MSCI Inc. (MSCI) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to your MSCI Third Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to now introduce your host for today's conference, Mr. Edings Thibault, Head of Investor Relations. You may begin.

Thank you, Roland, and good day, to everyone, and welcome to the MSCI Third Quarter 2014 Earnings Conference Call. Please note that earlier this morning, we issued a press release announcing our results for the third quarter and first 9 months of 2014. A copy of that release may be viewed at msci.com under the Investor Relations tab. You'll 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're 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 ended December 31, 2013, today's earnings release and our other filings with the SEC. Today's earnings call may also include a discussion of certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA expenses and adjusted EPS. Adjusted EBITDA and adjusted EPS exclude the following: restructuring costs, the lease exit charge, the amortization of intangible assets, and nonrecurring stock-based expense. Adjusted EBITDA also excludes depreciation and amortization of property, equipment and leasehold improvements, while adjusted EPS also excludes debt repayment and refinancing expenses, and the income tax effect of any excluded items. Adjusted EBITDA expense is total operating expenses less depreciation and amortization of property, plant and equipment and the lease exit charge. Please refer to today's earnings release and Pages 15 to 19 of the investor presentation for the required reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures. We will be referring to run rate, as we always do, frequently in our discussion this morning. So let me remind you 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 EPS licensed to our indices or changes in foreign currency rates. Please refer to Table 10 in our press release for a detailed explanation. With that, let me now turn the call over to Mr. Henry Fernandez. Henry?

