Good day, ladies and gentlemen, and welcome to the MSCI Fourth 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 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 turn the call over to Jeremy Ulan, Head of Investor Relations and Treasurer. You may begin.

Thank you. Good day, and welcome to the MSCI fourth quarter 2023 earnings conference call. Earlier this morning, we issued a press release announcing our results for the fourth 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. 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. You are cautioned not to place undue reliance 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 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 U.S. GAAP, we also refer to non-GAAP measures. You'll 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 COO; and Andy Wiechmann, our Chief Financial Officer. As a final housekeeping item, we wanted to remind our analysts to ask one question at a time during the Q&A portion of our call. We do encourage you to ask more questions by adding yourselves back to the queue. 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. In the fourth quarter, MSCI delivered impressive results to close out the year. On our financial metrics, we achieved adjusted earnings per share growth of nearly 30%, organic revenue growth of 15% and free cash flow growth of 24%. On our operating metrics, we posted organic subscription run rate growth of 10% while completing our 10th consecutive year of double-digit subscription run rate growth in Index at 10.8%. We delivered a retention rate of nearly 94%, including our highest ever full year retention rate in Analytics at 94.4%. Assets under management in equity ETF products linked to MSCI Indices reached an all-time record of $1.47 trillion at year-end. Along with near-record AUM balances of nearly $3.2 trillion in non-listed products linked to MSCI Indices, such as separately managed accounts and other institutional and retail fund wrappers. And we also achieved a record level of nonrecurring sales both for the quarter and for the full year. While 96% of MSCI's revenue are from subscription-based or other recurring revenue sources, we also see strong demand for products that are often sold as nonrecurring, which form about 4% of our revenue. The latter group includes Float Data, a recent product innovation, index licenses for OTC derivatives and structured products, history data products and other unique datasets. These products offer entry points for future subscription sales while deepening client relationships. And they represent an important part of our strategy. Despite the global bull market and the signaling of lower rates by the Fed, our clients remained cautious, which has led to tighter budgets and longer sales cycles. Yet even with those headwinds, we achieved strong fourth quarter results, demonstrating once again that MSCI has an all-weather franchise and a team that can deliver in any environment. On capital allocation, our approach has not changed. We remain committed to making organic investments and bolt-on acquisitions that add value while returning excess capital to our owners in the form of share buybacks and dividend payments. Over the past 11 years, MSCI has repurchased more than 40% of our shares outstanding, worth a combined $5.8 billion at an average price of about $117 per share, creating enormous value for our shareholders. MSCI's client-centricity underlies our consistent execution. 90% of MSCI's run rate in 2023 was comprised of clients purchasing from more than one of our product lines, whether in Index, Analytics, Private Assets or ESG and Climate. More than 60% of MSCI's run rate was comprised of clients purchasing from more than three of our product lines. This underscores the value we provide to many of the world's largest financial institutions and also the unique and vital role of MSCI in the capital markets. The standards we set and the tools we provide help connect the providers of capital with the users of capital. We want to capitalize on important secular trends that are reshaping the global investment landscape. For example, in the index industry, we see rising demand for customization of portfolios. In response, we have expanded our custom index capabilities while maintaining our strength in traditional market cap businesses. Our client-designed indexing tools on MSCI ONE allow investors to personalize indices for highly specific investment objectives. The secular trend of portfolio customization has also driven demand for specialized analytics tools, especially among wealth managers, who represent one of our fastest-growing segments. Earlier this month, MSCI completed the acquisition of Fabric, a wealth technology platform that provides portfolio design, customization and analytics. Adding their capabilities to our total portfolio toolkit will give us more ways than ever to serve the wealth segment. Speaking of total portfolio solutions, we now have an industry-leading platform, thanks to our acquisition of Burgiss. We also have the world's largest, most comprehensive and highest quality private asset class database, covering $15 trillion in holdings across private equity, real estate, debt, infrastructure and natural resources plus another $45 trillion in real estate transactions and portfolio assets. As private allocations continue to grow, MSCI is well-positioned to benefit from it. Our data will help us build standard-setting tools for private assets, including benchmark indices and models for evaluating risk performance and portfolio construction. We can then combine our private and public asset class tools to deliver a total portfolio view of risks and opportunities. All of this will help deepen our relationships with multi-asset class allocators of capital. In a larger sense, it will strengthen our entire ecosystem of product lines and capabilities. One notable example is climate because we build our carbon emissions estimates around granular disclosed data. MSCI already provides climate data on about 73,000 companies and issuers under subsidiaries, including more than 55,000 private companies, along with more than 7,000 private equity and private debt funds. We also provide location data on about 1 million asset locations through MSCI GeoSpatial. We assess physical risk on nearly 80% of those locations, leveraging our Climate Value-at-Risk models. Our client strategy can help us grow MSCI's presence among corporate issuers and their advisers. With our recent acquisition of Trove Research, we are now a leading provider of global intelligence on carbon credit. Trove currently analyzes around 15,000 carbon credit projects around the world and supplies that research to corporates, investors and exchanges. They also provide key climate data on more than 3,000 companies, showing both the quantity and the quality of carbon credits used by those companies and also how these credits are shaping their broader net-zero transition plan. There is simply no credible path to reach net-zero emissions without a significant expansion of the voluntary carbon markets. Looking ahead, we still have a long runway to create compounding shareholder value. As always, MSCI will balance our long-term strategic investments, including bolt-on acquisitions, with our commitment to rigorous financial management and short-term execution. And with that, let me now turn the call over to my partner in this great business, Baer Pettit. Baer?

