Good day, ladies and gentlemen, and welcome to the MSCI Fourth Quarter and Full Year 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the call over to Mr. Stephen Davidson, Head of Investor Relations, you may begin.

Thank you, Kate. Good morning, and welcome to the MSCI Fourth Quarter and Full Year 2014 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the fourth quarter and full year 2014. A copy of that release may be viewed at msci.com under the Investor Relations tab. You will also find on our website the slide presentations that we have prepared for you for this call. Let me remind you that 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. For a discussion of additional risks and uncertainties, please see the risk factors on forward-looking statements in our most recent Form 10-K and our other filings with the SEC. For today's call, in addition to GAAP results, we also refer to non-GAAP measures, including adjusted EBITDA, adjusted EBITDA expenses and adjusted EPS. We believe our non-GAAP measures are more reflective of our core performance. You'll find a reconciliation to the equivalent GAAP term in the earnings materials and an explanation of why we deem this information to be meaningful as well as how management uses these measures on Pages 30 to 32 of the investor presentation. On the call today with us are Henry Fernandez, Chief Executive Officer; and Bob Qutub, Chief Financial Officer. With that, let me now turn the call over to Mr. Henry Fernandez. Henry?

Thank you, Steve. Good morning, everyone, and I am pleased to share our fourth quarter and full year 2014 results. Before I begin my prepared remarks, let me provide some comment about our new format. For the better part of last year, we have been listening intently to feedback and comments from many of you about what interests you and what concerns you about our company. Since our last earnings release, we have been hard at work in designing new slides, providing additional detailed information and a new script. I hope you like it, and please give us further feedback and comments to improve even more. Now let me move on to my script. I will begin with a strategic update, review the financial highlights and milestones for the year and provide you with a recap on the investment program. I will conclude by providing some additional context around the drivers of our margins over the past 8 quarters and our new guidance calling for margin expansion beginning in the second half of 2015. After Bob reviews the financial results, I will wrap up and we'll take your questions. Let me step back a bit and provide you with a strategic update that begins on Slide 3. In 2014, we delivered strong financial performance and significantly enhanced our business through the investments that we initiated in 2013 to drive our future growth. We are pleased with the progress of our enhanced investment program, which is now largely complete. The investments we made in products, sales and technology have driven near-term returns, principally in the form of much higher retention rates. We expect that these investments that we have made in product development and technology will deliver returns over the medium-term as well in the form of higher sales, higher run…

Thanks, Henry, and good morning to all of you on the phone this morning. Let's get right into the numbers on Slide 10. Our performance across our key metrics in the fourth quarter was strong. Run rate and revenues were up 8% and 6%, respectively, versus the prior year with subscription run rate of 9% year-over-year, excluding the impact of FX. Adjusted EBITDA was up 4% to $104 million. Adjusted EPS was up 23% to $0.49, benefiting from a lower tax rate in the current quarter and a 5.5% decline in the weighted average shares outstanding year-over-year. On Slide 11, we provide you with a bridge for the year-over-year change in our revenues. Total revenues rose $14 million or 6% to $251 million. The growth was driven by an increase of $8 million or 4% in subscription revenues and an increase of $6 million or 16% in asset-based fees. Over the past several quarters, we have seen significant fluctuations in the currency markets. The FX impact manifests itself in several ways into our financial statement but overall, the net effect to our income statement has not been significant. Approximately 15% of our revenues are billed in currencies other than the U.S. dollar. A much larger percentage of our operating expenses, approximately 45%, are incurred in foreign currency because of the large global footprint of our firm. Turning to Slide 12, we provide the adjusted EBITDA expenses trend. While our fourth quarter adjusted EBITDA expense rose 8% to $147 million, this is the second consecutive quarter in which the year-over-year growth has declined from the 21% we recorded in the second quarter of 2014. It should be noted that the quarter also includes $2 million in professional fees related to our recent shareholder matters. Adjusted EBITDA expenses increased $80 million or…

So before I open the line to questions, I would like to welcome our 3 new prospective board members, Wayne Edmonds; Rob Hale; and Wendy Lane. We very much look forward to benefiting from their experience and perspective when they join our board in March. I realize we gave you quite a great deal of information and detail. It has compressed a bit the Q&A period. We'll take some questions now but in the event we run out of time, we'll be more than happy to take your questions after the call in the next day or 2 as well. Operator?

