Good day, ladies and gentlemen, and welcome to the MSCI Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Edings Thibault, Head of Investor Relations. Sir, you may begin.

Thank you, Sam. Good morning, everyone, and thank you for joining our second quarter 2013 earnings call. I'm joined on the call this morning by our Chairman and CEO, Mr. Henry Fernandez; and our Chief Financial Officer, Mr. Bob Qutub. Please note that earlier this morning, we issued a press release announcing our results for the second quarter and first 6 months of 2013. A copy of that release may be viewed at msci.com under the Investor Relations tab. You will also find in 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 in which they are made, which reflect management's current estimates, projections, expectations or beliefs, and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of additional risks and uncertainties that may affect MSCI's future results, please see the description of risk factors and forward-looking statements in our Form 10-K for our fiscal year ending December 31, 2012. Today's earnings call may also include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EPS. Adjusted EBITDA and adjusted EPS exclude the following: restructuring costs, the lease asset charge, 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 the excluded items. Please refer to today's earnings release on Pages 14 through 17 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 frequently in the discussion this morning, so let me remind you that a 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 ETF license to our indices or changes in foreign currency rates. Please refer to Table 7 in our press release for a detailed explanation. In our discussions of both revenue and run rate, we will also be referring to organic growth rate. As a reminder, organic growth rate calculations exclude the impact of the acquisitions of IPD and InvestorForce and the disposition of the CFRA product line. With that, let me now turn the call over to Bob Qutub.

Thanks, Edings. Good morning, and thank you for joining us. I'd like to share some highlights from our second quarter 2013 before we dive into the numbers. First, we reported our financial results for the second quarter with revenues growing by 8%, driven by the acquisitions of IPD and InvestorForce. Net income grew by 63% and diluted EPS grew by 67%. Adjusted EBITDA and adjusted EPS grew by 8% and 16%, respectively. Our revenue and EBITDA growth benefited from the seasonal strength in IPD revenues, which as we forecasted, came in at more than double the first quarter amount. We expect less seasonality from that product line in the second half of the year and more on that later. Our subscription run rate grew by 9%. Our growth was driven by acquisitions, an uptick in sales and by strong retention rates across all 4 of our major product lines. By product line, index and ESG remained the biggest driver of MSCI's organic run rate growth. RMA run rate growth picked up slightly and a sequential decline of PMAE. Governance run rate also continued to grow on an organic basis. Asset-based fees continued to drive growth for MSCI, notwithstanding that the transition of Vanguard ETFs was completed in the second quarter. Last but not least, we completed our December 2012 accelerated share repurchase program and announced our second $100 million ASR this morning. As Henry will discuss, today's ASR is part of the decision made by MSCI late last year to return $300 million in capital by the end of 2014 added an integral part of a very disciplined capital deployment strategy. Now as was the case of the first quarter, we will highlight the effect of the acquisitions and a divestiture in the context of organic growth as well the…

Thank you, Bob. Good morning, everyone. Last quarter, when I spoke on this call, I talked about the operating environment and what we, at MSCI, are doing to focus on growing our business. This quarter, I want to continue that conversation by providing an update on the operating environment, our recent initiatives of innovation, the changes that we see that are occurring in our asset-based fee business and an update on our analytics businesses. I would also end the discussion with a few comments on the accelerated share repurchase agreement that we announced today and how it fits into our balanced approach to capital allocation. So first, the operating environment. It remained largely the same in the second quarter. Sales to asset owners remained healthy. And we saw some improvements in our sales to hedge funds as the managers across the world remained relatively cautious. Looking around the globe, we did see an improvement in the tone of our dialogue with our clients in the U.S., which is our biggest market. Elsewhere, some of the optimism that we saw in Asia in the first quarter was dimmed by market volatility in the second quarter. And Europe remained largely unchanged. As in the past, our pipeline of products remains healthy. On to innovation. Our focus at MSCI remains on driving growth via innovation. Many of the new products we have launched this year are starting to have an impact in the form of an increased engagement with our clients. Examples of these products include; the continued strong interest in our strategy indices, the addition of margin replication capabilities to our risk products and a new Japan model in equity analytics. We're also seeing a lot of interest from our corporate clients in our new QuickScore governance product. Innovation is also more…

[Operator Instructions] Our first question comes from Alex Kramm of UBS.

Maybe just on the financial, starting with the expenses here a little bit. Those certainly surprised us. So maybe you can give -- on the positive side, being lower than what we expected. So maybe you can give a little bit more color, talk about maybe the outlook if there's anything else we should think about in the second half. And then maybe more specifically, you highlighted the whole emerging shift in terms of your employee base. So is that a function of maybe some of the salespeople related to Vanguard and other products like, moving or discontinuing? Or is there something bigger going on here that we should be thinking about?

