MSCI Inc. (MSCI) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the MSCI Fourth Quarter and Fiscal Year Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Edings Thibault. You may begin.

Thank you, Nicole. Good morning, and thank all of you for joining our fourth quarter and full year 2013 earnings call. Please note that earlier this morning, we issued a press release announcing our results for the fourth quarter and full-year 2013. A copy of that release may be viewed 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. 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 in our Form 10-K for our fiscal year ending December 31, 2012, today's earnings release and our other filings with the SEC. 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: nonrecurring stock-based expense, depreciation, the amortization of intangible assets, strategic review expenses, the lease exit charge and restructuring costs. Adjusted EBITDA also excludes depreciation and amortization of property, equipment and leasehold improvements; while adjusted EPS also excludes debt repayment and refinancing expenses in the income tax effect of the excluded items. Please refer to today's earnings release in Pages 17 through 20 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. Let me now turn the call over to Henry Fernandez to go ahead and get started, our Chairman and Chief Executive Officer. Henry?

Thank you, Edings, and good morning, everyone. Before Bob gives you the details of our fourth quarter results, I would like to take this opportunity to share some of my thoughts with you on the full-year 2013 and what we plan to do in 2014. 2013 was a milestone year for MSCI. We reported strong financial and operating results. And we've made very important strides to strengthening our major product lines. MSCI's revenues grew 9% to more than $1 billion. Our diluted EPS grew by 24%, and our adjusted EPS grew 11% to $2.16. From an operating perspective, a combination of new products, more salespeople, more focused client service and a modest improvement in our operating environment lifted our sales and retention rates. Our run rate grew 9% to $1 billion and -- $1,050,000,000, including 25% growth in asset-based fees, and our retention rate was a very strong 91%. In our Index business in 2013, ETF providers launched a total of 62 new ETFs linked to our indices, including ETFs from 5 new providers. In the fourth quarter alone, ETF providers launched 30 ETFs linked to our indices, including 10 ETFs from Fidelity Investments that are linked to our U.S. domestic indices. Part of our growth in ETFs resulted from the increasing licensing of our Factor Indices. We have talked about this before. Active and passive assets under management worldwide linked to our Factor Indices grew by more than 60% to just over USD 70 billion in 2013. And we won sizable mandates from pension from clients in Asia, in Europe and in Canada. In our Risk Management Analytics business in 2013, we expanded our coverage of market risk to include liquidity risks and counterparty exposures and expanded the functionality of RiskManager and BarraOne. This enhancement and the acquisition of InvestorForce helped grew our client base by 9% during the year while simultaneously increasing our run rate per client. We also put in place dedicated product management and sales heads in Asia-Pacific, which helped grow our run rate in the region by 12%. We also maintained the pace of innovation in the fourth quarter in our Risk Management Analytics business, releasing a new commercial real estate model for BarraOne that grows extensively on the IPD database. One of the benefits we identified when we acquired IPD was that we could tap into their proprietary databases for our risk models, so it is great to see that benefit being realized now. In our Portfolio Management Analytics business in 2013, we launched 7 new market risk models, including 4 in the fourth quarter, as we continue to pick up the pace of new model launches. We also added important new functionality to Barra Portfolio Manager, including enhanced back testing, high-volume reporting and access to the MSCI fundamental ratio data and to the MSCI -- to the new MSCI Economic Exposure Indices. In 2013, we also integrated 2 acquisitions, IPD, as you know, a global leader in commercial real estate performance measurement and attribution, and InvestorForce, a leading provider of performance measurement tools to the U.S. pension fund consultant industry. On the topic of capital efficiency, MSCI returned $200 million of capital to our shareholders since December 2012. Today, we announced our third $100 million ASR agreement, now fully utilizing the $300 million repurchase authorization granted by our board only 13 months ago. MSCI's board also authorized the repurchase of an additional $300 million of our shares. Finally, we continue to explore strategic alternatives for our Governance business, and we look forward to updating you when we have completed that process. Now looking forward to 2014, our attention is focused squarely on ensuring that MSCI continues to lead in providing investment decision tools worldwide. As our clients' budgets begin to recover from the financial crisis, their demand for our tools will grow. The institutional investment marketplace is also changing, presenting us with significant opportunities that we are eager to take on. So what are some of these changes that we see? We see asset owners and their managers more focused on developing products designed to meet a desired investment outcome, for example, reducing volatilities in their portfolios or enhancing income. In addition, we see the rise of ETFs and the acceleration of that rise in the long-term trends towards passive investments and which has also slowed the growth of new active fund creation. Similarly, many institutional investors and their asset managers are looking for a more integrated view of risk and return all developed in the same data and technology platform and, therefore, driving the need for tools that can aid in that process and can also connect the front office of portfolio management with the middle office of risk management all across multiple asset classes. And of course, we cannot talk about changes in the investment landscape without talking about regulation