MSCI Inc ($MSCI) Q1 2026 Earnings Call

Thank you, Jeremy. Good day, everyone. And thank you for joining us. MSCI's first quarter results affirm our foundational, mission-critical role in global investing, while also showcasing the highly diversified nature of our business. Our key financial metrics included organic revenue growth of over 13%, adjusted EPS growth of nearly 14%, and adjusted EBITDA growth of almost 19%. We remain long-term believers in the MSCI franchise. And we are committed to maximizing value creation through the disciplined deployment of our excess capital. Between January 1st and yesterday, we repurchased more than $464 million of MSCI shares at an average price of about $556 per share. In addition, we recently completed three very exciting and highly strategic small bolt-on acquisitions in key growth areas. Our Q1 operating metrics included total run rate growth of nearly 13%, fueled by a record asset-based fee run rate of $872 million growing 25% and recurring subscription run rate growth of 9% fueled by net new recurring subscription sales of $39.6 million growing 52%. It was our best first quarter for net new recurring subscription sales since 2022. The retention rate across all MSCI product lines was 95.4%. Our increased business momentum is starting to reflect the relentless adoption of agentic AI in everything we do, ranging from how we capture data and build models and platforms to how we launch and market our products to how our people work every day. This momentum cuts across geographic regions, product lines, client segments, and asset classes. We did well in all regions in Q1 with Asia Pacific a particular standout. In fact, we posted our strongest ever Q1 on record for recurring sales in APAC at $15 million up 46% from a year earlier. Across product lines, MSCI has built our momentum through sales of both newer and more traditional solutions. In index, for example, subscription run rate growth returned to double digits in Q1 at 10.7% and we achieve a record level of Q1 recurring sales at nearly $33 million. These results were driven mainly by our market cap indices, but we also deliver impressive growth in custom indices. With more than $21 trillion in AUM benchmarked to MSCI indices, the ecosystem around our products is scaling to new heights. This includes $7.4 trillion of indexed equity AUM benchmarked to MSCI indices, comprised of $2.4 trillion in ETF products and $4.9 trillion in non-ETF products. Q1 was our best quarter since 2023 for traded volumes and run rate from listed futures and options contracts linked to MSCI indices. This further reinforces the power of our ecosystem and our shared success with its MSCI exchange partners, including our new licensing agreement for options on MSCI indices listed on the New York Stock Exchange. AI is helping us capitalize on these trends by offering more flexibility, faster customization, and greater interoperability. For example, our new Index AI Insights Connector makes it easier for clients to answer questions about our index data and methodologies using their preferred AI large language models such as Claude and Chat GPT or on MSCI One. Hundreds of clients have used Index AI Insights since our launch in late February. MSCI's recent acquisition of Compass Financial Technologies, a Swiss-based provider of index calculation services, extends our customization capabilities into additional asset classes such as commodities, digital assets and equity derivatives. Meanwhile, in private capital solutions, we deliver recurring net new sales growth of nearly 44% in Q1 while driving adoption of both newer and established solutions. Some of our reimagined and innovative new tools include daily private valuation indices and benchmarks for private equity and private credit. MSCI's AI capabilities in private assets have increased dramatically over the past year including a new connector on Claude linked to our private capital intel's fund benchmarking. We're helping allocators streamline the due diligence and evaluation of private fund managers at scale with our private asset due diligence platform. Our recent acquisition of VantageR, a platform built entirely on AI, accelerates our ability to help clients perform better due diligence when investing in private markets. Likewise, our acquisition of PM Insights earlier this month will help us deliver secondary market pricing, liquidity, and reference data, which will support more robust portfolio construction and the development of indices analytics solutions. Turning back to MSCI's Q1 performance, in analytics, we drove recurring net new subscription sales of $8.2 million, up nearly 55%, reflecting large wins and renewals of our equity offerings and enterprise risk tools. These wins underscore the continued innovation of our factor capabilities, such as our next-gen models and the release of basket building solutions for the market making and trading community. They also demonstrate our advancements across total portfolio solutions, including our own parallel private asset coverage as seen in our new private credit risk models. Among client segments, MSCI had an especially strong quarter with hedge funds and traders. Among hedge funds specifically, we posted subscription run rate growth of 17% along with our highest ever level of Q1 recurring net new subscription sales at roughly $12 million. These results were driven mainly by index and analytics. These wins included a seven-figure index rebalancing deal with a top global hedge fund. In analytics, hedge funds are also licensing our crowded trades data sets to support their alpha generation. Among banks and broker-dealers, we delivered subscription run rate growth of almost 11% along with our best ever Q1 for recurring net new sales at nearly $11 million. Shifting to asset owners, MSCI achieved subscription run rate growth of nearly 10% driven by private capital solutions and analytics. As more pension funds diversified into private markets, we see growing demand for our total portfolio solutions and private asset tools, including our tools for benchmarking and for transparency. Moving on to asset managers, we posted subscription run rate growth of over 6% along with nearly 11% recurring net new sales growth including, notably, a strong growth in analytics and a retention rate of close to 96%. MSCI is executing on key growth opportunities for the asset management segment, including advanced data sets, private assets, total portfolio solutions, and active ETFs. Looking at our Q1 performance as a whole, we once again demonstrated the benefits of our all-weather franchise. Our client segment and product diversification, recurring revenue financial model, and the growing liquidity and scale of the investment ecosystem linked to our indices and our IP. Our ongoing technology and AI-driven transformation will strengthen these advantages. To help us lead that transformation, Denaish Gupta joined MSCI last month as our new Chief Data Officer and Global Head of Operations. Denaish came to us from Goldman Sachs, where he spent nearly three decades, and held leadership roles spanning multiple business lines, including asset and wealth management. Denaish served as Global Head of Data Engineering at Goldman, and he also led the organization responsible for building agentic AI platforms and machine learning capabilities across the whole firm. He's ideally suited to help MSCI strengthen our comprehensive data strategy, reinforce our technology and AI-first mindset, and accelerate our transformation. And with that, let me turn the call over to Andy. Andy?