[Operator Instructions] Our first question comes from the line of Georgios Mihalos with Crédit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Henry and Bob, just sort of 2 quick things here. One, just maybe talk a little bit about what will drive the $620 million or $640 million, that $20 million of delta in your expense looking out into '15? And then somewhat related to that, on the prior quarters, Henry, you spoke about revenue growth in '16 sort of correlating with EBITDA growth sort of in the double-digit range. Is the new sort of formula for MSCI -- are you more comfortable looking at the business as sort of a sustainable high-single-digit top line grower with double-digit EBITDA growth for margin expansion and then adding onto that incremental points from buyback and dividend?

Let me address the second question, George, and then Bob will take on the first one. Yes, so this -- what we did in the last quarter or so was -- we just going -- we always do this at the end of the year when we are preparing our budgetary process -- we're going through our budgetary process for the following couple of years. We really took stock on where we were with all of our capabilities, all the investments that we have made, all the opportunities that we see in the marketplace, we discussed it with our board and clearly, one of the key functions of a board and a management team is to size up the company to the appropriate opportunity. So we felt that we had already completed a big part or the major part of what we set out to achieve a couple of years ago, and it was earlier than expected when we took this deep dive. So to that now changes the guidance that we gave you with respect to EBITDA -- adjusted EBITDA expense growth and revenue growth in terms of the link between the 2 that you mentioned. We are still very much of the view that our business will achieve sort of double-digit growth as we discussed before. The only change we made is clearly the rate of growth of our expenses and the timing being reduced -- rate of growth of the expenses being reduced sooner rather than later at this point.

And George, on your second question, it's really 2 parts, one is the annualization of the hires and we hired people, mid-year obviously, in the second and third quarter as part of these initiatives. It's just the continuation of the annualization of the compensation, and the other piece would be the annualization of the cost related to GMI. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. And just last question. The retention rates look great, they continue to improve well ahead of what we were looking for. You commented on the new sales improving as well, but if we sort of look at them, at least the recurring sales, over the back half of '14 versus the back half of '13, they're sort of flattish there. Can you talk a little bit about what you're seeing in the environment and kind of your thoughts on driving those higher?

Yes. So the area, we clearly -- in terms of our investment plan, 2, 3 areas that we're clearly, clearly the most proud of is the enormous increase in retention rates, right? Way and above our highest expectations. We set out to put an enormous amount of servicing around on our existing client, so that has paid in spades and clearly, also, our ABS business and our ETF had paid in spade and the PMA business and others, right? The one area across the company that is lagging naturally is the sales in terms of payback of the investment. That is normal because we added a lot of salespeople, obviously, and those take time, as I mentioned in my script, take only the product development that we're going, take time and running through the system and being launched. And then when you launch them, it takes time to obviously accumulate sales. And then three, we're not completely in a normal operating environment. By normal, I mean pre-'08, and there is a little bit of an impact there. But we're still hopeful that we'll see a continued grinding upward of the pace of sales and as we get the payback from all the things that I mentioned.

Our next question comes from the line of Chris Shutler with William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: Really like the new format. First question, just on the RMA and PMA and just want to get a little bit more detail on the rationale for combining those. And from a client's perspective, what that will look like. And then kind of in relation to that, one of your shareholders had made a comment about the One MSCI strategy and criticizing that and maybe you could talk about what's worked and what changes you've been making and you're thinking there?