in the financial industry, which is driving demand for more transparency and more reporting of the attribution of investment performance and the sources of portfolio risk. When you take all of this into account, these are, therefore, very exciting times at MSCI. To take advantage of all these changes and to continue to meet our client needs, we have put in motion an investment program that gained traction over the second half of 2013 and will continue well into 2014. Those of you that know us very well understand that for us -- or to us, investment is really primarily investing in people. So let me give you some examples of where we have made some of these investments in 2013. First, sales and distribution. We have strengthened significantly our sales teams worldwide. We added more than 40 new salespeople to our performance and risk sales teams during the year. We opened up new offices, and we deepened our sales focus in every major region of the world. In the Americas, for example, we increased our focus on hedge funds, on smaller loan-only asset managers and on insurance companies, a new segment for us. We also targeted design contribution managers and we strengthened our sales presence in Canada. That dedicated sales presence in Canada paid off very well during the year as we grew our sales of index products in the country by 65%, and our overall run rate there from all products increased by 10%. In EMEA, we expanded our coverage of Eastern Europe, the Middle East and India. We also increased our focus on asset owners in Continental Europe and the U.K., and we grew our index sales teams across the whole region. In Asia, we added to our teams in Shanghai and in Beijing in order to take advantage of the increasing levels and accelerated levels of liberalization of portfolio investment in the Chinese market. We opened a new sales office in Taipei, Taiwan, and we continue to build our presence in Korea. I am pleased to note that Korea has developed into a strong market for MSCI, as we now provide our services to many of the largest Korean asset managers and grew our run rate in the country by more than 20% during the year. A second area of investment for us was client service. Our client service teams play a critical role in helping our clients get the full value of our tools and, therefore, enabling them to make smarter decisions about their portfolios. They also play a critical tool in ensuring that those clients remain with MSCI for many years to come. Over the past 2 years, we have expanded our client service teams worldwide by more than 20% -- sorry, more than 10%, with the addition of these teams in both emerging market centers as well as developed markets centers. These efforts in client service had paid off in the form of very strong retention rates. Our aggregate retention rates for the Performance and Risk segment rose to the highest level since the RiskMetrics merger back in 2010, including a record-high retention rate in Risk Management Analytics, where a great deal of our client service investments have been focused. Third, let me talk a little bit about marketing. In 2013, we stepped up at our marketing to the U.S. financial advisory community via a series of advertising online and in select print publications. These efforts to raise MSCI's index business profile in the U.S. financial advisory community has been very positively received by our ETF providers who license our indices. As we had reported back in October, we hired our first Chief Marketing Officer, and she's well on her way to expanding our marketing efforts into 2014. Fourthly, let me talk about new-product development. We expanded our product development teams by 25% over the course of the year, with a special focus on product managers and application development to write new software and data management to create new data sets. These investments contributed to the launch of a lot of different products but especially the groundbreaking products such as Factor Indices, the new partnership that we have with Barclays on ESG Fixed Income Indices, as well as the introduction of the suite of the new U.S. sector and small-cap risk models that I referred to before. MSCI also rolled out important upgrades to our existing software platforms, with critical additions to RiskManager, BarraOne, hedge platform and wealth bench. Our new products and the enhanced platforms in which they operate are contributing to our growth in sales and are playing a critical role in our strong retention rates. Fifth and last, we also have scaled up our technology infrastructure and our physical footprint in order to support these investments. Bob will make some comments about those investments in his remarks. We expect our investment program to lift our revenue growth rates from the mid to high single digits currently to the low double digits over the course of the next few years. Some of our investments, like those in sales, client service and marketing, should bring benefits soon, over the course of 2014 and 2015. Others, including our new product development efforts, may take a little longer. But we feel very confident that these targeted investments will bode well for MSCI and our shareholders. As we plan to invest steadily throughout 2014, these investments will have an impact on our margins, just as they did in the fourth quarter, as we spend ahead of our client demand and in anticipation of revenue growth. In order to provide you with more detailed information about our business, our opportunities for growth and our investment program, we will be hosting our first ever Investor Day, which will take place in our offices in downtown Manhattan on Friday, March 21. So to sum up, 2013 was a milestone year for MSCI. Our investments in sales and in client service and in new product development are starting to have a positive impact on our sales and our renewals and our revenues, and you have seen that in the fourth quarter. With our end markets healing and the demand for our tools increasing, MSCI has embarked on a targeted investment plan that we believe will accelerate our growth and reinforce MSCI's position as a market leader in performance and risk tools across all institutional asset classes and for the owners and the managers and the traders of those assets. Let me now turn it over to Bob.

