MSCI Q2 2026 Earnings Call | Adjusted EPS Jumps 18.5% on Strong Recurring Subscription Sales

Good day ladies and gentlemen. Welcome to the MSCI second quarter 2026 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 participants are requested to ask one question at a time, then add themselves back to the queue for any additional questions. We will have further instructions for you later on. I would now like to turn the call over to Jeremy Yulan, head of investor relations and treasurers. You may begin.

Thank you. Good day and welcome to the MSCI second quarter 2026 earnings conference call. Earlier this morning, we issued a press release announcing our results for the second quarter 2026. This press release along with an earnings presentation are available on our website msci.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 the presentation. You are cautioned not to place undue reliance on forward-looking statements which speak only as the date on which they are made, are based on current expectations and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. For a discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10-K and in our other SEC filings. During today's call, in addition to results presented on the basis of US GAAP, we also refer to non-GAAP measures. You'll find the reconciliation of our non-GAAP measures to the equivalent GAAP measures in the appendix of the 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, and Andy Wishman, our chief financial officer. With that, let me now turn the call over to Henry Fernandez. Henry,

Thank you, Henry. And hi, everyone. We're excited to see the large pipeline and strong momentum in key growth areas across the business with further accelerations in our index and private asset segments. As Henry mentioned, we have had several large client wins that reaffirm the growing ecosystem around our frameworks and solutions. Index subscription run rate growth accelerated to over 11% driven by a strong quarter for recurring net new subscription sales of over $28 million, which was up nearly 41% year-over-year. This reflected some large deals with traders and hedge funds across numerous modules including our custom index modules. These helped power custom index organic subscription run rate growth to 23% excluding contributions from the Compass acquisition, and the retention rate among hedge funds within our index product line was in line with the overall index retention rate at more than 97%. Additionally, we saw another quarter of very strong growth in asset-based fees with the ABF run rate reaching nearly $950 million and growing 25% year-over-year. This growth was fueled by close to $40 billion of cash inflows in the quarter, driving AUM in ETFs linked to our indexes up to more than $2.8 trillion. The asset growth and cash inflows predominantly occurred in clients' products linked to our developed markets ex-US and all country indexes, some of which carry lower fees. Within analytics, we had organic subscription run rate growth of 7% driven by demand for our factor content and factor solutions where we continue to innovate rapidly. We are also seeing steadily growing demand for multi-asset class total portfolio solutions including for front office use cases. Analytics organic revenue growth was 7%, tracking with run rate growth. In private capital solutions, subscription run rate growth accelerated to over 16%. During the quarter, we had solid traction across existing solutions like our transparency, private capital intel, and total plan offerings. We also see growing demand with new offerings like our data platform and our asset and deal level metrics. The acceleration is supported by both our deep private asset insights and our strong multi-asset class total portfolio capabilities. Additionally, we're seeing success with Vantager, having already closed a few sales of our diligence solutions offering in real assets. Organic subscription run rate growth accelerated modestly as we benefited from recent product and service enhancements. And we won a large deal to be the exclusive provider to a large property technology firm that will leverage RCA content and our global index intel offering delivered through Snowflake. In the sustainability and climate reportable segment, we drove nearly $6 million of new recurring sales in sustainability in Q2 and over $3 million of new recurring sales in climate. However, cancels, particularly in the Americas, were a significant headwind as clients are right-sizing their sustainability spend. As Henry mentioned, we are capturing share gains in a consolidating market and are strongly positioned from a competitive standpoint based on our trusted reputation for quality, depth, and breadth of coverage, as well as the broad suite of interoperable solutions that we offer. Meanwhile, in climate, run rate growth across MSCI product lines was nearly 12%.

