Good day, ladies and gentlemen, welcome to the MSCI Second Quarter 2023 Earnings Conference Call. As a reminder, this call is being recorded. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer session, where we will limit participants to 1 question and 1 follow-up. We will have further instructions for you at that time. I would now like to turn the call over to Jeremy Ulan, Head of Investor Relations and Treasurer. You may begin. Thank you. Good day, welcome to the MSCI Second Quarter 2023 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the Q2 of 2023. This press release, along with an earnings presentation we will reference on this call, as well as a briefly quarterly update, are available on our website, msci.com, under the Investor Relations tab. Let me remind you that this call contains 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 and are governed by the language on the second slide of today's presentation. For discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10-K and in our other SEC filings. During today's call, in addition to results presented on the basis of US GAAP, we also refer to non-GAAP measures, including, but not limited to, adjusted EBITDA, adjusted EBITDA expenses, adjusted EPS, and free cash flow. We believe our non-GAAP measures facilitate meaningful period-to-period comparisons and provide insight into our core operating performance. You'll find a reconciliation to the equivalent GAAP measures in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures in the appendix of the earnings presentation. We will also discuss run rate, which estimates at a particular point in time, the annualized value of the recurring revenues under our client agreements for the next 12 months, subject to a variety of adjustments and exclusions that we detail in our SEC filings. As a result of those adjustments and exclusions, the actual amounts of recurring revenues we will realize over the following 12 months will differ from run rate. We therefore caution you not to place undue reliance on run rate to estimate or forecast recurring revenues. We will also discuss organic growth figures, which exclude the impact of changes in foreign currency and the impact of any acquisitions or divestitures. On the call today are Henry Fernandez, our Chairman and CEO, Baer Pettit, our President and COO, and Andy Wiechmann, our Chief Financial Officer. As a final housekeeping item, beginning on our next earnings call for the third quarter, we will request our analysts to ask one question at a time during the Q&A portion of our call in order to reflect the growth in our brokerage coverage and allow broader participation. As always, analysts will be welcome to ask more questions by adding themselves back to the queue, and our goal is to devote more of our earnings calls to the Q&A segment. With that, let me now turn the call over to Henry Fernandez. Henry? Thank you, Jeremy. Good morning, everyone, and thank you for joining us today. During the Q2, MSCI delivered another solid performance against a fluid market environment. We achieved adjusted EPS growth of 17%, organic revenue growth of 13%, and organic subscription run rate growth of 11%. We also maintained our laser focus on profitability, demonstrating rigorous financial and capital management. Our capital allocation framework has not changed. We will opportunistically buy back shares, support our dividend policy, and accelerate our strategy through bolt-on acquisitions. Most notably, our share repurchases since the beginning of the Q2 have totaled nearly $460 million. MSCI has repurchased close to 50 million shares, or nearly 40% of our total shares outstanding from the end of 2012, and we intend to keep the same focus and discipline. All of this confirms the strength and durability of our business. One of our consistent differentiators is that MSCI can be nimble and flexible in significantly adjusting expenses up and down, depending on the operating environment. This helps stabilize our profitability through periods of market turmoil. MSCI continues to benefit from our globally diversified and integrated franchise. In the Q2, we delivered our 38th consecutive quarter of double-digit subscription run rate growth in index. We also had a strong quarter in analytics, posting our highest Q2 retention rate ever of over 95%. Recurring net new sales growth of 46% in equity portfolio management. We deliver 70% climate run rate growth across our product lines, along with a climate rotation rate of over 97%. Our ESG run rate growth firm-wide grew 18%, and the retention rate from our ESG and climate product segment remained resilient at 97%. This shows that despite tightening budgets, our clients continue to make ESG and climate a top priority. During my recent client trips to Asia, the Middle East, Western Europe, and parts of the US, ESG was the most popular topic clients wanted to discuss. For that matter, when the IBM Institute for Business Value recently surveyed corporate executives across 22 industries, 76% of them said ESG is now central to their business strategy. This reinforces our belief that ESG risks and opportunities are investment risks and opportunities. With all of that in mind, MSCI is working to accelerate our ESG and climate product launches. Our climate solutions continue to drive growth across the company, and they have helped us build momentum across client segments. This gets to a larger point, the integration and interoperability of our product line. What we call our one MSCI ecosystem, can dramatically increase value and efficiency for our clients. We further amplify those benefits through our open architecture for clients and other outside parties, and through MSCI's role as a standard setter, industry connector, and innovation hub. This represents our greatest competitive advantage as a company. It highlights our unique position in the industry, our unique mix of capabilities, and our unique range of client segments. In this, MSCI is now well placed to capitalize on major trends reshaping the industry. Those trends include the acceleration of the adoption of index investing, the continued shift to outcome-oriented, rules-based, technology-driven portfolio construction, the rising demand for sustainable investments and climate solutions, the growing role of regulation, and the increased allocations to private assets. As our strategy evolves to capture new opportunities, which will require new investments, MSCI will stay firmly committed to financial discipline and high profitability. Those commitments have always anchored our strategy in the past, and they will continue anchoring our strategy in the future. With that, let me turn the call over to Baer. Thank you, Henry, and greetings everyone. My comments today will cover MSCI's business performance and also provide an update on our continued technology transformation. Our flagship index segment achieved a number of milestones, including 12% subscription run rate growth, with 14% growth in Asia Pacific. We drove record one-time sales, primarily from our recently launched Float Data Product, which delivered nearly $8 million in gross sales. These deals facilitate deep engagement with clients while creating entry points for future recurring subscription sales. We also achieved record Q2 results for net new and new