Thank you, Henry, and greetings, everyone. In my remarks today, I'll discuss some of the most notable business needs that we see among market participants around the world, describe how MSCI is addressing those needs and explain what it all means for both our financial performance and our increasingly diverse client base. Perhaps the biggest overarching need is for more customized and personalized investment solutions. Across industries and geographies, investors are searching for highly specialized and scalable outcomes aligned with their unique preferences and considerations. Within the index industry, this trend has boosted demand for custom indexes that investors can design to reflect the specific objectives of their unique portfolios, which may include capital, income, tax, risk, climate, sustainability and other considerations. For example, since 2020, around one-third of MSCI benchmarks selected by asset owners for policy or mandate allocations have been custom indexes. In the fourth quarter, we posted 20% run rate growth in custom indexes and special packages. While we were pleased to see our clients have success in gathering allocations linked to MSCI’s custom index. For example, a major global insurance company allocated $8 billion into funds linked to our custom index, and a large asset manager licensed a custom index as the basis for an MSCI climate transition-aware ETF in Europe. Rising demand for customization is especially visible in the Wealth segment, where advisors have to integrate their house view with the preferences of their individual clients. As Henry discussed, our acquisition of Fabric will make it much easier for MSCI to deliver customization at scale for wealth managers. In particular, by combining Fabric’s rules-based portfolio construction tools with MSCI factor models and related solutions, we will greatly enhance our capabilities. The Fabric acquisition will build on the strength of our existing wealth franchise, which now totals $107 million firm-wide and delivered 23% run rate growth in the fourth quarter. Among other Q4 business wins, the wealth arm of a major global asset manager licensed MSCI’s multi-asset class factor models. We’ve seen rising demand for integrated technology platforms to support compliance with increasingly complex regulations, especially in climate and sustainability. In response, MSCI continues to integrate our own content and capabilities on platforms such as MSCI ONE, particularly leveraging our analytics franchise, which remains the backbone of where we host client portfolios, enrich those portfolios with specialized content and apply models to deliver insights and reports. For example, in 2023, we helped our clients generate 130,000 climate and sustainability reports on MSCI ONE using our analytics reporting engines, up from 16,000 reports in 2022. In analytics more broadly, we’re benefiting from our ongoing investments to support an open ecosystem integration and in differentiated content. We achieved our best quarter and full year on record for recurring sales in equity analytics with quarterly and annual sales of approximately $9 million and $30 million, respectively for the first time ever with strength from asset managers, market makers and hedge funds, and run rate growing by 11%. In product lines with current cyclical challenges, we still see healthy client appetite for key market data and related solutions, including in real assets. For example, our real estate portfolio services, which include climate insights and income insights, and our Index Intel products, which collectively represent about half of our product line run rate, delivered run rate growth of over 10% in a tough commercial real estate environment. In MSCI Private Capital Solutions, formerly Burgiss, we delivered recurring sales of $6.2 million in the fourth quarter, with ending run rate of $98 million growing in the high teens versus the same period last year. In general, our integration of the Burgiss team continues to accelerate and clients have been enthusiastic about our total portfolio vision for public, private and multi-asset class solutions. Across the board, investors increasingly expect richer, more granular data and faster, deeper insights powered by advanced technology. MSCI is meeting this demand through our ongoing data and technology transformation, which has dramatically expanded our use of artificial intelligence. We group AI initiatives into three categories: providing data at scale, transforming the client experience, and driving operational efficiency, which will enable incremental investment capacity for MSCI. We have made tremendous progress in each area. For example, through our partnership with Google Cloud, we have accelerated our document acquisition and classification for ESG by a factor of seven, while tripling the speed of our AI models and more than doubling our maximum calculation capacity for real assets. We want to continue to leverage large language models and open source geospatial data sets to meaningfully scale our physical asset data coverage and quality, which we expect can expand to over 100 million physical asset locations and attributes in the next three years to support our goals of comprehensive and complete data coverage for our clients. MSCI has always been a company that plans for extended time horizons. We’re constantly trying to anticipate, capture and commercialize the next evolution of global investing, yet we also work tirelessly to deliver consistent results from quarter to quarter, which means we are laser-focused on how to create value for clients right now. We will continue striking that balance in 2024 and beyond. And with that, let me turn the call over to Andy. Andy?