And we are seeing significant demand for physical risk solutions, which are increasingly woven into the investment process. In the quarter, we won several physical risk deals, including a large deal for our geospatial and asset location solution with a European bank. And MSCI's announced acquisition of First Street, a company which has developed truly unique climate forecasting models, enables us to capture the increasing demand for physical risk and broader climate solutions across a wider range of client segments and use cases. Upon the close of the acquisition in Q3, we would expect First Street to add about $10 million of subscription run rate to the S&C reporting segment. Between the significant emerging opportunities and the pressure on parts of the sustainability franchise, we expect recurring net new sales to be roughly zero to slightly negative for the combined sustainability and climate reporting segment across the next two quarters. As always, we remain intensely focused on driving strong capital returns to shareholders, and we will continue driving value creation through capital allocation as we have done year-to-date between our disciplined repurchases and acquisitions. On expense guidance, we've seen strong AUM growth within investment products linked to MSCI indexes. These AUM levels have been higher than the assumption we noted last quarter. When we released earnings in April, we indicated that we would be towards the high end of the expense guidance ranges based on the assumption of relatively flat markets in Q2. Given the strong top-line momentum and very attractive opportunities, we've been investing in key growth areas. Additionally, there are a few notable factors driving the increased expense guidance range. Firstly, the impact of the recent acquisitions with the largest impact expected from First Street. Secondly, performance stock-based comp and bonus approvals related to the significant increase in AUM in products linked to MSCI indexes. The adjustment to the D&A guidance is driven by the First Street acquisition and the increase in the interest expense is driven by the higher revolver balances related to the First Street acquisition and recent share repurchases. Importantly, we have the leverage to flex investments up and expenses down based on the environment and business performance, which allows us to consistently deliver strong results. We remain well positioned and committed to delivering attractive profitability growth in all environments while investing for the long term. Overall, I'm incredibly excited by our growing momentum and the strong pipeline across the business. We're only just starting to see the benefits of the new and enhanced solutions that we've recently introduced and which are adding to our momentum. We look forward to keeping you posted on our progress. And with that, operator, please open the line for questions.

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one again. Please limit yourself to one question, then you may return to the queue for additional questions. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Manis Paint with Barclays. Your line is open.

Hi, thank you. Henry, I guess in your commentary you talked about a lot of record new sales and categories and so forth. So just broadly in terms of the environment for subscription sales looking forward, how would you characterize the momentum there versus maybe the numbers that fell a little short of expectation? Just curious on anything seasonal or any other characteristics you would call out.

Thank you.

Please stand by for our next question. Our next question comes from the line of Tony Kaplan with Morgan Stanley. Your line is open.

Thanks so much. I wanted to follow up, Henry, on you just mentioned maybe higher volatility because of the higher ticket price products, higher priced products. I was wondering if you could maybe talk about you're having really good success selling to hedge fund clients. You mentioned the tripling of net new sales there. Does that inherently lead to revenue volatility in the future? I know right now it seems like that's not an issue, but does that lead to volatility? And then maybe also, MCP, are you getting traction and adoption on selling data through MCP and does that lead to increased pricing this year but then when you lap it in the future does that sort of add some volatility as well? Thank you.

Thank you.

Please stand by for our next question. Our next question comes from the line of Ashes Sabaj with RBC Capital Markets. Your line is open.

Thanks for taking my question. I wanted to drill down further on the analytics front. Particularly you talked about really strong demand for factor content and factor solutions, but if you look at the subscription sales growth there, that was a bit soft. So I was wondering any particular puts and takes that you would call out? Is it mostly around tougher comps and how do we think about the pipeline in analytics going forward? Thanks.

Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Alex Cra with UBS. Your line is open.

Yes. Yes. Hey, good morning everyone. Hopefully this is not a repeat. My phone just dropped. But I wanted to come back to the index sales in particular from hedge funds because you did point out the strong demand and I think you just mentioned it again just now in terms of the multi-managers, but there's obviously been a bunch of articles around how much money some of these firms are minting in terms of index arbitrage strategies, etc. So just wondering, do you think there's a large demand for this? Do you think there's a lot of firms that you're talking to that want to get bigger in that space because clearly there's money to be made, or do you think it's a very concentrated group of folks that you can sell to and then hopefully at some point you meet that demand but maybe it's finite.

Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Owen Law with Clear Street. Your line is open.

Good morning and thank you for taking my question. Could you please add more color on the drivers of the fee compression for the asset-based fee in the last two quarters? The drop was quite meaningful for two quarters compared to last year. How much of that was because of the tier pricing structure and how much of it is driven by competitive dynamics and how should we think about these fee rates going forward? Thank you.

