MSCI Inc. (MSCI) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to your MSCI Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the conference over to Mr. Edings Thibault, Head of Investor Relations. Sir, you may begin.

Thank you, Saeed. Good morning, everyone, and thank you for joining our fourth quarter and full year 2012 earnings call. Please note that earlier this morning, we issued a press release describing our results for fourth quarter and full year 2012, and a copy of that release may be viewed on our website at msci.com under the Investor Relations tab. You'll also find on our website, a slide presentation that we have prepared to accompany this call. This call 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 on our Form 10-K for our fiscal year ended December 31, 2011, and other SEC filings. 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: lease exit charge, restructuring costs and non-recurring 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 the relevant slides in 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 again that our run rate is an approximation at a given point in time of the forward-looking revenues 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 license to our indices or changes in foreign currency rates. Please refer to Table 10 in our press release for a detailed explanation. I will now turn the call over to Bob Qutub.

Thank you, Edings, and thank you, everyone, for joining us on this call. Earlier this morning, MSCI reported strong financial results for the fourth quarter of 2012. Our operating results were highlighted by another strong quarter for our Performance and Risk segment with the index and ESG subscription run rate increasing by 25%, aided by the acquisition of IPD, and 11% organic growth. Our Government segment continued to make progress on our path to sustainable growth. While there remains work to be done, we are pleased with the trend to results we have reported in the past 3 quarters. MSCI's results benefited from strong net inflows in the MSCI-linked ETFs during the fourth quarter. The vast majority of these flows came after Vanguard announced their decision to switch indices for certain ETFs. Since the switch was announced, MSCI has seen the assets under management and other ETFs linked to MSCI indices increase, as MSCI-linked ETFs gained almost 2/3 of all flows into U.S. listed cross-border ETFs. That kind of voted confidence in the value of MSCI indices is extremely gratifying. The run rate of our portfolio management analytics business, which accounted for 11% of our total, continued to decline with much of that decline in run rate can be traced to foreign currency moves and the impact of product swaps, the combination of tough conditions for our client and ongoing price competition improved to be a strong headwind. We do not believe that we are losing ground to our competitors and we will work to continue to harvest and stabilize this important product line. Another topic I want to highlight is the deployment of our capital. Over the course of 2012, we did a great deal of talking to our Board, investors and others about how we can deploy our capital to support our medium and long-term growth while balancing the needs of our shareholders. I'll review the details of how we use our capital in 2012 later in the call but the result of that process was a balanced approach that funded our internal investment, enabled us to take advantage of limited strategic opportunities and return capital. Now let's get into the numbers. MSCI reported fourth quarter net income of $54.5 million, representing an increase of 22% over fourth quarter 2011. Revenues were $247.1 million, up 9% from fourth quarter 2011, adjusted EBITDA was $116.6 million, up 12% year-over-year with adjusted EPS rising 16% to $0.52. For the full year, MSCI reported net income of $184.2 million, an increase of 6% over 2011. Revenues were $950.1 million, an increase of 5% from 2011. Adjusted EBITDA was up $434.5 million, up 4%. And adjusted EPS was up $1.94, up 5%. Our fourth quarter revenue growth by segment was led by our Performance and Risk segment which reported revenue growth of $18.4 million or 9% driven by higher growth in index and ESG and risk management analytics revenues, partially offset by a decline in Portfolio Management Analytics, and Energy and Commodity Analytics. Our Government segment revenues rose $2.6 million or 9%. On revenue type, overall quarterly subscription revenue grew by 6% over the fourth quarter 2011, or by 5% organically, and asset-based fees rose by 23%. On a run rate basis, our total subscription business grew by 10% to $840 million. That growth was aided by the acquisition of IPD, which added 35 -- excuse me, $39.5 million. On an organic basis, our subscription run rate grew by 5%, led by an 11% increase in index and ESG subscription, 8% growth in governance and 4% growth in risk management analytics. This was partially offset by run rate declines in Portfolio Management Analytics, and Energy and Commodity Analytics. On a sequential basis, run rate grew by 1% organically. MSCI's growth in run rate continues to be impacted by a tough selling environment and by a seasonal uptick in cancels. Total sales of $37 million were down 13% from fourth quarter of 2011, and subscription sales declined 16%. Our overall retention rate remains solid at 85% for the quarter and 90% for the full year. Just as