Thanks, Baer and hi, everyone. As you can see from our results, we have a highly resilient business that continues to generate consistently strong performance across product areas and client segments, despite cyclical pressures. In index, we had nearly 11% subscription run rate growth, including 9% run rate growth in our market cap-weighted modules and 20% growth in custom indexes and special packages. Factor and ESG modules grew 11%, a slower rate than last year as clients are favoring more customized approaches and we saw fewer clients launching new active factor strategies. We have a demonstrated track record of growing with our existing client base in index, helping them unlock value through a wide range of use cases across a broad range of content. Half of our index client base subscribes to at least two or more modules, with 20% of clients licensing as many as five or more different modules. Our growing set of modules across market cap, factor, ESG, climate, thematic, fixed income and custom dimensions enable us to continue to bring additional value to our clients and we maintain solid momentum and asset-based fees with revenues up 16% year-over-year, benefiting from over $48 billion of cash inflows and about $198 billion of market appreciation throughout 2023 within ETFs linked to MSCI equity indexes. During Q4, cash inflows of $16 billion into equity ETFs linked to MSCI indexes were mostly driven by developed markets excluding the U.S. and emerging markets products. From a product perspective, we saw inflows of about $6 billion into equity ETFs linked to MSCI ESG and climate indexes, which represented the majority of industry flows into ESG and climate products. Within fixed income ETFs, AUM and products linked to MSCI and Bloomberg joint fixed income indexes reached $60 billion, growing more than 30% year-over-year. We had another very strong quarter for non-recurring revenues. Roughly $16 million of the non-recurring sales and revenues in index were related to client fees for unlicensed usage of our content in historical periods. We also earned non-recurring revenues from other common use cases, including licenses to create structured products and OTC derivatives and index history sales, where a client requires decades of historical data to backtest strategies and conduct research. In analytics, we saw continued momentum across key areas with subscription run rate growth of 7% supported by strong net new recurring sales growth of 68%. Analytics revenue also benefited from a large number of implementations that were completed in the quarter, which resulted in both elevated nonrecurring revenue and the release of recurring subscription revenue that was on hold during the respective implementation periods. In our ESG and Climate Reportable segment, organic run rate growth was 16%, which excludes about $4.5 million of run rate from Trove and the impact of FX. Run rate growth was approximately 15% in ESG research and 31% in climate, excluding the impact of Trove and run rate growth was 25% within Europe and close to 20% in Asia for our ESG and Climate segment. We continue to see strong engagement across client types, with a retention rate of 94.7% for the quarter and 95.9% for the full year, although we did see an increase in cancels from smaller clients in large part related to an elevated level of client events. Within real assets run rate growth was 6% as we continue to see the impact of muted property values and lower transaction volumes. The retention rate of 89% for the quarter was impacted by pickup and cancels from small clients, namely brokers, developers and lenders, who are most acutely feeling these cyclical pressures, although, once again, our larger clients tended to have higher retention rates. Almost 80% of clients that subscribed to our RCA product offerings spent over $50,000 per year on average and the retention rate of that cohort is 96% for the full year of 2023. Also, it is worth highlighting that about 95% of client contracts for RCA products have an auto-renew provision or multiyear contracts. Our integration of Burgiss, which we now refer to as our Private Capital Solutions operating segment, is going well. We recorded approximately $25 million of revenue for the quarter, which came in at the high end of our initial expectations, although we did benefit from revenue catch-ups resulting from the completion of implementations on our total plan product offering. Private Capital Solutions expenses included about $4 million of allocations from centralized and shared costs. We continue to expect about $4 million to $5 million per quarter of these allocations to the segment. These costs are reallocated from other segments and as a result will not impact firm-wide EBITDA. Our approach to capital allocation remains unchanged. We will continue to invest in the business to drive strong top line growth over the long term while continuing to deliver attractive free cash flow and EPS growth. We will continue to optimize our capital structure, return excess cash to shareholders through regular dividends that grow with adjusted EPS and opportunistically pursue share buybacks and value-generating bolt-on M&A that accelerates our strategy in key growth areas. In the spirit of continually optimizing our capital structure, last week we completed the refinancing of our credit where we replaced our term loan A and existing revolver with a new revolver that provides us with more capacity at $1.25 billion in total size, slightly lower costs than the now retired term loan A and an extended tenor, and our capital position remains solid overall. As of today, we currently have approximately $600 million of cash on hand, well above our minimum global cash balance range. Although cash balances are still down from last year's levels, which will continue to translate through to lower interest income. Lastly, we continue to execute bolt-on acquisitions that accelerate our long-term strategy. Total purchase consideration for Trove and Fabric was approximately $48 million with the potential for additional performance-related payments tied to the achievement of top-line growth targets, although the majority of those payments will be treated as compensation expense. Turning to our 2024 guidance, which we published earlier this morning. Our guidance assumes that AUM levels remain relatively flat to year-end levels through the first half of 2024 with a modest upturn in the second half of the year. Our expenses reflect the ongoing investments in our business as well as the impact of our acquisitions of Burgiss, Trove and Fabric. Our CapEx guidance reflects continued software development to build or enhance our offerings across all of our segments, including Private Capital Solutions, as well as slightly higher hardware purchases related to our hybrid data center strategy. Our interest expense guidance reflects the refinancing of our credit facilities and assumes the existing balance of approximately $340 million remains outstanding for the year. Our tax rate guidance reflects the impact of the OECD global minimum tax, which goes into effect this year, statutory rate increases we are subject to in certain jurisdictions and a slightly smaller projected impact from windfall benefits. I would like to highlight that our effective rate in the fourth quarter included a discrete benefit related to a favorable outcome on a tax position received late in the quarter. And lastly, free cash flow guidance reflects the expectation of slightly higher cash taxes. Overall, we remain well positioned to drive growth. Our client-centricity and multiyear investments position us for strength to start 2024, and we look forward to keeping you posted on our progress. With that, operator, please open the line for questions.

