MSCI Inc. (MSCI) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the MSCI First Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. And now, I'll turn the conference over to Edings Thibault, Head of Investor Relations. Please begin.

Thank you, Tyrone. Good morning, everyone, and thank you for joining us on our first quarter 2012 earnings conference call. Please note that earlier this morning, we issued a press release describing our results for the first quarter of 2012. A copy of that release may be viewed on our website at msci.com under the Investor Relations tab. You will also find on our website a slide presentation that we have prepared for this call. It's the first time that we have prepared slides for earnings call, so I hope you appreciate the additional clarity we think this will provide. We certainly welcome your feedback. This presentation may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management's current estimates, projections, expectations or beliefs and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of additional risks and uncertainties that may affect MSCI's future results, please see the description of risk factors and forward-looking statements in our Form 10-K for our fiscal year ending December 31, 2011. Today's earnings call may also include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EPS. Adjusted EBITDA and adjusted EPS exclude the following: construction costs and nonrecurring stock-based expense. Adjusted EPS also excludes the amortization of intangibles resulting from acquisitions and debt repayment and refinancing expenses. Please refer to today's earnings release and Pages 16 to 18 of the investor presentation for the required reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures. We will be referring to run rate frequently in our discussion this morning. So let me remind you that our run rate is an approximation at a given point in time the forward-looking fees for subscriptions and product licenses that we will record over the next 12 months, assuming no cancellations, new sales, changes in the assets and ETFs licensed to our indices or changes in foreign currency rates. Please refer to Table 7 in our press release for a detailed explanation. Henry Fernandez will begin the discussion this morning with an overview of the first quarter operating results, and then David Obstler will provide some details on our financial results. I will now turn the call over to Mr. Henry Fernandez. Henry?