Thank you, Edings. Good morning, everyone, and thank you for joining us. We're very pleased with our third quarter performance. We posted a strong financial results, especially with regards to revenues, which grew 10%. Adjusted EBITDA rose 1%, even as we invested in product development, sales and marketing and client service. And adjusted EPS increased 6%. We also had a strong operating quarter. Run rate grew 10%, sales rose 4%, and retention rates strengthened to an exceptional 95%. Most importantly, we're starting to see the early benefits of our stepped-up level of investment on new and existing products. Lastly, as a testament to our commitment to put excess work -- excess capital to work for shareholders, we announced last month our plan to return $1 billion to shareholders by the end of 2016. The strength of our operating performance this quarter is the most exciting point for me because we're starting to tie our progress directly to some of the investments we have made. Our innovation engine is picking up, and we can see it making a difference. Let me first provide some specific examples of how the increased pace of innovation is having an impact on the growth of our equity investment tools. A key driver of our equity index subscription sales is our relationships with pension funds and other asset owners. These clients use our indices to help them with asset allocation and performance measurement. Over the last year, we have expanded our sales force and our applied research teams, so that we can engage with these clients more frequently. That is paying off. As an example, during the third quarter, one of the largest corporate pension plans in the U.S. opted to use a full suite of MSCI indices, including our domestic U.S. indices, as the benchmark for their total equity assets. MSCI was also selected as the global policy benchmark by a number of major fund managers in Europe, in Australia and in Taiwan. Each win embeds MSCI indices more deeply into our clients' investment processes and lays another building block for future growth. The wins also helped us increase the more than $9 trillion of assets following MSCI indices, either actively or passively, and widened that lead in that important metric. Another way we're gaining in new investment mandate is from our pioneering work in factor index sales, otherwise known as smart beta indices. We have made significant investments in our research and production to enable us to introduce a greater number of these indices. A sizable number of the new mandates that we have won to date in Europe, for example, have been related to smart beta indices. Assets under management linked to our factor indices have grown 74% over the last 12 months to $113 billion. Innovation is also helping to drive share gains in the ETF market. Over the last 2 years, we have significantly invested in changing our approach to ETF providers. Over the first 9 months of 2014, we launched a total of 15 new index families and expanded 24 others, with much of that tailored to meet the needs of ETF providers. To put those numbers in context, in all of 2013, we launched 7 new index families and expanded 12 others. So we have effectively doubled the pace of new product development in 2014. The results are pretty clear. 28% of the total number of equity ETFs launched worldwide year-to-date were linked to MSCI indices. 32% of the total fund flows worldwide into equity ETFs went to MSCI-linked ETFs. Keep in mind that our overall share of the AUM of the equity ETF market around the world is about 19%. So for MSCI to garner almost 30% of all new equity ETF launches and 1/3 of all global new fund flows into equity ETFs is a very strong execution and a direct link to the investments we have made in this product line in the last 2 years. That same theme is also playing out in our equity analytics product line. MSCI continued to make progress in restoring this product line to growth during the third quarter. Over the first 9 months of 2014, we have launched a total of 13 new market models, and we continue to make significant improvements in Barra Portfolio Manager. In addition, we benefited from the investments we have made in client services and our consultant group, which contributed to an exceptionally strong retention rate in our equity analytics product line. On the multi-asset class side, one of the -- our key differentiators is our ability to deliver deep expertise across a wide range of asset classes, including the illiquid alternative asset classes, so our clients can better understand the drivers of risk and return in their total portfolios. In the third quarter, we signed a deal with one of the largest public pension plans in the U.S. to use our real estate models and our tools to backflip and rebalance their real estate portfolios. This is a great example not only of innovation, but also the growing power of the MSCI platform. We were able to offer a combination of a flexible portfolio construction tool, our real estate risk model build use of proprietary IPD data, all paired with a matched researched insights from our research teams, bringing together tools from all of our major product lines to provide critical insights to that particular client. That deal and others helped sales of our multi-asset class risk tool rebound a bit after a slow second quarter. We're also seeing a strong interest in new products that we have developed, such as our enhanced performance attribution. As you know, the product line retentions in our multi-asset class risk and performance product line remained very, very strong. So the common theme in all these examples is the link between client wins, early sales and our investment initiatives. Investments in sales and marketing helped us reach out to more clients and new client categories all over the world. Investments in client service helped us increase our overall retention rates. Investments in research and product development helped us to step up our level of product innovation to meet the demand of new indices, new market models and to process more and more portfolios and more complicated portfolios in our multi-asset class platform. Looking forward, we expect the pace of new investment to slow as we turn our energies and our attention towards maximizing the value of the investments that we have made so far. In 2015, this will bring our rate of expense growth much closer to that of our revenues. And in 2016, we expect the rate of growth of expenses to be in line with that of revenues. Before I conclude my remarks, I would like to spend a moment discussing the enhanced capital return plan we announced last month. Let me summarize again the key points. MSCI will pay its first-ever quarterly cash dividend of $0.20 -- of $0.18 per share tomorrow. Our annual dividend rate is expected to be $0.72 per share. Our existing share repurchase authorization was increased to $850 million from $300 million. $300 million of that $850 million -- of the $850 million authorization was executed in the form of an accelerated share repurchase plan last month. And the combination of regular dividends and the buyback program is designed to return $1 billion to our shareholders by the end of 2016. The enhanced capital return plan is a reflection of MSCI's strong financial and operating position, and underscores our continued commitment to a disciplined and balanced approach to capital allocation. It also underscores our commitment to return excess capital to our shareholders. MSCI's focus on capital discipline is not new. Our board consistently seeks to balance the imperative of investing in our business, either organically or through acquisitions, and opportunities to return value to shareholders. At the completion of the most recent ASR and including dividends, MSCI will have returned more than $600 million to our shareholders. We're also committed to being a disciplined buyer of companies and businesses, and all potential acquisitions will need to fit within our strategy -- our core strategy and to meet financial hurdles of delivering returns above our cost of capital in the first 3 to 5 years of the acquisition. We are very disciplined in this approach, and we tend to stick to it over market cycles. Over the last 2 years, we have completed the bolt-on acquisitions of IPD, InvestorForce and most recently, we announced the acquisition of GMI Ratings. Let me now turn the call over to Bob for a review of all of our numbers. Bob?