Our first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Thank you so much. I was hoping you could give some additional color on the market environment, maybe particularly with regard to Index. I know you’ve called out some market headwinds recently. And so just looking into 2024, do you see those persisting? And how should we think about new sales within Index for next year? Thank you so much.

Sure. Toni, it’s Andy. Appreciate the question. So yes, I mean, we are seeing a tough environment for many of our clients. As we’ve talked about before, our largest client base is active managers that have seen flat markets for the last couple of years. We’re encouraged by the recent rally, and that should be helpful over the long term. But they have seen relatively flat market volatility and outflows. So, we have seen headwinds, but we continue to have good momentum. And I think the thing that’s been encouraging to us is the success we’ve had across modules and client segments. And so we mentioned some of these, but just to highlight, we saw 9% run rate growth in our market cap modules. And that’s through delivering additional value to our clients, continuing to upsell them. We saw 20% growth in custom and specialized modules, and 11% growth in factor and ESG modules. Equally as encouraging, we saw 9% growth in asset managers, 15% growth from wealth and broker-dealers and 22% growth among hedge funds. So, we’ve definitely been encouraged here. I think we will see longer sales cycles, tighter budgets here. Budgets for the year are set at the end of the prior year for many organizations, and so that will create some noise for us. But this trend of indexation and the demand for the tools that we have across many different client segments seems to have some momentum here. So, we’ll continue to monitor closely. But importantly, we continue to focus on creating value for our clients, and that will hopefully translate through to continued success on sales and growth.

Our next question comes from the line of Alex Kramm with UBS. Please go ahead.

Yes, hello, everyone. Interesting to hear you talk a little bit less than usual about ESG and Climate. So clearly, I need to ask about it. So, we obviously have continued to see slowdown in that segment after a couple of years of really, really big strength. So, I guess, now with that slowdown in the run rate now, I’m just wondering if there’s any signs that things could be turning maybe as Climate is becoming a bigger part of the equation or, again, as investors are we thinking kind of like what they need, in particular outside of the U.S. So any near-term expectations there? And how is that impacting your longer-term outlook as well? Because obviously, these run rates are far below your mid to high-20s longer-term range. So just curious how you’re thinking about that at the moment. Thanks.

Sure, sure. Thanks, Alex. So, I’d say the most encouraging thing for us has been the strong level of engagement we’re seeing from our clients around ESG and very significantly around Climate. So, despite the slowdown, we are still seeing a healthy level of dialogue with our clients on this front. Consistent with what we’ve seen in recent quarters and throughout 2023, as you alluded to growth has been slower for us. Just to put a finer point on that, in the ESG and Climate segment, growth in the Americas was about 9%. That compares to 25% in Europe and close to 20% in Asia. I’d say the themes are consistent, where clients are taking a more measured approach to how they integrate ESG. They’re continuing to think about how and where they integrate it, and that’s causing longer sales cycles and more deliberate purchasing decisions, which is probably compounded by cyclical pressures that are hitting many of our clients. But given the wide range of use cases, I think we continue to be quite encouraged about the outlook here. We see regulation will create some delays in purchases and continues to be a big opportunity for us. As you alluded to, Climate continues to be a big opportunity for us. And we continue to innovate heavily across Climate with plans to release things like nature and biodiversity data sets, additional insights into private assets, geospatial data, which Baer alluded to, physical and hazard risk enhancements. And that’s on top of continuing to broaden our coverage across ESG, enhance the quality of our offering and our service. And so I think we’ve got a rich pipeline of opportunities and solutions where we can continue to deliver value to clients. But I think we would expect some of these dynamics that we’re seeing, the more measured purchasing decisions and some of the cyclical pressures probably to persist for at least the next couple of quarters here.

