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    MSCI
    Earnings call· Dec 2024(Q4 FY24)

    MSCI Inc. MSCI

    Jan 29, 2025 Source

    Executive summary

    MSCI Q4 FY24 — Strong Financials and Strategic Growth Across Segments

    MSCI delivered robust Q4 FY24 results, marked by strong organic growth in subscription and asset-based fees, driven by strategic investments and expanding client engagement. While active asset managers in Europe face lingering pressures, the company sees encouraging signs in the U.S. and is capitalizing on opportunities in wealth management, private assets, and fixed income. MSCI's focus on innovation, data quality, and client-centricity positions it for continued compounding growth across market cycles.

    Highlights

    9

    • Full-year organic revenue growth of almost 10%.

    • Full-year adjusted EPS growth of 12.4%.

    • Full-year free cash flow growth of 21%.

    • Q4 organic subscription run rate growth of 8% (excluding FX).

    • Q4 asset-based fee run rate growth of 15%.

    • Q4 retention rate of 93%.

    • Hedge funds and wealth managers subscription run rate growth of 15% and 12% respectively (excluding FX).

    • Direct indexing AUM based on MSCI Indices increased by 31% to nearly $130 billion.

    • Fixed Income run rate growth of 15% to $104 million.

    Concerns

    4

    • Lingering pressures on active asset managers, particularly in Europe.

    • Analytics revenue growth slightly below run rate due to timing of implementation-related revenues.

    • Elevated cancels in Real Assets, particularly among developers, brokers, and agents, due to client events and vendor consolidation.

    • Higher cash tax payments expected in Q1 2025 (about $30 million deferred from 2024).

    Guidance & targets

    5
    CategoryTargetConfidence
    Adjusted EBITDA expenses
    ~$35 million higher sequentially
    medium materiality
    High
    Quarterly operating effective tax rate
    19% to 21%
    medium materiality
    High
    Capital expenditure
    Reflects investments in software development
    medium materiality
    High
    Free cash flow
    Reflects higher cash tax payments in Q1
    medium materiality
    High
    Q1 Effective tax rate
    Includes a benefit from discrete items
    medium materiality
    High

    Segment performance

    10
    SegmentRevenueYoYQoQMargin
    Firm-wide
    Strong financial metrics for the full year and Q4, demonstrating scale and leadership.
    Adjusted EPS growth: 12.4% (FY24)Free cash flow growth: 21% (FY24)Retention rate: 93% (Q4)Organic subscription run rate growth: 8% (Q4, ex-FX)Reported subscription run rate growth: 7% (Q4)Asset-based fee run rate growth: 15% (Q4)
    		—almost 10%——
    Hedge Funds
    Achieved best ever Q4 recurring sales, driven by Index. Completed large deals with multi-strategy hedge funds, including conversions of one-time float data sales to recurring subscriptions.
    Recurring sales growth in Index: 46% (Q4)
    		—15%——
    Wealth Managers
    Significant momentum across product lines, including a large enterprise deal for MSCI Wealth Manager platform. High client engagement levels.
    Total Wealth subscription run rate: $116 millionAnalytics subscription run rate growth: 14% (ex-FX)Analytics subscription run rate: over $25 millionClimate run rate growth: 28%Climate run rate: $7 millionESG and Climate recurring sales growth: 67%ESG and Climate recurring sales: $3 million
    		—12%——
    Banks and Broker-Dealers
    Particular strength from Index, expanding relationships with large investment banks for OTC derivatives and structured products.
    New recurring sales for Index: over $7 million (Q4)Index new recurring sales growth: almost 39%
    		—7%——
    Asset Owners
    Position strengthened by climate importance and private assets capabilities. Won a large climate index mandate expected to benchmark $20 billion AUM.
    Recurring sales growth in Index: almost 40% (Q4)Private Capital Solutions run rate: $78 millionPrivate Capital Solutions run rate growth: 15%
    		—11%——
    Asset Managers
    Supported with tools for sustainability and low carbon transition. Landed numerous large-ticket deals for nature and biodiversity tools and climate scenario analysis.
    Retention rate: 94%ESG and Climate product line retention rate: nearly 95%
    		—5%——
    Index
    Strong momentum across client segments, with custom indexes showing particularly strong growth.
    Subscription run rate growth with asset managers: almost 7%Subscription run rate growth with asset owners: 12%Subscription run rate growth with hedge funds: 22%Subscription run rate growth with broker-dealers: 8%Custom indexes and special packages growth: 8% (vs last year)Custom index subscription run rate growth: mid-teensOverall retention rate: 95%Retention rate with asset managers: almost 96%
    		————
    Analytics
    Supported by large Wealth and Fixed Income mandates. Revenue growth impacted by timing of implementation-related revenues.
    Organic revenue growth: approximately 5%
    		—7%——
    ESG and Climate
    Most cancels reflect client down sales, not outright terminations. Benefiting from breadth of offering, data quality, and securities coverage.
    Subscription run rate growth in Europe: 14% (ex-FX)Subscription run rate growth in Asia: 11% (ex-FX)Subscription run rate growth in Americas: 4% (ex-FX)Retention rate: over 93%
    		—10%——
    Private Capital Solutions
    Slight slowdown in subscription run rate but steady growth. Softness in recurring net new, but good traction with new logos and in EMEA/APAC.
    Retention rate: 92%
    		—15%——