recurring sales in index. Globally, there were 20 newly available ETF products based on MSCI indexes during the quarter, 12 of which were based on MSCI, ESG, and climate indexes. During the quarter, 96% of industry inflows into ETF products domiciled and sponsored by European fund managers were linked to MSCI indexes. All of this confirms the critical and growing role that our index segment plays in global investing, trading, and portfolio construction. Turning to our ESG and climate reporting segment, we delivered overall run rate growth of 26%, while our retention rate was nearly 97%. As I can confirm from my client meetings during the quarter, demand for our ESG products remains high, fueled by regulatory pressure for high-quality data, MSCI's comprehensive coverage, and the transparency provided by our solutions. Looking at climate subscription specifically, we delivered run rate growth of over 40% with both asset managers and asset owners, and over 75% run rate growth with banks, insurance, wealth management, and hedge funds collectively. Meanwhile, AUM in ETF products based on MSCI climate indexes totaled $71 billion at the end of June, which represented approximately 67% market share on the basis of AUM. As with ESG, both government regulations and voluntary disclosures continue to drive demand for advanced climate tools. Let me now turn to our analytics segment. During the Q2, MSCI achieved subscription run rate growth of 6.6% in analytics, including 13% growth in equity portfolio management, with notable strength in the hedge fund segment. We also posted our highest Q2 ever for retention at 95.2% and net new sales of about $11 million in analytics. By providing investment risk and performance workflows in analytics, we develop deep connectivity and access to client portfolios. This, in turn, helps us deliver additional innovative services, such as our ESG and climate regulatory reporting solutions, including for the Sustainable Finance Disclosure Regulation. During the H2 of 2023, MSCI delivered more than 47,000 total climate reports enabled by our analytics reporting engines. Shifting to our real asset segment, it was a tough quarter in a challenging environment, with historically low global commercial real estate activity. In that environment, our real asset segment posted overall run rate growth of 9%, excluding FX, and a retention rate of close to 93%. Regionally, we also achieved 14% real assets run rate growth in Asia Pacific, 10% growth in the Americas, and 8% growth in EMEA. As MSCI explores new ways to turn raw data into actionable investment insights, we continue moving forward with our technology transformation. Generative AI and large language models are a big part of that. We've been using AI and natural language processing for a decade now to enhance our content. Given our deep expertise in modeling and data analysis, this is second nature to MSCI. In ESG research, for example, AI helps us analyze and update more than 7 million data points per month, with inputs from more than 4,700 news sources, 150 alternative data sources, 12,000 corporate websites, and submissions from more than 5,200 corporate issuers. We have also used generative AI and LLMs to help us identify, extract, and validate EU taxonomy data four times faster than our previous capabilities. These data represent crucial inputs for EU regulatory reporting. In analytics, we use natural language processing and deep learning in our models to identify securities with similar characteristics, to examine emerging industries, and to support quantitative investing and systematic alpha use cases. We're also deploying AI in our corporate functions, such as finance, to help automate contract review, extract information, and process invoices. MSCI is embracing generative AI to enhance the client experience and operate more efficiently. In particular, we are leveraging AI to continue evolving our data processing, audit, and quality mechanisms. In addition, we are working to integrate AI into our MSCI One platform to proactively deliver actionable insights for client portfolios. Investments in data and technology are central to our long-term strategy. Combining those investments with our strong commercial focus supports our ability to deliver solid performance amid external challenges. I'm confident that by staying focused and disciplined in our operations and financial management, MSCI will be able to deliver for our clients and our shareholders. With that, let me turn the call over to Andy. Andy? Thanks, Baer, hi, everyone. During the quarter, it was encouraging to see the breadth of opportunities and diversity of revenue streams driving our solid top-line growth. This included very strong non-recurring revenue, which more than offset some of the lingering cyclical impacts we saw in parts of our asset base fees. We delivered solid double-digit subscription run rate growth with a remarkably stable retention rate, despite some of the market pressures. In index, client demand was broad-based, with double-digit subscription run rate growth for all of our sub-product areas, including market cap modules, ESG and climate modules, factor modules, and custom index offerings. Our run rate growth with asset managers and asset owners was 10% and 12% respectively. Collectively, these client segments represent about 70% of our index subscription run rate. Asset-based fees have swung to positive growth, driven by a rebound in AUM-linked revenues, which were supported by both market appreciation and strong inflows. Since the end of March, we've seen $18.7 billion of inflows into MSCI-linked equity ETFs, which, combined with a gradual rebound in market levels, has driven AUM balances to increase by over $67 billion. There were net inflows of $15.6 billion into MSCI-linked ETFs, with geographic exposures to developed markets outside the US, and $3.1 billion of inflows into MSCI-linked ETFs with emerging market exposures. From a product lens, there were $5.2 billion of inflows into ETFs linked to MSCI ESG and climate indexes, while two and a half billion dollars of inflows went to ETFs linked to MSCI factor indexes, fueled by strong flows into the quality factor. In fact, the AUM balance of equity ETFs linked to MSCI indexes was greater than $1.4 trillion as of July 20th. Volumes from listed futures and options linked to MSCI indexes were lower year-over-year relative to the high volatility environment we saw a year ago. This is consistent with what we would expect to see when AUM balances rebound. In analytics, subscription run rate growth was 7%. We had another quarter of very strong equity factor model sales as clients continue to turn to us to help understand risk and market factors in this dynamic environment. Our strong retention rate underscored the mission-critical nature of our tools, particularly in these challenging times. In June, we delivered roughly 47,000 liquidity analytics reports per day for our clients, which is up 15% from our average daily levels in December. We now process over 850 million security holdings daily on behalf of our clients in analytics, a testament to the scale at which investors rely on us for their most important portfolio decisions. The capabilities across analytics are incredibly strategic for the firm, helping to fuel growth across product areas. Although, as