Good morning, and thank you for joining us. Earlier this morning, MSCI reported first quarter 2012 revenues of $221 million, up 3% from first quarter 2011, and adjusted EBITDA of $102 million, down 2% year-over-year. MSCI's 2012 adjusted EPS rose 2% year-over-year to $0.44. Excluding our $5 million in revenue correction, which today we will discuss in more detail, revenues grew 5% to $234 million, adjusted EBITDA grew 3% to $107 million and adjusted EPS increased 9% to $0.47. Turning now to our operating results. MSCI had a solid start to the year. Our run rate rose 6% to $919 million, driven by 7% growth in our subscription run rate and 2% growth in the run rate for our asset-based fees. The operating environment worldwide in the first quarter remained broadly unchanged compared to recent quarters. Our recurring subscription sales remained steady as the index and ESG business and risk management analytics continue to perform well and the Governance business provided a lift in the quarter. Retention rates increased in both the portfolio management analytics and Governance businesses and remain exceptionally high. We remain focused on meeting the demand from our customers for innovative new solutions to their investment problems. During the quarter, we rolled out new strategy indices, enhanced the software and risk measurement capabilities of our RiskManager platform, introduced an upgraded version of Barra Portfolio Manager and released an innovative new Global Equity Model. We expect to maintain a high pace of innovation over the course of 2012. During the first quarter, we opened a new sales office in Seoul, Korea, underlining our commitment to Asia. In addition to my trip to Korea for the official opening of our office during the quarter, I was also able to visit our offices and our key clients in South Africa and in Brazil. At MSCI, we often refer to the globalization of investing as one of the key themes that drives our growth. For the most part, that has meant the increased allocation of capital by developed market investors to nondomestic markets and increasingly emerging and frontier markets. But as institutional investors in emerging markets themselves also continue to grow assets and broaden their investment horizons, I am convinced that this market can become an important source of demand for MSCI products and services, and our global footprint in all these emerging markets around the world position us very well for that upturn. Let us now look a little more closely at the performance of each of our businesses starting with Equity Index and ESG. Total index and ESG run rate grew by 9%, fueled by continued growth in our subscription run rate. Run rate for the index and ESG subscription business, which, as you know, excludes asset-based fees, rose 12% year-over-year to $279 million. Among our index subscription products, the biggest sellers continue to be our core emerging market and developed market index modules. We also saw a strong growth in sales on the small cap index modules, which is a sign that our efforts to promote the MSCI ACWI IMI index as a policy benchmark for asset owners, is starting to have a positive impact on the demand for a small cap mandate. We are continuing our efforts to promote our Risk Premia Indices and have been encouraged by the interest that we are seeing from asset owner clients worldwide. MSCI has one sizable investment mandate for Risk Premia Indices in every major region of the world. Another area of strength for us was in sales of our environmental, social and governance products. I noted on our call last time that we have focused on consolidating our product lineup and building our sales force for the ESG business. With most of that work now complete, I am pleased to see a return to sales growth for this product category. Our asset-based fee run rate rose by 2% year-over-year and by 14% sequentially to $137 million in the first quarter of 2012. The biggest driver of growth was an increase in AUM in the change credit funds linked to MSCI indices. AUM increased to $355 billion at the end of the first quarter 2012 in the wake of the rally in global equity markets, up from $302 billion at the end of 2011. After a 2-quarter hiatus, fund flows were once again an important driver of AUM growth for MSCI-linked EPS, contributing $15 billion to the AUM increase in the quarter. The number of ETFs linked to MSCI indices also continue to grow, rising to 560 at the end of the first quarter, up from 524 at the end of 2011. Our overall pricing remained stable with our average basis point fee, excluding minimum fees, of 3.0 basis points. Our risk management analytics run rate rose 6% year-over-year to $258 million. During the quarter, the RMA business continued to benefit from a strong demand from asset owners and wealth managers. In fact, we signed an agreement in the quarter with one of the top U.S. wealth managers to use our WealthBench and RiskManager products to measure and manage risk for their portfolios of their high net worth clients. MSCI is now providing risk management systems to 4 of the top 5 largest U.S. wealth managers. We also signed agreements to provide our BarraOne risk management platform to 2 of the top 8 pension funds in the United States. Demand for our hedge platform, which, as you remember, is a result of the merger of our hedge platform with the Measurisk acquisition, this demand from large funds also remains strong in the quarter. Overall, sales of RMA products to asset managers, both in Europe and the Americas, were weak during the quarter. As we expected, retention rates in the RMA business rebounded after dipping in the fourth quarter of 2011 and were flat compared to a year ago. Portfolio management analytics run rate was $118 million, essentially flat versus the prior year. Our recurring subscription sales modestly outpaced our cancels, but that growth was offset by a currency hit resulting from the weakening of the Japanese Yen. While the selling environment for PMA products remain challenging, we continue to see the results of our investment in new products. In the first quarter 2012, we released an upgrade to our Barra portfolio management platform, as I indicated before, and extended our new quantitative modeling enhancement to our Global Equity Model. New products in PMA accounted for an increase in percentage of our total sales and were one of the key drivers behind an increase in retention rates. We will continue to launch more new products in PMA over the course of 2012. Our Governance business had a very good first quarter. Governance run rate rose 7% year-over-year to $113 million. There were 2 key drivers of the run rate growth in the Governance segment. First, we are transitioning our corporate business from its historical focus on one-time sales to an emphasis on sales of subscription products. The second driver and the more important one to our growth was the strong demand for our executive compensation data and analytical tools, a new product that we introduced in the middle of 2011, as you may remember. The institutional proxy market remained challenging as our asset manager clients continue to keep a tight reign on spending. Retention rates in the Governance business also improved, rising to 89% from 85%. Let me now turn it over to David for some additional comments on our first quarter results.

