margin business as we commented on a standalone basis the margin is in the mid teens on Burgess and so just bringing that in will bring the overall firm margin down.

And.

Where youre seeing the acceleration and how you think about the competitive dynamics in that segment.

Sure. Thank you for the question Barry here.

So.

<unk>.

Well I would frame it is to say we've got three key areas of focus.

The front office, both in equities and fixed income and you saw we had very nice numbers in equities.

More content.

Which includes insights better coverage of private assets do.

Doing better and being more competitive in fixed income and structured products.

And climate risk. So those are the key areas, we're focused on and I think that we're pleased with where relevant I would say, we're definitely not unhappy with that growth number we think we'd like to continue to be ambitious did go up.

Andy Wishman: And so as we start to have Burgess results in our overall financial results during 2024, the margin will likely be lower compared to the prior year. Having said that we do as I commented, believe that there is nice operating leverage positive operating leverage in Burgess given what they do. So very similar to most of the things MSCI does is they generate IP based products and solutions that have very attractive margin dynamics.

The retention rate of 95% is also a sign that our clients continue to use our tools in these environments. So.

Andy Wishman: And so if we continue to drive the growth that we hope in Burgess that should drive some margin expansion within Burgess, but just looking on an Apple's tabled basis, the Burgess expense base will bring the overall firm margin down.

We've been very consistent in the story here I think we continue to have structural improvements in how we deliver the product.

Through better technology, greater integration of our content across different types of analytics.

And <unk>.

Keeping with the theme that we've repeated here our client engagement is excellent and we have.

Wide variety of use cases that clients are asking us so from.

Kelsey Zew: The next question is from Kelsey Zew with autonomous. Your line is open. Thanks for taking my question. I have a quick one on ESC and climate. The run rate growth looks much stronger for climate compared to ESC. I was wondering if you can tell us a little bit more about the key drivers behind the divergence between the performances, between those two segments. And as you think about the long term growth part is for the second overall in the mid to high 20s range does that look similar across ESC and climate.

Going across very large firm used case is to very specific structured products front office use cases equity portfolio construction. So it's just a category where with a combination of our investments in content.

Better technology, and better delivery and the expertise that we bring to clients. We hope to continue to have.

Good directional growth the only thing I would add just as a.

Slight note of caution is it is an uncertain and unpredictable environment.

And client events can occur, but those are often things that we don't control ourselves.

Kelsey Zew: And lastly just what net new subscription sales growth looks like for climate ESC separately in Q3. Thanks. Sure, so maybe on, there were a few questions in there, but I'll try to tackle them in turn, here, in turn, here. So within climate, it is a distinct offering. There is an overlap and it is heavily related to our ESG research and ratings, and it feeds into it to varying degrees, depending on the company in the sector.

Yeah.

The next question is from SaaS Weber with Wells Fargo. Your line is open.

Hey, good morning, guys. Thank you.

I know, it's early days, but with the <unk> acquisition, when you announced it you talked about good opportunities for.

Joint product development in cross selling I'm, just wondering if you could talk to any early traction that youre seeing there. Thank you.

Yes.

Kelsey Zew: But the solutions we have in climate are distinct. And so we offer a range of solutions that help clients to integrate climate considerations into their investment process, achieve net zero goals, and overall climate objectives to navigate specific considerations and specific areas, as well as to understand systematically climate risk and how that can impact the performance of a portfolio. I would say climate, and you can tell this by the run rate, which is 98 million across all product lines at MSCI within our ESG and climate segment.

The <unk> acquisition.

Strategically is.

Barry is it provides an extremely strong foundation.

For us.

To develop what we call the Mci private asset classes, we obviously missed to date.

I mean, the data I mean understanding of an investment and pricing of those investments to then develop the full portfolio of investment tools.

That are used by allocators of managers of assets in that portfolio of investment pools are based by Kinder says.

Kelsey Zew: It's around 54 million. It is small compared to ESG, and so we're still very early in the adoption curve of climate tools. Those clients are still evolving in their thinking, and just beginning to integrate climate, and they are really just starting to think about how to navigate everything from regulations to net zero objectives that they have. And so we would expect higher growth within climate relative to ESG, where ESG we've been providing for quite some time, and I think is more established, it's still relatively young compared to other product lines.

Performance at <unk>.

Risk analysis in our risk management.

Liquidity.