we've mentioned before, we continue to expect new sales and cancels to be lumpy quarter to quarter in analytics. In our ESG and climate reportable segment, our run rate grew 26%, with 22% growth in ESG and 50% growth in climate. The volume of large ticket deals has improved from last quarter, although still down from last year's levels. Net new recurring sales improved 20% since the Q1, but were down meaningfully from a record Q2 last year, reflecting more measured purchasing decisions and longer sales cycles from our clients. We continue to have conviction in our long-term targets of mid to high 20% growth, given the numerous layers of opportunities and the powerful secular drivers. As Henry and Baer mentioned, our long-term opportunities remain durable and attractive for both ESG and climate. In real assets, we drove 9% organic run rate growth. As Baer indicated, our benchmarking and market and portfolio insights offerings remain strong, with double-digit organic growth, while sales and retention of our transaction data products were more muted, as they are cyclically correlated with the reduced volume of commercial real estate transactions. We continue to execute on our real asset product roadmap, and we are seeing early encouraging demand for products like our Mortgage Debt Intelligence offering. These solid operating results across the business helped drive 17% growth in adjusted EPS in the Q2. Helping to fuel the growth, we had very strong non-recurring revenue in the quarter, benefiting from strong sales of our index free float product. While these non-recurring revenues will fluctuate meaningfully quarter to quarter, we continue to see healthy growth in the underlying demand for many of the products that are often sold as non-recurring, such as index licenses for OTC derivatives, history data products, and other unique datasets, as well as analytics implementations. Importantly, these sales often open the door for broader conversations and can convert into recurring subscriptions. Share repurchases drove $0.06 of the year-over-year increase, as our consistent approach allowed us to continue to capitalize on attractive opportunities. It's worth noting that our free cash flow conversion and collections were reasonably strong in the quarter, although we continue to remain somewhat cautious on collection activity for the balance of the year. We ended June with a cash balance of nearly $800 million, enabling us to remain positioned for strength. I would like to provide some color on our 2023 guidance, which remains mostly unchanged and assumes market levels remain relatively flat for the balance of the year. We have left our expense guidance ranges unchanged, although if market levels remain stable at current levels or increase further, we could be towards the top half of our expense ranges. On CapEx, we have modestly increased our guidance range, mainly reflecting our increased pace of capitalized software development costs. We remain excited and encouraged by the strong client engagement we are seeing across numerous growth opportunities, we continue to be closely aligned with and poised to capitalize on the long-term trends transforming the investment industry. We look forward to keeping you posted on our progress. With that, operator, please open the line for questions. Thank you. [Operator Instructions]. We'll take our first question from Toni Kaplan with Morgan Stanley. Thank you so much. I wanted to ask about, the recent ESG regulatory proposal, in Europe. I guess, as it reads now, how do you see it impacting your business, are there structural changes needed, or are you operating already in a way that would comply with, you know, the new rules? Hi, Tony. Baer here. Look, a few observations. The first one is that we do think we're well-positioned to make this transition to the new regulatory environment. There, there are certain standards and ways of operating, you know, inherent to the regulation, which, as you suggested, I believe we're meeting. There will inevitably be, you know, some new aspects to that. Those will also, you know, hit all of our competitors. It's a level playing field in that regard, and we believe that we, as we in index, we can be a leader in meeting regulatory standards. More broadly, the, you know, our regulation is in parallel with our clients' regulation. In turn, what that reflects is how critical the sustainability, you know, agenda is in Europe, and overall, that creates a significant opportunity for us. Great. Wanted to also ask about on the index side of the business, you've had very strong success over a long period of time. I guess first, could we see the ESG slowdown start to impact the index business at all, just given ESG indices revenue, you know, is embedded in there? Maybe also, when you think about sustainability of growth within indices itself, do you see any changes in the environment going forward, or just, you know, still structurally similar to what we've seen over the last, you know, number of quarters and years? Thanks. First of all, you know, we believe strongly based on client discussions and strategy meetings among ourselves, that the index opportunity, it's only begun, that this trend will continue for years and decades to come. It's predicated on our view and our clients' view that indices are basis of portfolios. Indices are tools to build portfolios. The more comprehensive and global the portfolio is, you know, in terms of security selection, the more the need for underlying information and underlying organization of that information about securities in the context of an index, which then becomes the basis of a portfolio. We saw this trend on market exposures with market cap indices, which continues unabated. We moved on to factor indices, which, you know, became very, very popular and continue to grow. We moved on to ESG indices. We're now very much into the into the climate index phase. You know, we're also accelerating our thematic indices. If you think about it, we're in addition to market cap indices, which are simple exposures to markets, we are moving into what we call non-market cap indices, which are indices built on demand, you know, on an investment thesis and demand for by clients. Again, these are ways of organizing the securities of the world according to certain variables, whether it's an ESG variable, a climate, a thematic, a factor, or whatever variable. They become extremely valuable for people who are building portfolios across those variables, whether they want to then, you know, launch an active management product, whether they want to launch a passive one, whether they want to launch, you know, structural products or listed derivatives. It's all the same concept, which is a basket, a large basket of securities organized in different ways. To achieve that, you need to have a lot of underlying information about those securities. You have to know everything about their ESG profile, their climate profile, their thematic profile, their factor profile. MSCI is turning into a giant equity research shop to try to understand the characteristics of securities so we can organize them that way. You know, everywhere we go, you know, in our shareholder base, people are waiting for the shoe to drop on the index, you know, business, and we think it's the opposite. We