Our next question comes from the line of Manav Patnaik with Barclays. Please go ahead.

Thank you. Maybe we’ll just go down the segments here. Can we just talk about the Analytics business? Obviously, it sounds like things have gotten bad there through the year. It sounds like it’s the equity asset class. But just is there – are you just – is there some share gains? Is it just an uptake in the models? Like maybe just some of the trends that you’re seeing there perhaps that can help you sustain this high single-digit rate?

Yes. So there are a number of trends at play here, but maybe I can group them together and say, this heightened period of uncertainty and risk has led to opportunities for us. And so clients are turning to us across many of our different solutions to help understand market drivers and risks and how to navigate those risks. And I think it’s been very encouraging to see the highest-ever full year retention rate we’ve seen within the segment, which I think underscores the power of that need for our tools in this market. Just to put a finer point on where we’re seeing that, we did see some strong successes within ERP in the quarter, our Enterprise Risk and Performance offering, which has been supported by things like liquidity analytics and demands for deeper insights into liquidity risk. We’ve also had some traction with the partnerships that we’ve alluded to in the past, and we have gotten favorable feedback by enhancing user experiences. As we’ve talked about in the last couple of quarters, we had another strong quarter and a strong year across our factor models as well. So, we did see pretty good momentum on Equity Analytics, particularly with our factor model sales. And we have had – it’s early days, but we’ve had some traction with our risk insights offering as well, which is a new offering for us, where we’re providing clients with more easily accessible, more interactive and more user-friendly risk and performance stats on their portfolios. So, we’re encouraged. The growth we’re seeing is an area that we’ve been focused on and investing in, so we definitely are encouraged by the outlook. But I would say, particularly given the backdrop and the fact that within Analytics, we do have a higher concentration of broker-dealers and hedge funds, we do expect to see some lumpiness in both sales and cancels moving forward here. But the long-term dynamics in those areas of traction we’ve been getting have been quite encouraging to us.

Our next question comes from the line of Alexander Hess with JPMorgan. Please go ahead.

Hi guys. Baer, you alluded to a desire to meaningfully scale the physical asset business. Just wanted – it sounds like you guys have fleshed out a bit more sort of a concrete near-term roadmap for the ESG and Climate business. But sort of can you maybe dimensionalize why you guys weren’t in that earlier? Is that something where you feel the competitors maybe have a head start? And then beyond that, is there – how would you monetize this? Is that going to be more of a consumption-based model? Or is that going to be on sort of a subscription program as well? Thank you guys.

Sure. So look, the Climate opportunity is an enormous one, which will affect all aspects of the economy and industries, right? So, I think it’s natural that there will be aspects of it which at the outset we were not present in and where we’re broadening and deepening our capabilities, right? So I think that's a general observation which could be both from our actions organically and inorganically. So in this instance, we're very excited with what we've done here, not merely because there's clearly demand from this, but it's also an area where we're able to apply a lot of interesting work in data science and AI. So there's client demand, it plays to our strengths in this growth category, and I think we've got a really good chance of continuing to innovate. Just in terms of the business model, it's the same as usual, right? So it's a subscription business model. It's integrated with the normal way that we sell and it's just enriching our capabilities across the board.

Our next question comes from the line of Owen Lau with Oppenheimer. Please go ahead.

Hey, good morning. Thank you for taking my question. So your non-recurring revenue was up quite a bit in both Index and Analytics. And I think you recognize some fees for unlicensed usage of the content, like in the past, in slower periods in the Index business. I think for Analytics you had some large number of implementation and some on-time deals. Could you please elaborate a little bit more on what they actually are and what that means for recurring revenue going forward? Thank you.