a reminder, nearly 1/3 of our annual renewals come due in the fourth quarter and as a result, we have generally recorded the highest levels of cancellations in that quarter leading in turn to a sequential decline in retention rate. Given the seasonality of the fourth quarter retention rate, we believe that the year-over-year comparison is more appropriate in looking at the sequential trend. Now let's take a look at the performance of our 4 major product lines. Starting with our index and ESG subscription products, revenues there grew by $10 million or 14% with IPD contributing $3.6 million to growth. Run rate grew 25% to $338 million or by 11% on an organic basis. We saw an uptick in sales in Europe, offset by weaker demand in other regions, especially the United States. We continued to benefit from increasing sales of ESG products and overall retention rates stayed strong at 90% in the fourth quarter and 93% for the full year. Before I get into the discussion of asset-based fee run rates, let me clarify that we continue to reflect the Vanguard revenues in our reported P&L, along with the related AUMs as a measure of performance. However, for a policy reflecting no cancels, we have adjusted our run rate, which is a forward-looking measure as of the third quarter 2012 to reflect the loss of the Vanguard ETFs. The AUMs of the Vanguard ETFs was, as you may recall, $131 billion at the end of third quarter 2012, with an estimated run rate of $24 million. Our asset-based fee revenues run rate benefited from a combination of solid market performance and strong inflows in the ETFs linked to MSCI indices. Revenues rose 23% on the back of an increase in overall assets under management and higher revenues from non-ETF passive products. Asset-based fee run rates rose 6% year-over-year and 11% sequentially to $127 million. If we also exclude the run rate attributable to the Vanguard ETFs from the company's run rate at the end of the fourth quarter 2011, our annual asset-based fee run rate growth would have been 25%. There was over $402 billion of assets under management in ETFs linked to MSCI indices at the end of December 2012, up 33% year-over-year, and 11% from the end of December 2012. $138 billion of that AUM was in the Vanguard ETFs, leaving $264 billion in AUM and those ETFs that will remain linked to MSCI indices. Excluding the Vanguard ETFs, our average pricing on MSCI-linked ETFs remain constant with third quarter at 3.7 basis points. I want to spend a moment discussing net flows in ETFs linked to our indices. For the full year 2012, those ETFs saw a total of $57 billion of net inflows, equivalent to 19% of the total AUM at the beginning of 2012. In the fourth quarter alone, ETFs linked to MSCI indices experienced $26 billion of net inflows and only 15% of those flows, or $3.9 billion, were into those ETFs that will switch indices. So the big driver of our sequential run rate growth was the performance of and flows into those ETFs that will remain linked with MSCI. Speaking of those Vanguard ETFs, the transition is underway. Earlier this week, we reported that our January month end balance for AUM and ETFs linked to MSCI indices was $334 billion, down from $402 billion at the end of December. The latest balance reflects the migration of approximately $100 billion and 8 ETFs. As of January 31, there was approximately $48 million of AUMs and 14 ETFs, which remain to be transitioned. The remaining ETFs account for approximately 25% of the $24 million run rate we identified in October. Our risk management analytics revenues rose 7% year-over-year, and run rate rose 4% to $262 million. RMA sales were $11 million during the quarter, essentially in line with the levels that we have seen all year but down more than 20% from the fourth quarter of 2011. We experienced strong interest in our hedge fund reporting products and solid demand from banks and broker-dealers offset by continued softness from asset managers with slower sales to pension funds. Cancellation trends remain broadly stable as our retention rate rose to 84% for the fourth quarter and remained 89% for the full year, while recently we spent $23.5 million to acquire InvestorForce. Our investment in InvestorForce will open up new opportunities for our RMAs to offer risk performance products to pension funds. We had a tough quarter in our PMA product line with revenues down 5%. Run rate declined 7% year-over-year to $110 million, with most of that decline coming in the fourth quarter. There are several factors behind the decline in run rate, changes in FX rates, most notably, the weakening of the Japanese Yen, lowered run rate by $1.8 million during the fourth quarter. The business was also impacted by product swaps into our risk management analytics product. These swaps lowered our PMA run rate by $3 million year-over-year, including almost $1.6 million during the fourth quarter of 2012. You can see this as a difference between our annual aggregate retention rate of 78% and our core retention rate of 84%. Taken together, these 2 factors resulted in a net impact to PMA rate of $3.4 million in the fourth quarter 2012, or just half of the $6 million sequential decline with net cancels accounting for the remaining. Looking beyond those FX changes and the impact of product swaps, the PMA business remains very competitive. The new products we have launched are having an impact. The struggles of asset managers broadly