Thank you, Henry. I would like to start my discussion with a review of the key drivers of our revenue growth in the first quarter, which are outlined on Page 11 of the slides that are posted to our website. Total revenue grew by $6 million year-over-year or 3% to $229 million. Our revenue growth was led by index and ESG subscription revenue, which was up 15%, and risk management analytics revenue, which was up 9%. Our subscription revenues grew by $10 million or 6%. Our subscription revenue growth was impacted by a noncash negative revenue adjustment of $5.2 million to correct an error in our prior period FEA energy and commodity analytics revenues, which I will talk about later. Excluding the impact of that correction, our subscription revenues would have risen 9% in the quarter and our total revenues would have been up by 5% versus the first quarter of last year. Our revenue growth rate was also impacted by a lower growth rate in both asset-based fee and nonrecurring revenues. Our asset-based fees grew by $1 million or 3%, driven in part by a modest increase in the average AUM due to the decline in equity markets in the second half of 2011. As we have already discussed, we have experienced a rebound in those markets in the first quarter, resulting in an 11% sequential increase in asset-based fee revenues. Nonrecurring revenues fell by $5 million to $8 million year-over-year. If you recall, we recorded a $4.2 million one-time nonrecurring revenues in the first quarter of last year, resulting from the renegotiation of a contract with one of our ETF provider clients. Absent that single sale, our nonrecurring revenues declined by $1 million, mainly due to the changing of our business model in the advisory and compensation product line in our Governance segment. Now I would like to say a word about the first quarter revenue reduction we recorded to correct our accounting for our FEA business. In prior quarters, MSCI recognized a substantial portion of the revenue under its FEA software licenses upfront rather than amortizing that revenue over the life of the contracts, which is now the correct method of recognition. The change springs the recognition of our energy and commodity analytics revenues in line with most of our other subscription products. The impact of the change did not have a material effect on our previously reported financial statements in recent years. In addition, there is no effect on the run rate in that business. My next topic is our expenses. Our adjusted EBITDA expenses for the quarter were $127 million, an increase of 7% versus the first quarter of last year. The increase was balanced between composition expense, excluding nonrecurring stock-based compensation, which rose 7.2% to $92 million, and non-compensation expenses, which rose 6.6% to $35 million. The biggest driver of our increasing compensation was headcount. Our total number of employees at the end of the first quarter was 2,465, an increase of 20% from a year ago. Much of that growth has been focused on our emerging market centers, and we have increased the percentage of our employees in those locations to 40% versus 32% a year ago. Leveraging those locations has enabled us, as you can see, to keep our compensation expense growth well below the rate of growth in our employee base. On the non-compensation side, the biggest driver of the $2 million increase in our expenses was higher occupancy costs, which increased $1.8 million year-over-year. Most of that increase was the result of new leases that we have taken on as we prepared to consolidate our New York operations and shift locations of our Governance operations in Rockville, Maryland. We will be incurring double rent expense in both cities through the end of the third quarter as we complete the moves. To mitigate the impact of this expense, we are keeping a tight rein on other non-compensation expenses, like travel and entertainment. In fact, excluding the impact of higher occupancy costs, our non-compensation expense rose only 1%. Turning to our tax rate. Our tax rate in the quarter was 35.6%, down from 37.2% a year ago. And we are currently projecting a full year tax rate of approximately 36%. Our adjusted EBITDA was $102 million, down 2% from a year ago, and our adjusted EBITDA margin was 44.5%. The FEA correction had the effect of lowering our reported adjusted EBITDA by $5.2 million and reducing our adjusted EBITDA margin by 1.2%. We had a very strong cash quarter in the first quarter of this year. We generated $70 million of operating cash flows in the quarter, up from negative $26 million a year ago. Our capital expenditures were $4 million in the quarter, but we expect that number to increase, as we've discussed on previous calls, as we begin to incur the costs associated with the build-out of our new locations. We ended the first quarter with $1.1 billion of total debt outstanding and $460 million of cash and equivalents. To remind everyone, our current debt has an interest cost of 3.5%, consisting of a LIBOR floor of 100 basis points and a 250 basis point spread. And including swap expense and amortization of financing fees, our total interest cost, currently, is approximately 4.3%. We announced that we intend to issue $600 million of a 5-year term loan A facility and are pleased to announce that we've now upsized that deal to $880 million given strong demand. In addition, we are refinancing our $100 million revolving credit facility. We will use the proceeds of this new debt and approximately $200 million of cash on our balance sheet to repay our existing term loan B facility in full. We anticipate that our new senior term loan will have an interest rate of LIBOR plus 2.25% and no LIBOR floor for a total interest rate of approximately 2.6%. Our total interest cost, including swap expense and fee amortization, will be approximately 3.25% at current LIBOR rates. In addition, we anticipate future step-downs in the LIBOR spread based on further leverage reduction. We are on track to close our refinancing at the end of this week, but note that it remains subject to satisfaction of certain customary closing conditions. We anticipate that this transaction, as I've talked about above, will result in a run rate interest savings of approximately 100 basis points on the $880 million of new debt versus our existing facility and a 350 basis point savings on the $200 million of debt reduction for a total run rate cash interest savings of approximately $16 million. Finally, we also expect to incur a nonrecurring and mainly noncash expense of $18 million to $20 million in the second quarter of this year, mainly from the accelerated amortization of deferred financing fees and the original issued discount relating to our existing term loan B facility and revolving credit facility, which we are paying off. This cost will be expense for GAAP EPS purposes and added back for adjusted EPS purposes. And with that, we would be happy to open the lines and take any questions you might have. Operator?