    Operational metrics

    15
    Share buyback
    $810 million
    FY24

    Total shares repurchased for the full year.

    Share buyback
    $425 million
    Q4 FY24

    Shares repurchased during Q4 and through yesterday (call date).

    Gross leverage
    2.6x
    FY24

    Gross leverage relative to 2024 EBITDA.

    Equity ETFs linked to MSCI indices cash inflows
    $48 billionhighest quarterly since end of 2021
    Q4 FY24

    Driven by strength in developed markets outside U.S., ESG & Climate, and factors.

    ESG and Climate Equity ETFs cash inflows
    $12 billionhighest quarterly since Q1 2022
    Q4 FY24

    Accounted for nearly 70% of global cash inflows into ESG and Climate equity ETF products in Q4.

    Climate Equity Indexes AUM
    more than 50%from last year
    YoY

    Driven by strong inflows into ETFs and key mandate wins from asset owners.

    Factor Indexes ETFs cash inflows
    $6 billionhighest quarterly since Q2 2021
    Q4 FY24

    Solid inflows into quality, value growth, and momentum factors.

    Direct indexing AUM
    nearly $130 billionincreased by 31%
    Q4 FY24

    AUM based on MSCI Indices.

    Fixed Income run rate
    $104 million
    Q4 FY24

    Run rate across all product lines.

    Non-ETF AUM (non-market cap weighted)
    close to 35%vs 20% in non-ETF category overall
    YoY

    Strong traction in institutional passive and direct indexing.

    Non-ETF AUM
    20%
    YoY

    Overall growth in non-ETF AUM.

    Non-ETF AUM (custom indexes)
    50%
    YoY

    Growth within custom indexes in the non-ETF category.

    Deferred cash tax payments
    $30 million
    FY24

    Amount of 2024 cash taxes deferred, resulting in elevated payments in 2025.

    Private credit funds covered
    more than 2,800
    current

    New private credit data set provides terms and conditions transparency.

    Private credit holdings covered
    more than 120,000
    current

    New private credit data set provides terms and conditions transparency.

    Product announcements

    4
    ProductTypeDetails
    MSCI Wealth Manager platform (formerly Fabric)launch
    New private credit data setlaunch
    AI Portfolio Insights solutionupdate
    Foxberry F9 platform (foxf9)expansion

    Deals & partnerships

    7
    Large asset manager clientLaunch of a new ETF linked to an MSCI climate index.$2.4 billion

    Highlights prominence of MSCI indices, network effect, and demand for climate-related products.

    Two of the world's top investment banksLarge index deals.

    Expanded relationships with a pair of large investment banks in the Americas.

    U.S.-based asset managerLarge 7-figure fixed income portfolio management analytics deal.7-figure

    Win stemmed from enhanced fixed income capabilities, including hard-to-model assets.

    Federal governmentFirst-of-its-kind contract for agency mortgage-backed security analytics.

    Win stemmed from enhanced fixed income capabilities.

    U.K.-based asset ownerLarge climate index mandate.

    Strengthens MSCI's position among asset owners.

    Large existing client in Europe (asset manager)Expanded use of MSCI's managed services, data management, and enterprise risk and performance analytics.

    Continued support for asset managers with tools for sustainability and low carbon transition.

    Moody's AnalyticsMoody's Analytics subscribing to MSCI ESG data; MSCI using Bureau van Dijk data to create ESG scores; intention to explore collaboration on private credit.

    First two components (data subscription, ESG scores using BvD data) are active. Third component (private credit collaboration) is an intention being explored.

    Risks & headwinds

    4
    Lingering pressures on active asset managersat least in the near term

    some pressure

    Mitigation: Expects different segments/regions to recover at different paces; market levels and confidence are constructive.

    Timing of implementation-related revenues in Analyticsnext quarter

    slightly below run rate growth

    Mitigation: Focus on run rate growth as a better indicator; expects lumpiness to continue.

    Elevated cancels in Real AssetsQ4 FY24

    one large down sale

    Mitigation: Early signs of improved traction in capital coming back into the space.