Thanks, Henry. Good morning to all of you on the phone. You can follow my comments with the slides that are available on our website, and we'll start on Page 4. On that note, you'll see third quarter 2014 revenues rose 10% to $252 million. That growth was roughly split between the subscription revenues, which grew by 6% and asset-based fees, which grew by 27%. Nonrecurring revenues also contributed modestly to our growth. By product, index and ESG product revenues rose 15%. Risk management analytics revenues rose by 6% and portfolio management analytics revenues were flat versus third quarter 2015 -- '13, excuse me. Details on our operating results are on Page 5, showing MSCI's total run rate grew 10% to $1 billion. Our total subscription fees grew by 8% to $823 million, driven by a 13% increase in index and ESG subscriptions, 3% growth in RMA and a 2% growth in PMA. Changes in FX had a big impact on our run rate in the third quarter, especially on our analytic product lines. Total changes in FX lowered our run rate by $10 million relative to the second quarter and by $8 million year-over-year. The acquisition of GMI added $7.5 million to the index and ESG product line. Excluding the impact of changes in FX and the acquisition of GMI, total subscription run rate grew by 8%, comprised of 11% growth in index subscriptions; 5% growth in risk management analytics; and 3% growth in portfolio management analytics. Turning to Page 6. Total sales rose 4% to $31 million. As Henry noted, MSCI's aggregate retention rates rose to 95% for the third quarter, rising across all 3 major product lines. Year-to-date retention was 94%. Now let's turn -- let's now review the performance of our 3 major product lines, beginning with our index and ESG product line on Page 7. Index and ESG revenues grew by $19 million or 15% to $148 million, led by strong growth in asset-based fees. Subscription revenues grew by 9% on an organic basis. Total index and ESG run rate grew by 15%, led by asset-based fees. Asset-based fee run rate grew 21%, driven by a 25% increase in assets under management linked to MSCI indices to $378 billion as of September 30. Index and ESG subscription run rate grew 13% to $405 million. Excluding the impact of FX changes and the acquisition of GMI, subscription run rate rose by 11%, with a strong growth in equity index benchmark and data products augmented by faster growth in run rate from ESG products and real estate data. Index and ESG sales rose 2% and the retention rate rose above 95%. As Henry noted and as shown on Page 8, the investments we have made to better serve ETF providers is paying off. Over the past year, AUM and ETF linked to the MSCI indices rose by $75 billion. Almost 90% of that change was the $65 billion that came from inflows, with only $10 billion coming from market appreciation. Looking at the third quarter by itself, the declining markets was almost entirely offset by $16 billion in inflows. Those are strong numbers and reflect -- a reflection of the investments we have made and the strength of our brand. Turning to Page 9. Risk management analytics revenues rose by 6% year-over-year and run rate rose by 3% to $311 million. Excluding the impact of FX, run rate rose 5%. The retention rate rose to 94% for the quarter and 92% year-to-date. Sales rose 4% versus third quarter of 2013 and were up 14% consecutively. On Page 10, you'll see portfolio management analytics revenues were flat in third quarter 2014. Run rate increased 2% and by 3%, excluding the impact of FX. The growth in run rate continues to be driven by both stronger sales, which rose 13% and by much stronger retention, which rose to 94% from 89% a year ago. And on a year-to-date basis, retention rates rose significantly to 93% from 86%. Growth in sales of portfolio management analytics products was also driven by new products. Sales of new market models and Barra Portfolio Manager accounted for more than 70% of total sales. Those new products, which are direct results of our stepped-up level of investments in new product development over the past 3 years, accounted for 100% of the net new growth in the product line over the past year. Now, let's turn to expenses on Slide 11. Adjusted EBITDA expenses have increased $70 million or 19% over the course of the first 9 months of 2013. As we indicated in our Investor Day last spring, the bulk of this new spending has gone to support product enhancements and new product development efforts. $44 million of that increase or 60% has gone towards