I'm glad you liked the new format. So we clearly want to do it more in the coming quarters, Chris. So I think the -- there are a couple of ways to address that question, Chris. The first one is that there is a significant amount of convergence going on between our equity index product line and our equity analytics product line because the vast majority of the new product development effort and the new activity in this business is factor indices. So the equity analytics business is about building factor models, right, that discern the factors that are affected, return and risk of portfolios and, therefore, we're taking all of that know-how experience, people and all of that and combining it with our equity index capability to arrive at a leadership position in factor indices and factor investing that I mentioned before. The second convergence that is happening, which is the one that you're alluding to is the convergence between front office, analytical capabilities, so just equity portfolio management capabilities, and that's part and parcel of the equity analytics product line, and risk management central of the risk management analytics sort of capabilities. So what we're trying to do is we clearly are announcing the combination of what we call -- we used to call PMA and RMA in order to capture that convergence and generate higher revenues, higher sales and all of that but also better efficiencies in how they work together. What we didn't combine, because it's already working really well, is the equity analytics research team working very closely with the equity index research team in building all these great factor indices that we're doing. So that's what we're trying to achieve there. With respect to the -- and that's what clients want us to do. They -- we constantly get our clients saying, can I have one person that can help me look at the entire product line that you have, and bring all of that capability to bear to my initiatives, my objectives, what I'm trying to drive in my firm. So we're clearly pushing that pretty strongly on the client end with the senior relationship managers and the like. With respect to comments about the One MSCI, I think there is a little bit of a misinterpretation. This approach of trying to put all of our capabilities in front of our clients is not at all in order to subsidize one product against the other one or to reduce the prices of any one single product. If you check around MSCI, definitely not well known for giving too many breaks, right, including some of your organizations. This is an attempt to service our client better, create better -- it can create better impact on them and therefore generate incremental revenues from them because we're serving them better and solving problems better for them.

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

Maybe just to follow up on some of the -- the question that you just heard in terms of some of the public investor commentary you received so far this year. Just, obviously, you reacted and we saw some of the board changes here. But just curious to what degree increased discussions and public commentary has impacted some of the views on expenses going forward, some of the investment spend. Clearly, there's been a little bit of a change here. So curious how that's been impacted. And bigger picture-wise, if it's also impacting the way you think about acquisition strategy, divestitures, capital return, anything you want to share.

So the -- only way you know are in terms of the dialogue with those shareholders starting August of last year and running through January, first a private phase and then obviously a public phase or semipublic phase of that in the last 5 weeks. A lot of the dialogue has been more of strengthening the board and adding people to the board and who the right people should be in that. There's clearly been a dialogue with them and every other shareholder that has been -- and this is a response of that of where is the investment going? How do we provide better clarity of that, better metrics, better representation and the like, and we have been hearing that from quite a lot of our shareholders and from many of you in the analyst community. So we have been working on that for quite some time in terms of trying to provide that additional disclosure, additional clarity in the company. In terms of operating differently, no -- not yet so to speak. I mean we -- these people are coming to our board, we have an expanded board now of 12 directors. The discussions are going to be robust, as it always have been in terms of how do we do differently and the like. So we welcome that. But a lot of what we're doing right now, a lot of our -- a lot of these metric, a lot of this fine tuning of our investments and our plans and all of that, has been ongoing for some time now.

Okay, that's helpful. And then just coming back on the cost side of the business, 2 comments here or questions. One, you made a quick comment about your guidance for this year is recognizing stable asset-based fees. So if we do have a great year in terms of inflows -- what does stable asset-base fees mean and if there's upside to that, would that just flow through to the bottom line? And secondly, just going back to one of your earlier slides around where the expense growth has come from over the last couple of years in terms of organic investments, it looks like the organic growth has been about 4% per year. Is that a good number to use for outyears now? And if that is a number which is also contemplated every 2, 3, 4 years you have to go through another cycle of incremental investment spend. So again, like how are you thinking about the cost growth longer term, if there's any more color you can give.