    Higher cash tax payments in Q1 2025Q1 2025

    about $30 million

    What to watch in Q1 FY25

    5

    Adjusted EBITDA expenses

    Q1 2025
    CurrentQ4 2024 level
    Target~$35 million higher sequentially

    Why it matters

    Indicates the pace of investment and compensation-related expenses, impacting short-term profitability.

    As we've seen in previous years, we expect adjusted EBITDA expenses to be about $35 million higher sequentially in Q1 2025, compared to Q4 of 2024, mostly driven by elevated compensation and benefits-related expenses.

    Q&A highlights

    6

    How is MSCI thinking about the long-term growth rate for ESG ex-Climate, given current challenges? Is it a cyclical period or a new normal, and what factors will dictate future growth?

    Henry Fernandez stated that European financial institutions remain committed to sustainability despite regulatory adjustments causing a pause in new product launches. He expects demand to evolve towards underlying data and materiality. Asia Pacific is showing early signs of new regulations. In the U.S., clients view sustainability as a secular trend, shifting focus to private sector materiality. He is bullish on the opportunity but notes the product line needs to evolve. The company is reevaluating long-term targets.

    “I have not seen any let up in the commitment of all these European financial institutions to sustainability... I'm pretty bullish on the opportunity there... In the U.S., I think that, obviously, the new administration is not focused on sustainability. It's not focused, obviously, on climate. And therefore, we have to see how that evolves. But importantly, a lot of our clients in the United States have come to the view that sustainability and climate impact in their portfolio is here to stay and is a secular trend.”

    asked by Toni Kaplan · answered by Henry Fernandez

    3 min read7 chapters

    Detailed Narrative

    01

    ESG & Climate Outlook

    Management sees continued commitment to sustainability in Europe despite regulatory adjustments causing a pause in new product launches, with demand evolving beyond simple ratings to underlying data and materiality. Asia Pacific is showing early signs of new regulations. In the U.S., while the administration isn't focused on sustainability, clients view it as a secular trend, shifting focus to private sector materiality. The company is bullish on the opportunity but notes the product line needs to evolve and is reevaluating long-term targets.

    02

    Client Segment Momentum

    MSCI is building significant momentum with wealth managers, achieving 12% subscription run rate growth (ex-FX) to $116 million, and 14% growth in analytics for this segment. Hedge funds saw 15% subscription run rate growth (ex-FX), driven by strong Q4 recurring sales in Index. Banks and broker-dealers delivered 7% subscription run rate growth (ex-FX), with Index new recurring sales up almost 39%. Asset owners had 11% subscription run rate growth (ex-FX), including nearly 40% recurring sales growth in Index.

    03

    Custom Index and Passive Growth

    Demand for custom index capabilities is strong, with mid-teens growth in custom index subscription run rate. This is fueled by clients seeking specialized portfolio construction tools and aligning with MSCI's frameworks. Beyond ETFs, non-ETF AUM linked to non-market cap weighted products (ESG, Climate, Factor indexes) grew close to 35%, compared to 20% for the overall non-ETF category. This trend is also seen in direct indexing and structured products.

    04

    Analytics Performance and Outlook

    Analytics subscription run rate growth was approximately 7% (ex-FX), supported by large wealth and fixed income mandates. Revenue growth was slightly below run rate due to the timing of📎 implementation-related revenues, which can be lumpy. This trend is expected to continue in the near term, but the company remains encouraged by momentum in key growth areas like fixed income, wealth, and insights offerings.

    05

    Private Assets and Real Assets

    Private Capital Solutions (PCS) showed steady 15% subscription run rate growth, with good traction in landing new logos and momentum in EMEA and APAC. New benchmarks and content around private credit are being released. Real Assets continued to face challenges, impacted by a large down sale and softness with brokers and agents, leading to declines in retention rates and net new sales. Early signs of institutional capital returning to the space are noted, but transaction activity has yet to pick up.

    06

    AI Integration and Impact

    MSCI is leveraging AI for efficiency, particularly in data operations, reducing data acquisition costs and speeding up the ability to integrate new data categories. AI is also being used in software engineering and product development, such as AI analytics insights, thematic driver discovery for Index, and enhancing climate/ESG data gathering and quality control (e.g., Geospatial data asset intelligence). While AI is seen as a massive innovation engine driving sales and growth, its direct impact on raw pricing power is not yet clear.

    07

    Geographic Dynamics and Sales Cycles

    The market environment is more constructive, with rising markets supporting client confidence and budgets, particularly in the U.S. Sales cycles, while still long in many areas, show some improvement. Europe continues to experience more pressure on asset managers, impacting sales and cancels, with some lingering effects expected. The company notes that dynamics are nuanced by geography, client segment, and firm.

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