And Andrew manage liquidity would be.

In terms of.

Private assets.

Cash flows when when you're going to get the calls when youre going to get receptions redemptions and all of that.

What is called basic models as well.

Relocation et cetera. So.

Kelsey Zew: But it is more penetrated, and I'd say more broadly used than ESG. And so we would expect climate to continue to drive outsized growth relative to ESG more broadly. I think you touched on the long-term targets as well. I would say we haven't made any changes to our long-term targets in any area, including in ESG and climate. As I was commenting on, we continue to be very excited about the long-term opportunities in both ESG and climate.

The first.

You want to think about the integration of <unk> is going to follow in three kind of on parallel tracks.

Yeah.

The first driver is clearly integration.

A lot of the support functions and in an HR.

In.

And office space in accounting and finance and all of that and the integration of <unk>.

And the alignment of the data and the data centers and the technology and all of that right. So obviously integration of the sales force.

Kelsey Zew: And as I alluded to on both fronts, we are still very early in the evolution of these areas. And there continue to be numerous opportunities for us across client segments, asset classes, geographies, solutions. And so we continue to believe there is a big long-term opportunity in ESG and climate. There are some cyclical factors at play, which are impacting growth in the short-term and other dynamics that we've talked about. But overall, we continue to think there is a big long-term opportunity where we are, I believe, quite well prepared to capitalize.

Bob.

The protocol for salespeople are berges with the turnover salespeople at MSCI and all of that so that's one bucket the second bucket.

<unk>.

Over time.

Is going to be new product development.

And a big focus here will be one of the most recently the most frequently asked.

Good questions from clients is are we going to develop better benchmark indices.

For private assets, so that will be something that will be high on the agenda for sure.

Kelsey Zew: I think I gave some of this color to an earlier question. I think your last question was about ESG versus climate growth in Q3. And in my prepared remarks, I did touch on that a bit. The ESG growth was around 21%. This is the subscription run rate growth. The ESG was around 21%. This is within our ESG and climate segment. And within climate, it was around 45% for the run rate within our ESG and climate segment associated with our climate tools. I think Barrett mentioned the overall run rate for climate is $98 million and that was growing closer to 48%. And that cuts across tools in every product segment that we have out. Thanks so much.

We're going to continue to expand dramatically on the intersection of private assets in climate.

Especially private credit and climate.

And we already started with that but we're only scratching the surface there and thats a major expansion on that second pillar the product line. The third pillar, which is obvious is actually the fastest one that we're going to execute on and more loaded line is we believe that the <unk> product line is severely.

On the Sol.

I am on.

<unk> around the world.

And we're taking steps to change that in having.

A lot of the <unk> salespeople working.

And Gordon Asia, with our senior salespeople all over the world. So there is three pillars.

Kelsey Zew: The next question is from Ashish Sabadra, with RBC Capital Markets, your line is open. Thanks for taking my question. I wanted to focus on pricing, pricing was a significant deal went to net new this year. I was wondering a lot of companies are talking about normalizing pricing as we get into next year. I was just wondering if you could comment on how do you think about the pricing trend as we get into 24.

Clearly, we want to get the mine at first in sales and significantly outpace the sales growth of the business.

We clearly need to integrate and over time, we clearly want to create a lot of new products in that middle piece of analytics.

The next question is from Heather <unk> with Bank of America. Your line is open.

Kelsey Zew: Have you seen any pushback on pricing, particularly for netting? Thanks. Yeah, so to this point, we've been successful at rolling out higher price increases. Although, you know, it's modest increases relative to what we've done in the past. I would say in the third quarter, price increases contributed a comparable amount to what they've contributed in recent quarters. So across all product areas, price increases represented mid to high 30% of recurring new recurring sales within index.

Hi, Thank you for taking my question.

Kelsey Zew: It was 40% plus, which is consistent with what we've seen in recent quarters. You know, clearly there are varying degrees of pushback, depending on the product in region and client type. And we are very cognizant of the fact that many of our clients are feeling pressure in the current environment. And so we try to be very measured and try to ensure that we are delivering value to together with any price increases.

Two questions first Jeff.

With regards to capital allocation, you talked about how it important to the company. So I thought it would be helpful.

I know, how youre thinking about capital allocation.

U S.

And a great urgency and.

Are you prioritizing buybacks versus M&A, what does the M&A pipeline look like and then.