product development. These investments have enabled us to increase our production of new factor and custom indices and new market models. We have also invested in expanding our data center footprint, which enables us to increase the volume of securities we process for our multi-asset clients. As Henry noted, we are starting to see the impact that these investments are having on our results, but the financial benefit of the 2014 product development spending is still small. If you recall, we indicated that we expect the new product development efforts to take 2 to 3 years before we start to see significant revenue benefits. Sales, marketing and client service accounts for 1/4 of the new expense. These investments have had a more immediate impact, helping us lift our overall level of sales over the year and contributing to the increase in our retention rates. During the third quarter, adjusted EBITDA expense rose by 17% to $150 million. The growth rate was below the 21% growth rate we reported in the second quarter of 2014 and the 18% growth in the first quarter. As I will highlight in my comments about guidance for next year, we expect this downward trend to continue in the fourth quarter and into 2015. Turning to Page 12. You'll see adjusted EBITDA grew by 1% to $102 million and adjusted EPS grew 6% to $0.50 per share. Moving to cash flow items on Page 13. MSCI generated operating cash flow of $108 million during the quarter and $202 million year-to-date. We spent $20 million in capital expenditures and repaid $5 million of debt. Our total debt balance at the end of the third quarter was $793 million. And as Henry noted, MSCI is committed to capital efficiency. During the third quarter, we completed the acquisition of GMI Ratings, a provider of ESG rating and research that complements our own ESG efforts, for $15 million net of cash. We've used more capital to buy back shares. As part of the $1 billion enhanced capital return plan, MSCI entered into a $300 million ASR, which immediately reduced our share count by 4.5 million shares. In the meantime, we are prepared to move aggressively to keep our $1 billion capital return commitment. We ended the quarter with approximately $250 million of excess cash and stand ready to make open-market purchases if the opportunity arises. In total, we have repurchased 6.9 million shares as part of the 2 ASRs since the beginning of 2014, bringing our total share count down to 112 million shares at the end of third quarter. As a reminder, we continue to have the authorization to repurchase up to an additional $550 million worth of MSCI stock that we intend to use before the end of 2016. As you'll see from Slide 14, our guidance for 2014 remains unchanged. We continue to expect our adjusted EBITDA expense to be in the range of $595 million to $605 million. We expect that our cash flow from operations will be in the range of $275 million to $325 million. Capital expenditures are projected to be in the range of $50 million to $55 million. We continue to expect that our full year tax rate will be approximately 36%. We also introduced some preliminary 2015 guidance when we announced the capital return plan and that, too, is unchanged. And I'll repeat it. We expect that the rate of adjusted EBITDA expense growth will decline significantly in 2015 versus the 17% to 18% growth implied by our 2014 adjusted EBITDA expense guidance, as we bring our rate of expense growth much closer to that of our revenues. We also noted at the time of the capital return that we intend to refinance our existing debt. The goal of the potential refinancing will be to increase our financial flexibility, take advantage of the current low interest rate environment and decrease our exposure to interest rate changes. Given current rates, we are exploring the refinancing of all of our outstanding debt. When completed, and assuming current market conditions, we expect interest expense to increase significantly from the annualized third quarter 2014 expense of $22 million. Before I turn it over to the operator, I would like to summarize the key points of this quarter on Page 15. One, MSCI generated strong financial results, including revenue growth of 10%. Two, our operating results are strong, obtained by a 10% growth in run rate and a 95% retention rate. And three, we are putting our capital to work for our shareholders in the form of our plan to return $1 billion to shareholders before the end of 2016. With that, I think we're ready to take your questions. Operator?