think that this business will accelerate in the years to come in all the use cases. We're now witnessing the direct indexing revolution as well, that is gonna make it more efficient to build personalized, customized individual portfolios. Anyhow, I think that that is where we are. That's what we see from our clients, that's what we see from the ground up and the like. With respect to ESG, you know, we're big believers that ESG is investment risk. It's not we, our clients are telling us ESG is investment risk, ESG is part of the fundamental analysis of securities. You know, it cannot be avoided, so therefore, you know, that will continue unabated in, in all aspects, whether it's ratings or research or screening, but importantly, in the foundational elements of building indices. We'll take our next question from Alex Kramm with UBS Financial. Yes. Hey, good morning, everyone. Quick question on ESG and climate. I think, when I compare today's sentiment and tone from you guys relative to last quarter, there's a markedly more positive sentiment. I don't know if that is because last quarter you were talking a lot about the political and regulatory paralysis, and this quarter you will focus more on the, on the long term. Maybe you can just talk about why the more positive tone, and then importantly, given that there was a little bit more focus on the long term today, which is understandable, how do you feel about the near term? Very slight improvement quarter-over-quarter, but clearly still a lot of uncertainty. Manav, you know, the reality is we feel exactly the same, you know, a quarter ago that we feel today. Maybe in the call, we go into political issues or, you know, this or that, you know, it kind of, you know, messed up the message. You know, that's a problem that we blame it on us. In terms of communicating, you know, the overriding, you know, message. Therefore, we feel fundamentally the same. By the way, look, we're not zealous, we're not philosophers, we're not ideologues. We are grounded business people, and we see what our clients are going through in the investment process, and we talk to them extensively. We review that among us, you know, all of that, There is no alternative path but to believe that ESG will continue to be central to the investment process. There was a client of ours who said to me one time: Look, Henry, this is very simple. The 70 years of fundamental analysis of securities focus on market, products, competition, and all of that. They never focus on the internal workings of the company. What ESG partly is about the internal workings of the company. What are the motivations? What are the governance issues? What are the social issues? How do they view, you know, the environmental issues and all of that? That should be part of the piece of the investment process. You know, therefore, I think in my view, look, you know, this is not just me speaking, you know, I was just on the road for 6 months talking to clients all over the world. The answer was that, the answer was that, you know, Alex, is that honestly, you know, everyone wants to talk about this because they want to incorporate it in what they do every single day. You know, look, we can argue all day long. We can, you know, look, talk at the political picture, the big picture, and all of that, but from the ground up, we do not know anybody in the world that doesn't want to take ESG considerations into account in the creation of the investment process. One last thing that I will say is that even in those states in the US where there is a lot of political pressure on the pension plans to abandon looking at, I think from the ESG perspective, the people, the investment teams of those places are telling us that they cannot do that because the rest of the world is gonna take them into account. If they do, it's gonna lead to repricing of securities, and they don't wanna get, you know, you don't wanna get caught holding the bag. Look, that is the bottom up, on the ground description of what happens, and, you know, we can talk about it all day long as to whether. What I'm telling you is, you know, and the reality is that it is investment risk, it is investment opportunity, it is fundamental to the investment process, and people are gonna have to continue to take it into account for decades and generations to come. Right. Fair enough. Thanks for that. Just switching gears very quickly on the analytics side, noted, obviously, the strong performance in new sales there, et cetera. I think you've also, given the inflationary environment, been a little bit more, you know, more strong on price. Maybe you can just differentiate how much came from pricing relative to new logos or new core sales? You know, given that the inflationary environment is probably softening a little bit, just wondering how you feel about the sustainability of growth in analytics? Sure. Yeah. Hi, Alex, it's Andy. Maybe just more broadly touching on price increases, you know, we continue to get traction rolling out higher increases than we have in recent years. The contribution to overall recurring sales, new recurring sales, continues to be relatively consistent across the company with what we've seen in the last couple of quarters, which is mid 30% contribution to overall new sales. Analytics, as you alluded to, we have been rolling out, like the rest of the company, higher price increases, although I'd say we are being more measured and more strategic. We focus heavily on the use of our product, the health of the client, the value that we are adding, and that's probably the most important point, the continued value that we're adding to the product and the service that we're delivering, as well as the client's overall usage of our tools. I think it is an important lever for us, and I think it's something we'll continue to focus on here. Obviously, we do monitor the overall pricing environment, but I think the broader considerations around the value that we're adding and client usage are probably more important on the analytics side. We'll take our next question from Manav Patnaik with Barclays. Yeah, hi. If I could just follow up on the ESG segment. You know, just looking at into the H2, you know, it, I guess it's a little bit hard to figure out some kind of seasonality in that net new business number over the last couple of years. If you could just help us with, you know, what you expect in the H2, especially in the context of, I think, Henry, you mentioned an acceleration of new products in ESG and climate. Is that, you know, gonna start impacting H2 already? Manav, and I'm sorry if I misspoke earlier, you know, didn't recognize the German accent versus the Indian accent. Sorry about that, Alex. Look, the pipeline remains, you know, pretty good and pretty solid. You know, some things are gonna accelerate on ESG, some things may not. You know, in the context of clearly there is a consolidation process going on in Europe, people trying to make sure they classify their funds, they comply to the regs and all of that, you know, and in the US, they're looking for the same things. But in reality, our clients are coming to us and asking us for a lot more ESG information. They want a lot more. They want more granularity of the data. They want it organized in a way that they can, you know, analyze it better because