and quantitative asset managers more specifically continue to have a dampening effect on our sales. We see these conditions continuing through the first quarter of 2013. On a very positive note, we are encouraged by the progress being made by our governance segment, which reported a 9% increase in revenues. Governance run rate grew by 8% to $117 million. Growth in our governance business continues to be driven by the success of our executive compensation data and analytics products and by an improvement in retention rate. The core proxy research and voting market remain competitive where we saw a marked improvement in our retention rate from this product, which is an indication that the efforts we have made to improve the quality of our product and the level of service we provide are being appreciated by our clients. Now let's turn to our expenses. As I mentioned earlier, our adjusted EBITDA rose by 12% to $116.6 million in the fourth quarter of 2012. Our adjusted EBITDA expense rose only by 7% to $131 million, with all of that growth coming from higher compensation expense. Our adjusted EBITDA margin was 47%, up from 46% in the fourth quarter 2011, driven by an increase in revenues and strong expense management. Please note that we expect our EBITDA margin to decline sequentially in the first quarter as a result of the impact of the IPD and InvestorForce acquisitions, both of which have lower margins, the impact of lower asset-based fees resulting from Vanguard's index switch, as well as normal sequential increase in costs, including the flowing through of inflationary compensation increases and seasonally higher benefit costs. Compensation expense rose by 10% to $93 million. The increasing compensation expense was driven by an increase in overall compensation levels and benefits expense and by the addition of IPD. In addition, the change in compensation expense was exacerbated by MSCI's decision in the fourth quarter of 2011 to reduce its accrued bonus expense, which lowered compensation costs in that period by $3 million. Also the addition of 312 employees of IPD slowed the progress we are making on leveraging our low-cost [indiscernible] but even after factoring in those additions, we still increased the percentage of our headcount in those centers to 41% from 39% a year ago, but down sequentially from 44% in the third quarter. While we're on the subject of compensation, let me remind you that MSCI is now fully amortized with non-recurring stock based-compensation issued in the wake of the RiskMetrics acquisition. Non-compensation expenses declined by $1 million, or 2%, as a result of lower IT spending and recruiting expenses, which helped to offset the impact of higher occupancy expense and the impact of IPD non-compensation expense. MSCI's tax rate increased to 38.3% in fourth quarter 2012. Driving the uptick in quarterly taxes was a $1.7 million charge to cover our portion of additional tax liabilities incurred when we were a part of Morgan Stanley. We also incurred certain acquisition charges related to IPD that are not tax-deductible, which raised our effective rate. We expect our operating tax rate for 2012, net of discrete benefits or expenses, to be in the 34% to 34.5% range. Now turning to our balance sheet. We generated $347 million in operating cash flow in 2012, benefiting from our profitability and increased working capital efficiencies of $52 million. We used that money to fund our organic investments in our analytics platform and index brand. We spent $45 million in CapEx, and invested $125 million in IPD. We also returned a total of $324 million of invested capital in the form of a $224 million reduction in debt and in December, through the $100 million accelerated share repurchase agreement, which is part of the authorized $300 million share buyback in December. With DSR in place, we did not utilize any of that additional authorization as of the end of the fourth quarter. Just a reminder about the mechanics of the accelerated share repurchase agreement we signed in December. We paid $100 million to Morgan Stanley on the day of the agreement. They delivered to us 2.2 million shares, which we withdrew from our share count. The balance of the shares to be delivered to us, if any, is expected no later than July 2013 and is based on daily average volume weighted share price during the repurchase period. MSCI may be required in certain limited circumstances to deliver shares or, at its option, pay cash at the settlement time. Because of the timing of DSR and the reduction of our share count have little impact on fourth quarter or 2012 results but it will have a modest benefit to our EPS growth in 2013. Looking ahead, in the spirit of providing more insight on our capital deployment, we ended 2012 with $254 million of cash, cash equivalents and short-term investments with approximately $84 million of that cash held offshore. We have already invested $23 million -- $23.5 million to acquiring InvestorForce, and under the terms of our current loan, we are scheduled to repay $44 million in 2013 of our outstanding debt in 4 $11 million quarterly increment. And after an uptick in 2012, we expect our capital expenditures to be lower than 2013 in the range of $30 million to $35 million. And of course, we have the authorization granted by the Board to repurchase up to $200 million of our shares. Now let me turn it over to Henry for some additional comments.