Thank you, Henry. Henry spoke a lot about our investment program, and I just want to echo his remarks. This is an exciting time here at MSCI. It is gratifying to see the impact that our new products are having, and we're excited about the kinds of capabilities we will be bringing to our clients in the coming quarters. Let's review our fourth quarter highlights. Revenues grew 8%, driven by organic growth of 6%. Net income declined 13%, and diluted EPS fell by 11%. Net income and EPS were impacted by a higher tax expense and nonrecurring expenses. Adjusted EBITDA fell 2%, and adjusted EPS fell 8% as the boost from lower debt cost and lower share count was offset by higher tax expense. On the operating side, we had a strong fourth quarter. Run rate grew by 9% to $1.05 billion. Our growth was driven by a sharp increase in asset-based fee run rate and a 6% growth in subscription run rate. Our organic subscription run rate growth accelerated to 6% from 4% in the third quarter, and retention rates rose to 89%. MSCI continued to benefit from the strong demand for MSCI-linked ETFs. On a run-rate basis, where the comparisons are now to periods in which the impact of the Vanguard loss has been taken into account, asset-based fees grew by 25%. We remain active in managing the company's capital. MSCI received 0.5 million shares as part of the conclusion of the August 2013 accelerated share repurchase program. In total, MSCI has purchased 5.4 million shares and 2 ASRs since December 2012. And as Henry mentioned, we announced another $100 million ASR to be executed after today's close. We also extended our debt facility by 19 months and reduced our mandatory repayments prior to maturity. As has been the case all year, we will highlight the effects of the acquisitions and the CFRA divestiture in the context of organic growth, as well as any impact FX changes have had on our run rate. Now let's get into the numbers. MSCI reported fourth quarter revenues of $268 million, up 8% from fourth quarter 2012. Adjusted EBITDA was $114 million, a decrease of 2% versus 2012, and adjusted EPS fell 8% to $0.48. Net income was $47 million, and diluted EPS was $0.39, representing a decline of 13% and 11%, respectively, versus fourth quarter 2012. Our fourth quarter revenue growth was led by the Performance and Risk segment, which reported revenue growth of 10%, driven by higher growth in Index and ESG and RMA revenues, partially offsetting by a decline in PMA. On an organic basis, Performance and Risk revenues rose by 6%. Our Governance segment revenues rose 7% on an organic basis. On a reported basis, however, Governance revenues declined 1% as a result of the divestiture of CFRA. By revenue type, MSCI's total subscription revenue grew by 10% over the fourth quarter 2012. On an organic basis, subscription revenues rose 7%. Asset-based fees rose 3%, as the loss of the revenues from the Vanguard ETFs was more than offset by an increase in revenues from other ETFs and passive funds. Nonrecurring revenues declined 3%. On a run rate basis, our total subscription business grew by 6% to $892 million. Organic subscription run rate growth was also 6%. The growth in our run rate was driven by a 22% increase in subscription sales to $36 million. MSCI's retention rates increased to a very strong 89% during the quarter, up from 85% a year ago. The retention rate for the full year was 91%, and both our fourth quarter and full-year retention rates were at their highest levels since the RiskMetrics merger, a real testament to our investments in client service. On a year-over-year basis, changes in foreign currency rates reduced MSCI's run rate by $400,000. On a sequential basis, the FX changes increased run rate by $700,000. Now let's turn to the performance of each of our 4 major product lines and starting with our Index and ESG products, where revenues grew by 13%, or by 8% organically. Here, the subscription run rate grew 10% to $372 million, driven by organic growth in Equity Index benchmark and data products. Double-digit growth in both ESG and IPD run rate also contributed to the growth. Index and ESG sales rose 48%, and retention rates ticked up to 91%. Now let's take a closer -- let's take a look at our asset-based fees and the related run rate. Our ABF run rate rose 25% versus fourth quarter 2012, and that's in line with the 26% increase in the assets under management when you exclude the Vanguard ETFs. The average basis point fee at the end of the fourth quarter was 3.6 basis points. There was a total of $333 billion of assets under management in ETFs linked to MSCI indices at the end of December 2013. A year ago, if you exclude the Vanguard AUM, that number was $264 billion. Approximately 2/3 of the $69 billion increase over the past year resulted from inflows into MSCI-linked ETFs. Market appreciation accounted for only $24 billion. Also interesting to note is the shift in assets under management over the past year. If we exclude all AUM related to the Vanguard ETFs, AUM in our -- linked to our developed market indices grew by almost 70%, while AUM tied to our emerging market indices, which lagged the performance of the developed markets in 2013, shrank by 19%. The AUM and ETFs linked to MSCI indices really does reflect the performance of global markets rather than any single market or single region. Now turning to Risk Management Analytics. Revenues there rose by 13% year-over-year and by 9% on an organic basis. Our fourth quarter revenues got a modest boost as we completed a modestly higher number of risk system implementations than in the fourth quarter 2012, which enabled us to recognize revenues from those contracts. Run rate of $291 million rose 11%, or 7% on an organic basis. That is an acceleration from the 6% organic growth rate we reported last quarter and is the highest growth rate we have reported since the end of 2011. Sales growth in the Americas and Asia-Pacific was offset by lower sales in Australia, Japan and Europe. Retention rates hit a new record, rising to 87% in the fourth quarter from 84% a year ago. FX changes contributed $1.2 million to the growth in RMA versus the fourth quarter of 2012 and $700,000 versus the third quarter of 2013. Switching to PMA. Revenues fell 11% to $26 million, and run rate fell 6% to $103 million. PMA sales remained