Yes. So on the first question, the -- you noticed that a few times I mentioned, predicated or not, in a stable operating environment especially asset-based fees, what I really mean there is that if there is a better market in equities around the world, that's going to put some pressure on the margin, right, because that declines our revenues immediately and our cost structure will have to gradually adjust to that. So embedded in our expansion of margin is a continuation of some meaningful level of return in the equity markets in terms of appreciation, in terms of new product development, new product launches, new inflows and ETFs and the like. If that were to be -- if that equity environment of new product launches and equity values were to accelerate further from what we have, what we see here, that will expand the margin faster. And we will not be spending that incremental. Bob, do you want to address the second part?

Expense growth, if you look at the chart that Henry used, it showed in terms of organic, I think, it was $75 million, a lot of it was driven by the tremendous inflows that we talked about from ABF, I mean, a lot of that piece will be the volatility on that but we're continuing to generate the new products that we talk about, directly and indirectly, we're receiving benefits on it. So the investment returns that you see in here become organic. And we continue to use the investments to leverage the organic, that's where you're getting the growth.

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

I appreciated the breakout of the investments on Slide 14. Just looking ahead to the next year, where will your investments be focused? Would you expect that like it should be similarly proportional or are there certain areas or segments that have more opportunities than others that you're looking to invest in?

Yes. So we -- Toni, I'm glad you like it, please continue to give us feedback, all of you, for all the things that you like to see. The -- at this point we're really, really focused, Toni, on what we've done so far, how do we capitalize on it and pay back and obviously creating efficiencies from that and all of that. We haven't yet started any kind of planning process as to what other areas of enhanced investment would occur because it's premature. We are -- but in general, we are very happy with the progress we're making. In fact, there's going to be more of that, clearly. We're really, really focused on this expansion of the PMA business and trying to broaden it to fundamental managers, not only the quantitative managers. Clearly, a lot of fundamental managers are looking at this onslaught of factor indices and passive management against the factor indices and a lot of what they do is one way or another in factor investing is qualitatively or quantitatively sometimes, right? So we need to provide tools for them to do that and get the business models continuing to grow. We're very focused on the -- we're very much focused on the return of the RMA business to significant growth. The last 2 years have been a bit more of trying to ensure that the technology platform that has served us well but reached the limit was invested in and we did a complete overhaul of that and so on and so forth. We now need to put more time and effort into launching new products and new services on that business in order to increase sales. I think we're happy with the retention rate. So those are areas and obviously you have the real estate and ESG part, which are really performing very well. So I think we're very focused on what we have today and making sure that it pays as opposed to expanding into any new areas.

Okay. And just one follow-up. On the index subscription revenue, I know Bob mentioned that there was some product timing in terms of why it was organically only about 5% this quarter. Was there anything else that we should be thinking about?

That was really driven by the pace and the supplemented disclosures back there, Toni, that shows that the revenues which in the real estate business, you recognize it when the products deliver. We had a slowdown in the fourth quarter. It's not affecting the pipeline, it was really more of timing, Toni. And that's why it dropped and you can see it decline 24%. That's sort of the small piece of it that brought it down to 5%.

Our next question comes from the line of Bill Warmington with Wells Fargo.

I want to say I like the format very much and also welcome to Steve. So first question on margin. The first question on margins. I just want to understand the trajectory of the margin expansion. And just to be clear, when we're talking about margin expansion, you're talking year-over-year change in the adjusted EBITDA margin, just to be very clear so I don't misinterpret it. So are we talking that those margins are likely to be -- continue to be down on a year-over-year basis for the first and second quarters, and then starting in the third quarter they start to move up? And then finally, in the fourth quarter '15, you're going to show improvement. Is that the right interpretation on that?

Well, Bob is going to give you the answer, but before that, we do also welcome Steve and he's been hard at work to create all of this. We wanted to get him baptism by fire, so a lot of this is a lot of his efforts as well. Bob?

Bill, we're looking at -- we're going to have seasonality issues, which is why we provided the data table back on the supplemental disclosures. You see some of the fluctuations that happen with the real estate business that are out there. We're going to hit the first quarter like I talked about with some seasonal increases namely related around compensation. As we move through the second into third quarter, definitely, year-over-year progression margin, without a doubt. That's where we're moving towards and successively, we'll be working to progressively expand the margin each quarter. Again, we'll get some volatility with ABF but our inflows continue and the markets goes the way we're looking at, we should like to see it progressively for a while.