Hi, Alex. Thanks for the question. Now, except for a slowdown in dialogue and presentations and obviously demos in the Gulf region, the countries in the Arabian Gulf region, we have not seen any effect of the Iran war anywhere else in the world. It has obviously been a bit surprising to us, but we have not seen clients pull back. We have not seen clients delay decisions. They've been operating on a business as usual. And that was at the end of March and also in the first 3 weeks of April.

Yeah, so Manav, in our own internal discussions and analysis, we have not seen... Let me back up. The operating environment and the end markets that we're serving have not changed for the last few quarters. Have not changed almost at all. You know, a few things a little better, a few things a little worse, but they have not changed. What has changed in terms of this performance of Q1 and also the past performance of Q4 of last year is a stronger execution across MSCI in three big categories. The first category is selling what we currently have, the products we currently have more aggressively, more creatively, more energetically across all client segments and all regions of the world. Number two is a significant acceleration of the launch of new products, or I should say the start of an acceleration in the launch of new products. We launched an equal number of products in Q1 as we did in the full year of 2025. And number three, a significant acceleration in adoption of AI tools in everything we do, along the lines of what I said in my prepared remarks. So, those three areas have helped us increase our recurring revenue, have bigger penetration, take market share away from competitors, especially in the sustainability and climate area. And we believe that as we have said before, that Q3 was a little bit of the bottom. Q4 was better, Q1 is better relative to obviously expectations. And we think we're on a growth path here.

Yeah, Tony, basically, every new product we're launching has an AI component to it. Some of them are AI native. Some of them are AI powered. And some of them have some AI enablement. So, depending on the product and the area, the importance of AI is very big in the AI native ones or just the ingredients that go into the launch of the product. So, pretty much that's pretty much across the board in any new product. So, therefore, we have been tracking last year on the revenues associated with AI products. And we keep doing that, but it is almost irrelevant right now because everything that we're launching has an AI component to it. It's just a matter of degrees. The second part of your question is efficiencies. We're seeing significant early efficiencies in the use of AI across the whole board. It started in earnest in applying AI to the data capture and the data development in private assets and in sustainability and climate. That has accelerated significantly to the point that it allows us to dramatically increase the amount of data gathered and data development with the same level of head count that we have, rather than adding head count. We're beginning to see significant productivity as well in software development, new software development, new software applications. And we haven't yet started rewriting the current software that we have in terms of either production or applications with AI, but that will be a big project that we want to get into in the near future. And then thirdly and also very importantly we began to use AI across the board in the development of models and methodologies. So for example in custom indices that we're ramping up. As you know, the development of the custom index capabilities we're now using AI obviously managed and monitored by our humans in our research department in the creation of custom indices at a much faster speed that we've ever done before. We always use using AI for analytics sub models as well. And we just revamped the entire sustainability rating system, ESG rating systems using AI and that's going to be in the process of being released and that's going to give us an enormous productivity and scalability.

