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    MSCI
    Earnings call· Mar 2025(Q1 FY25)

    MSCI Q1 FY25 earnings call MSCI

    Apr 22, 2025 Source

    Executive summary

    MSCI Q1 FY25 — Strong Financials Amidst Market Volatility

    MSCI delivered robust financial results in Q1 FY25, marked by strong organic revenue and adjusted EPS growth, alongside high retention rates across key segments. Despite a decline in new recurring subscription sales and muted activity in Real Assets, the company emphasized its resilient "all-weather franchise" and mission-critical solutions, particularly valuable during periods of market uncertainty and volatility. Strategic partnerships and product development are focused on customization and private asset transparency.

    Highlights

    6

    • Organic revenue growth of 10%.

    • Adjusted EBITDA growth of 11%.

    • Adjusted EPS growth of almost 14%.

    • Retention rate over 95% (Index over 96%, Analytics over 95%).

    • Asset-based fee gross revenue growth of 18%.

    • Highest Q1 cash flows into ETF products linked to MSCI Indices since 2021.

    Concerns

    4

    • New recurring subscription sales were down from Q1 2024.

    • Real Assets overall activity remained muted due to client consolidation.

    • Sustainability and Climate segment saw net new sales decline in the quarter.

    • Long-term target for Sustainability and Climate product line remains under review.

    Guidance & targets

    1
    CategoryTargetConfidence
    Effective tax rate (excluding discrete items)
    19% to 21%
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Index
    Strong growth driven by asset managers and asset owners, with significant contributions from custom indexes and asset-based fees due to strong ETF inflows, particularly into international exposure products.
    Subscription run rate growth: 9%Asset managers subscription run rate growth: nearly 7%Asset owners subscription run rate growth: over 10%Hedge funds, wealth managers and banks & broker-dealers subscription run rate growth: 22%, 16%, 11% respectivelySubscription run rate from custom indexes growth: 15%Asset-based fee revenue growth: 18%Non-ETF AUM linked to MSCI indexes: nearly $3.9 trillionNon-ETF AUM linked to MSCI indexes growth YoY: 20%MSCI-linked equity ETFs ending balance: $1.78 trillionMSCI-linked equity ETFs inflows: nearly $42 billionFixed Income ETF AUM linked to MSCI and partner indexes: over $76 billionFixed Income ETF AUM linked to MSCI and partner indexes growth YoY: 20%Retention rate: over 96%
    		————
    Analytics
    Continued momentum in equity analytics and solid growth with hedge funds, trading firms, and asset owners. Expected revenue growth in Q2 to be in line with or slightly lower than run rate growth due to comparison with prior year's implementation-related revenues.
    Subscription run rate growth: 7%Retention rate: over 95%
    		————
    Sustainability & Climate
    Growth driven by large deals in banking and strong performance with asset owners and wealth managers. Long-term target remains under review due to near-term environment impact. Expecting to lap prior year benefit from Moody's partnership in Q2.
    Subscription run rate growth: almost 10%Growth with asset owners: 14%Growth with wealth managers: 14%Retention rate: 94.5%EMEA subscription run rate growth: 14%Americas subscription run rate growth: 4%APAC subscription run rate growth: 8.5%Climate-related run rate within segment: ~$75M-$76M
    		————
    Private Capital Solutions (PCS)
    Steady interest in data, performance, and benchmarking solutions, with strong recurring net new sales growth.
    Recurring net new sales increase: 24%Run rate growth: mid-teens
    		————

    Operational metrics

    21
    Organic revenue growth
    10%
    Q1 FY25

    null

    Adjusted EBITDA growth
    11%
    Q1 FY25

    null

    Adjusted EPS growth
    almost 14%
    Q1 FY25

    null

    Share repurchases
    $275 million
    Q1 FY25 through April 21

    Reflects opportunistic capital deployment and belief in long-term value.

    Retention rate (company-wide)
    over 95%
    Q1 FY25

    Durable retention.