Yes, sure. Owen, thank you. So maybe I'll start on Index and then I can touch on Analytics. But yes, I think it's helpful to give a bit more color on exactly what these non-recurring sales and revenues are. So as we mentioned, during the quarter, we had a very large contract signed to address the unlicensed usage of our Indexes in past periods. And just to put a finer point on that, just to be very clear, we identified a client that had been using our Indexes to create Index Linked products without a license over a long time period. And so during the quarter, we signed an agreement that we would be paid for that passed-on license usage. And as a result, recorded a sale and revenue associated with that. It is worth noting that we continue to see contributions to non-recurring sales and revenue from the licensing of our Indexes to create things like structured products and over-the-counter derivatives. We also have non-recurring sales of – and uses of our – some of our data packages, like our free float data package and our Index history sales. And so those unlicensed usage sales are by their nature going to be lumpy and we don't have those very often, as you know. But these other trends in things like over-the-counter derivatives and structured products are areas where we do see some momentum and should continue to be a contributor for us, but no changes to our business model overall, other than to say we see growth opportunities across categories of non-recurring revenue and sales for us. As you alluded to on the Analytics side, we did have a number of implementation-related services that were completed during the quarter and so those implementation-related services are non-recurring in nature. And so we recognize non-recurring revenue when we complete those. It is worth noting on the recurring side as well for certain products that involve implementations such as our enterprise risk solutions. We defer the revenue until the implementation is complete, at which point we recognize the revenue from the beginning of the contract period to that point. And so we will have what we call these catch-ups when we have implementations coming online, and we had several of those during the quarter. I'd say within Analytics, the non-recurring revenue tends to be most closely tied to those implementations, and so it generally will be tied to the business growth over time.

Our next question comes from the line of Seth Weber with Wells Fargo. Please go ahead.

Hey guys. Good morning. Wanted to ask about traction with the Burgiss integration. I think I heard something about run rate in the high teens, which sounds pretty encouraging. And I think on prior calls we've talked about how the product line is pretty undersold globally and just wondering how the integration or how the combination is going with Burgiss salespeople working with existing MSCI salespeople just to kind of start cross-selling the product? Thank you.

Sure. So happy to take that question. We're very pleased with how the integration is going. I think there was clearly a benefit that we were a minority shareholder of Burgiss for a number of years, so got to know the business very well. We had one of our senior executives, Jay McNamara, there working for a number of years and really helped to revitalize their client activity and go-to-market and all the commercial side. So he is now a Co-Head of the business with Charissa Smith. So I think both from an operational point of view, we're very pleased with the integration and we've got a team of client coverage people there that were already, if you like, trained the MSCI way under Jay, and the – and now those teams can work seamlessly with the MSCI client coverage team. So we're delighted with the way things have gone so far and I think we've got a big opportunity globally to expand significantly the footprint in private capital solutions. So, so far so good. Good end to the year and we hope to keep delivering some strong numbers during the course of 2024.

Our next question comes from the line of Kelsey Zhu with Autonomous. Please go ahead.

Hi, good morning. Thanks for taking my question. On your expenses guidance, I was just wondering if you can walk us through kind of the puts and takes of that expense guidance range? What would take it to the higher end versus the lower end of that guidance? Thanks.

Sure. So, listen, on expenses, it's a similar story to what we give every year. I think we outlined in the prepared remarks here that the AUM assumption that underlies the expense guidance assumes that the markets remain relatively flat for the first half of the year and then rebound slightly in the back half of the year. As we always do we will continue to monitor the market and we'll continue to monitor business performance. And so we will go to our upturn and downturn playbooks throughout the year if we do see sustained improvements, which could cause us to move towards the higher end of that range, or similarly cause us to manage expenses more tightly if things deteriorate. As you know, and I think is evident, there is a meaningful contribution from acquisitions as well in the expense guidance for the year. I think we've given color on the Burgiss margin profile and I think we indicated Trove and Fabric are relatively small in terms of their impact. But from that you can back into the organic expense growth being in, call it the mid to high single-digit range embedded in that guidance, and the balance being contributed from mainly Burgiss, but to a lesser degree the smaller acquisitions coming in. The last thing that's probably worth lagging, and we've mentioned this in past years, is we have seasonally high payroll tax and benefits related expenses in the first quarter. And so we tend to see about $10 million to $15 million higher of those expenses coming through, which adds to some seasonality and higher expenses in Q1. But other than that, I'd say it's something that we continue to monitor and our goal ultimately is to continue to invest in the business to drive long-term growth and we'll use opportunities if the market improves here to continue to do that, but also continuing to deliver attractive profitability and profitability growth in all periods and attractive free cash flow growth.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.

Thanks for taking my question. A quick question on the pricing actions that you might have instituted in 2024, and how should we think about the pricing tailwinds in Index and overall business for 2024? Thanks.