[Operator Instructions] Our first question comes from the line of George Mihalos from Crédit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Maybe for starters, just to pick up on that point around the expense outlook for '15 and even beyond that. I think the commentary was, significant reduction in the rate of spend, something more similar although higher than the rate of revenue growth for '15. I was just wondering if you can parse that out a little bit more. Sounds like maybe we're looking at somewhere around 11% to 13% growth in expenses for '15. And then maybe the thinking around long-term margins even going beyond '16. I mean, should we be constantly looking for revenue growth and EBITDA growth to sort of be aligned?

George, Bob here. And, as you can see from our operating, our key metric for revenues is currently 10%. So that's a benchmark for a lot of our conversations. The growth rate in 2014 was significant, based on our projections, 17% to 19%. As we indicated, we'll bring that down significantly. And it's not until 2016, as Henry outlined, we expect to see that converge. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. Is the longer-term thinking also, that revenue and margin should be converging, that you're just going to be driving higher -- excuse me, faster top line growth through more investment?

Our investments, as I said, will take 2 to 3 years to have the significant payback that we're looking at. And our focus is on profit. Our focus is on profit growth and growing meaningful profit growth, George.

I think, George, it's also -- it's just too early to tell at the moment where do we end up at 2017 and beyond. Clearly, if a lot of our plan come to fruition of a significant payoff of the investment that we have made into much higher revenues and the operating environment is very positive, we may see a bit of an operating leverage in the business. But that's too early to tell, right? The environment is -- goes up and down, as you know. And in the last 2 years, we really are focused no longer on margin. We're focused always on what's the maximum amount of profitability that we can extract from this business going forward on absolute dollars per share. So that's our visibility at the moment and, therefore, it's early -- it's too early to tell how it all pans out in '17 and '18. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. Appreciate that. Speaking about the environment, just wanted an update as to how that feels for you in terms of global sales. Were there any sort of pushouts of sales given some of the dislocation to the equity markets in the -- particularly at the end of the third quarter?

Fortunately for us, we haven't really seen any impact of the volatility in the equity markets in our pipelines, in our sales. Obviously, you do see it in the market value of the ETFs, but that has been equally offset by the inflows of funds into MSCI-linked ETFs, so that has been a wash. So we don't see an impact. And maybe the temporary decline and the rapid uptick in the equity values has no impact [ph] at all. Obviously, it's early days to tell, but so far, so good for us. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay, that's great to hear. And just last question for me. Nice to hear about the demand for more of the index launches. Wondering if you're looking at demand for more ETFs, if you can parse that out between domestic, here in the U.S., and international, what the demand trends might be there?

Yes, the demand for our licenses of our indices for ETFs is really all over the world. It's from the U.S, from Europe and, to some extent, from Asia. Asia is, as we all know, is a little bit behind in terms of the growth of the ETF market. But we're making some progress there in Hong Kong and in China and in other places, in Australia, as an example. So the bulk of the demand right now in terms of numbers and dollar amounts and the numbers of ETF launches, the dollar amounts are in the U.S. and Europe. And in Europe, we recently launched a number of factor indices lines and factor indices to launch of a number of ETFs there a couple of weeks ago. So we are -- we're very, very bullish. I'm very positive about this business and that is as a direct result over the last 2 years, we really have revamped significantly the way we attack this business, the conversation we have with clients, the support that we give ETF providers, with direct clients and also with marketing support, we have a significant outreach program to financial advisors. We have staffed up in our product manager teams. We've staffed up our new product teams in research. So all in, it's been quite a satisfaction to see the great progress we have made, and the results show in terms of the market shares of new launches and the market shares of new fund flows, given our overall aggregate market share.

[Operator Instructions] Our next question comes from the line of Bill Warmington from Wells Fargo Securities.

This is Bill DiJohnson for Bill Warmington. I just have a few questions. You said you launched 83 new ETFs in the quarter using MSCI indices. How many were market weighted or factor-based products?

I think the -- my recollection is that many of them were factor indices and, therefore, no [ph]. But we -- I think it'll be best if we follow up with you directly to give you the exact stats.

Yes. We'll get back to you. That was year-to-date. So we'll get back to you, okay?

Yes, that will be great. And then also -- so 13 new market models for Portfolio Management Analytics to date. How many were there launched in 2012 and 2013 for comparison?

Significantly less. I don't have the count in front of me, but we really -- the focus this year, as we talked about, was to commit to a cadence of -- I think we talked about 10 models this year. We're exceeding that performance, and we talked about a continued upgrades in our PPM software, and we fulfilled on that. So this is really -- we have BPM releases last year, but these are the ones that were more significant that we could drive a lot more sales through the BPM platform. So that's really the point that we're trying to make, that we're starting to see the efforts of our investments coming through at a greater cadence this year.