Alex, this is Bob. A couple of things. The expenses on an organic basis remain -- when you start with non compensation, remain pretty much in check. Actually, they were down a little bit. The growth that we saw in there was coming from our acquisitions. And if you look back over time, we have kept our non compensation expenses pretty much in check. With respect to compensation expense, if I'll take you back a year, remember our cost, we had about $3.5 million, nearly $4 million of one-time changes that came through last year so that would naturally compress the year-over-year growth. But turning to your question on the emerging markets, this is really a continuation of a journey we started a long time ago. And you can see we're at 44% now. We were at 42% a year ago. We'd actually ticked up to even a higher number than that, 45%, before our acquisition of IPD, which brought us down. And what we're doing here is allowing ourselves to build capabilities in these lower-cost centers that allow us to have more capability to invest more within our company on an organic basis that we've talked to you about previously.

I would also add a couple of points. One, specifically referencing your comment on Vanguard, there is no expense savings at all associated with the loss of that revenue. So that did not factor into the expense equation here. Secondly and very strategically, what we have accomplished at MSCI, which I believe puts us in a great position to scale the business up, is an ability to -- in a significant number of emerging market centers, is to have an ability to recruit talent, onboard it, train the talent and put it to work effectively in obviously places like Mumbai, like Manila, like Beijing, Monterrey, Mexico, Budapest and the like. So we have a management infrastructure. We have the office space. We have the technology. We have the teams that operate globally and so on and so forth. So as we see a gradual improvement in the operating environment and as we see an ability for us to continue to increase the level of investment in new solutions or innovative products, all services to our clients, we will be able to scale up the company significantly by utilizing these emerging market centers. So that's something that we have been focused on developing and building. And we are largely there at this point. Clearly, there's always things that you could do, but we're largely there, and position us very well for continued investment and large investments in the company without taking a bite out of profitability and scaling up the company when the markets return in earnest.

Okay, great. That's helpful color. Just shifting then to the asset-based business or the ETF business, in particular. I know this is a difficult question to answer, but obviously, you had a laundry list of new products, new partners and so forth. So wondering if you can give us your best guess in terms of the fee rates, as you think about some of these newer, higher fee products versus you also have the iShares core, which is lower. So where do you think they will shakeout? And what's the trajectory over the next few quarters as these ramp?

As you'll see with new funds, we'll have certain minimums in place. So as the AUMs start to build, we'll see some differentiation in the pricing. But right now, when you exclude the Vanguard, as I said earlier, our overall is about 3.6 basis points. And for the near term until assets build, it probably would be stable around that. We'll just have to keep an eye on those AUMs as they grow and exceed the minimums.

I will say the fee is relatively -- the fee structure is relatively stable at this moment in terms of a lot of the new products. What we are accomplishing is even wider levels of diversification of this business, diversifying by listings across the world, by top of indices. Clearly, a lot of the launches in Asia have been China-related and Asia-related so that helps also diversify the index base. And we have a two-pronged approach, which is continue to deepen the relationship and the licensing activities with our largest clients, and at the same time, being able to pick up new clients, new ETF managers. So we're very comfortable where we are in the fee structure, which is stable. We're very comfortable on the level of diversification of the business, that doesn't rely on either one index or one country or one region of the world or one manager. So that has paid in spades in this environment, including the loss of the Vanguard funds.

Our next question comes from George Mihalos of Credit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: So wanted to start off on the recurring sales side. I think this is the first time in 6 quarters that you had year-over-year growth and the first time in 3 years where you grew sequentially, 1Q to 2Q. Can you maybe talk a little bit about how much of that is really from better execution from the MSCI salesforce, that integrated approach, versus some of your clients with the market being up, actually starting to loosen their purse strings a little bit?