[Operator Instructions] I have a question from Suzi Stein of Morgan Stanley.

At the end of last year, you had an environment where people were delaying the purchase of new products in risk management. Have you seen that start to reverse since the market has rebounded?

Not much, Suzi. I think the environment continues to be one -- for us, continues to be one that on the sales front, not a lot of items are out of the pipeline, but the pipeline continues to be fairly flexible in which some items get delayed to the next quarter and so on and so forth. So not a lot of change from the last 2 quarters of 2011. This environment began to happen right around May of last year when the sovereign debt crisis in Europe began to percolate. And therefore, for the last 6 months of 2011 and the first quarter of this year and the current quarter, it remains largely unchanged. Secondly though, I'd like to add that we continue to see, as I've said earlier, a fairly robust environment for retention rates of all of our products, which is a tribute to the mission criticality of a lot of what we do for clients.

Okay. And then can you just give a little more detail on the February rollout of the Barra Portfolio Manager upgrade? What has the customer feedback been? And do you expect this to be a growth driver? Or is it more of a retention tool?

We -- the initial feedback has been pretty positive because as you may remember, the plan is to have pretty much all the functionality that exists in Aegis, which is a client-deployed software in the PMA business. So we put all of that functionality in BPM, which is MSCI-hosted software platform or ASP solution. So we are -- the first release of this, about a year ago, was maybe 1/3 of the way. The second release gets us about 2/3 or 3/4 of the way of putting all that functionality. And we're targeting another large release in the end of -- by the end of the year, which gets us to maybe 85%, 90% or higher of the functionality. So the feedback from clients has been very good in that roadmap. In terms of sales for this new product, I think they're going to be both. It's going to be, one, to transfer a lot of clients that are currently in Aegis to BPM as the functionality meets their needs. And then secondly, we are already seeing demand from new clients and new use cases within the same clients for these new easier to use and less costly software platform.

Our next question is from Georgios Mihalos of Crédit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: I was hoping to delve into your pipeline for ETF activity. Maybe give us a sense as to how the conversations are going with the existing providers you service. And maybe just sort of high level, give us a flavor for maybe some of the conversations you may be having with providers looking to get into the market and just thoughts around pricing there.

Yes. On the -- in the current pipeline, as you saw in the first quarter, it remains about the same from last year in terms of new product introductions. Actually, we're very pleased to announce that last Monday, 2 days ago, we launched a new ETF on MSCI Korea managed by Samsung Asset Management in Korea. So that's an example of the expansion of ETF. Last week, there was an announcement also that a few asset management companies from China were able to get regulatory approval from the Chinese authorities to launch MSCI A share ETFs in Hong Kong later on this year. So again, another expansion of our ETF business, in this case both in Asia, which is an area that we're very, very, very focused on. So -- now we don't know ultimately how -- with this environment, what the eventual plans of ETF sponsors in terms of rollout of products. What we see currently is a lot of excitement about this product line and therefore, a continuation of launches of new products. In terms of new entrants to the marketplace, obviously, most of them come to us to license our indices for the launch of ETFs. And there are many of them who have very unique distribution strategy or very unique set of criteria and therefore, they want to remain price competitive, so to speak, and they're all the ones that may want to use their product line to really compete solely on price and bring down fees. And we're less hoping or willing to work with many of those. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay, great. And then last question for me, you guys had a fair amount of time speaking about the Governance business and they have performed, obviously, very well here in the first quarter. I think in the past, Henry, you referred to that as being more of a financial asset than a strategic asset. Has that now turned the corner? Is Governance more strategic than MSCI?