Yes, sure. So listen, it's important to underscore that we will continue to be very measured on our price increases and ensure that we are linking them to the value that we are delivering to our clients in terms of enhanced solutions, enhanced services and broader usage of our tools. As we mentioned in prior quarters, during 2023, price increases were higher than they've been in recent years and contributed a larger percentage of new recurring sales relative to recent years. I would say in Index that contribution is similar where the contribution from price increases within Index was above 40% for the year, which I think is consistent with what we've mentioned before. And it's important to underscore that there are numerous factors that feed into our price increases, including most notably, the value that we're delivering to clients. But the broader environment and client health are all things we think about. And so to the extent that inflation continues to moderate. We will likely moderate price increases in certain areas, all else equal. But we'll continue to monitor all those factors, including the enhancements in value that we deliver to clients and calibrate price increases accordingly going forward.

Our next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Alright. Thanks. Good morning. Going back to the topic of ESG, you mentioned regulations are causing some delays in client purchases. Can you elaborate on which regulations you're watching as well as how different outcomes of the U.S. election cycle could potentially impact ESG demand?

Sure. So I think there has been a component of the changes in the regulation in Europe delaying product issuance. But there's also a broader context that the regulatory framework in Europe, in the EU, is driving a lot of growth as well. And you can see that in the numbers that we've mentioned. So I think that overall, the regulatory topic related to ESG and climate has definitely become a positive for us in balance. Look, I don't – it's not our role to speculate on U.S. politics and outcomes. My only observation would be that when we look notably at a lot of the major asset owners in the U.S., their approach to this topic has not changed and it remains central for them. I think there may be a question as to when product issuance will pick up again in the U.S., and time will tell. But we're also seeing a significant increase in Asia of interest. So on balance, the landscape remains one with some significant opportunities, some areas a little bit slower, but we're just doing our business of interacting with clients every day and impressing them with the value of our services. And then politics will be what politics is.

Our next question comes from the line of Faiza Alwy with Deutsche Bank. Please go ahead.

Yes, hi. Thank you. Good morning. Wanted to follow up on the expense question. And I wonder if you could talk about some of the puts and takes around investments, because it seems that you've sort of been executing on more of a downturn playbook over the last couple of years. And I'm curious how much runway you think you have around expense savings. Are there areas where you’d like to invest more? Sort of how should we think about your approach towards investments?

Yes, yes. So it’s an area that we spend a huge amount of time on. And we are continually focused on driving efficiencies, enhancing productivity across organizations so that we can invest more in the business. And even though it’s been a tougher environment, we’ve been able to continue to enhance and increase the amount of money we put into investment areas. To your point, we would love to invest more. We have very attractive opportunities across all the areas we’ve talked about in terms of new solutions, new client segments, technology-enabled capabilities. Those are all areas that we have the upturn ready to go. But we will be measured and ensure that we see sustained improvements in the market and business performance before we take up the level of investment materially. But it’s something that we are laser-focused on and want to continue to maintain our Triple-Crown discipline and ensure that we are putting those investment dollars into those areas that are going to generate attractive near-term returns for us. And so it’s something that we are on top of and continually monitoring. And that’s something that, to the extent the market performance and business performance fluctuates, we’ll look for opportunities to put more investment to work.

Let me add a comment to what Andy said. The long term – given the significant and incredible opportunity that we face at MSCI in all of our product lines from customization in index and direct indexing, to climate risk and climate opportunities, to ESG, to Private Assets, and of course, the significant uptick that we’ve seen in Analytics, the long-term value creation of MSCI will depend a great deal on incremental investment in all these growth areas. You can’t grow without creating new products, creating new services, creating innovation, reaching out to new client segments like wealth, like insurance, like corporates, like GPs and private assets, et cetera. So our overriding amount of time that Andy alluded to is spent on this area is to balance out the profitability of the business and the margin of the business with incremental investment. And the lever that we’ve been pulling significantly is creating more and more efficiency, tightening up what we do with higher productivity, locating more and more of our staff to emerging market centers and the like. And that has allowed us to, as Andy said, increase the amount of investment that we can deploy in the business. We are extremely excited about AI and the utilization of AI to allow for an even larger amount of efficiencies, a lot of productivity in which we can free up more resources and again put it back into the investments of the business in all the growth areas that we’ve identified.

Our next question comes from the line of Heather Balsky with Bank of America. Please go ahead.

Hi, good morning. Well, I guess it’s almost good afternoon. Thank you for taking my question. I just wanted to ask a little bit about Index and market share. We get incoming questions from investors asking about where you guys fit in, in terms of the broader market. And I’m curious, from your perspective, what are – where do you see the wallet share opportunities? And then what are you monitoring in terms of some of your competitors gaining share? Thanks so much.