As a quick follow up you gave the gross numbers for you see in the U S and India.

For the quarter can you put that in.

Compare that to what it looked like in the first half of the year has it has.

Europe.

With rate that you saw is that consistent with the first half is it.

Pick up.

Thank you.

Yes, so look on it now.

And your first question about capital allocation.

Kelsey Zew: So we are very focused on ensuring that we're enhancing the solutions that we are rolling out pricing increases on, but also oftentimes we are delivering more product, more usage, additional solutions to client together with price increases to ensure that we are adding value to them. We do monitor the overall market, one of the inputs, one of many inputs into our pricing equation is the broader inflationary environment. If inflation does continue to moderate, that will be an input into us potentially moderating price in the future, but it's something that we continue to calibrate. And as I said, the biggest factor is ensuring that we can deliver value to our clients when we do roll out price increases. That's very helpful.

Needless to say, we talked a great deal about this in the past.

We are always obsessed with asset allocation at MSCI, we believe that capital allocation is what gives you long term compounding growth.

Ashish Sabadra: Thank you.

On the business and it is the day to day capital allocation decisions that you made that ultimately aggregate to do a great financial model and a great compound or overtime.

So thats an area that we're very focused on.

And it is in two respects one is the internal capital allocation of where we put our money so with respect to organic investments.

And we follow what we call the Triple Crown methodology, which we've talked about in the past and then there is the quote unquote external asset allocation, which is what do we do with dividends with buybacks.

Owen Lau: The next question is from Owen Lau with Offenheimer. Your line is open. Hey, good morning. Thank you for taking my question. I want to go back to expand guidance and ask the question a bit differently. So you raised a full year of ox guidance by about $40 million. And based on my math, Burgess, and for both $20 million per quarter this year. And I think that's a great question. You mentioned four to five million dollars of acquisition related expense.

With inorganic investment.

Is that.

That we that we pursue so so with respect to the latter category the quote unquote external part.

In periods of very bullish environment.

Asset prices are very rich investment.

Owen Lau: My question is, how about the rest of the expense increase and how much of that incremental expense would be recurring in 2024. Thank you. Got it.

Inorganic investments are very rich acquisitions are.

In auctions people are tripping over each other there beat up the properties.

You ended up significantly over band so imperial's like that we tend to stay with.

Owen Lau: I don't want to get into 2024 at this stage. That's something we will cover when we release our Q4 results as we typically do. I would just point to and I made this comment to the earlier question. Our prior adjusted EBITDA expense guidance was $9.65 to $9.95. We had said a quarter ago, if AUM levels remain flat or increase, we'd be towards the higher end of that range. And so AUM levels over the third quarter, as I mentioned, have been relatively flat.

Stay out we have done the RCA acquisition was in the middle of our various periods.

But we in general we are very financially disciplined about that so we ended up generating a lot of excess cash and therefore most of that a fixed cash flows back to buy back shares.

Imperial's, Ohio certainty on high on predictability.

People.

<unk> people.

<unk> board of directors are risk averse and alike.

And.

Owen Lau: And so we on an organic basis, we're tracking towards the high end of that range. And then as you said, the Burgess expenses before you layer on things like allocations and the integration expenses will add $20 million or so in that vicinity of additional expense. And so that's how you bridge to the new expense guidance. He put out. All right, that's fantastic.

Those are periods in which we believe we can make very nice financially disciplined acquisitions.

That's what we've seen in the last few months the <unk>.

<unk> acquisition that drove acquisition and the like and so we'll continue to see we'll continue to pursue small relatively small bolt on acquisitions that will use up a lot of a lot of our cash. So therefore, the last piece of this thing is financing.

Owen Lau: And I just want to add one quick question on ESN Climax's anonymity. So over the past few years, I think Phil Kiel, net new recurring subscription sales of ESN Climax was quite strong in the fall quarter. Should we expect stimulus's anonymity to continue this year? Thank you. Yeah, I don't want to give specific color around segments, as Barrett mentioned earlier, that pipeline is healthy. I would say given the nature of our business, and as you alluded to, we do see some seasonality in the fourth quarter based on what you've seen in past years.

Right now the financing environment is very expensive.

The labor rate.

3132 times leverage right now and then.

Maybe less.

And therefore, we don't have a keen interest in in.

<unk>.