And by the way, I would just add that from a year ago to now the use of AI across our over 6,000 professionals in the company has increased dramatically. But a year and a half ago, we made AI a condition of employment at MSCI. We started giving tools and training and demos and created champions and all of that across the whole company. We're now have the vast majority of MSCI employees using AI models every single day that they're working.

So, Craig, the way we look at it is it's important to start by differentiating sustainability or former ESG, right? Sustainability from climate. They have been a little bit linked...

In the past, not because they have similar dynamics or supply and demand or competitive landscapes, but because sometimes the sales we did were in one package, which we are increasingly separating between the two. We believe sustainability will continue to sell well, but there is a lot of cost rationalization and significant market share we are taking from competitors on sustainability. On climate, we are cautiously optimistic that at some point it will reaccelerate, especially in physical risk. This past quarter we had an important win with the Central Bank of Germany, not Deutsche Bank, which subscribed to a series of climate risk tools on behalf of the European Central Bank system, incorporating all the national central banks. We are very encouraged by that competitive win. We were selected as the best provider and now have the work of penetrating each national central bank. That tells you how important they view climate risk and the MSCI offering. We continue to focus on the transition elements of climate change, but very importantly, we are now more focused on the physical risk part and see increasing demand there. We believe the Iran war and the energy shock will significantly underscore the energy transition countries need to make to ensure less dependence on oil and gas from the Gulf, which will go well for many of our tools.

So we're very excited about that part of our business. There are a number of reasons why that's the case. The first one is we believe this is an area of significant expansion by the active asset management industry. A lot of what they're getting hit with in outflows in mutual funds and other forms of active management, they can latch onto active ETFs and revive growth. This is a client base we know exceedingly well. They recognize our data sets and indices extremely well, and therefore we can be very helpful to them. Number two is it's important to recognize that something like 70-80% of the active ETFs being launched have some elements of systematic investing or index investing in them. They're not pure-play stock-picking ETFs like some mutual funds could be. That is fertile territory for MSCI to be of significant help, from the underlying database and organization to the indices built on it, and then to the quantitative tools that can be applied on top for active overlays. We're very bullish about that. And thirdly, our role in this industry on the passive side is significant, and a lot of our clients are coming to us to help them on the active ETF because of our brand and trust in our database, indices, and methodologies. So we're very hopeful that will be a growth area for us on the more challenging part of active managers around the world.

So basically, let's start with the end market demand. In systematic investing, and a big part of that is index investing, the vast majority of the historical work we have done has been on market cap exposures. What is now happening is that the door is wide open to do systematic, rules-based, and index investing in what we call non-market cap. Which is, give me a portfolio or index of all equity securities in the world that have low volatility, high quality, high ESG ratings, low climate risk, or whatever. There is an investment thesis behind that, not just a market exposure. And therefore, there is incredible growth in equities. We're now seeing fixed income. We're even getting requests in private assets like private credit or private equity. So we're uniquely positioned to benefit from that because not only do we have the index universe, methodologies, and brand, but we have all the other ingredients: factor models, ESG ratings, climate exposures, thematic scores. We can put everything together in building an index. Some of that gets translated into a standard or off-the-shelf index, but the vast majority is coming as a custom index for active management, active ETFs, passive management in ETF or institutional, structured products, over-the-counter swaps, or options. The demand is very significant, and we've been ramping up our ability to meet that demand in three components. First, the workflow application to help design indices, which is the acquisition of Foxberry. Second, linking that to an industrial-scale production environment for tens of thousands of custom indices safely and with high quality, which we've done. And third, accelerating the process of creating the methodology and index algorithm, which we're now doing with AI to help accelerate. So the demand is there, we're meeting most of it, but we're leaving some money on the table, and with these improvements, we're well positioned to capture the vast majority of this demand.