Yes. Thanks for the question. Well, look, we clearly have pretty transparent statistics on that in the ETF market, which we discussed, and those have been fairly stable. It’s quite difficult to judge this in a lot of the subscription market. There’s not really transparent data that shows us exactly what’s happening. So the key thing that we try to focus on is ensuring that we are continuing to maintain our growth rates in some of our key segments, as you can see from the numbers that we put out quarter-after-quarter, but more importantly, is trying to be innovative about some of the opportunities that have been central to our growth that have been a big theme throughout our comments today. The customization area is dramatic in all client types, and we’re investing in that both organically and through these – some of these acquisitions that we’re looking at, even if they’re bolt-on ones. So I think as we get – our big driver is to be innovative in new segments with customization. And if we do that, I think we can continue to have the leading position in the industry that we have. And then I think the other one that I would say is a key focus is global geographic diversification. This is an enormous strength of our franchise, and we’ve seen that in the numbers. As we continue to grow in all geographies in Index, notwithstanding the fact that in many of those geographies over the last number of quarters, equity markets have been in the doldrums more than they’ve been in the U.S. But we still continue to put in strong performances in subscription growth. So I think overall, we kind of look at how we’re innovating. We – I could say things anecdotally about competition, but I don’t think they’re going to be helpful. So it’s mostly focusing on what we do well and serving clients and innovating. And if we keep doing that, I’m confident that we can maintain our growth trajectory.

Our next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.

Great. Thank you. I wanted to hear your thoughts on your sales force. Your sales force has obviously been very effective, very efficient over many, many years. You guys highlighted part of that today with all the cross-selling that they’ve been doing and stuff. And I’m just curious, your plans for internal investment spending this year, does it include any extra spending level that you – above and beyond what you normally would do on the sales force throughout your organization for this upcoming year? I’m just trying to get a sense on that because it seems like a pretty good opportunity you guys to lean further into that. I’m just curious what your thought is on that. Thank you.

Look, it’s a great question. So as you know, Henry is our lead salesman now. And he spends an enormous amount of his time with clients, which has had a huge impact in our senior relationships. I am myself a retired Global Head of Client Coverage to MSCI. And our current Global Head of Client Coverage, Alvise Munari, is doing a great job. And so I think it’s both a question of scale and reach, which we really focused on, but it’s also really important to be creative and innovative. And as we look across a given order, like the one we have today, the diversity of transactions, of different client types, different geographies, different use cases, all of that comes from our client coverage organization, really having that DNA of finding out new use cases, new opportunities, which I think is really central to how we operate. So – and then for sure, we will continue to invest in our client coverage organization, in salespeople, in consultants and client service. Now we’re also very focused on the productivity of the organization, and that’s a key component to ensuring we continue to invest. But this is really – when we think of investments, we definitely think of our client organization and its reach and scale as being central to our future trajectory. So happy to take a longer discussion off-line, but it’s absolutely central to what we think is a great strength of MSCI.

Let me add something else here that the area – MSCI has progressed significantly in many, many areas. The one area that I feel the most proud of – or proudest, I guess, of is the incredible level of reach and dialogue that we have with clients all over the world. It’s not only at the user level. Traditionally, in the past, MSCI is sold by a subject matter expert to – of MSCI selling directly into a user at the client organization. What we now have done in addition to that is build very deep and very wide relationships with the CEOs and the CIOs and all that because we’re conscious that we’re increasing our wallet share or mind share with a lot of these clients. And we need a lot of support from the top-down in understanding what we’re doing and how we can add value and partner up with our client organizations. The client coverage organization, Alvise Munari is I think 1,200 professionals by now, so significant expansion because of some of the acquisitions that we have made, which have added a lot of salespeople. And the key focus there is industrial scale, is trying to figure out how to continue to grow that client coverage organization in a manner that it is tightening up the organizational structure, the organizational design, the roles, the responsibilities. We’re putting a lot of technology and a lot of data in understanding how the – what the clients buying, how are they buying, managing the pipeline and so on and so forth. So I think we have a lot of runway to benefit from in reaching out to more clients. This is going to become especially important because we’re scaling up significantly to new areas. Wealth management, it’s a lot of wealth management organizations around the world. Corporates, there are thousands and thousands of corporate entities around the world, right? Insurance companies, the general partners of equity – private equity firm, private credit firm, private infrastructure, private debt firms and the like. So really, really exciting, a lot of what we’re doing.

There are no further questions. At this time, I’d like to turn the floor back to Henry Fernandez for closing remarks.

So thank you, everyone for joining us today. Our fourth quarter and full year performance, as you can see, was a direct result of our focus on clients and pricing and our all-weather franchise. We remain very excited about the tremendous opportunities that we have in front of us and the investments that we’re making to capitalize on them. And we will execute flawlessly on that growth agenda. One of – I think that it’s always more to keep an company. We welcome anybody who wants to have a dialogue with us at any point at any time. And we will be more than happy to answer your questions or any other questions that people may have. Thank you again and have a great day.

This concludes today’s call. You may now disconnect.