Increasing our debt.

<unk>.

Our leverage.

At this point. So therefore, when you combine all of that it means that we're going to have very limited cash excess capital for buybacks in the next few quarters and we will continue to pursue.

It's more bolt on acquisitions, because the market is attractive for that.

Owen Lau: I think there are a number of factors that feed into that, including client budgets and their purchasing decisions. We also have annual incentive plans that feed into that, and we also have the highest concentration of client renewals taking place in the fourth quarter. So for all those factors, we tend to see a higher fourth quarter. That's not always the case, but as we had mentioned, there's a healthy pipeline going into Q4. Sounds great. Thanks a lot.

And we know unless we see some bigger we're likely not going to lever up at this point given this financing rates. So that's a little bit of our financial strategy overall in capital allocation at this time.

And then just quickly on your second question.

I would say that if I look at the growth rates in the second quarter.

The subscription run rate growth rates by region for ESG and climate there are largely consistent with the figures that I quoted this quarter, so similar dynamic or the Americas is in the teens.

George Tong: The next question is from George Tongue with Goldman Sachs. Your line is open. All right. Thanks. Good morning. In ESN climate, you mentioned growth slowed in the America's to 15 percent. Ball growth in the MiA was healthy at 35 percent.

EMEA is in the mid thirties and apex in the low to mid Twenty's, so very consistent.

The next question is from Russell Quelch with Redburn Atlantic Your line is open.

George Tong: Can you elaborate on what you're seeing in the Americas and when you would expect to see catalysts for improved growth? Yeah, sure. So I'd say we're seeing consistent themes in the Americas compared to what we've seen in recent quarters. So, you know, as investors, managers, broader financial services firms are integrating ESG and launching ESG strategies or plan to launch ESG strategies, they have to focus on a range of considerations, including how the lines with their overall investment objectives.

Yeah, Hi, guys. Thanks for having me on.

Yes, I think you did a great job of implementing a downturn playbook last year in difficult markets, you said much more cost flex and some of your peers.

I was wondering can you do this again next year, if we see a big fall in equity market levels, perhaps what areas. The business could you look to take cost out.

Maybe do you already have some plans in place in case 2020 full gets off to a tricky start particularly in equity markets.

We always been extremely financially disciplined.

And the clearly continues to be.

George Tong: So what is the impact that ESG considerations will have on risk and return? And how do I optimize my risk-adjusted returns by incorporating ESG into my investment process? How do I differentiate relative to my competitors? How do I address the ESG objectives that my clients have or that the investors have? And then for new products that they launch, how do they communicate their approach to ESG and how do they, again, position themselves relative to other products in the market and how do they prepare for coming regulations, which is not just a factor in MiA, but it's something that U.S, investors have to deal with as well.

We definitely have an ability to take out more cost.

That's what we call the downturn the downturn playbook.

<unk>.

Sure.

We can put into effect in order to protect our profitability.

The company.

If there is a big downdraft of obviously the equity values.

On a slowdown in subscriptions.

Our our desire not our ability.

But our desire to cott severely the new investments in the company.

May or may not be commensurate with the decline in.

George Tong: And so it is a complex environment for them to integrate ESG. The good news is we are in a good position to help them navigate that. And so when we say our clients are engaging strongly, they want to have those conversations with us. But because of that complexity, because of all those factors that feed into their buying decisions, we are seeing more measured purchasing decisions, longer sales cycles, ultimately a lower amount of sales.

With the slowdown in revenues. So we will have to analyze that trade off at that point, but for sure. We are committed to high levels of profitability on high levels of impactful investments in good times and in bad.

Hi.

Okay.

The next question is from Craig Huber with Huber Research partners. Your line is open.

Yes, hi, thank you.

George Tong: But overall, the engagement level is healthy, but we do expect these complexities and longer sales cycles to continue and persist for some time in the Americas. I think these factors that play on top of the cyclical factors will probably persist for some quarters.

Andy My first question your costs in all four segments looked to us like they were down sequentially can you just touch on that.

In light of your overall cost guidance for the year, which is interestingly the cost were down in the third quarter why is that so that's my first question.

Yes, so nothing specific to call out there other than I think you see this in other quarters, our costs will move around quarter to quarter.