Sure. Sure. Yeah. So Owen, first and foremost, it is important to keep in mind that our primary focus is on driving overall run rate growth and revenue growth and maximizing the AUM capture with our ETF partners. And you've seen tremendous success on that front with nearly a trillion dollars of AUM growth and 30% growth in ETF run rate over the last year, 25% overall growth in asset-based fee run rate. So that is our predominant focus. As we commented on with the year-end earnings around the new BlackRock agreement, the extension of the BlackRock agreement, there was a change to the floors on certain products which caused a drop in the first quarter of basis points. When you look at the second quarter, it was predominantly driven by tremendous asset growth and mix shift. And so we saw significant growth in AUM skewed towards developed markets outside the US and all country products where we tend to have a wider range of pricing schedules particularly relative to emerging market exposure. Correspondingly, you saw far less cash flows in emerging markets in the second quarter relative to what we've seen in the past year recently. And so there were a number of dynamics at play. In this case it was heavily mix-shift driven. I do want to highlight, and we mentioned this at year-end, we do now have lower floors on certain large products and we've got a somewhat dynamic framework built around the pricing. So the overall basis points are going to be dynamic and a function of how much growth we see and where we see that growth. And if you do see significant growth in lower fee products, you can

See a higher contribution from mix shift as we saw in the second quarter here. The opposite can be true as well where when you see a higher contribution from the higher fee products, you can see stability or even increases in the basis point. So it really is path dependent here. But overall our focus is on driving overall run rate growth and we continue to be very bullish about the opportunity here and even over the last few weeks in the third quarter we've continued to see exceptional cash flows into ETFs linked to our indexes and so continue to believe there's a long trajectory of upward movement there.

Thank you. Our next question comes from the line of Alex Hess with JP Morgan. Your line is open.

Yeah. Hi guys. Could you briefly refresh us how much, what is your AUM level to end the quarter in non-ETF products? And then shifting to the active ETF discussion. I know you guys threw out some points there, but maybe give us an update on how active ETF penetration is going. Should we expect more of a patch of subscription product in the back half of the year or and active ETFs? Any sort of dynamics about how that should flow through your P&L in the back half of the year and just the momentum in that business would be really helpful. Thank you guys.

Sure. Sure. Yeah. Thanks, Alex. So, the non-ETF passive AUM is around $5 trillion as of June 30th. Continues to be an area where we see tremendous growth across a number of dimensions. The revenue growth can deviate from ETF growth because of a number of factors including different AUM growth dynamics, less impact from inflows, contract adjustments, true-ups, true-downs. In certain cases we can have mandates that shift their assets which can cause impacts to run rate and revenue. Which is why you've seen some lower growth in non-ETF passive relative to the ETF growth. But we do expect this to continue to be an attractive longer-term growth opportunity for us. On the active ETF front, this is an exciting area for us. As you know, we've got a notable presence as a benchmark provider to many of the managers that are launching active ETFs, and we are increasingly having dialogues with them about how we can help them beyond just being the benchmark and play an integral role in the active portfolio construction through using our content sets, our tools, our analytics. We have started to get traction there. We recently launched our active financial product license, which is a specific license to an active ETF manager where they have the ability to use our content as a key input into the active management of their strategies. We have had some wins on that front in the second quarter and we are in active dialogues with many organizations to do more for them on that front. So this is something that's benefiting us both on the subscription side and we believe over time should help play a role on the asset fees side of the equation as well.

Thank you.

Our next question comes from the line of Kelsey Zoo with Autonomous. Your line is open.

Good morning. Thanks for taking my question. Analytics margin was a bit softer than expected this quarter. Could you maybe talk about the main drivers there and how we should think about the margin trajectory in the second half of the year? Thanks a lot.