weak, but retention rates rose to 89% from 78% in fourth quarter 2012. FX changes reduced run rate by $2.4 million versus fourth quarter 2012 and by $700,000 versus the third quarter. Now looking at the year-over-year decline in the PMA run rate of $7 million. Just over 1/3 of that was a result of changes in FX, and an additional 1/3 was a result of product swaps and cancels of our Cosmos fixed-income product. Down sales rather than client losses accounted for most of the remaining $2 million decline in run rate. Now moving to Governance. Revenues rose 7% on an organic basis. On a reported basis, revenues declined 1% as a result of the sale of our CFRA product line at the end of the first quarter. Run rate rose 7% organically to $115 million, driven by sales of executive compensation, data and analytics products and services, along with continued strength in run rate and retention rates. Now let's turn to expenses. Our adjusted EBITDA expense rose by 18% to $154 million. Compensation expenses rose 16% to $108 million. The growth in compensation expense was roughly split between the impact of the IPD and InvestorForce acquisitions and the organic headcount investment we are making. Our headcount rose 18% year-over-year and 4% from the end of the third quarter. The bulk of our new hires came on board in lower-cost centers. Since the end of 2012, we have grown our headcount in emerging market centers by more than 35% and limited the growth in our developed markets to 6%. As Henry noted, we expect to continue to hire aggressively as part of our investment program. As a result, we expect our compensation costs to continue to increase in each successive quarter over the course of 2014. Non-compensation expense, which excludes depreciation, amortization, the lease exit charge and strategic review expenses, rose 23% in fourth quarter 2013 to $46 million. While some of that increase reflects the acquisitions, on a more fundamental level, the growth in our non-compensation cost reflects our need to increase our infrastructure to support our investments in sales, client service and new products. For example, as I noted earlier, we have grown our headcount in emerging market centers by more than 1/3. As a result, we've had to increase our physical footprint in these locations, which drove a double-digit increase in our occupancy cost. Another driver of our expense growth was higher IT spending. We have added to our storage capacity and increased our processing power as we prepare to add new functionality to our software programs. Some of this spend showed up in capital spending but it also drove a 25% increase in our IT spend. A third element of the increase was higher marketing spend, which reflects our stepped-up level of outreach to all of our clients in general, and in particular, to financial advisers. Other non-compensation costs, including professional fees, recruiting and travel expenses, also increased as we stepped up our hiring of key personnel and increased our training and travel budget. During the fourth quarter of 2013, we incurred $1.8 million in expenses related to our examination of the strategic alternatives for our Governance business. As a result of the increase in compensation and non-compensation costs, adjusted EBITDA fell 2% to $114 million in the fourth quarter 2013. Other expense was $7 million in the fourth quarter, essentially flat from a year ago. However, we recorded $1.4 million in expenses related to the refinancing of our debt, which I referred to earlier. And excluding those costs, other expenses fell by $2 million. Our effective tax rate for the fourth quarter was 44%. For the full year, our actual tax rate was 35.6%, which came in higher than our previously forecasted tax rate of approximately 34%. Contributing to the higher rate included such items as differences in the mix of our international earnings and state tax rates. As a result of these changes, we had to increase our fourth quarter tax expense to bring our full year expense in line. Going forward, we expect our tax rate for 2014 to be approximately 36%. Should Congress fail to extend the R&D tax credit, our full-year tax rate will be closer to 36.5%. We will continue to update you throughout the year. Now let's turn to our balance sheet and cash flow. We finished 2013 with total debt of $808 million and with a total cash position of $358 million, of which $96 million was held offshore. During the fourth quarter, MSCI generated operating cash flow of $94 million, bringing the 2013 full-year total to $320 million. Our capital spending was $19 million in the quarter and $40 million for the full year. As we mentioned earlier, MSCI announced this morning that it plans to enter into another $100 million accelerated share repurchase program. As part of that program, we expect to receive $70 million worth of our shares tomorrow morning, based on tonight's closing, with any remaining balance to be delivered at the conclusion of the program in May. With today's ASR, we have fully utilized the $300 million share repurchase authorization granted by our board last year. MSCI's board recently authorized the repurchase of an additional $300 million of our shares. This share repurchase authorization is over and above today's ASR and will be available from time to time at management's discretion. As Henry noted earlier, we plan to continue with our investment program in 2014. We expect this program to position MSCI to add more value to our clients and generate faster growth over the coming years. The impact on our margins, however, will be more immediate. We plan to spend ahead of our projected revenue growth, so we anticipate that our expenses will continue to increase, which we expect will reduce our full year 2014 EBITDA margins relative to the fourth quarter 2013. And last but certainly not least, MSCI will host an Investor Day here in our offices on the morning of March 21. During the conference, you will hear from the product heads of our major product lines about what they are doing to take advantage of the opportunities they see in their markets. It will be our first ever event like this, so we are very excited to help you learn more about MSCI. Invitations will go out shortly. Now let me turn it back over to the operator so we can take your questions. Operator?