    Organic subscription run rate growth
    8%
    Q1 FY25

    null

    Gross leverage ratio
    2.6x
    LTM

    Strong balance sheet.

    Effective tax rate
    12.8%
    Q1 FY25

    As previously indicated.

    Recurring net new sales growth
    over 60%
    Q1 FY25

    Achieved for each product line.

    Subscription run rates from clients using multiple product lines
    88%
    Q1 FY25

    Highlights integrated and interconnected tools.

    Index subscription run rate from asset managers and asset owners
    almost 70%
    Q1 FY25

    These two client segments comprise almost 70% of our index subscription run rate.

    Inflows into products linked to MSCI DM ex U.S., EM and All Country exposures
    $37 billion
    Q1 FY25

    Part of nearly $42 billion of total inflows into MSCI-linked equity ETFs.

    Share of inflows captured by MSCI in DM ex U.S., EM and All Country exposures
    roughly 45%
    Q1 FY25

    MSCI collectively captured roughly 45% of all inflows in these categories.

    Subscription run rate breakdown by client location
    40% Americas, 40% Europe, 20% Asia Pacific
    Q1 FY25

    Based on where the client is located.

    Sustainability and Climate segment contribution by region
    52% EMEA, 34% Americas, 14% APAC
    Q1 FY25

    Regional contribution to the Sustainability and Climate segment.

    Direct indexing AUM based on MSCI indexes
    $131 billionup 30%
    Q1 FY25

    Illustrates growth in wealth solutions.

    AUM in ETF and non-ETF products linked to MSCI climate indexes
    $387 billiongrew by 50%
    Q1 FY25

    Reflects asset owners and other clients adapting MSCI indexes to support climate strategies.

    Recurring revenue
    98%
    Q1 FY25

    Highlights resilient financial model.

    Hedge funds using next-gen factor models in Analytics
    more than 60up from just 8 in 2022
    Q1 FY25

    Helping hedge funds understand risk and return amid volatility.

    Private credit funds in database
    2,800
    Q1 FY25

    Database used for private credit assessment.

    Climate run rate growth
    20%
    Q1 FY25

    Across the entire company.

    Product announcements

    2
    ProductTypeDetails
    Foxberry F9 platform integrationexpansion
    Independent credit risk assessments for private creditlaunch

    Deals & partnerships

    5
    Moody'sDevelopment of independent credit risk assessments for private credit. Combines Moody's credit risk modeling with MSCI's private credit investment data.

    Builds on a prior ESG partnership. Aims to provide third-party assessment of creditworthiness for private credit funds and underlying instruments.

    Large European bank (asset management arm)Exclusive partner and index provider for all future passive ETFs. Includes access to Fixed Income issuance-weighted module and custom indexes.7-figure

    MSCI became the exclusive index provider for future passive ETFs for a major European bank's asset management arm.

    Large bank in the AmericasSustainability and Climate regulatory solution to support asset liability management.multiyear

    Demonstrates MSCI's ability to generate value in climate risk and sustainable finance.

    Prominent global financial institution (wealth arm)"One MSCI" win including Index and Private Capital Solutions. Multi-location renewal deal spanning 7 countries, broadening scope of existing relationship.7-figuremulti-location

    Significant win demonstrating cross-product solution capabilities for wealth managers.

    European wealth managerExpand integration of sustainability at home office level and in client portfolios.multiyear

    Secured a large multiyear Sustainability and Climate win.

    Risks & headwinds

    5
    Decline in new recurring subscription salesQ1 FY25

    Down from Q1 2024

    Mitigation: Focus on mission-critical tools, client engagement, and strategic partnerships. Expectation that some Q1 delayed deals will close in Q2.

    Muted activity in Real Assets segmentQ1 FY25

    Overall activity remained muted.

    Mitigation: Acknowledged headwinds related to client consolidation (brokers and developers).

    Cyclical headwind in Sustainability and Climate segmentNear-term

    Net new sales decline in Q1. Long-term target under review.