Thanks, Bob. Before I speak to you about some of the initiatives we have underway for 2013, I would like to reflect a bit more on the past year. The operating environment was difficult for much of 2012, and the fourth quarter was no exception. MSCI experienced a slowdown in sales across our major product line as we saw clients delaying their decision-making process. This trend, which began in the middle of 2011, remained constant throughout 2012. Throughout that timeframe, however, our overall retention rate has remained largely stable, a trend that has also continued in the fourth quarter. So in our view, we think we are experiencing a broad hesitation on the part of the participants in the financial markets to make significant budgetary decisions. We continue to believe that this hesitation is largely a function of macroeconomic uncertainty and some of the more micro challenges faced by segments of the investment and banking industry. We believe that both confidence and spending will rebound at some point. It is important to keep in mind that MSCI's business is evolving, financial markets are becoming more integrated, both globally and across asset classes, increasing the complexity our clients face. Clients and regulators are demanding more transparency, both internally across portfolios and externally between managers. At the same time the cost of processing data is dropping fast, which is going to drive innovation and increase the value of unique data sets and analytical tools. All of these factors are driving underlying demand for tools, which can provide insight and linkage around performance and risks for single asset class and multi-asset class investors and managers. It is our goal at MSCI to meet that demand and to provide those tools. These same factors are also driving our need to invest both organically and through acquisitions. So at MSCI, we're not sitting still waiting for market conditions to turn. We are taking a proactive but balanced approach to our investment plan. To meet the needs of our clients, we made sizable investments in our products and services over the course of 2012. We have consistently added to our sales and sales support organizations, which we think has had a very positive impact on our retention rates. On the product development side, we are benefiting from a range of new products that were launched throughout 2012. At the same time, we're working hard to limit the impact of these investments on profitability by leveraging our low-cost centers and our technology and keeping a very tight rein on discretionary spending in the company. In our indexed unit, we have continued to expand our offering of risk premium and other strategy indices, which integrate the intelligence of our Barra analytics with a compressive market view of our global indices. We also introduced economic exposure indices, which have generated a lot of interest from clients who wish to know more about where the companies in their portfolio make their money. In our risk unit, we significantly upgraded the hardware platform underlying our risk analytics in order to expand the processing power and flexibility we offer our clients. That upgrade gives us a more robust infrastructure and scalable architecture. We also rolled out new services to help hedge funds meet disclosure requirements to investors and regulators. We have also taken steps to integrate Barra's equity and multi-asset class insights into the risk metrics, risk management platforms. Finally, we continue to work on broadening our product offering to include multi-asset class performance attribution analytics in addition to risk management analytics, which is a key step in linking performance and risks for multi-asset class investors. In governance, we have invested to expand the breadth of the compensation data analytics products and services that we provide to include more companies and in more countries. We also added to our sales and client service organization, improved the stability and performance of our proxy voting system and upgraded the look of our proxy research offering. In portfolio management analytics, we continue to launch new models, and will shortly enhance our Barra Portfolio Manager software by adding back -- by adding critical portfolio back testing functionality that is much in demand by our clients. In addition to making this important organic investment, we also invested $125 million to acquire Investment Property Databank or IPD. To understand why IPD fits with MSCI's strategy, it is necessary to go back to what I said earlier. MSCI's goal is to provide mission-critical investment decision support tools that link performance and risk across portfolios that are invested in a single asset class and those composed of multiple asset classes. In order to provide insight about multiple asset class portfolios, we need to bring together best of breed tools for measuring performance and risks in each asset class. IPD's unique data indices and analytics and a strong client base broadened our performance measurement tools to include commercial real estate and will help us bring additional insight and global comparability to the managers of this asset and the institutional investors who fund them. At the beginning of 2013, we spent $24 million to acquire InvestorForce, which provides pension fund consultants with critical portfolio performance measurement tools to service their pension fund clients. This acquisition will deepen our penetration into this important part of the pension fund community and will give us a platform to which we can add data, analytics and especially risk measurement tools into that platform to serve pension fund clients. The combination of InvestorForce platform, the current tools and the incremental insight that MSCI can provide should enable these consultants to significantly expand the quality of advice they provide to their pension funds and other asset owner clients, further embedding MSCI in the investment process. We will continue to invest in a proactive but balanced fashion in 2013. As always, we will be investing in new products, including additional risk premium and strategy indices; new governance tools and enhanced risk and performance analytics across our various asset classes. We will also be making additional investments in our client outreach and distribution channels in order to expand and deepen our relationship with our largest client, extend our geographic reach, especially with emerging market clients, and bolster our client services. We're also expanding our marketing and advertising efforts, especially to financial advisors in the U.S. as we seek to continue to build our brand and make them aware of the many factors that differentiate MSCI's global indices from those of the country and regional players or other low-price new entrants. Finally, we will be making additional investments in our technology infrastructure and are launching a multiyear effort to evolve our 2 existing risk management software platforms, BarraOne and RiskManager, by knitting them together closer over time. Many of these investments will extend beyond 2013. But as I said before, we will be working very hard to ensure that this investment do not significantly affect the levels of profitability of our company. These investments are a part of a larger financial strategy of balanced capital deployment that Bob described earlier. We are fortunate that our strong cash flow will enable us to make organic investments, both on acquisitions like IPD and InvestorForce, while at the same time, pay down debt and return capital to shareholders. We view the $100 million accelerated share repurchase agreement and the increment of $200 million share repurchase authorization that we announced in December as the primary means for that return of capital to shareholders. Let's go ahead now and take your questions. Thank you.