Yeah, as you know, firstly I would say we don't focus heavily on the margin in any specific segment or even in a quarter. Our overall goal is allocating our investment dollars and our resources towards the highest returning areas. So I wouldn't read too much into one quarter's margin or expense growth. Just to provide a bit more color on analytics expenses, I would highlight that a year ago in the second quarter we had a sizable contingent consideration reversal associated with the contingent consideration on the fabric acquisition. That skews a little bit the year-over-year expense comparison and ultimately the margin comparison. We did also have, as I mentioned in the prepared remarks, elevated comp accruals and performance stock expense impacts. A chunk of those end up hitting analytics, and beyond that there are factors like FX and capitalization in any given quarter that can cause the margin to swing around. But within analytics, as Henry alluded to, we continue to see very attractive opportunities. We continue to invest behind areas like our factor franchise, areas like our total portfolio solutions, integrating our private asset capabilities. But there are parts of analytics where we are much more measured on our investments. But overall, as I said, I wouldn't focus too much on the margin or expense growth in any one quarter.

Thank you.

Our next question comes from the line of Craig Hoover with Hoover Research Partners. The line is open.

Great. Thank you. I want to focus on all other private assets segment. What do you guys think needs to change here to sort of get out of this about 8% subscription run rate growth this last quarter? Yes, that's an acceleration from recent quarters. Although it's not as strong as I think that you think the potential is long term or what it used to grow historically some quarters. What needs to change? The marketplace? Is it more the product? Is it the sales effort and sales team size or something that's a change in the marketplace? Is it an education to the marketplace? What do you think needs to change to accelerate that even further? Thank you.

Thank you. Please stand by for our next question. Our next question comes from Alana Fasa Away with Bike. Your line is open.

Yes. Hi. Thank you. I wanted to ask about new product traction. I know historically you've given us some metrics around the percentage contribution from new products and I was hoping if you could get some metrics like that. But I guess more broadly I'm trying to understand the new product traction from maybe your non-hedge fund trading ecosystem. Trying to disaggregate how much of your growth is really being driven by again that hedge fund ecosystem versus incremental new new products.

Just to dimension it, when we look at the contribution to new sales from new products in the first half of this year, it's up around 40% compared to a year ago. We have seen a bigger and bigger contribution from new products as Henry alluded to. The area we've seen the most impact is with the traders and hedge funds, an area where there is generally a shorter sales cycle and path to monetization. But we are seeing traction across a broader range of index areas, particularly custom indexes, as well as on the private asset front we are seeing some good traction. There are a whole host of really impactful new solutions that we have just rolled out recently and are coming out with in the near future across both private assets and index as well as within analytics. Things like basket builder, signal library, advanced factor insights. These are areas where it's very fertile new product production. They do oftentimes have a longer sales cycle as Henry said earlier, but these are areas where we're very encouraged and bullish about the opportunity set on the impact of new products moving forward here.

Thank you.

Please stand by for our next question. Our next question comes from Alana Scott Wale with Wolf Research. Your line is open.

Hi, good morning guys. Thank you for taking my question. I just want to ask a more high level question. We have seen this elevated level of subscription run rate growth and traction from the hedge funds and the traders. Just wondering if you can maybe share your thoughts on what inning you believe we are in sort of the demand and product uptake cycle with these two end markets and if and how long we could potentially see this elevated level of growth for. Thanks.

Thank you. Please stand by for our next question. Our next question comes from the line of Surrender Thin with Jefferies. Your line is open.

Thank you. For the sustainability segment regarding the challenges that you're seeing, is this something that we can get through mostly this year or is this something that you're going to have to digest maybe over a longer period of time? And then maybe related to that, can Europe and maybe the rest of the world just continue to offset here or how should we think about the longer term dynamics?

Thank you. Please stand by for our next question. Our next question comes from the line of Curtis Nigel with Bank of America. Your line is open.

Great. Thank you so much. Maybe just a quick one on the cash flow. Even expenses, OpEx expenses up a little bit. But you did raise the free cash flow guide. So I just wondering what the offsetting in a stronger conversion is related to.

Yeah. So it's driven by a pick up in collections. We've seen strong collection activity that is somewhat offset by higher cash taxes, some higher comp related expenses as we've talked about with the expense guide. But overall we're seeing strong business momentum and that's trickling through to free cash flow. As you know, free cash can be a bit lumpy because of items like tax, timing of expenses and collections, but overall we see good momentum and continue to be confident about driving an attractive trajectory of both free cash flow growth and free cash flow conversion. Free cash flow per share are all things that we're confident in.

Thank you. Please stand by for our next question. Our next question comes from the line of Jason Hos with Wells Fargo. Your line is open.