Faiza Alwy: The next question is from Faiza Alwy with Deutsche Bank, your line is open? Yes, hi, good morning, thank you. So one another bit more color on the analytic segment. You know, you've seen the run rate growth accelerate here. So we'd love to hear more about where you might have invested and, you know, where, where you're seeing the acceleration and how you think about, you know, the competitive dynamics in that segment. Sure, thank you for the question bear here.

Based on a range of factors.

<unk> things like that.

Less recurring type of costs nonrecurring cost professional fees that can be things like comp accrual adjustments.

<unk> to the outlook and it can be related to things like severance and pace of spend so theres nothing specifically to call out on the expense side relative to Q2.

And so I wouldnt wouldnt read into any sort of trend there I would focus more on the guidance that we've given.

Bear: So, where would frame it is to say we've got three key areas of focus. The front office, both inequities and fixed income and you saw we had very nice numbers and equities, more content, which includes insights, better coverage of private assets, doing better and being more competitive and fixed income and structured products, and climate risk. So those are the key areas we're focused on. And I think that, you know, we're pleased with, well, well, I would say we're definitely not unhappy with the growth number.

Our final question is from Greg Simpson with BNP Paribas. Your line is open.

Hi, Good morning, Yes can I just ask on the expense growth in the ESG and climate to looks like its been below your mid to high mid to high <unk>.

Medium term guidance.

Margin I think is north of 30% now so Jay just wanted to check in on if there's any any kind of change around them.

<unk> in this in this segment versus.

But just any color.

Slowdown in all the coal side. Thank you.

Yes, nothing to read into there and no changes.

In generally the plans or outlook for investing in ESG and climate. That's one that we are continually calibrating as we calibrate across all segments based on the opportunities in front of us and the overall financial objectives.

Bear: We think we'd like to continue to be ambitious to get go up. The retention rate of 95% is also a sign that our clients continue to use our tools in these environments. So, you know, we've been very consistent in the story here. I think we continue to have structural improvements in how we deliver the product through better technology, greater integration of our content across different types of analytics. And you know, and in keeping with the theme that we've repeated here, our client engagement is excellent.

Bear: And we have a wide variety of use cases that clients are asking us to solve from, you know, going across very large firm use cases to very specific structured products, front office use cases, equity portfolio construction. So it's just a category where with a combination of our investments in content, better technology and better delivery and the expertise that we bring to clients. We hope to continue to have, you know, a good directional growth.

And ESG and climate continues to be an attractive growth area with big opportunity. So we do.

Plan to continue to invest in that area. The margin will related to the last question expenses expense growth and margin will fluctuate period to period based on a whole host of things. When you start to look at product segments. You can see some noise based on allocations moving you can see some more noise based on capitalization of.

Software development costs.

And you can see some other.

Expense movement related to as I alluded to perform kind of nonrecurring noncore type expenses or other accrual adjustments that we have but I wouldn't focus too much on the margin in ESG and climate This segment.

As I alluded to earlier no change to our long term targets.

We have no further questions at this time I'll turn it over to Henry Fernandez for any closing remarks.

Bear: The only thing I would add just as a slight notification caution is, you know, it isn't uncertain and unpredictable environment and, you know, client events can occur, but those are often, you know, things that we don't control ourselves.

So thank you everyone for joining us today.

Despite the more uncertain and more predictable environment economically financially geopolitically.

Bear: The next question is from Seth Weber with Wells Fargo. Your line is open. Hey, good morning, guys. Thank you. I know it's early days, but, you know, with the Burgess acquisition, when you announced it, you talked about, you know, good opportunities for joint product development and cross-selling. I'm just wondering if you could talk to any early traction that you're seeing there. Thank you. Yes.

We continue to benefit from a great.

All weather.

Franchise.

Henry Fernandez: So, you know, the Burgess acquisition is strategically, it provides an extremely strong foundation for us to develop what we call the MSCI of the Praverasa classes. We obviously need the data. And by the data, I mean, understanding of an investment and pricing of those investments to then develop the whole portfolio of investment tools that are used by allocators and managers of assets. And that portfolio of investment tools are benchmarking the sets, performance atribution, risk analysis, you know, risk management, liquidity, and how we manage liquidity, you know, in terms of Praverasa's cash flows, you know, when you're going to get the calls, when you're going to get redemptions and all of that with what is called basin models, asset allocation, et cetera.

Our desire is to be a compound there in good times and in bad times.