they now have a higher risk on regulatory compliance issues. They want us to put more pieces, you know, describing this whole process for their marketing campaign. They want a significant expansion of the coverage of the universe of issuers that we rate on ESG. They want, you know, changes to the ESG methodology in some respects. They want, you know, an update on how we're incorporating climate into ESG, and so on and so forth. We have a lot of, you know, a lot of demands for what we do, you know, of course, over time, that will translate into sales. Right now, we're in a cyclical soft period in ESG, and it's logical. We've been running at a break, you know, neckbreak pace, you know, for years now. There have been, you know, changes going on in the regulatory environment in Europe. You know, there's been noise in the political environment in the US and all of that. At the end of the day, people are now focused on how are they gonna continue to integrate this in a fashion that is even more granular, even more prescriptive, even more comprehensive, and all of that. That's what we're looking to expand on, you know. Our investment will have to increase, and our sales over time, you know, beyond this cyclical talk, are gonna increase. Got it. Okay, you know, last quarter, you talked about, you know, M&A pretty proactively. I guess with the stock pullback, you went into the buyback, into the stock buyback market, which made sense. Any updates on that M&A pipeline? Yeah. Manav, maybe I'll just broaden it to our approach to capital allocation, I can touch on M&A. I would underscore, and we mentioned this in the prepared remarks, that our approach to capital allocation really remains unchanged and consistent. We are focused on delivering a consistent and increasing dividend, pursuing opportunistic share buybacks, and continually focused on strategic bolt-on M&A. As you saw in the quarter, our approach to repurchases has remained consistent, where we tend to repurchase more when we have more cash, when we see more volatility, and when we see share prices where we have more conviction. And those three factors lined up in the quarter, we took advantage. On the M&A point, listen, we continue to actively explore a number of opportunities. We have seen an increase in conversations due to the harder environment for capital raising from many early-stage companies that would be strategic for us, and we are hoping we can find some unique opportunities, but we remain disciplined. We're gonna continue to remain very disciplined on price and strategic fit, and by their nature, M&A is opportunistic. There's no certainty around it, but bolt-on M&A remains a key focus for us and part of our strategy. We'll take our next question from Alexander Hess with JP Morgan. Yes. Hi. Briefly following up on some of the ESG and climate questions already asked today. If I compare your ESG and climate, maybe product portfolio and product ambitions for the next year or 2, to what you guys had laid out as your roadmap in your 2021 investor day, where have you guys sort of seen the most momentum versus your plan back then? What has maybe been pushed to the back and, you know, or to the back burner, and, you know, what has changed since that plan was announced? Well, look, to be honest, I don't have the exact investor day presentation in my head, but I have a pretty good sense of what we said. Overall, I think we're, you know, we're very much in line with the broad direction of what we indicated there. I think the element that has, you know, to a degree, changed, is that the distinction between ESG and climate has become greater than we thought at that time. The climate agenda has its own specific topics, needs, regulatory framework, et cetera, distinct from ESG. I would say that increasingly, you know, while there remains, of course, significant overlap between the two, we are, in some regards, viewing them as distinct opportunities. As we look forward to the next year, I would say that the range of climate solutions is doubtless larger in terms of regulatory needs, whether it be for banks, for asset managers, private company coverage, you know, on a kind of on-demand basis. That doesn't mean in any way that the ESG product pipeline isn't also growing and being enhanced. It's just that I think the role of climate has become even more significant than we expected at that time. Great. Thank you so much, Baer. Then maybe to follow up on the M&A question just asked, if you could maybe dimensionalize where you see opportunities in ESG versus in other parts of the business, and to what degree might recent EU regulations catalyze some desire for consolidation in ESG and climate overall? Sure. Yeah, within the areas where M&A is most strategic for us, and areas where we probably spend most of our time, are the areas where, we can get access to unique data sets, we can get access to unique capabilities or unique distribution. Areas like ESG and climate, where data and capabilities are critical differentiators, as well as areas like private assets, are the areas where we spend most of our time. There are many small players that, have developed capabilities or access to data points that we believe could be differentiators. There's a long tail of those players, both on the private asset side and on the ESG and climate side. I'd say that the recent, regulation, is not something that is catalyzing more activity at this stage. To your point, I would say over time, it will lend market dynamics to probably be a little bit more consolidated and tougher for smaller players to compete, and that potentially creates opportunities. Right now, our focus is on really accelerating our strategic roadmap, and we think M&A can be an accelerant there, although it doesn't need to be, and we have, as Baer was alluding to, a very rich pipeline of organic initiatives and new product launches on the horizon. M&A can just enhance that, but we're confident even without it. We'll take our next question from Owen Lau with Oppenheimer. Good morning, and thank you for taking my questions. I think your market assumption earlier this year was down in the H1 and then recover in the H2. Now the market is up quite a bit in the H1. I'm just wondering how much conservatism you have baked into your full year of free cash flow guidance, or there's any change in your investment plan for the H2? Any more color will be helpful. Thanks. Sure. I know you know this, Owen, but, you know, if you remember in prior quarters, the assumption underlying our guidance was that market levels will drop slightly and then rebound in the back half of the year. Needless to say, to your question, market levels have been running above those assumed levels. As a result, as I mentioned in the prepared remarks, if AUM levels stay at these current levels or increase, we will likely be in the top half of our guidance range on expenses, as we recalibrate our spending and level of investment to those higher AUM levels. I don't want to comment too specifically on free cash flow guidance, given that there are a wide range of factors that can swing that up and down, even beyond business performance. Clearly, business performance and billings are something that help there, but there are a number of other things that can swing it, and so we continue to reiterate our