Hey, this is Keegan on for Jason. Thanks for taking my question. I've got another one on the traction you're seeing with hedge funds. Has there been any step change in the underlying demand or would you categorize all of this acceleration as coming from your new product developments? And what I'm really trying to understand is you mentioned that your product development in 2026 has already doubled that of 2024, but you're only starting to see the benefits. So should we expect this to continue to accelerate as you continue to benefit from the accelerating new products on a lag?

The impact from new products we expect to continue to grow as Henry alluded to earlier, specifically within the hedge fund and trader community. That's the area where we've actually seen probably the most notable impact from new products so far. Those are areas where there is oftentimes a quicker path to monetization and shorter sales cycles. But as Henry alluded to earlier, we're in early innings there. These organizations are both growing. The areas where they are growing and accelerating can help them, which is index rebalance strategies, more systematic strategies, things like basket trades, understanding factors and signals in more detail, coming up with custom factors. These are all areas where we're releasing new capabilities and plan to release new capabilities in coming quarters. So as Henry alluded to, we've got a long way to go. But hedge funds and traders is probably the area where we've already seen the most notable impact for new products. I think the comments generally were across many other areas as well where there's longer sales cycles and many of the products that we've released we should be monetizing going forward but haven't seen as big of an impact to this point.

Thank you.

Please stand by for our next question. Our next question comes from the line of George Tongue with Goldman Sachs. Your line is open.

Hi, thanks. Good morning. You mentioned asset managers grew 6% in subscription run rate this quarter. Can you elaborate on the demand environment among active managers and whether you're seeing any catalysts that could drive an acceleration in growth?

Thank you. Please stand by for our next question. Our next question comes from the line of David Molm Madden with Evercore ISI. The line is open.

Hey, thanks for squeezing me in here. So last quarter you guys were talking about some of your clients wanting to license more content through AI enabled delivery. So I'm wondering, three months later, how those conversations are progressing. Are you seeing any signs of monetization of that content license licensing? And is that showing up here in the run rate yet or is it coming in the next few quarters? How do you think about the progression of that? Thanks.

Yeah. So it is showing up. It's little today. We do expect this to be a nice tailwind for us. We actually very recently signed our first training license. This has given a client the right to train a model using certain content of ours. We think that's something and we see the demand across a wider range of clients that want to do the same thing. That can be very attractive for us even beyond the training needs. As Henry alluded to, our clients are becoming more quantitative. They are leaning on AI-driven tools and want broader access to more content sets across broader parts of their organizations. That piece has been fueling some of the growth across numerous client segments and fueling some of the demand for more content. But in both cases, we're early in that journey. Those AI-driven investment processes are at a formative stage and we can play a critical role in helping our clients develop those and give them the key inputs they need to be more risk aware, systematic, thoughtful, and clear about what they're doing to create better outcomes. It's an area we are excited about but it's been a relatively small contributor to this point.

Thank you. Please stand by for our next question. We have a follow-up question from the line of Alex H with JP Morgan. Your line is open.

Hey guys, thanks for letting me hop back into the queue. Just real quick, can you give any color on pricing dynamics year to date and maybe what you expect perspectively just to round out the picture on that? Thank you so much.

Yep. Yeah, sure, Alex. So overall the contribution from price increases to new recurring sales has been relatively stable for us. It fluctuates a bit up and down in different parts of the business, different client segments, but the overall contribution's been pretty consistent with what we've seen in recent quarters. The puts and takes relate to things like client health, usage innovations, and importantly we are taking a long-term view with our clients. In many areas where we could increase price more, we want to be a constructive partner to our clients and position ourselves to do a lot more with them going forward. The enhancements and innovations that we're making are helping add additional value to our clients as well as supporting price increase. So we're confident about the trajectory of price increases. We think it's going to be a strategic and sustainable part of the growth algorithm for us. But overall it's been pretty stable and we're being pretty measured around it, although in some areas where we are dramatically enhancing the value we're providing, we can use price as a mechanism to capture that value.

Thank you, ladies and gentlemen. I'm showing no further questions in the queue. I would now like to turn the call back over to Henry Fernandez for closing remarks.

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