And we're very excited about all the opportunities. We see ahead of loss in all of our product lines from index to analytics, and ESG and climate and now obviously private assets.

And the opportunities, we can unlock with Burgess and and withdrawal we didn't talk much about the voluntary chemical markets and the opportunities there.

It could be very significant.

So we look forward to.

Updating you in future calls about all of our plans and our progress in all of this.

And again, thanks for joining us.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Yes.

[music].

Henry Fernandez: So, so the first, so if you were to think about the integration of Burgess, is going to follow in three kind of parallel tracks. The first track is clearly integration of a lot of the support functions in HR and office space in accounting and finance and all of that, and the integration of the alignment of the data and the data centers and the technology and all of that. So obviously integration of the Salesforce, the front-office salespeople, a Burgess with the front-office salespeople or MSCI and all that, so that's one bucket.

Henry Fernandez: The second bucket over time is going to be new product development and a big focus here will be one of the most recently, the most frequently asked questions from clients is, are we going to develop better benchmark indices for private access? So that will be something that will be high on the agenda for sure, but we're going to continue to expand dramatically on the intersection of private assets and climate, especially private credit and climate. And we already started with that, but we're only scratching the surface there. That's a major expansion on that second pillar, the product line.

Henry Fernandez: The third pillar, which is actually the fastest one that we're going to execute on and more promoted one is, we believe that the Burgess product line is severely under sole, you know, among, among LPs around the world. And we're taking steps to change that in having a lot of the Burgess salespeople working in coordination with our senior salespeople all over the world. So those are the three pillars. You know, clearly, we want to get the money first, you know, in sales and significantly outpace the sales growth of the business. We clearly need to integrate and over time, we clearly want to create a lot of new products in that middle piece of analytics.

Heather Balsky: The next question is from Heather Balsky with Bank of America. Your line is open. Hi, thank you for taking my question.

Heather Balsky: Two questions. First, just with regards to capital allocation, you talked about how important to the company. So I thought it'd be helpful to just ask, how you're thinking about capital allocation as you integrate Burgess. And, you know, are you prioritizing five acts versus M&A? What does the M&A pipeline look like? And then as a quick follow up, you gave the growth numbers for ESC and the US and Emia for the quarter.

Heather Balsky: Can you put that in to compare that to what it looks like in the first half of the year? Has it has your up into the growth rate that you saw is that consistent with the first half? Is it a pickup?

Henry Fernandez: Thank you. Yeah, so up to look on in your in your first question about capital allocation needless to say we've talked a great deal about this in the past. We are always obsessed with asset location at the RMCI. We believe that capital location is what gives you long-term compounding growth of a business. And it is the day-to-day capital location decisions that you make that ultimately aggregate to a great financial model and a great compounder, you know, over time.

Henry Fernandez: So that's an area that we're very forward to. And it is in two respects. One is the internal capital allocation of where we put our money with respect to organic investments such as, and we follow what we call the triple crown methodology, which we've talked about in the past. And then there is the core and core external asset allocation, which is what do we do with dividends with buybacks and with inorganic investments that we pursue.

Henry Fernandez: So with respect to the latter category, the external part, imperials of very bullish environment, asset prices are very rich, you know, investment, you know, or inorganic investments are very rich. Acquisitions are, you know, in options, people are tripping over each other. They're bit after properties and, you know, you end up significantly over paying. So imperials like that, we tend to stay, you know, we stay out. You know, we have done, you know, the RCA acquisition was in the middle of a feverish period, but we in general, we are very financially disciplined about that.

Henry Fernandez: So we end up generating a lot of access cash, and therefore most of that is the cash goes back to buy back shares. Imperials of high uncertainty and high predictability. You know, people reprenched, you know, people are, you know, high, borrow directors are risk averse and like, and those are periods in which we believe we can make very nice financially disciplined acquisitions, and that's what we've seen in the last few months, you know, the Burgess acquisition, the drug acquisition and the like.

Henry Fernandez: And so we'll continue to see, we'll continue to pursue small, relatively small bolt on acquisitions that will use up, you know, a lot of a lot of our cash. So therefore, you know, on the last piece of the thing is financing, you know, right now, the financing environment is very expensive, we are delivering, you know, we're 3.1, 3.2 times leverage right now, you know, in leverage, you know, maybe less. You know, and therefore we don't have a key interest in in increasing our debt, our debt, our leverage at this point.