I normally say that we're only getting started in the indexed investing world and in this case, the ETF world, because the only thing that has been largely captured and conquered is market cap exposures. When you think about the non-market cap investment pieces, which is the vast majority of the investment process worldwide, is being systematized, turned into rules-based, just like this active ETF I was mentioning. And there is now a revolution going on in fixed income, commodities, and equity derivatives. This acquisition of Compass Financial that we made is going to help us dramatically penetrate these other asset classes like commodities, creating indices and systematized structures for commodities, cryptocurrencies, other digital assets, and equity derivatives. I want to make sure you pay attention to that acquisition because it's going to open up a lot of new doors for us. By and large, we are by far and above the provider of choice of these custom indices across the board. That's been the strength of our fixed income ETF franchise linked to MSCI indices, not the market cap fixed income indices, but the non-market cap, which has ESG, climate, and factor overlays. And you're seeing that growth. Lastly, I want to reinforce what Andy was saying: the two big ETF markets in the world are the US and Europe. Our presence in Europe is 1 trillion, 1 plus trillion out of the 2.4 trillion. We're extremely well positioned capturing a significant amount of the flows there in addition to the strength we have in the US.

It's definitely a tailwind for us. Think about it similarly to our analytics offering, equity factor analytics and multi-asset class analytics. The period of highest interest and highest demand is when there's a lot of volatility in the marketplace. So what we're seeing right now in private credit is because of the lack of transparency on the funds, people don't understand the sector exposure of various credits, what the valuations are, what the liquidity is, and all of that. So there is increasing interest in a lot of the tools we provide: the transparency tool, understanding what is in the fund, what are the terms and conditions of the loans in the fund, what are the credit assessments in this partnership we have with Moody's on those funds, what is the market risk of those funds based on factors, and the like. So I think we're increasingly focused on creating valuations on private credit. So I think this is a major tailwind for us. There will be more and more people wanting to look at that in order to understand what they bought and whether they should keep it, sell it, or add to it.

It's a very good question. So far, we haven't seen any kind of competition or intense competition from either the traditional competitors of MSCI or the upstarts, the startups. We're not relaxed. We're monitoring and focused on that intensely just to make sure that we continue to have a very deep and wide competitive moat. What we have seen is a significant acceleration from MSCI in terms of product creation, starting with gathering more data to accelerating the pace of model creation and methodologies and index, to do all of that. And obviously the efficiencies that we can create are things that can help us save headcount and help us save expenses that we can then reinvest into even more product creation and more distribution. So that's all in progress. I believe personally that the ultimate big opportunity for us is not only in the data and the models and the enhancement of the software capabilities that we have, but it is in changing the business model of how our clients consume our content. As you know, a lot of our content is consumed either by our own applications, by our OneRisk Manager, PrivateEye, etc., or the clients have their own software applications, or by third-party applications that aggregate our content with others. Through what we're doing, which is that significant increase in the creation of agents that our clients can use to consume our content, we can change that. We can get clients to consume a lot more of our content with a lot more people in many different locations. And that's what we're aiming for in the medium to longer term. And that will redefine dramatically how clients consume our content, and it will give us a lot more control and give us a lot more ability to expand.

Well, thank you all for joining us today. I would like to emphasize that our strategy here, last year and going forward, is a strategy of significantly increasing the pace of growth of our existing product segments like index and analytics with our traditional client segments of asset owners, asset managers, hedge funds, broker dealers, etc. And simultaneously, step up significantly the pace of development and growth of our newer product lines such as climate and PCS, and sell to the traditional client base and newer client bases like GPs, banks as principals, insurance companies, and other parts of the trading ecosystem. So that ultimately we become an even bigger long-term compounder of growth, which has always been our goal. We're on the way on that strategy. The benefit of what you see and what we're doing right now is that this is not just growth in the product line. This is growth in the existing big part of the product line with the existing clients, and then it's going to be highly supplemented by the newer product lines and the newer client segments to add to that growth. So we're very optimistic about that. And it's an all-weather franchise. We're diversified in many aspects of what we do across products, across client segments, across asset classes, etc. So it's a great franchise and the question is how far and how aggressively we can optimize it and monetize it to develop compound growth over the years and significant value creation for all of our shareholders, including our shareholders in the management team. Thank you very much.