    Mitigation: Adapting to changing demand (more underlying data, regulatory compliance), shifting focus to physical risk in climate, and leveraging broader database for other issues.

    Market uncertainty and volatilityCurrent environment

    extremely uncertain environment with new news coming every day

    Mitigation: Emphasizing mission-critical tools, transparency, analytics, stress testing. Leveraging resilient financial model and expense playbook levers.

    Regulatory complexity and uncertainty in Europe (Sustainability & Climate)Near-term

    Potential for reduced scope on CSRD.

    Mitigation: Acknowledged, but tools remain mission-critical.

    What to watch in Q2 FY25

    5

    New recurring subscription sales

    Q2 FY25
    CurrentDown from Q1 2024
    TargetInflection to growth

    Why it matters

    Indicates underlying demand and growth momentum, especially given management's expectation for Q1 delayed deals to close in Q2.

    new recurring subscription sales were down from Q1 of 2024. More specifically, a few items that did not close in Q1. Again, as of today, that -- we believe they will close in Q2.

    Q&A highlights

    5

    Is there reluctance for new purchases or deals being pushed out due to market volatility, particularly in Index and Sustainability?

    Management stated that as of today, they do not see evidence of a change in purchasing habits or pipeline. Some deals pushed from Q1 are expected to close in Q2. Client engagement is high, with demand for transparency, analytics, and stress testing, especially for non-U.S. opportunities.

    “as of today, we don't have evidence that there is a change in the purchasing habits or the pipeline with our clients. More specifically, a few items that did not close in Q1. Again, as of today, that -- we believe they will close in Q2.”

    asked by Toni Kaplan · answered by C. Pettit

    2 min read5 chapters

    Detailed Narrative

    01

    Market Dynamics and Client Needs

    The company highlighted that periods of market disruption🌐 and high uncertainty increase client reliance on MSCI's mission-critical data, models, and technology. This "all-weather franchise" provides solutions for risk analytics, benchmark indices, and transparency tools, especially for private assets and ESG/climate data, enabling clients to navigate volatility and make informed decisions. The current environment, characterized by global turmoil, is seen as a period where MSCI's solutions take on greater importance for clients across various segments.

    02

    Strategic Focus on Customization and Private Assets

    MSCI is enhancing its offerings for portfolio customization and personalization, with solid momentum in custom indices, further supported by the integration of the Foxberry F9 platform. The company is also building new solutions for private assets, including a significant partnership with Moody's to develop independent credit risk assessments for private credit. This collaboration leverages Moody's credit risk modeling solutions with MSCI's private credit investment data to drive greater clarity and confidence in this asset class.

    03

    Geographic and Asset Flow Shifts

    Management observed a significant shift in asset flows away from the U.S. towards international markets, particularly Europe and Japan, which is seen as a positive for MSCI given its global exposure. This trend, coupled with a weakening dollar, is expected to benefit asset-based fees and drive demand for data and models to understand underlying issues in global portfolios. MSCI performs better when money flows globally rather than being concentrated in the U.S. market.

    04

    Sustainability and Climate Evolution

    While the Sustainability and Climate segment faces cyclical headwinds and muted demand in some areas (e.g., U.S. sustainability strategies), the underlying demand is evolving. Clients now seek more granular data and regulatory compliance support. Climate-related demand is shifting from long-term transition risk to immediate physical risk, particularly from banks and insurance companies, driving new product development like physical risk models with Swiss Re. The company believes the long-term structural demand for sustainability factors remains positive.

    05

    Capital Allocation and Financial Resilience

    MSCI repurchased $275 million of shares in Q1, demonstrating confidence in its stock and commitment to a robust capital allocation policy. The company maintains a strong balance sheet with a gross leverage ratio of 2.6x adjusted EBITDA and a resilient financial model with 98% recurring revenue, strong margins, and high cash flow conversion. This financial strength enables MSCI to manage expenses effectively through various market conditions, with levers such as incentive compensation, non-comp expenses, and hiring pace.

    AI-generated summary of the company’s earnings call. Not investment advice.