Henry Fernandez: So therefore, when you combine all of that, it means that we're going to have very limited cash access capital for buybacks in the next few quarters, and we will continue to pursue. You know, it's more bolt on acquisitions because the market is attractive, you know, for that. And and we, you know, unless we see something bigger, we're likely not going to lever up at this point, given this financing rate.

Henry Fernandez: So that's a little bit of our financial strategy overall in capital allocation at this time. And then just quickly on your second question, I would say that if I look at the growth rates in the second quarter, the subscription run rate growth rates by region for ESG and climate, they're largely consistent with the figures that I quoted this quarter.

Henry Fernandez: So similar dynamic where the Americas is in the teens, amias in the mid 30s and apex in the low to mid 20s, it's a very consistent.

Russell Quelch: The next question is from Russell Quelch with Red Burn Atlantic. Your line is open. Hi guys, thanks for having me on. I think you did a great job of implementing it down to and play about last year in difficult markets. You showed much more cost flex and some of your peers. I was wondering, can you do this again next year if we see a big fuller net with the market levels? Perhaps what areas of the business could you let the take cost out?

Henry Fernandez: And maybe do you already have some plans in place in case 2024 gets off to a tricky start to clean empty markets? We always been extremely financially disciplined and the clearly continues to be more because we would definitely have an ability to take our more cost. That's what we call the downturn, the downturn playbook that we can put into effect in order to protect profitability in the company. If there is a big down draft of obviously equity values and slow down in subscriptions, our desire, not our ability, but our desire to cut severely the new investments in the company may not be commensurate with the decline in, you know, with the slow down revenues. So we have to analyze that trade off at that point for sure we are committed to high levels of profitability and high levels of impact for investment in good times and in bad times.

Craig Huber: The next question is from Craig Hubert with Hubert Research Partners. Your line is open. Yes, hi. Thank you. Andy, my first question, your costs and all four segments look to us like they were down sequentially. Can you just touch on that and also in light of your overall cost guidance for the year, which is entrusting me to the cost for down the third quarter? Why is that my first question?

Andy Wishman: Yeah, so nothing specific to call out there other than, and I think you see this in other quarters, our costs will move around quarter to quarter based on a range of factors, including things like less recurring type of cost, non recurring cost, professional fees, it can be things like compa cruel adjustments related to the outlook and it can be related to things like severance and pace of spend. So there's nothing specifically to call out on the expense side relative to Q2. And so I wouldn't wouldn't read into any sort of trend there. I would focus more on the guidance that we've given.

Greg Simpson: Our final question is from Greg Simpson with BMP Paraba. Your line is open. Hi, morning yet.

Greg Simpson: Could I just ask on the expense growth in the Eastern climate? It looks like it's been below your mid-twenties medium term guidance, give it down margin. I think is an awful 30% now. So just wanted to check in on if there's any any kind of change around investment in this segment versus any kind of slowdown on the cost side.

Andy Wishman: Thank you. Yeah, nothing to read into there and no changes in generally the plans or outlook for investing in ESG and climate. It's one that we are continually calibrating as we calibrate across all segments based on the opportunities in front of us and the overall financial objectives. To the last question, expenses, expense growth and margin will fluctuate period to period based on a whole host of things. When you start to look at product segments, you can see some noise based on allocations moving, you can see some noise based on capitalization of software development costs and you can see some other expense movement related to as I alluded to perform kind of non recurring non count type expenses or other accrual adjustments that we have. But I wouldn't focus too much on the margin and ESG and climate to segment and as I alluded to earlier, no change to our long term targets.

Operator: We have no further questions at this time.

Henry Fernandez: We'll turn it over to Henry Fernandez for any closing remarks. So thank you everyone for joining us today and despite the more uncertain and more predictable environment economically, financially, geopolitically. We continue to benefit from a great old weather franchise.

Henry Fernandez: Our desire is to be a compounder in good times and in bad times and we're very excited about all the opportunities that we can we see ahead of us in all of our product lines from index to analytics to ESG and you know climate and now obviously private assets. And the opportunities we can unlock with the purchase and and with travel. We didn't talk much about the voluntary carbon markets and the opportunities there but those could be very significant.

Operator: So so we look forward to you know to updating you in future calls about all of our plans and our progress in all of this and again, thanks for joining.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.