guidance on the free cash flow front. You know, listen, we continue to monitor the markets, and calibrate our pace of spending, and I think it's one of the advantages of our business model, is our ability to financially manage through all environments. If AUMs are higher, we can hopefully capitalize and invest more. Got it. Then, could you please add more color on the growth driver of your index subscription run rate in the Q2? Also, it would be great if you can also remind us the growth math of your index subscription run rate, which is how much of it is driven by pricing, new logos, and also further penetration? Thanks. Yeah. As Henry alluded to, the overall index subscription franchise has been quite solid for us. There's not one thing that I would call out driving the performance in the quarter. As we mentioned, we've seen double-digit growth across all module types. We've also seen double-digit growth across all geographic regions, and we've seen growth of 10% or higher across all major client segments. The success is broad-based. We did mention that we got a nice benefit from our newly launched free float data product, and that benefited us both on the non-recurring side, but also on the recurring subscription side. I'd say just as Henry alluded to, the overall performance is reflective of this trend of indexation, the growing ecosystem around our indexes, and the growing value and utility of our index content, in portfolio construction. Just on the algorithm, listen, I would say that the contribution from price within index remains relatively consistent with what I've mentioned in recent quarters. Price is contributing around 40% or so, give or take a bit, to new recurring sales, within index. That's a little bit higher than it's been in past years, just given we are rolling out higher price increases. In addition to that, the biggest source of new sales for us is selling more to clients. The smallest component is new clients for us. We'll take our next question from Ashish Sabadra with RBC Capital Markets. Thanks for taking my question. Wanted to focus on the newly announced IFRS Sustainability Disclosure Standards. The question there was, how does that change the value proposition going forward. Does it change the competitive environment, and how does it improve the value proposition for ESG ratings? Look, I think the context is one where there are numerous and significant regulatory changes ongoing for ESG, and we view them as significantly positive. I don't think that there is this particular change that is, you know, that is material. It's the sum of all the changes that are occurring, and certainly the likelihood that, you know, those will continue, including, you know, us being regulated, which was mentioned earlier, which is a sign of how important regulators consider this topic to be. You know, going back to the distinction between the Americas and Europe, I think the, we should discard the political noise and just make the simple statement that that regulation has not come to the US yet. That is more what I would put an emphasis on as the distinction, rather than any other topic. Overall, it is the continued regulation, not merely in ESG, but also in climate and across all client types, which is a very significant growth engine for our business. That's very helpful color. If I can follow up on the fund launches, those, particularly for ESG, has been relatively muted. I was wondering how important new fund launches are for overall revenues. There is, within the ESG, there is a shift from a vanilla ESG funds to more of a sustainability funds, sustainability-themed funds. How does that, again, improve the value proposition for MSCI? Thanks. Sure. Just maybe a few observations on this topic. As we alluded to before, this was particularly at the beginning of the year, you know, there have been changes in the regulatory environment regarding the classification of fund types 8 and 9. That is not over, but it's, I would say the largest element is likely over, and we're very involved in those discussions, both with clients and regulators. That's what I would call a temporary administrative blip, but again, just to reiterate, in the context of a very positive regulatory environment for us, right? I think that, Then in terms of your observation regarding fund launches, there has been a steady trend for ESG funds to also include a more, you know, a more obvious climate component. I think we'll continue to see a wide variety of those type of fund launches, depending on the client type, the geography, et cetera, and the investment goals of the clients. I think it's a pretty broad and diversified landscape. Let me just add something here in this context, because oftentimes, the questions we get from shareholders and analysts is have underlined that regulation is a negative, you know, for MSCI. It's a huge positive. Our clients don't love regulations. I mean, we would rather operate without regulation than with regulation, you know, it's a reality of life. Once you make the adjustment, it becomes a very strong tailwind for us because the clients need a lot more information to comply with the regulatory framework. More guidance are more extensive, more this, more that. Secondly, the regulation on us creates incredible competitive advantages because it puts a lot of other people at a disadvantage compared to people like us. Again, you know, we don't go asking people to regulate us, and we don't like it when it comes, but, you know, after a, you know, a period of adjustment that we make, it becomes very positive for us. We'll take our next question from George Tong with Goldman Sachs. Hi, thanks. Good morning. Can you discuss new recurring subscription sales trends you're seeing for ESG, specifically excluding climate, over the past quarter? Has there been stabilization, improvement, or step back, and what are the puts and takes? Sure. Yeah, I'd say, the dynamics are reasonably consistent with what we saw last quarter. We're seeing similar dynamics there. I would say the growth continues to be slower, in the Americas, relative to EMEA. In the US, you know, We alluded to this earlier, many investors continue to take a more measured pace on how they are integrating ESG, and that is driving some of the longer sales cycles. I'd say US investors and managers are really thinking about, how ESG impacts their overall investment objective, how they differentiate themselves relative to competitors, how they market and position themselves externally. There is a maturation taking place, and so we continue to see, longer sales cycles, most notably, in the Americas on the ESG front. As Henry alluded to, we continue to have a very rich dialogue with them, and the encouraging thing is, we have the tools, and the services that can help them on that maturation and on that journey. We'll take our next question from Kelsey Zhu with Autonomous. Hey, thanks for taking my question. BlackRock has recently talked a lot about, you know, the growth opportunities in fixed income ETFs during its investor day. I was wondering if you can tell us a little bit more about your investments there and kind of the revenue potential in the fixed income space. Great, thank you for that question. I would just distinguish, you know, two things. Clearly we have partnerships with various