[Operator Instructions] And the first question comes from the line of George Mihalos of Credit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: I just wanted to start off. You sound a lot more upbeat on the environment. Can you maybe break down trends that you're seeing across the globe, sort of different geographies, and where you're really seeing the bulk of the increased demand?

Yes. Thanks for the question, George. Clearly, U.S. is a better marketplace than it has been for 2 years, 2011, 2012. We saw a very gradual erosion quarter-by-quarter in confidence and in spending habits of investment institutions in the U.S. during that period. And it feels like by the second half of 2013, things began to get better. This is fragile, of course. It's gradual. And obviously, it will depend on the continued improvement in financial assets. But that's a good spot for us. Europe remains about the same. There's less uncertainty in the marketplace in Europe given that people don't talk about the breakup of the euro anymore or the exit of various countries. So that's about the same, with maybe a slight uptick on it. Asia, for us, has been good, not necessarily because of the macro picture at all. It has been because we put a lot of effort into the region. We've deployed a number of resources in our various businesses. We stepped up our client servicing activities, our product development activities and the like, so that, as you heard, in the Risk Management Analytics business, that has bode well for us. In terms of client segments, we have seen a recovery in hedge funds, in hedge fund investors and hedge fund managers. So that has been good for us. We've seen -- we continue to see good prospects in asset owners around the world, pension funds, sovereign wealth funds, endowments, foundations. Quant managers have recovered a bit, not a great deal but a bit. And loan-only active managers, which is a part of the world -- of the investment world that really suffered and had a lot of lost confidence in 2011 and 2012 and parts of 2013, have begun to feel better about their business models, have begun to gradually launch new active products. So we're benefiting from a bit of that as well. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay, great. And then just to finish off 2 questions on the margins. I know you commented the '14 margin should come in a little bit below the fourth quarter '13 level. Is there a floor that you sort of have in mind? And I realize it's tough to estimate given the ebbs and flows of the AUM on the ETFs side, but is there a floor that you have in mind? And then looking at the investment program, will that start to slow down in terms of absolute dollars as we go into 2015?

George, thanks for the question. On giving floors or any guidance, we know that we're going to continue to spend. What makes it very difficult, and you've seen this pattern over the past years, we've got more volatility with the acquisition of IPD, as well as the significant growth we've seen in AUMs linked to MSCI indices out there. So it becomes increasingly more challenging to manage that. But we do expect it to come in lower than what we've shown at 42.6. Now that could be volatile depending on what the revenues drive of it. But we are having a deliberate investment program. And to your second question, we expect these products to take time to evolve, and the resources we need, we'll be bringing them in over a period of time up to one, maybe through 2014, at a level that we can effectively manage the onboarding capacity.

And we do plan -- we do continue to -- at the moment, we continue to plan on the investment program at similar levels in 2015 as we plan to do in 2014.

And our next question comes from the line of Kevin McVeigh of Macquarie.

Just a follow-up on those investments. It sounds like it's going to really start to drive some meaningful acceleration in the internal growth. Can you just help us understand kind of the delta between kind of the current run rate and how we get to that? If I heard it right, low double digit. What are the contributors to that?

Well, I think there are a lot of factors that are kind of in the mix here. We are hoping, and we have begun to see, that the investment world is beginning to come back to some normal levels around the world. Clearly, there are issues of how much of that is currently inflated by monetary policy and how much of that will eventually translate into fundamentals driving asset values of all asset classes, right? So -- and that transition, who knows how it's going to pan out. But we are of the belief that in a 2-, 3-year planning horizon for us, that the world's investment markets are going to go back to some level of normalcy that are going to support the investment spending and the capital spending of a lot of investment institutions around the world. And therefore, we want to be there for that uptick in sales. So at this point, I think it's very hard to quantify, but what we see is that currently, our run rates, when you aggregate them across all the various businesses, are in the mid to high single digits. There are some businesses that are already at 10%. There are other ones that are already at high single digits, and there are some that are -- that have had difficulty and have shrunk a bit, like the PMA business. But when you aggregate all of that and you look at the investment that we're making in distribution to reach out to more customers, upsell existing customers, given the bit of relaxation of their budgets and when you layer on top of that the significant number of new products, so specifically in indices, a lot of new Factor Indices. In our -- in PMA, it's a lot of the new models that we're launching, a lot more that are coming, and the improvements in the software. And in RMA, it's things like performance attribution in the same platform as risk management and liquidity risk and counter-party risk and all of that. So we think that all of that is going to help us accelerate the run rate on an aggregate basis in the next few years to the low teens. And we feel that some of that may be an uplift in the overall environment organically. But we believe that a lot of that will be by our actions of continuing to have high renewals, continuing to increase the level of sales and add to the product set that we offer to our clients.

And, Henry, ultimately, what should that translate to in terms of EBITDA growth and then the EPS as we think about the leverage? It just sounds like we'll have some incremental spend in '15 as well, but as you kind of hit this new level of revenue growth, what does that do to kind of earnings and...