George, I think it's definitely a combination of factors, the quiver of arrows, right? It is -- one, it's definitely strong execution. I mean, we have been very focused on continuing to grow and defend the business in the last 8, 9 quarters. I mean, the sequential, gradual erosion, very gradual erosion started probably back in May of 2011, right, with the European debt crisis and continued quarter-by-quarter, as you mentioned. So we were extremely -- we have been extremely focused and we'll continue to be in executing better in all aspects, looking for new clients. If somebody wants to cancel, negotiating with them, to make sure that we address their problems and retain -- first of all, retain the client, and secondly, retain most of the revenue and so on and so forth. So that's one element. The second element is that there is a bit of a better tone, especially in North America, happening. And I'm not sure that translated into a lot more at the margin here. But it feels like it may translate at some point in the future into better sales. But that may have ticked up a bit, the conversion of the pipeline into sales. Our pipeline remained healthy. The issue continues to be the sales cycle, the approvals of the clients need to go through and so on and so forth. That has not yet changed dramatically, even though the tone has changed. So I think, overall, you feel that -- now there are areas that we have put a lot of more effort into it. So for example, in risk management analytics, we put a lot of focus on Asia, moved some senior people over there, hired some salespeople and the like, and we're seeing an uptick in there. We've looked at…

Well, look, what I specifically mentioned, George, was the launches of strategy in the ETF, right? That is -- we have some good momentum going there. That's what other people call smart beta or risk premia or the like. We continue to be cautiously optimistic about the launches of a lot of different ETFs. But that clearly has slowed down from a year or so ago across the world. We also continue to be cautiously optimistic about launches of ETFs in Asia, particularly in Hong Kong, with China-related ETFs. And that's an area that has been challenging to penetrate, even though the China markets are undergoing some bearishness. But I think the launches of ETF may bode well because the China regulators are also opening up the market to more and more international investors. So even though the markets are not performing as well, but ETF managers would like to get a presence there with their licenses to be able to invest in the China market. So I think, overall, we continue to progress well with launches. The key to the AUM and the profitability to the revenue of this business will be a balancing out -- a balancing act between current large ETFs that we have and the inflows or outflows and appreciation or depreciation of assets in those compared to the new funds.

Our next question comes from David Togut of Evercore Partners.

This is Rayna Kumar for David Togut. Have you seen any change in your sales cycle? Have they lengthened or shortened in your risk management business and your index business?

Well, largely the same. The tone is better in the U.S., a little better in Japan, the same in Europe, probably the same in non-Japan Asia. The tone is better in those specific markets, but the sales cycles remain about the same. The approval processes that we have to go through with clients remain the same. We're hoping that if this trend continues, a better, positive tone in the bigger markets, such as the U.S., that may translate into a little shorter cycles gradually and less approvals and the like. But that -- we need to remain cautious and we need to see that materialize before we claim any kind of victory.

And just one more quick question. I noticed SG&A was flat year-over-year. Could you just talk a little about the drivers of SG&A and if that level is sustainable?

I think when you look at it year-over-year, some of the costs that I referred to in the compensation side, for example, we had higher costs. Actually, we had probably between double occupancy. We had severance. We had cost that would be in there that increased, I would say, normalized numbers, if you go back and look at what we said in the second quarter of last year. So the growth was a little bit more than it may have appeared on a year-over-year basis. And the non compensation piece is actually, if you normalize it, as opposed to, as I said in check, it was up a little bit on a real-time -- on a same-time basis. Not a lot, but we've kept it in check.

Our next question comes from Toni Kaplan of Morgan Stanley.

I wanted to ask about -- I thought that the results in the asset-based fee business were strong. And you talked earlier on the call about the non-ETF sources contributing, specifically I think, the passive fund component. So I was wondering, is this a focus of yours on diversifying? So is it an internal push towards diversification? Or is this more client-driven with more assets going into these passive vehicles that are linked to MSCI? And also if you could give us an idea of the magnitude of how large this is now versus a quarter ago or a year ago, that'd be helpful.

Toni, we spend the better part of last sort of 10 years at very actively working with the institutional passive managers around the world, ensuring that the licensing arrangement they have -- that we have with them, converted from flat fee to AUM basis, clearly at levels that are much lower than the ETF because it's high levels of institutional passive. So pretty much the entire passive industry in Japan is under this and the U.S. and some of the clients that we have in Europe. So that was the work that was done and was put in place. So we keep focus on it in terms of incremental, but largely, a lot of that work was put in place a few years back. So therefore, the benefit that we're now receiving is as the world has, in the last few years, put a lot of emphasis on passive investment, of which obviously ETF is one example of, but there are other examples in institutional passive, passive accounts that are separate accounts or institutional pooled vehicles and the like in a lot of these places, as I said, like Japan, like the U.S. and places in Europe, then those assets have risen and the AUM fee that we charge of them, the asset-based fees have increased. We expect that trend to continue as the world continues to put more assets on a relative basis into passive compared to active equity management. So we expect that trend to continue and for us to be a beneficiary of that trend.

Okay, great. And then just lastly, I was wondering if you could talk about potential for expanding the business and derivatives based on MSCI indices.