fixed income providers, which have been very successful, notably with Bloomberg on ESG. That's one element, and we really continue to see a lot of upside in that. Equally, very importantly, you know, we launched, not so long ago, our own fixed income indexes, where we are looking to create, you know, very differentiated products which are either focused on ESG, climate angle, and also on more liquid indexes, which are more suited for tradable products. We're at the very early stages of this, and we're, you know, which is a general MSCI approach, we're feeding some investments, but we're not going over the top. We've got a great pipeline for this year, clearly from a modest start, we're lightly exceeded our internal targets. We really do believe that this is a, you know, a growth opportunity, and in our case, from a small base. I think that, you know, hopefully, you know, as we go through the end of this year and start to move into next year, you know, our plan is for it to become something much more material. Appreciate that. Maybe just one more question on ESG. What needs to happen for net new subscription sales growth to re-accelerate again? Is it the macro conditions need to improve? Is it rate cuts? Is it the political dynamic need to stabilize in the US? Just curious to hear your view on this. I- first of all, it is already beginning to accelerate at a small pace in Europe, after a period of understanding the regulation, classifying funds, understanding the ingredients that they need in order to market these funds as sustainable, you know, investment funds and all of that. A lot of our European clients are beginning to go beyond that. They're beginning to say, "Okay, what are we gonna do now? What kind of launches, product launches? What kind of differentiation?" All of that, and they're beginning to request a lot of different data from us, as I alluded to before. That not, you know, that's not necessarily gonna be a ramp-up immediately, but it is beginning to presage or pre-phase, you know, a hopefully an increase in sales and the like. Notice also that, you know, the high level of retention rates also speak to the fact that people are not abandoning this area. That's in the Europe. In the US, I, you know, I think we may spoke last quarter in which we talked about the political environment, because that's what everyone is talking about. Look, does that have some, you know, effect or minor effect? Yes, you know, it will, because it affects the psychology of people. A lot more of what is going on in the US is that the global... Remember, we play in the global equity markets. We not only play in the US equity market. The global equity markets in the past were muted. You know, people were concerned about what was, you know, what the effect of the war in Europe and the recession in Europe and, you know, China, the opening or lack of opening or whatever. A lot of our clients were more, you know, tightening their budgets with respect to global equity investing, and therefore, ESG is part of that process. ESG is part of global equity investing as well. We saw a slowdown on that. As we begin to see maybe some reopening, better reopening of China, some of the statements by the Chinese government in the last couple of days, maybe, you know, create some more, a forward momentum. We're seeing a lot of momentum in Japan. You know, Europe is obviously stuck a little bit in the economic process there. You know, hopefully the markets will get better in Europe as well. You know, I think all of that will then bode well for higher sales of every type to US asset managers, as it relates to, you know, to everything but ESG in particular. The other thing to keep in mind is that the American asset managers not only manage money for US investors, they manage money for European investors, too. Those people need to also be part of the recovery of the demand for sustainable investments in Europe. We hope to see a recovery from there as well. Given the strong participation on today's call, we will be limiting participants to one question. We'll take our next question from Faiza Alwy with Deutsche Bank. Yes. Hi, thank you. I wanted to talk about margins. Andy, was hoping you could give some perspective on, you know, segment-level margins. I noticed that while index top-line growth was really strong, we didn't see a lot of margin expansion. Curious if there's, you know, something as it relates to the non- new non-recurring product or, you know, any other color around investments within index. Analytics. Margins declined. ESG was margins were up on a year-over-year basis, as were private assets. Curious on any perspective on any of those segments. Sure. Yeah. I would say I would not overly focus on the margins in any given segment, in any period. More generally, we are not focused heavily on segment margins or the company margin overall. Our primary focus is on driving strong EPS growth. The margin is an input into that, and our pace of spend is an input into that. Overall, we're really focused on driving that attractive EPS growth over time. I would say segment margins are a byproduct of investment opportunities that we have, our primary focus is on directing spend to those opportunities, which are gonna be the fastest payback, the highest return for us, and the most valuable, most strategic for us. The margin is a byproduct of that. The other factor that feeds into, segment margins period to period, which can cause some fluctuations, are, allocations. We do have a chunk of centralized costs that get allocated to our segments as well as FX. For all those reasons, the quarter-to-quarter margins are not something I would focus too much on. We'll take our next question from Seth Weber with Wells Fargo. Hey, good morning. I appreciate the color on AI and generative AI. Maybe can you just touch on whether you see any risks there, you know, disintermediation risks or anything like that? Do you see this as more of an opportunity for the company? Thank you. Look, we I think the way I would say it is, we definitely view it as an opportunity, and we're never complacent about disintermediation, right? The opportunity, I think, is twofold. We have an enormous range of very interesting data, which we can make ever more from, for our clients, greater insights, more analysis that can feed things like modeling, indexes, et cetera. I think we're... That's a key point. The second thing is precisely related to modeling, is that, you know, the, that this, these technologies, the true value added to them is not, you know, under or over specifying the modeling in order to get great outputs. We have an enormous amount of, you know, teams and research, et cetera, who are trained in this. I think more generally beyond that, you know, there are big opportunities for us to create efficiencies as well. The way I would say it is, you know, we need to not be complacent. We want to invest, we wanna move as fast as we can, and we think that, you know, this can give us some competitive advantages, and we're not complacent about people who may be able to start new businesses or create new opportunities to start us from this either. I'll take our next question from Heather Balsky of Bank of America. Hi. Thank you so much for taking my question. I wanted to go back to earlier in the call when you spoke