I think we are in that transition. Our view is that this business, the Governance business, which is -- the majority of its revenues are driven by proxy advisory and proxy voting and proxy distribution. And that's a business that is more mature in the West. There are initiatives around the world to either shame asset managers and institutional investors or make them comply with voting rules and if so, there will be growth associated with that. But the business is more mature and it's a little bit cyclical and it's obviously a bit more competitive. So our plan is, and our belief is, that this business can -- given the footprint that we have, given the expertise that we have, can launch a wide variety of products over time to make those products very essential to the investment process of our clients. And therefore, if we are able to achieve that transformation over time, then we believe that this business become pretty hardcore to what we do. An evidence of what the potential of this business can be is this new compensation data, our executive compensation data analytics product that we launched last summer in which it has performed exceedingly well in generating new sales for us in the segment. And it really is a path to the development of other products that can be essential to either issuers of capital, in this case corporations, or the users or the suppliers of capital and the institutional investors and their asset managers. So again, we believe that this business, which initially was clearly known for, as we called it at the time, can go through that transformation. And if we're able to do that, it will become part -- a very strong part and parcel of what we do, and we're very bullish on that. But obviously, time will tell as to whether we can execute against that vision.

Our next question is from Bill Warmington of Raymond James. William A. Warmington - Raymond James & Associates, Inc., Research Division: I don't know if you could please comment on the competitive dynamic within the risk and portfolio model segment and specifically on Bloomberg's Newport product for the smaller clients and then also BlackRock Solutions as MSCI moves more into the fixed income side?

Yes, I think there are -- in what you're describing, there are 3 very distinct and separate segments. There is fixed income portfolio management products, which we don't really play a large role in. And there is fixed income either indices or fixed income management analytics, so the fixed income portfolio management or the fixed income front office. We don't play a large role in that market, and we're not making any significant investments at this point to play a large role in that market. The -- in terms of overall enterprise, why multi-asset class, risk management and solutions, which is a significant part of what we do with the RiskMetrics product line and the BarraOne product line, that the $258 million of revenue, that $258 million of run rate that we mentioned earlier, that is very much a core of our growth strategy and the like. And we continue to be the leading supplier of analytics on that on a multi-asset class and we, for sure, are strengthening our fixed income offering in the context of a multi-asset class setting, the same way that we're strengthening our alternative asset class offering in the context of the multi-asset class setting with new models and capabilities in hedge funds and private equities and in real estate and the like. So that continues to be a big effort on our part. And we're very pleased with the merger, so to speak, 2 years ago, of the RiskMetrics and BarraOne. We're very pleased with what we've been able to do in all client segments. I mentioned, obviously, a large penetration of the wealth management segment in the U.S. And that bodes well for us to then begin to penetrate wealth management in other parts of the world, where we're not as prevalent. We penetrated, very strongly, the asset owner community, especially pension funds in the U.S., but also in other selected areas around the world like in Japan and some places in Europe. And we continue to do well in this space in hedge funds, obviously, at a smaller click than we did back in '07 and the beginning of '08. So this is a -- it is a major area for us to build a big part of our business, and we're pretty good in what we do. And the competitive landscape is -- it hasn't changed much in the last 6 to 12 months from prior calls. And our bet is that -- is the competition will increase in this space over time, but we feel that we are -- we have the right products, the right distribution, the right service, we're nimble enough, the right investment, to compete and win in this space. Lastly, in the equity portfolio management space, obviously, that's a business -- that's the core of the old Barra, so to speak. And that's the $118 million of run rate that we mentioned earlier. That is a market that became competitive a year or 2 ago. We had an adjustment to that competitive landscape for a few quarters, but we're now feeling very good about our ability to compete and win in that space. There are quite a number of bake-off that would be in competition and we have won. And there's been quite a lot of takeaways from other competitors in that space, and we continue to do that. We're putting a lot of effort into this. We're putting a lot of new product development into this, and we intend to compete and win in this space. William A. Warmington - Raymond James & Associates, Inc., Research Division: Okay. I wanted to also ask one other question on, and if you could comment on the M&A pipeline that you're seeing in the context of your upsized line of credit.