Is there anything that's changed in the business that would keep you from getting back up to the high levels of 46% that you had previously?

Yes, I think -- we don't see it that much, but obviously levels of competition will be something that we need to -- we monitor closely, that has been stable in the last year or 2, across. That's something we need to continue to look at, right, to make sure that we don't lose market position. No, I think all of you, in our discussions, both shareholders and analysts, have always, always recognize that there is an inherent expansion of margin in a business like ours because you have a relatively fixed cost structure that grows to a certain level and then the incremental revenues, the growth of incremental revenues is at a higher pace than the growth of the incremental cost structure. And on top of that, a lot of the product development that we do is enhancement of existing products and built off the existing cost infrastructure, right? So there is an inherent pressure there for the margin to rise. What we're trying to do, and this is always a debate, we're trying to do strongly is to not look at the next few quarters in terms of the health and the progress and the success of the business but to look at it on the medium-term for that process about 3, 4, 5 years to ensure that we're not sorry 3, 4 years from now that we haven't captured market positions and we're not in a position well in the areas that we want to be and get hurt. That was a little bit of the problem with the PMA business which we were harvesting the company or the business or the product line and not looking across the 3-, 5-year horizon. That should never happen to us again. So there will be a level of investment that we will need to keep in order to ensure that, that doesn't happen to us, but for sure, the embedded machine of MSCI as a grinding of gradually increasing profit margin.

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

Henry, you had mentioned that if the investments don't meet certain ROI thresholds, you would reconsider. How should we think about those thresholds in terms of ultimate returns relative to the business?

We look at -- first, when we're acquisition-related, we look at our acquisitions to be value accretive 3 to 5 years, that Henry pointed out in his comments. When you do organic investments, Kevin, I mean you're leveraging an existing infrastructure so the value accretion should be significantly higher, and we look for that. And -- but always the bottom of that would be the weighted average cost of capital. The timing, as we've talked about before, tends to be a little bit longer than acquisition sometimes, but we're looking at pretty significantly having ROIs much higher. If they fall below these high levels, they're competing for other investments that are out there.

And Kevin, what we're telling you is that we're very dogmatic, we're very disciplined, we're very focused in how we look at everything we do. And our comment is attributed -- the large majority of what we've done in the last 2 years is paying back in a major way and we'll continue to pay back. There are a couple of pockets that we're evaluating, of things that we have done that are not performing at the level we wanted to see, and are evaluating whether we continue with them or not. Those are -- that's what we normally say at MSCI, the tail of the dog. The dog is really the majority of the investment plan that is working well, right? But we want to be truthful and tell you that we're looking at those as well.

That's fair. And just, Henry, as you're working your way through the budgeting process, any sense, obviously, the fundamentals look pretty good, but people feeling better just relative to how budgets are coming together this year?

Yes, it's -- that's a question we always ask ourself because a year ago or so, people were feeling fairly good. At the end of last year with some of the news from Europe and geopolitical news and obviously slowdown in China and things like that, we monitor that like a hawk to try to see how the budget and spending patterns of our clients around the world are coming together. And we have not seen major change yet, right? So that's the good news. But we are monitoring that intensely because there are pockets -- big areas of the world, with the exception of the U.S., right, are slowing down and we want to make sure that we're getting our fair share of their budgets or even a higher share of their budgets, right, going forward. So we're monitoring that. But so far, we're fine, but that's an area -- meaning the pipelines are fine, the time approach, the pipeline and all of that, so -- but it's also that all of us keep looking [indiscernible].

I'm not showing any further questions at this time. I'd like to turn the call back to management for closing remarks.

Thanks, everyone, for joining us today. We took up a little bit more of your time than expected but we appreciate all your interest in MSCI. Thank you.