[Operator Instructions] Our first question comes from Georgios Mihalos from Crédit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Just a couple of questions, you guys referenced the difficult selling environment that's been going on for about 1.5 years now. Are you sensing any sort of change in the environment early in the year, whether better or worse? And just to kind of jump on that point, what do you think are sort of -- how do you think about the long-term growth prospects for the risk management business in terms of growth and kind of the competitive profile that's out there?

I think, on the first part -- I'll take the first one. Indications are we're seeing a continuation, George, on -- in terms of the pipeline remaining strong. It's just getting corporation to continue to spend the money. We indicated in the past quarter, we saw the cancels remain kind of seasonally reflective of what they've been before. We're looking at the macroeconomic environment to get more certainty. I think that Henry talked to it. And on that point, Henry, from your perspective, if you want to offer something up on that?

We are hopeful that the current rally in equity markets around the world and some lifting of the macroeconomic uncertainties will eventually benefit us. We have seen very, very early indications of some of that in the tone of dialogue with clients but nothing really to report. And we typically lag, companies like MSCI lag on the way up and lag on the way down in our subscription business. Obviously, the environment is beneficial to us on the AUM for the ETFs and other types of products, but we're currently not sitting still. We keep pushing ahead in many of the things that we're doing in order to see if we can push hard on sales and benefit from that this year and obviously maintain the stable retention rates that we've enjoyed in the past. With respect to the RMA business, as we've said in the past, this is a business that is always lumpy. It is -- there are some quarters in which it's going to be better and some quarters where it's not going to look as great. And I think the fourth quarter of last year was one of those in which many of the sales that were in the pipeline had slipped. We are pretty hopeful and confident that the pipeline remains healthy. If the macroeconomic uncertainty lifts more, we may be able to see some of those deals closing sooner rather than later, but it's too early to tell. We're also very confident that the fundamental demand for Risk Management Analytics around the world in all the various classes and client segments that we serve is still strong and healthy, from hedge funds to our pension plans and other forms of asset owners to asset managers, et cetera. But it's clearly a question of converting that interest on those trials and those elements of the pipeline to actual sales. There have be times in which it's a little easier and other times in which it's more difficult. But I believe, and I think all of our colleagues believe that the fundamental demand for risk management continues to be pretty strong across the board. I think the other thing that, in general, that I'd like to add is that, interestingly enough or funny enough, quite a lot of the difficulty converting sales to -- in the pipeline to actual orders has been in the U.S. And we've been fortunate that our business in Europe, even though clearly affected by the sovereign debt crisis there has performed well. So as we see some of this uncertainty lifting politically and budgetary in the U.S., maybe we'll benefit from that in terms of our overall sales. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. That's helpful. And then just on the portfolio analytics side, I think you referenced a sizable portion of the decline in the run rate being sourced from product swaps to BarraOne specifically. How far along do you think we are in that process? I think, in the release, you mentioned some fixed income products. I guess the old Cosmos converting to BarraOne. Is that essentially done now? And how should we think about pricing in that business going forward?

I think on the product swaps between Aegis and BPM into BarraOne will continue. And a lot of the reasons why that is the case is, one, BarraOne is fairly advanced in its functionality for both risk management and certain amount of portfolio management. That's the product line that we have been putting more investments in and so forth -- so on and so forth. So therefore, it is logical to see more -- some clients who have certain amount of risk analysis and risk management capabilities in their front equity portfolio management office put that in BarraOne. So we'll see some of that continue. That may get abated over time as we develop Barra Portfolio Manager more, and therefore, may benefit from that. Secondly is that there is, in certain parts of the world, especially in Europe and parts of Japan, a bit more of an integration going on between the front portfolio management office and the middle risk management office. And therefore, we may see some product swaps between Aegis, for example, and obviously Cosmos in fixed income, into BarraOne because people in those areas would like to have one system serving the front office of portfolio management and the middle office for risk management. So that's another aspect of product swaps that will continue. To be frank, to us, we're indifferent. At many times, the product swaps that take place between PMA and RMA are done at an uptick to sales in RMA, and a lot of this description that we have in terms of RMA and PMA is, at times, artificial. It may be confusing or misleading over time, but that's the way we've done it so far.

Yes, and George, and there's not much left on Cosmos to that specific point. [indiscernible] Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. And just last question for me. You guys referenced investments in '13. Just sort of, in aggregate, should we be thinking that those investments will be roughly on par or at the same level of investment in 2012?

I think they will be, we're continuing an upward trend, George, we're trying to look more organically in what we're doing. We see that leveraging our existing platform. Henry cited ones that occurred in 2012, we've got more that -- that were completed in 2012 in data centers. But as we go into 2013, we're looking at the network and the platform. So we see that as an ongoing trend that's positive. It leverages our existing platform and obviously, those type of investments have great payback.

Our next question comes from David Togut from Evercore Partners.

A couple of quick questions. First, on client retention, even if we adjust for the negative FX and the product swap, wouldn't client retention in Portfolio Management Analytics still be down pretty significantly on a year-over-year basis?

We've seen -- like we said, we've seen pricing pressures come in through. The competitive market has been tough. We're not necessarily losing ground per se, but these contracts come up for repricing, it's competitive, there's other entrants in the market, that makes it challenging. But like I said earlier, the bulk of the decline in the run rate was driven by product swaps we talked a little but more extensively that Henry referred to, as well as the FX.

And just on the energy and commodity analytics, which was down about, I guess, [indiscernible] percentage points year-over-year, can you talk about the underlying drivers of that decline in client retention? To what extent is that one-time or something sustainable?

You're seeing structural changes in the market with the OCC's exchanges and those things going on. Those are things that have to work themselves out over time. We continue to work on the models, we continue to upgrade and move through it. As certain things sort themselves out, we'll have a better position going forward.