Yes, I think we -- as we have always said to -- in these calls and in prior discussions, in investment conferences and the like, we always want to manage a tight balance between accumulating excess cash in our balance sheet and looking for M&A opportunities. There are lot of companies out there that have accumulated enormous amount of excess cash, and they're not deploying them currently for acquisitions and, therefore, have significant memory [ph] to carry on them or low returns on their equity. So we're trying to be a lot more optimal. I'm trying to be a lot more disciplined about that in terms of when the excess cash accumulates to certain level, and we don't see much of an M&A pipeline to return, to pay down debt with that cash. And we've done it twice now. We did it last year, I think around this time. And $80 million, I think, David, at that time. And we're doing it now with larger balances of $200 million. But keep in mind that we -- even though we're paying $200 million, we still have $260 million left. And given the huge amount of cash generation in our company relative to our size and competitors, we feel that cash will accumulate fast again to allow us to have the financial resources to do small- and medium-sized acquisitions if they come. In terms of the pipeline, and we see a lot. We are very much in the deal flow. We are extremely disciplined buyers in terms of whatever we buy has to be in our backyard. There has to be a large cost reduction component to that. It's got to follow a strategic plan of accelerating our growth plans in a particular area as opposed to looking for diversifying acquisitions or far afield acquisitions in other areas, we're not as interested in those. We're hoping that as the markets turn over time, that the sweet spot to M&A comes in, which is when people realize that we're no longer in a tough market but the values are still lagging and people then will want more often to sell at a reasonable price. And therefore, we want to be there to balance if the opportunities are there and have the financial resources to do that, but we're not seeing that yet.

And just to amplify a little bit of what we did on the refinancing, we had a just under $1.1 billion credit facility. And what we've done by this refinancing is to refinance it with just under $900 million of drawn and then to use $200 million of our cash. That lowers the interest rate and, as Henry mentioned, reduces the cash balance to around $260 million while still preserving that amount in cash balance for the flexibility that Henry mentioned.

Our next question is from Jennifer Huang of UBS.

Can you maybe provide us with some more color. I know you talked about the pipeline being roughly unchanged from a quarter or 2 ago, but is there any more color around this particular client segment in terms of asset managers, along on the asset managers versus hedge funds or versus pension funds? Maybe just a color there?

Yes, and it goes by product as well. Each of our segments have taken turns in terms of sales having some leadership. As we mentioned this quarter, we had a very strong performance from wealth managers and from asset owners. Our pipeline continues to be quite diversified. We have solid pipeline with asset managers, with hedge funds, with banks, et cetera. And what we have been finding is that based on what comes in each quarter, 1 segment takes or 2 segments take the lead versus the others. But we continue to have a very diversified pipeline across these segments and also geographically.

The other thing I would add is that Europe, a lot of people look at the headlines in the newspapers and think of Europe as being in a basket case, right? And for us, it has been fairly steady, not great but not bad, fairly steady and solid that would just clearly attribute to the criticality of many of our products, to the secular demand of many of our products even in the face of extremely tight budgets for asset managers in Europe. So that has been a pleasant surprise for us in the last few quarters.

Okay, great. And then maybe as a follow-up, you pointed out strategy in the fees -- in the ETF business, like gaining acceptance globally. Can you talk about just the overall marketplace for these sort of newer generation strategy indices and then the ETFs on top of those?