Well, that's a great question because we are extremely focused on working really hard in developing very strong relationship with various derivative exchanges around the world to create complexes of derivative products that can be traded on MSCI indices. We clearly have such an arrangement with the New York Stock Exchange Liffe U.S.A. that has increased quite significantly in terms of creating an open interest and all of that. We're also increasing the number of indices that are being launched into derivative contracts there. In the first part of the year, we announced a licensing agreement with Eurex in Europe to do the same and a number of products have been launched there. We continue to strengthen our capability and relationship with SGA (sic) [SGX] Singapore Exchange in Singapore, as well, we're in dialogue with other exchanges in Asia. We're in dialogue with some of the exchanges in Latin America about this. So that's a big area of focus for us. It's an area though that products get launched, some of them work, some of them don't work. It takes time to accumulate volume and open interest. So it will take time to accumulate revenues of material magnitude. What we like about this is what we call the index ecosystem, which is it creates an ability from the asset owner being actively benchmarked to our indices to being able to execute a strategy passively with index funds or actively with our active management clients and being able to hedge or speculate or overlay risk with the derivative contracts that we put around the world. So all of it is an ecosystem that builds on one another, the legs, the feet on one another. And that's one of the more strategic reasons that we're doing it in addition to the revenue so that we can continue to strengthen the ETF business and the benchmark business with derivative contracts. So the revenue, sometimes you pick it up on the contracts themselves. But sometimes you pick it up by the ability of having more active and passive products on the benchmarks.

[Operator Instructions] Our next question comes from Chris Shutler of William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: On the strategy indices, stepping back a bit, Henry, do you see that market -- I guess, I'm just curious how you see that market evolving over the next few years. Is it a market where you think scale is going to matter as much as maybe it does in the traditional ETF business? And I ask because right now, it seems like there are a lot of different fundamental weightings being used out there from a multitude of providers, obviously some of whom are self-indexing.

Well, I believe that there is a quiet revolution going on in the index world from, what did you say, in addition to the provision of market betas, i.e. indices that reflect the beta of a market, so give me the performance of Japan or emerging markets or Europe or U.S. or whatever. In addition to that, to the provision of indices that capture the beta of an investment strategy depending on where you are in the investment cycle. So clearly, in this current part of the cycle, everyone is focused on yield and everyone is focused on volatility. And therefore, a lot of the work that is taking place in the strategy indices are on those 2 fronts. How do you reduce the volatility of a portfolio and still come up with a similar in return? And obviously, for more retail investors, how do you create an equity portfolio with sustainable and consistent dividend in the constituents of the portfolio? So I think that is here to stay. And obviously, depending on the cycle, the indices are going to be different. So if you think about cycle of growth, hopefully we'll get to that at some point, economic growth, it would be more on growth stocks, it would more on momentum stocks and the like. If you see a cycle of higher inflationary expectations, it will be -- give me a portfolio of -- or an index that has stocks that are more resilient to inflation and can pass prices to their consumers and investors and the like. So again, depending on the cycle, you're going to see different kinds of investment strategies, and therefore, you're going to see different kind of indices. We are uniquely positioned in the marketplace to do this kind of work because a lot…

Well, the last part is what we've been trying to reach, right? And we did reach it for a little bit of time, and then it ticked down again. I think fundamentally, what has happened is that the end market for these products have changed. And some of our offerings were designed for part of the market but not for the newer part of the market. So what you see happening -- and that's obviously happening to the quantitative asset managers and the quantitative support of fundamental managers in the way they support their fundamental clients, right? What we're trying to do is reposition the business, right, to where the demand is going in many respects, at the same time, that we continue to sell and protect the current book of business in the context of clients that are also struggling with that transition. So quantitatively, asset managing has changed dramatically from August -- it started in August of 2007. And so what a lot of the change have been is people are now looking for different datasets that they can read signals from. So therefore, we're try to supply the ESG dataset, the economic exposure dataset and the governance dataset and the like. So people are looking for more customized models. People are looking for better software that helps them do more things, in particular, real-time things and the like. So again, we think there is a healthy demand for a lot of things in this space. It just is that we're working pretty hard on investing to move those products and those innovations to that part of the demand at the same time as we continue to protect the current set. So I am cautiously optimistic, but I have been for some time. And clearly, we've seen some downgrades here in the last few quarters. But we're working pretty hard at it and we believe that there is an opportunity here for us to develop a good business that will grow if we reposition it well.

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

Thank you, Sam, and thank you, all, for joining us on the call this morning. We appreciate your ownership and your support. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have wonderful day.