I see. And then can you update us on the relationship with BlackRock? They said on their recent earnings call that they were very pleased with MSCI, and yet they want to keep their costs down as low as possible. So how are those discussions proceeding? Can you sustain the pricing with BlackRock over time?

I think, as we have said over and over and over again, we have a very strong and close relationship with all of BlackRock, but obviously, in this case specifically, iShares. The level of collaboration and discussion that we've had with them intensified quite significantly in the last quarter as we were trying to ensure that we were serving our mutual clients, it's mostly institutional clients, in their transition from many of the Vanguard funds to the iShares funds. So that relationship is very strong, and it continues to get stronger and the like. So I don't anticipate no significant changes of that. If anything, we continue to launch a lot of new products together. I don't think any month goes by without iShares introducing new MSCI-linked ETFs in the U.S., but in other locations around the world. And we're looking at the map of the world in terms of where are areas in which we are not yet doing as much as we should be doing. Ocana [ph] is one example of those and therefore, we are pushing hard together to see what else we can be launching together in many of these other places.

Final question for me on capital allocation. You've shown a lot more flexibility on the score in the last few months with the ASR. Should we expect you to start paying a dividend at some point in the near future?

I think Henry gave pretty clear guidance. With the $200 million authorized buyback, that's our vehicle right now, to return our capital back to our investors and shareholders.

And then we also have -- I don't think the flexibility, so to speak, around the fourth quarter was necessarily anything new. I think what we did throughout 2012, and many of our shareholders and analysts understand that we engaged in a discussion as to what is it that the right capital deployment of the company ought to be. We engaged our Board intensely during this summer in a strategy about the overall direction of the company and the areas we wanted to make investments, we worked pretty hard in creating a budgetary process in the Fall. And therefore, all of that ended up coinciding towards the end of the year for the end result that you saw. We always had a very significant amount of effort going on, on capital allocation and capital deployment in the company in terms of what is the right balance between organic investment, bolt-on acquisitions some pay down of debt if necessary and return of capital. So I think we achieved the right balance, we're pretty happy with it and I don't think we're going to add dramatically to that.

And our next question comes from Toni Kaplan from Morgan Stanley.

You typically implement the annual price increase in May, so I think this is my last chance to ask about it before next quarter. Can you give us some color on what you're thinking on the index side of the business? Is it the usual sort of 3% to 5%? And in the portfolio analytics side, is that still not really expecting price increases there because of the tough environment?

I don't think this year will be that significant the way we're looking at pricing in the index business. We haven't made any final decisions at this point. But so far a lot of our discussion have been not dramatically different. With respect to pricing on the RMA business, I think that, that's another -- I don't think there's going to be any significant or substantive changes to the pricing that we have on that product line in 2013 as it relates to 2012. And in PMA, I think the pricing there is looking at every client that renews. We want to keep the business with those clients. Sometimes we add functionality and there's an uptick and part of their -- many times in which the renewal gets done at a lower price point. So that will probably continue in 2013.

Okay. That's great. And just one other question on portfolio management analytics. You talked about the tough macro and customers not really wanting to spend. Are you changing your strategy at all in this business in particular? I know you mentioned some of the initiatives from a distribution side, et cetera, but is there anything in this business, in particular, that you're going to be changing?

I think, a lot of it is a continuation and mainly -- sometimes an acceleration of all the strategic moves that we're making in this business. One is how do we ensure our tools are in a lot of different software platforms, not only ours but other vendors. So we've done that and accelerated that. Secondly, how do we ensure we keep launching quite a lot of new risk models. And a lot of the sale that came in 2012 were because of these new risk models. And we have more -- many more risk models coming out in 2013 as well. Three, is the continued enhancement of Barra Portfolio Manager. This newer release that is coming out in the next few months of Barra Portfolio Manager is a very important one because it gives a great deal of back testing functionality to portfolio analysis. So that's -- there's one release in the next few months and another one towards the end of the year that continues to enhance that software and make it look and behave a lot more like Aegis, which is obviously desktop, older technology. So we're doing that. And I think, in addition to that, we're getting extremely close to clients in terms of training clients and client service and understanding what they're trying to do and how they use their tools, customize many of the tools that we provide to them, that's another significant effort. So I think it's a continuation but I wouldn't say an acceleration in 2013 of a lot of what we've been doing in the past. That's not to say that necessarily, the business or the environment or the client base will improve dramatically but we're hoping that these efforts that we have in place continue to soften any kind of problems and at some point, turn the business around.

Okay, great. And just one last one for me. Can you talk about your strategy for the sales force this year? How much would you expect to increase it by? And which areas are you going to bulk up and are there areas that you're going to scale down?