Yes. I think that what is happening is that clients, in the form of institutional investors, asset owners and therefore forcing their asset manager clients, look at alternative means to do their strategic asset allocation or even their tactical asset allocation. So they are going from what I would call a market beta approach of looking at the entire equity world and slice it and dice it according to market capitalization weighted betas and either invest passively or give up assets or mandates to active managers to beat that beta to an environment, in which the margin -- they're looking to see if other alternative strategies would also work. And they come in many flavors. They either are a risk reduction, volatility reduction strategies in which they say, "Can we achieve the same level of return in the market with lower volatility or even lower risk?" And we've done an extensive amount of work and are a leader in that space in providing that research and the consequence that indices have go with that to the marketplace. So therefore, a few of these institutional investors and asset owners have picked MSCI indices without -- with this methodology and have mandated or given mandates to asset managers to manage money along those lines. And we have picked up basis point contracts with them. Clearly, another variation of this is, should you be waiting your investment strategy instead of market capitalization and instead of risk reduction or volatility control, one can be weighted on the basis of fundamental factors going on in the marketplace, in the book-to-value and things like that or earnings or revenues or whatever as opposed to price, as opposed to market capitalization. And we've been very active in that space as well with our indices. So those are examples of what is happening. And therefore, the index industry, the index provision, the index supplier industry has been looking at that new evolution of the market as to going from provision of indices just on the basis of market beta to investment strategy beta indices. And it's pretty exciting. We're a leader in that space currently and remains -- clearly are very focused on remaining a leader. And I think that is going to bode well. It's starting in a lot of ways in the institutional market with their asset managers, but it's also beginning to go into ETFs and other form of passive retail funds and the like.

Our next question is from Robert Riggs of William Blair. Robert Riggs - William Blair & Company L.L.C., Research Division: Just a couple of quick questions around the sales force. Have you made or have you contemplated making any changes to the structure or the incentives for the sales force to help them better seek out the pockets of money at existing clients or new clients?

We haven't made any organizational changes, in wholesale organizational changes, and we have not changed the compensation structure of our sales force. And on the compensation structure, we don't intend to do that. There are no plans, no discussions to do that. What we have done in the last few quarters is -- like we always do, is make marginal shifts of resources from either products or client segment where there is a bit less opportunity to products or, on client segments where we find better opportunities. So obviously, we have beefed up our sales to our sales force to asset owners around the world. We have beefed up sales to wealth managers, as we mentioned before, around the world. We have actually put a lot of emphasis on sales of PMA products to equity, long/short hedge funds and the like. We obviously are very bullish in parts of Asia, so just Korea with establishment of the office. We recently announced the hiring of a managing director from one of the key asset management companies to be the head of our office there in Korea, and so on and so forth. So those are the shifts that we're looking to do now. In addition to that, we are also very focused on finding new clients in all areas, either new asset manager client that we haven't had a dialogue with or new geographies. And we're also focused on increasing the cross-selling to a lot of our clients in this environment to continue to generate growth in sales. The last thing that I will say, and that was a little bit of my reference to the emerging market clients at the beginning of my prepared remarks. And I am very focused personally on figuring out a wider strategy that we can execute on to cover our emerging market clients much better and -- in a much better and maybe in a different way in order to generate growth there. We have been very successful over the past decades on creating emerging market products that gets all to developed market investors. We have been exceedingly successful of locating large amounts of our staff to emerging market centers. That's the 40 percentage versus 32% a year ago. And we're now focused on emerging market clients, pension funds, sovereign wealth funds and asset managers and hedge funds, the broker dealers and the like. We're ready to do that, but we want to do it in a much bigger way. Robert Riggs - William Blair & Company L.L.C., Research Division: Great. And just how has attrition and hiring trended kind of in line with your expectations?

It's very much as expected. At this time of the year, the first quarter or 2 are clearly where if their bonuses get paid and promotions get done. It's where you see a little more movement. And you'll probably see there is a slight growth in our headcount from the end of the year to the first quarter, and that's because we also, on a net basis, continue to grow by a bit mostly in emerging market centers. So the attrition, when a -- clearly, no attrition is welcome, right, but when it is, when it does come, we'll take an opportunity to revisit where should that function be located and more often than not, we're pushing for that function to be located in emerging market centers.

Our next question is from David Togut of Evercore Partners.

This is Rayna Kumar for David Togut. Can you please provide us an update on BlackRock's efforts to get SEC approval to start their own proprietary indices?

Yes -- no, absolutely no change whatsoever, no new information, no change to what we've discussed in the past. I would like to add though is that we have an extremely tight and great relationship with BlackRock at all levels in all of their company but especially at the iShare level. And therefore, there's no, no change, there's no -- nothing new to report.

There are no further questions at this time. I'd like to turn the call over to management for any closing remarks.

Well, thank you, very much Tyrone. And thank you very much, everyone, for joining us. Please feel free to join us again next quarter for another update on our results. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect, and have a wonderful day.