Well, I think that on an EBITDA basis, if we -- on an EBITDA basis, I would assume that in 2014, for example, it'll be more flattish to maybe a little up because of the -- the revenue growth will increase, but the pace of investments and expense growth will be higher than revenue growth, and therefore, it will be flat to up. We're not really looking to be flat to down but, obviously, it will depend a great deal on the volatile aspects of our revenues on ETFs and things like that, right? I think in 2014, maybe a slight improvement to that as we -- you've got to remember that we lag quite -- when we launch new products and when we also book new revenue or new sales, those get amortized over 12 months or longer, so we lag. So the question will become how much of that lagging effect still impacts us in 2015 versus the growth of expenses? So that's the way we're looking at it. But we're not -- at this point, we're not targeting acceleration of EBITDA, for example. We're targeting acceleration of revenue that eventually will lead to acceleration of EBITDA and acceleration of EPS, right? I think the EPS is a little more volatile because of the tax rates and financing cost and things like that, right? Depreciation, et cetera. So that's -- we're very excited about what we're beginning to see in gradual and maybe not a straight-line recovery in our end markets. And we are going to be booking revenues and good sales and good renewals that may lag in the recognition in the financial accounting revenues. But importantly, we want to be there to be there for our clients when they have the demand for a lot of our products.

And our next question comes from the line of Chris Shutler of William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: Obviously, nice sequential and year-over-year pickup in the new recurring subscription sales in Q4. I think both were about $6 million. So in thinking about that roughly $6 million, what were the main products/geographies that contributed to that growth? And I think -- it sounds like it was largely Index, but if you could clarify that, that would be great.

Driving the growth was -- obviously, like you said, Index drove a piece of it. And RMA had a significant contribution, too. Regionally, we had really good -- like we said in the text, that we had very good growth in the U.S., and the Asia-Pacific muted to some extent coming out of Europe. That was probably the principal geographic drivers of it.

And let me add also that, because of the comments that I made before, we all have to realize that it was a big crisis, right? And there are a lot of pockets of strength but a lot of pockets of weakness. And there is a lot of realignment that has taken place in the investment world, for example, between passive and active managers and so on and so forth. And so none of this recovery that we see is going to be a straight line. So it's going to be -- some quarters going to be higher. Some quarters going to be lower. In some of these geographies, it's going to be higher, and others will be lower. And some product lines for us will be higher, and other ones will be lower. But the overall aggregate, comprehensive trend that we see is a little bit of an upward sloping curve over the next 2, 3 years, '14, '15, '16. And therefore, we want to capitalize on that. I mean, this is what this company is made for. This is what we're there for. And we really need to capitalize on that to drive value for our clients and drive value for our shareholders. Christopher Shutler - William Blair & Company L.L.C., Research Division: Okay, great. And then you mentioned, Henry, the factor-weighted indices, the noncap-weighted stuff. I get the impression those products, particularly in ETF form, are largely being used by financial advisers today, that institutional investors are a little bit earlier in the adoption cycle. So just curious what you're hearing from both asset owners and managers on to what degree they are getting comfortable with factor weighting and how they expect to increase or change their usage going forward.

It's actually the opposite. I mean, clearly, what is more visible and transparent is the launch of Factor Index ETF, right, because as you launch, you monitor them in the marketplace and the like, and that's a good -- very, very good area for us. We've launched quite a lot of those. They've accumulated some good amount of assets. And we get good fees on those, and we're very, very happy with that. But what is not as visible is that the majority of the AUM -- even the vast majority of the AUM that has come into Factor Indices has actually come from big asset owners, big pension plans around the world, that are looking for alternative to their active management -- management processes, or their passive ones, on the passive alternative to market cap and on the active side are alternative to strategies that they would otherwise deploy actively, they can now deploy them passively. So that's where quite a big part of our effort has gone around the world, and this is not just isolated to one place or another. We've gotten mandates from Canada, from Taiwan, from Switzerland, from other parts of the U.S. It's really across the board, and the dialogue is very active in this area around all these places.

Our next question comes from the line of Joseph Foresi of Janney Montgomery.

You've added pretty heavily to headcount over the last, let's say, 2 or 3 quarters. Can you give us a slice of where that -- I know you say it's taking place in some of the lower-cost destinations. But how would you break up that 18%? How much of that is sales? How much of that is people working on the technology side of things? And what can we expect that mix to look like as you add headcount going forward?

Well, as I talked about in my comments and Henry referred to, really it's -- there's, generally speaking, there's -- all across the board, we've been adding sales, we've been adding coverage teams out there geographically in new locations. That's important. We've also been adding consultants that you've seen in the investment results in terms of higher retention. With respect to building in capacity and IT, we've had to build out that. Not only is it people, it's also in our infrastructure to build ahead of the demand that we are seeing and we expect to see. And we can do this in multiple locations. We found that we're getting a lot more synergies in the emerging market centers, as evidenced by the 35% increase. And when you see the much -- the significantly lower increase in our developed markets, that's really where we're putting a lot of our coverage teams. And even to a certain extent, some of our consulting teams can also be in the emerging markets centers as well. So again, in short, it's really across the board that we're seeing it. And in certain areas, we're just building in the infrastructure of the company to support the expansions that we have out there.

And I think what I would add is that also the -- it's not just the headcount, right, but it's the price of the headcount. So if you say you add 40 salespeople, I mean, those salespeople are in New York, Boston, Chicago, London, Frankfurt, Tokyo, so those places like that, which are higher costs. So even -- so if you say you are 40, that's at a higher cost because that's the cost of living in those places. But if you say you add 100 or 150 software engineers in Mumbai and in Budapest and in Manila and in Monterrey, it may look like a larger number of people but it's at a much lower cost. So it's the headcount and where we have it and the cost of the headcount in the places that we operate in.