And also satisfying has been that the sales of BPM this quarter exceeded the sales of pretty much every other product line. So that bodes really well for a continuation of the -- not only the content in terms of the models of the data, but also the software application that helps people run the data. As you know, we sell data directly to clients in the form of data, and we also sell it packaged with our software. So that's -- we feel very good about this business, and we'll hear from clients and the prospects and the pace of innovation.

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

In risk management analytics, have you been disappointed that the segment hasn't been growing faster by now? I know this quarter was impacted by FX. But I think even organically, excluding FX, it was still only about 5% growth.

The quarter -- Toni, the quarter-by-quarter sort of look at this business, as you know, it's chunky, right? There are some quarters that we do significantly better, other quarters that we do less. So we tend not to focus on the quarter-by-quarter sales, we tend to focus on what's happening in the pipeline. Are we adding things to the pipeline? Are we closing? Is the pipeline expanding? Or are things getting delayed? Or anything like that. So that's the major focus. We -- in the pipeline, the health of the business is very good. In terms of the number of clients around the world, the type of clients and all of that. Yes, I believe, and all of us believe that this business can do much better than it is doing right now. And that is what we're trying to -- what we're expecting for the next quarters and the next few years, that the rate of growth of this business should accelerate.

Okay, great. And then when you think about fixed income indices, assuming that you're going to build them yourselves as opposed to making an acquisition, would you expect that -- like is there, I guess, something earmarked in your current investment plan to cover that? Or would that be incremental? And is it more of maybe a multi-year investment? And how long could that take to roll out the products out there?

Yes. Definitely, our plans are to selectively look at parts of the fixed income market, and see where we can add value on a differentiated basis as opposed to launch with little growth [ph]. So going into next year and the year after, we will be allocating a part of the budget, not a very large part of the budget, but a small part of the budget to see how we can look at opportunities in the fixed income markets, but in areas that we add our own expertise, our own value, and that we can also create and also differentiate it.

Our next question comes from the line of Kevin McVeigh with Macquarie.

I wonder if you could give a sense, Bob or Henry, how we're thinking about the step-up in organic growth over the course of '15? And then just with those expenses, how should those kind of layer in over '15 as well? Is it more front-end loaded on '15 and then it gradually steps down? Or just -- any thoughts as we think about the model into '15?

Well, as Henry indicated, we're going to maximize the value of the spend that we've already committed and that we've already seen in our numbers. As we pointed out, the rate of growth on the year-over-year quarter basis is declining. We gave you a pretty good idea of what we're looking at. What I would focus in on and we've been talking about is the new models, the new software, the indexes that are going up. And yes, we're going to see investments that are going to pay off in our sales. And as Henry talked about, putting people on in different locations. As we go back to Investor Day, we talked about what are the products we're going to put out, what sales are we going to generate off of those and the run rate that we build, and you get to the significant revenue growth that we talked about from the Investor Day side [ph]. I'll turn you back to Barra Portfolio Manager. We talked about that as now because now it's really paying off in our business, but that started 3 years ago and it's really come through quite a journey. So you've seen us doing it before, we're doing it now and just keep an eye, we'll be very public on the new products, the AUMS that we're putting out there for you to see.

And then also, Kevin, looking also at the, we ramped up the pace of investment in 2013. We ramped it up in 2014 as well. And when we go area by area in our company from geographic areas to product areas, to functional areas, we -- I think we all feel that we have done a lot. We are very comfortable with the investments that we have made and it's now time to focus or continue to focus on how do we make those as efficient as possible and as payback -- and the payback as large as possible before we entertain any kind of additional levels of investments. And that is a process that we've gone through in the company that we feel very comfortable with, and that we feel that what we've done will pay off. So therefore, there is already clearly an embedded run rate of expenses associated with all of that, that takes you into the future -- the near-term future. But what we're trying to do is now layer on top of that in order to maximize what we've already done. And therefore -- I think you're just going to see a gradual decline quarter-by-quarter of significance in order to converge to the pace of growth of revenues at some point in 2016.