I don't think we're scaling down anything on the sales organization. If anything, now, there is quite a significant incremental expansion of our client organization in many fronts. We're adding sales people in all of these centers where we operate. We're opening up more centers to go into -- deeper into other our client bases in Canada. We're pushing hard in Taiwan. We're pushing hard in many of the emerging markets. We've created a dedicated sales force for the emerging markets of EMEA, Eastern Europe, Russia, Middle East, Turkey and Sub-Saharan Africa. There's money there, there are big sovereign wealth funds there that we're not covering as effectively, so we're pushing hard on that. We are adding to our consultants, these are the people that help train our clients on our analytics. And we're establishing larger client service centers in the emerging markets, adding into Monterrey, in Budapest and Mumbai, in Shanghai. But especially, we're adding significantly to the client service team in Manila. We established a front there that we didn't have before and that's also something that we're expanding on. We're going to have a night shift there to cover the world as well. All of these efforts have been very, very effective in keeping our retention stable. Don't underestimate the challenges that are facing investment organizations wanting to cut costs and the like. And the reason, one of the primary reasons why our retention rates have remained stable is because of a lot of these client service and consultant outreach that we have and we're using quite a lot of technology to do that. And we're positioning -- we're -- in terms of the sales additions, we are trying to grow faster if we can. And it positions us also extremely well that when a lot of this uncertainty lifts and the client's budget begin to get released, we'll be there to capture significant upside in growth.

Our next question comes from Bill Warmington from Raymond James. William A. Warmington - Raymond James & Associates, Inc., Research Division: A couple of housekeeping questions if I might. The first, I just want to double check if we have on the index and ESG revenue run rate, the subscription organic growth at 11%, the AUM at 6%, what was the total division organic growth for the run rate on an organic basis?

For the overall subscription run rate or just on the index and ESG? William A. Warmington - Raymond James & Associates, Inc., Research Division: The latter, just on the index and ESG. On an organic...

Organic was 11% on the overall. William A. Warmington - Raymond James & Associates, Inc., Research Division: So was -- it was subscription at 11%, right? And then...

Subscription was 10% overall. And so the organic -- on an organic basis, it grew by 5%. William A. Warmington - Raymond James & Associates, Inc., Research Division: Okay. But I'm saying, for -- if you take the index and ESG piece and you look at the run rate and you look at it just organic for that, it looks like subscription organic within index and ESG was 11%. And it looks like AUM was up 6%, and that's all organic. I just want to double check the total subscription -- sorry, the total index and ESG revenue run rate organic growth? If it's in the slide, just point me to it. I didn't see it.

Bill, good little feedback. I just want to make sure we're clear on it. William A. Warmington - Raymond James & Associates, Inc., Research Division: Okay. Not a problem. And then, I wanted to ask if you have updated your thinking around a target debt level?

We are always evaluating. As Henry said, we talked to our Board and our investors, we're looking at -- constantly looking at our capital structure. As you know, we've got the $850 million outstanding, we've got scheduled payments of $44 million this year, the step up that matures in 2017. We'll be evaluating our levels of debt along with all other factors that would be a part of our invested capital for the company here, but we're always looking at it. William A. Warmington - Raymond James & Associates, Inc., Research Division: Okay. And then on the acquisition front, just wanted to ask if you felt you had any holes that you needed to fill, whether you are still aggressively reviewing opportunities? I just want to get your thoughts there.

Bill, we are always reviewing opportunities that are what I would call acceleration of organic investment through acquisitions in our backyard, the same product line and on the like. So that continues. And largely, these are largely things that are bolt-on. We're not proactively looking at anything that is big or transformational, anything like that. You never know when those things come. But a lot of what we're trying to look is what specific holes do we have. In the asset classes per se, in the single asset classes, we feel pretty good about equities. Hedge funds for a bit, obviously real estate. We are actually -- good that you asked, we're actually about to announce a consultation process with our clients on private equities. We've been working with another vendor on private equities to see if we can join forces to create private equity indices on performance and risk management systems for that asset class. So that also is ongoing. I think, clearly, the area where we are strong for multi-asset classes is fixed income but we're not as strong in fixed income as a single asset class. I don't think we're going to launch fixed income indices at this point. We are having a good partnership with Barclays on ESG for fixed income but we're not going to go into that space directly. And I think, we haven't been able to earmark investment for fixed income Portfolio Management Analytics. That's an area that we keep looking but I'm not sure that -- we keep saying that every year, I'm not sure we're going to do anything necessarily, unless we find something interesting at the right price.

Our next question comes from Chris Shutler from William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: In the ETF business, just curious to get your thoughts on why the MSCI emerging market's ETF EAM has seen such a good pickup inflows while some of the other ETFs, I mean, some of the other ETFs with Vanguard products that switched to FTSE haven't suffered as much or have actually continued to see inflows? So just curious to get your take there? And then also, what's your sense of how sustainable the trends in the EAM ETF are?

Sorry, your second question, what's... Christopher Shutler - William Blair & Company L.L.C., Research Division: It was just how sustainable do you think the trends in the MSCI emerging market's ETF are, I guess, relative to the competition?