Okay. And then my second question is just on emerging markets. We've seen them sputter and I know that a lot of your -- or some of your indices are associated with those emerging markets. How do we think about the balance between the growth in ETF and passive investing and just some of the fluctuations in those emerging markets? Is that something that could offset your growth at some point? Or is the ETF and the passive investing demand so large that it wouldn't really affect it?

Let me just refer back to one -- an item we really wanted to point out on the ABF chart is that the distribution, really looking at it from an emerging market versus a developed market, we talked about it on a year-over-year basis, the develop market grew by 70%, yes, 70%, whereas the emerging market declined by 19%. What this shows and the point I was trying to make here is that we're not really -- MSCI-linked indices are a reflection of the global investment platform, and it's not really skewed to any particular sector. Linked quarter basis, we didn't say it, but the emerging markets showed it's just over 27%. That was down by 3%, but that was almost a corresponding shift into the developed market growth, where it's up at 53%. So you see that balance then as the broad reach of our ETFs across the globe. We capture all of the shifts or a majority of the shifts, and also note that our basis points remained strong at 3.6 basis points.

The other thing too, so if you look at the emerging market effect to us, Bob indicated that, yes, let's say 1/4 of our EPS are exposed to emerging markets. And that's what gets a lot of attention, right? What doesn't get as much attention is that 75% of our ETFs are linked to developed markets, and a lot of that is around the world. It's U.S. and it's Europe and it's Asia. Why is because the foreign investors are investing into the U.S. equity markets through MSCI indices, right? And the rest of the world, including the U.S., is investing in Europe and Asia through MSCI indices, right? So that's -- sometimes, given the real strength of our Emerging Market Index franchise and which is great, but it sometimes gets exaggerated in the context of the impact on our revenues, right? And on the second part, which is a hugely important part, is that we're up to almost 50% of our employees in emerging markets. And what has happened is that given the turmoil that is going on, is that quite a lot of the currencies in this market have depreciated. And therefore, our cost structure in many of these places has decreased.

Our next question comes from the line Toni Kaplan of Morgan Stanley.

I just have a couple of questions. Portfolio management analytics retention was really strong for the fourth quarter, given the usual seasonality. I think a lot of the contracts used to renew in Q4. Is it still the case that the bulk of the contracts renew then? Or do you now spread it more evenly throughout the year? And was there anything specifically, like some of the investments maybe, that you've done that really attributed to -- you'd attribute to these results?

There are a couple things, Toni. One is that the contracts are distributed more evenly over the course of the year. And as we talked about earlier, a lot of the retention rate was driven by down sales that we saw over the course of the year, more specifically in the first and second quarters. One thing I'd like to point out is our client count in PMA remains virtually flat, not down. And so that's just a reflection of some of the repricing that we've talked about over the course of the year, which is driving the high retention rate. Also, one other point, too, is we've been continuously issuing -- we had 3 new upgrades on our BPM software, and we've been pushing out models at a much better cadence than we have before.

So we said this before, and it flips back and forth a bit, but going into 2014, we feel pretty good about the PMA business that -- it has a very strong foundation. It has that real pipeline of a lot of new models. It's got a lot of acceleration on the software part. We're in dialogues with a lot of people around the world. We have -- we're significantly putting a lot of sales -- dedicated sales and project managers in various places around the world and the like. And then when you go deep into the analysis of the numbers, of the shrinkage that took place, 1/3 is a change in the foreign exchange, 1/3 or so is always swaps with other MSCI products and the like and the third is down sales rather than loss of clients. So now we feel that 2014 is the year that we can flatten things out a bit in terms of not having the clients and maybe get some growth. We said that before. And the market has gotten worse for us. But that's what we're trying to aim here in 2014, right?

Okay. And also, can you give us an update on your relationship with BlackRock? And are there any contract renewals coming up on some of the large ETFs?

The relationship continues to be outstanding. Clearly, it strengthened dramatically in 2013 from a high point already, given the Vanguard loss. So on one hand, it was a loss of a client. On the other hand, it was the strengthening of another client. It's not just verbal or qualitative. It's all evidenced in the large number of ETFs that have been launched by iShares across the U.S. and Europe and other parts of the world. So, I don't think there's any major client renewal on the Index side -- any contract renewal on the Index side with them coming up.

Our next question comes from the line of Joel Jeffrey of KBW. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Most of my questions were asked already, but just thinking about the advisory revenues and the AUMs attached to it and what's been going on with the emerging markets, how long does it typically take for prolonged market downturns to eventually have an impact on subscription revenues? Or is this really just something that's tied to the asset-based fees?

You're referring to the downdraft in emerging market equities right now? Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Yes.

Well, I think on the active management side and, therefore, our benchmark or data business, we actually don't anticipate much of a change in our subscription run rate and products due to the emerging markets. Bob, I don't know...