That's helpful. And then, Henry, any thoughts on -- obviously, there's been some M&A activity in this sector. Any sense of -- from a competitive perspective, has that helped capture some incremental share and how you're positioning relative to that?

It's -- in terms of a relative competitive landscape, it's too early to tell on significant numbers. We continue to gather market share, especially in the U.S. domestic benchmark market. If you think about, clearly, the largest market share that we have is American money in terms of the U.S. or it's American money invested overseas and a benchmark to MSCI. We continue to make significant inroads in U.S. money invested in U.S. equities and using MSCI as the benchmark. Well, it's a gradual process that takes place. So we're seeing that and we expect to continue to see that in the context of the competitive landscape. I think on some of the other areas, it's too early to tell at this point.

And then finally, if I could. Any sense of how initial budget discussions -- is it too early in terms of how clients are thinking of '15, or just -- any preliminary indications as they start the budget process into '15?

You mean our budget process or our clients' budget?

Your clients' budgets.

It's too early to tell at the moment. But every indication that we get from clients is that their budgets are not shrinking going into '15. It doesn't mean we're starting to pull market days [ph] in which our people are expanding generously. But every indication that we have in our dialogue with clients is that they are really going back to a more business-as-usual as opposed to a bunkered down, siege mentality that they have been in the last few years. And a lot of it is because their business models -- not only the equity values are healthier, but their business model is healthier. They're beginning to -- the mutual fund complex are launching new funds. Pension plans are given different types of mandate. People are beginning to expand into other geographic areas and the like. There is not as much consolidation of the asset management industry and so on and so forth. But there are pockets of -- or significant areas of caution, right? In the European market, clearly has an economic slowdown there. So we have to see how that impacts, in China as well. U.S. is a very good market for us, obviously, given the outperformance economically and in terms of markets as well. So I think that 2015 will be an incrementally good year for us and for our clients.

Our next question comes from the line of Chris Shutler from William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: On the RMA business, the retention rate there looked quite a bit better than it has been. So can you talk about what drove the improvement over what were already pretty good levels? And I find it particularly interesting, since I know some of the competitors in that business have become more aggressive over the last, let's say, 9 or 12 months. So anything to read into the quarter?

We have focused really intensely on our retention rates. So if you sit back at the end [ph] and look at the totality of the environment, we have known clearly for a couple of years that making your numbers strictly on new sales to clients at a time in which the budgets are relaxing, but not expanding dramatically. Therefore, in order to get your run rate growth to levels that are acceptable, we are very much focused on what do we do to retain as much of the book as possible. And therefore, some time ago, 2 or 3 years ago, we started focusing on the renewal of a contract with the client way ahead of time, how is the client using the product, what kind of support do we give them, what experiences are they having with the client experience process that we go through, what experience are they having, are they getting their -- the processing of their portfolios in the case work turned in on time? And things like that. So in the last 1.5 years, we put a lot of effort into the performance of the processing, the stability of the processing, the servicing of the client directly, the advising to the client as to how to do all of that, and that has paid back in spades, in spades, to this exceptionally high retention levels. We have fortified enormously our technology team. We added Chris Corrado, a year or so ago. She's a real pro and a leader in technology. She's brought in a team of senior technologies that are in state-of-the-art in technology. We put a lot of effort in data quality on these client experience and the integration between the client service people all the way back to the technology people. So a lot of this has been hard work and investments. But as you can see, it's paying back in spades. Christopher Shutler - William Blair & Company L.L.C., Research Division: All right. Henry, and then you talked about a strong pipeline. I mean, it's somewhat complex with -- although, I realize the short-term data point, just the decline sequentially in the sales. Just curious if you could flesh out for us as investors, how do you qualify the pipeline? I mean, how do you measure the pipeline? And if you can't share any quantitative metrics, what is it that gives you confidence? Is it a higher number of inbound client inquiries, higher number of meetings, et cetera?