Yes. No, I think, what happened in the last quarter, since the announcement by Vanguard, is a testimony and a complete understanding of what we've been saying since the announcement of the Vanguard switch. And that is MSCI is the leading index for global institutional investors in the way they allocate the assets and give out mandates for their portfolios. And it's just not only American but European and Asian, institutional investors of all types. So when the announcement was made, you saw that there were a lot of institutional investors around the world that had found their way into Vanguard ETFs because they wanted to be invested in an MSCI index. And when they saw those ETFs switching indices, they looked around to what other ETFs with MSCI indices were available and you saw that massive switch that took place in the fourth quarter and continues today. Now, this was very pronounced, even more so in the emerging markets because if MSCI is strong in terms of -- as an index in terms of general investment in all markets, it is strongest as an index of the emerging market. We have a very pronounced reputation in market share in indices that cover the emerging markets. So that was it. The other part of it is that the Vanguard emerging market ETF was the largest of all the ETFs -- the quarterly [ph] ETF that were being switched to another index. And therefore, it is likely and logical to have seen the largest amount of assets in that ETF going to iShares and others. So I think that, that's the explanation. Now that trend continues. Obviously, it may not continue at the same pace that it did in the fourth quarter because there are diminishing returns as to how much of that money really switches but it does continue today.

Our next question comes from Ed Ditmire from Macquarie.

My question is how firm is your conviction at the product portfolio in a broad sense? And what I mean is index risk, portfolio analytics and governance is the right product set to take advantage of the next step turn in client demand when it materializes? In particular, have management moves to decentralize overhead functions like finance over the last year and push some of that overhead management into the segments, has that given you a better flexibility to make the most of your options in case you felt that one of the units would enjoy special synergies with a strategic partner, et cetera?

I think, one way to think about our business, I mean, -- let me back up. The way we describe our business typically is in the form of index and risk and portfolio and governance and all of that. The other way to describe it, which is more logical, because that's what we're trying to achieve, is to say what are all the things that we're doing for the equity investment asset class? And put aside the brands and all of that, but what are we doing? So we create performance measurements in the form indices. We create performance attribution models. We create the risk analysis. And we create portfolio construction and portfolio optimization and so on and so forth. And we create -- we overlay a form of ESG investing on that equity -- on those equity portfolios and we have tools that bought -- that people bought their shares on those equity portfolios. So that's the vast majority of what we do. The vast majority of what we do is very synergistic because the infrastructure, all the databases, and our understanding of the companies, understanding of corporate events and corporate actions and the growth of those companies, the value of those companies and all of that is the same underlying structure that goes into an index or into a risk model or in an ESG or whatever. At the front-end, our distribution people are talking to the same people. They're talking to equity portfolio managers, they're talking to chief investment officers for equities, the head analysts for equities and so on and so forth. And therefore, it is highly, highly synergistic. We -- our view is that in a multi-asset class world in which all these asset classes are really converging with one another and the asset owner doesn't look at a single asset class. The asset owner wants to look at a combined portfolio. I think that saying that we can be a company that only does indices or only does things for the equity portfolio management is a dangerous place to be. You have -- for sure, for the asset owner, which is ultimately one dictating what happens at the asset manager level, so you have to go to the asset owner and provide them a comprehensive solution to risks and performance of their multi-asset class segments, in equities and fixed income and in alternatives. You have to provide that. And in order to do that, you have to be best-of-breed in each one of the asset classes. You have to be best-of-breed in equities. We're okay in fixed income but that's an area that needs development. We clearly are becoming -- will become very good at real estate, in risk and performance with the same on IPD. We clearly -- this consultation is successful in private equities and we are already doing quite a lot in risk analysis of hedge funds. So all of that is highly synergistic when you sit down with an asset owner, when you sit down with the managers of those assets. If you go see the CIO of a European asset management company, they want to talk to us about what can we do for them in their real estate portfolios and their equity portfolio and their fixed income portfolio, and these are all tools that are very similar to one another. How you measure risk and how you measure performance is the same similar tools, the same approach, the same philosophy in each one of them. So that's what we're trying to build at MSCI. And therefore, the holes that may exist over this long journey are holes that are either because the particular area is not price attractive, fixed income indices for example in the past haven't been a place where you make money, so we stay away from that. At some point, we will make money, but we stay away from them. And areas in which we can execute rapidly. So that's kind of the direction of what we're taking in all of this.

And to further your point, your opening question, we have a lot of integrated infrastructure whether it's from how we support product lines, whether it's from the functional units like finance that are in data support, those have been quite integrated.

Well, thank you very much everyone. Is that the last call?

I'm showing no further questions.

One thing of clarification for Bill. Just to come back and to save you a call with Edings, is that organic growth for overall index was 9%. That was, as I said earlier, 11% on the subscription side, and 6% on ABS. Just for clarification on that.

Thank you, Saeed. And thank you, everyone, for joining us on the call today. Feel free to call me with any additional questions. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.