Let me separate your question into 2 parts, Joel. When you look at the AUMs, you will see some movement either through market or inflows or outflows. So, you're going to see something that becomes more immediate. So that's the volatility that I referred to. And in some cases, when I talked about emerging markets there, in that category of ABF, in a lot of cases we're trying to emphasize is while it may go out of emerging markets, some of those same investors may exit emerging markets and go into developed markets and to MSCI-linked indices. So you can see some movement but mainly on volume and market. With respect to subscription, that's much more stable. These are annual contracts that are out there. And that revenue, I would expect to see less volatility in that over time.

I think the punchline to all of you is that we clearly are monitoring very closely the volatility and, in some cases, turmoil in certain emerging markets. But that, in and of itself, is not a source for concern for us, because money flows into the developed markets. We have a larger market share in developed markets, so we may benefit more than that. We have a lot of cost in emerging markets, so it gets cheaper and the like. So it may all wash out or we may have a benefit. I don't know. I mean, we haven't run through a lot of those numbers. I think the bigger concern to us and should be to all of you is what kind of contagion takes place from emerging markets into the world's equity markets and the world's -- the developed world's financial assets. And therefore, what does that mean, right? That's -- so the emerging market itself is clearly something that we monitor. We have clients there. We have people. We have products and the like, and we follow it closely. But it's not something we're worried about per se. It's more what happens to the rest of the financial markets. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Great. And then just lastly for me, just a point of clarification. The additional $300 million repurchase authorization, that is not specific to an accelerated repurchase acquisition? That could be done in any way, shape or form?

That's correct.

And our next question comes from the line of Patrick O'Shaughnessy of Raymond James. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division: So my first question is going to be just M&A, I guess, in general. There's some stories over the last quarter talking about some potential indexing assets that might be up for sale and potentially your interest in those assets. And certainly, I know you can't comment on those specifically, but if you can just kind of remind us what your M&A philosophy is at this point and what sort of criteria would have to be in place for something to be attractive to you.

Yes. So as I said, we can -- our policy is not to comment on any of that. The second part is that MSCI is a story of organic growth and organic investment, largely. So even though we have acquired businesses before, I think that the value creation to our shareholders over at least the almost 20 years that I've been running the company has been a lot larger with respect to the organic growth of our businesses and the organic investment that it has been by any -- by the acquisition part, right? So that, if 20 years is an indication of the next 20 years, that's one, right? But having said that, we are focused on building out a comprehensive set of mission-critical tools, mostly risk and performance tools, in each major asset class of the world and the multi-asset class for a lot of our clients, the owners and the managers and the traders of assets. So when you look at that vision, then you say where are some gaps that we could accelerate either organically or through acquisition. And the gaps are on equity indices domestically, in domestic markets around the world. We are big in the domestic markets of Continental Europe because of the unification of the markets in Europe. We're not big in the domestic Japanese money into Japanese equities, U.S. money into U.S. equities. And we are taking steps to be bigger organically, but a nice acquisition will help us in that direction if it became available. One thing that we're not as big of is in the risk and performance tools to fixed income portfolio managers or to the fixed income investment process around the world. We are big in fixed income in the context of the multi-asset class offering that we have. We have a lot of fixed income data, a lot of fixed income models, valuation models, mortgage prepayment models and correlation models and the like, all kind of embedded into the multi-asset class offering that we have. So we do plan to be a major player in the fixed income risk and performance. In general, we'll try to do that organically or try to do that through acquisitions. So those are examples of things that we will accelerate. So we view acquisitions as ways to accelerate our organic growth story. And we want to do them in our backyard. We want to do it in things that we understand well and so on and so forth.

Our next question comes from the line of Alex Kramm of UBS.

Just a couple of follow-ups here since we're late in the call. On the -- first, just to clarify again on the outlook here and the acceleration as you're looking for. When you say get to double digit and maybe even low teens, I heard you say that at one point, and you're talking 2 to 3 years, I mean, you're definitely thinking in '15, '16, '17, right, that's kind of where the run rate's growth will continue. But you're not necessarily saying we're going to see this in 2014 already, right? It's more of like a building over the next few years. Did I hear that right? Or do you need to clarify this?

Yes. For sure, this kind of stuff, unless we have a lot of support from the markets and a lot of our investment, may not happen in 2014. But we want to see a progression. This is not a hockey stick by any means. This is a steady progression of improvement in 2014, '15, '16, '17. Now, we don't put a timeline on this because of a lot of reasons, one -- and that's why we're not giving you a very quantitative and time-based productions, because -- or guidance because the world is still fragile. There are hiccups that are out there happening. We feel well overall about the trend. And also, these investments do take time. Some of them are more short-term driven, and the other ones are more medium-term driven.

The one thing I'd give is if you're looking for any -- I mean, if you look for any indicator, Alex, would be the run rate that we have that we finished up in 2013, which is an indication of what our contracts will yield over the coming 12 months.

And I'm showing no further questions at this time. I'll now hand the call back over to management for any further remarks.

Thank you, Nicole. And most of all, thank all of you for your interest in the company and your ownership of our stock. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.