That was a very good question. And as I said before in answer to Toni's question, we feel good about where we are in terms of sales with the RMA business, but we can do a lot better than this, right? And I don't want to mince any words. We can do better than this. This is a business that, over time, should be growing much faster. And therefore, we're very focused on what are the areas of the market where growth is faster. So for example, asset owners and consultants, that's an area of the market that we're doing really well and, therefore, can we double-up on that, right? We're doing very well in Asia in risk management analytic sales. We -- our growth rate there is in the high teens, low 20s. So can we put more effort into that area? We're beginning to have a revival of sales in pensions that for some time they were very challenged. Can we put more effort there? We have areas of weaknesses. The banks have been weak. Pretty much every spending by the banks on risk management analytics has been only for regulatory agreement purposes. So we say, "Okay, why don't we -- can we slow down a lot of the push into that area?" Asset managers in Europe and in the U.S. given -- especially in Europe, given the challenging kind of view of the environment, we have -- it has been a little bit weaker for us. And Europe, in general, has been weaker for us. So I think what we're trying to focus on is, how do we look at the areas of higher growth and put a lot more efforts there? And before we were trying to -- we have been trying to cover everything. So how do we reassign our efforts? And then secondly, how do we try to integrate a lot more than we have done before between -- just like the example I gave with that pension plan, right? Between our portfolio management analytics tools, our risk management analytics tool, the content that we produce in IPD and ESG and index, how do we package it all into an integrated process and integrated platform to drive more sales? And we're very hopeful and very optimistic that, that will yield very good results.

And we have a question from the line of Joseph Foresi from Janney Montgomery Scott.

I was wondering, could you give us a rough timeframe around how long it takes for either a new software product or some change in the index or new index to pay off? Are we looking at a 3-, 6- or 12-month time frame? I'm just trying to gauge a rough idea of what we can expect from all the investments.

Yes, Joe, I will go back to the comments that I was making earlier. It's -- it was part of the near-term investments when we make investment in sales, people or coverage teams that are out there, those are nearer. But we are talking the notable new products, a really good example would be Barra Portfolio Manager. In our comments, we said, we're in our third year of that development, we're starting to see the meaningful sales and the retention rates in there. Indexes can be varied. I mean, an index, we've put them out there. It's a question of how long it takes sales of AUMs to get attracted to those indexes. And as we said in our Investor Day, that we developed these indexes, these models and these software updates in close connectivity with our clients. And so we believe going into it, there's client-correlated demand. And as we've indicated, to keep an eye on the sales of those products as they are released.

Got it. Okay. And then just on the competitive environment, in general. Have you seen any changes in either win rates or pricing, which I know is usually pretty static? And it seems like, obviously, we've had a very good run as far as passive investment is concerned. I'd like to get your overall view of where we are in the cycle, if we are in one, and where you think it's going to head over the next couple of years?

The competition has remained more or less where it was the last few quarters. The more positive news has been that on the index business, we have gained more -- even more share in competition, particularly in those areas that we are being traditionally strong, such as domestic benchmarks for countries. I gave the example of the U.S. a few minutes ago, right? So that has been pretty good. We have increased our share equated with [ph] the competition on factor indices quite dramatically. On the portfolio management analytics product line, we have won more than we have lost completely in terms of competition there. We actually have brought back clients that we have lost in the last 3 or 4 years. So that's been pretty good. On the run rate, the competition is pretty stable there from what it has been in the last few quarters. So now what's going to happen? I think that within most of the areas going forward, we will be even more competitive. We will gain more share as a whole in the company. And in all areas, we'll fight out stronger [ph], right? But it's too early to tell.

And I'm showing no more questions in the queue at this time. I'd like to turn the call back over to management for closing remarks.

Thanks, Roland. We want to thank everyone on the call for their interest and ownership of MSCI, and we hope you have a great day.