about being able to convert some of the non-recurring index revenues over time. I'm curious if you can talk about sort of how that transition happens, how you're able to convert those revenues and, you know, kind of the pace at which you could do so. Sure. Yeah, and maybe I can just broaden it to touch on the non-recurring revenues, which were quite high in the quarter. I would say we benefited from a very large contribution from one-time licensees related to prior periods. Specific to your question, we did also have a healthy contribution from one-time purchases of our free float dataset. Oftentimes that can broaden the conversation with a client to help them appreciate why some of that data and other unique datasets that we have are gonna be integral to their ongoing strategy. Oftentimes we will see an initial sale of a dataset as a one-time sale, and then they want to broaden the use of it, get updated data over time, and that converts into a subscription sale. It's a helpful feeder for us. I would say non-recurring revenue is, by its nature, quite lumpy, which you've probably seen. We would expect it to revert to levels seen in recent quarters. But we do have a number of areas where there are kind of strong long-term demand dynamics, most notably in areas like over-the-counter derivatives and structured products as well, where we believe there could be healthy demand over time, and those are things that lead to repeat sales. Another area where sometimes there can be a switch from more of a non-recurring type license to a recurring license over time if they become a frequent user for these over-the-counter instruments of our index content. Just along those lines, while we call this a non-recurring line, many components of it reflect products and use cases that clients will use repeatedly, which hopefully will create more stability quarter to quarter. We'll take our next question from Craig Huber with Huber Research Partners. Thank you. Obviously, your numbers speak for themselves in a very positive way. I'm curious, given all your various discussions with clients in Europe and in the US, has the tone of business with clients from a budget standpoint, from their budget standpoint, Do you feel like it's loosening up some here? I mean, obviously, you, your numbers, your data, your analytical tools are mission-critical, as you talked about earlier and stuff, but are you feeling that the budget constraints out there are sort of loosening up versus maybe how you were thinking three or six months ago? Well, first of all, you know, the budgetary processes of our clients are pretty much set on an annual basis. You know, and, they don't remain extremely flexible, up and down, you know, that much. There will be exceptions, that they need to be run to all the way to the senior management of our clients. So a lot of the budget for this year was set, you know, back in December and January. What we are seeing, for sure, is a slightly more positive tone to the global economy. In the case of the US, a soft landing. In the case of Europe, that the worst is over, and that hopefully this energy crisis and the war in Ukraine is not going to create more havoc. In the case of Japan, obviously, that they're trying to inflate the economy in order to grow faster. Obviously, in China, still trying to figure out what the government will do there. But there's that small amount of positivism that will normally translate into slightly higher sales over time. The reason is that we, our clients end up allocating more money to us compared to the growth of their budget than not. Therefore, they will be able to maybe spend less in other areas and spend more with us, because a lot of what we sell them is mission-critical, is, you know, is cutting edge. It's something that is on demand immediately from their, from their own clients, et cetera. Compared to a quarter or two ago, yes, in which people were talking maybe about a hard landing, these people were talking about, you know, inflation staying high for a very long period of time, et cetera. There's a little more positivism going on in the world. Hmm. We'll take our last question from Russell Quelch with Redburn. Yeah. Hi, gents, appreciate you squeezing me in here. I appreciate your earlier comments around growth in fixed income indices. S&P have obviously chosen to grow inorganically, acquiring the iBoxx and the CDX indices as part of their IHS Markit acquisition. I'd say, given the step up in the opportunity here, as a result of the rise in global yields, might you consider an acquisition to accelerate your growth in fixed income and multi-asset indices? Will you continue to be sort of selective, and organic in your approach? We will always consider an acquisition in the areas that we want to expand, at the right price, that creates shareholder value. Unfortunately, a lot of other people, you know, in our space, you know, buy assets, maybe for different reasons. We only buy assets to create shareholder value, you know, in the short, medium, and long term. We're very financially disciplined, even in areas that are very strategic to us. We will always consider it, you know, at the right prices. We have looked at everything, you know, obviously there is not a lot out there. What we have purposely chosen is a path of organic growth in areas that we have significant competitive advantages. For example, there are a lot of market cap indices, issuance-weighted indices, in the lingo of fixed income, you know, issuance-weighted indices in the world. We're not going to add a lot of value by deploying our capital to go out and launch a whole family of issuance-weighted indices. The area that we're experts on is ESG, and it's in climate, and it's in factors, and therefore, we are pushing our capital investment, you know, into those areas that we believe we have significant competitive advantages. I believe that, by the way, that fixed income will be one of the early places of most significant repricing of assets and re-costing of capital and reallocation of capital with respect to climate, probably more than equities and probably more than other asset classes. The reason is that the largest players in the fixed income space, the banks and the insurance companies, are going to be under significant regulatory pressure to lower their climate risk in their corporate bond portfolios, in their mortgage portfolios, in their corporate, loan portfolios, and the like. They're going to have to act soon and fast, and that's going to lead to a big repricing. Therefore, one of the areas that we're really targeting strongly is the intersection of fixed income and climate, whether it's, you know, analytics or whether it's fixed income and climate and indices and the like. That's an example of places where we see competitive advantage on our part to create value. That does conclude the question and answer session. I would like to turn the floor back over to Henry Fernandez, Chairman and CEO, for closing remarks. Well, thank you very much for your time, for your questions. We're available to answer any of your other questions at any time. Reach out to us. We'll be more than happy to share our perspective. Enjoy the rest of the day. Thank you. Thank you. That does conclude today's presentation. Thank you for your participation, and you may now disconnect.