Good day, ladies and gentlemen, and welcome to the MSCI Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Stephen Davidson, Head of Investor Relations. Sir, you may begin.

Thank you, Ester. Good day and welcome to the MSCI third quarter 2016 earnings conference call. Earlier this morning, we issued a press release announcing our results for the quarter. A copy of the release and the slide presentation that we have prepared for this call may be viewed at msci.com under the Investor Relations tab. 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 were made and are governed by the language on the second slide of today's presentation. For a discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements in our most recent Form 10-K and our other SEC filings. During today's call, in addition to GAAP results, we also refer to non-GAAP measures, including 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 a baseline for the evolution of results. You'll find a reconciliation of the equivalent GAAP measure 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 20 to 24 of the earnings presentation. On the call today are Henry Fernandez, Chief Executive Officer, and Kathleen Winters, Chief Financial Officer. With that, let me now turn the call over to Mr. Henry Fernandez. Henry?

Thanks, Steve, and good day to everyone. Please turn to slide 4 for a review of our financial results. We continue to make significant progress in executing our strategy to be a leading provider of mission-critical tools to the investment community worldwide. And this translated into strong financial results again in the third quarter. A 28% increase in adjusted EPS was driven by a 7% increase in operating revenue, a 3% increase in costs, an 11% increase in adjusted EBITDA and almost 200 basis point decline in our effective tax rate, and a 13% decline in share count. In terms of revenue growth, the 7.3% increase in revenue was driven principally by double-digit growth in recurring subscription revenue in Index. In Index, I'm very pleased that MSCI was selected by the Wealth Management Association, or WMA, in the UK to replace a competitor as the provider of five multi-asset class indices used by the group's membership. The WMA in the UK represents wealth advisory firms and together manage $1.1 trillion in assets on behalf of more than 4 million clients. This win marks a significant milestone in our strategy to market our products and services to advisory firms in the wealth management industry worldwide. Analytics revenue grew 4.1% on a foreign exchange adjusted basis. And while this revenue growth was not yet where we wanted it to be, this was a strong quarter for us in terms of delivering new products and capabilities that will significantly enhance our capabilities in fixed income Analytics, one of our targeted growth areas in this product line. All Other revenue grew 12.4% on a foreign exchange adjusted basis and excluding the Real Estate occupiers sale which we closed in early August. Within All Other, the ESG continues to register strong top-line growth of high-teens…

Thanks, Henry, and hello to everyone on the call. I'll start on slide 8 where I'll take you through an overview of our third quarter results. We delivered a very strong Q3 across all of these measures and were very pleased with our overall execution as well as a strong rebound in AUMs and ETFs linked to our indexes. So let me walk you through each measure. We delivered a 7.3% increase in revenue, driven primarily by a 6% increase in recurring subscription revenue, and a 10.6% increase in asset-based fee revenue. There was a negligible impact from foreign currency exchange rate fluctuations on our subscription revenues. As a reminder, we do not provide the impact of foreign currency fluctuations on our asset-based fees tied to average AUM, of which approximately two-thirds are invested in securities denominated in currencies other than the U.S. dollar. Operating expenses and adjusted EBITDA expenses were up 3% and 4%, respectively, on a reported basis. Expenses that are exposed to foreign currency exchange rate fluctuations represented approximately 40% of adjusted EBITDA expenses in Q3. Excluding the impact of foreign currency exchange fluctuations, operating expenses and adjusted EBITDA expenses would have increased 5% and 6%, respectively, reflecting an approximate $3 million FX benefit. The primary currency move that drove this benefit was the British pound, which was substantially weaker quarter-over-quarter. Additionally, there were smaller benefits from the Mexican peso, the Indian rupee, the Swiss franc, offset in part by yen strengthening. We delivered a 13% increase in operating income and an 11% increase in adjusted EBITDA, resulting in a 210 basis point increase in our operating margins, and a 180 basis point increase in our adjusted EBITDA margin to 49.7%. Our effective tax rate was 33.1% down 190 basis points from 35% in the prior year…

Our first question comes from the line of Alex Kramm with UBS. Your line is now open.

Yeah. Hey, good morning, everyone.

Good morning.

So just, Henry, you already proactively addressed the whole ETF fee pressure debate that's been going on. But maybe you can flesh it out a little bit more. I mean, surprising to hear that no revenue impact. So maybe if you can talk about the pricing structures a little bit more why is there no revenue impact, and then also, looking forward a little bit, how do you feel about incremental pressure that could be coming beyond those five that you highlighted? Do you think it's consistent with – revenue should be limited? Do you feel like there could be more pricing pressure on the institutional side at some point and maybe levered there a little bit different? So just a little bit more color so we can put the debate a little bit more to rest. Thank you.

Yeah. So, thanks for the question, Alex. The – look, I think we've got to start from obviously the bigger perspective and that is, the ETF industry is growing by leaps and bounds all over the world, but especially in the U.S. and Europe. And we're trying to make it grow fast in Asia, but it's been a bit more challenging. That ETF industry is going to gather large amounts of assets in market beta, if you want to think about them, and in factor beta and eventually in ESG betas and, hopefully, also in actively managed funds. Although, so far, that segment of the market is not that large. We believe that that continues to be a fairly large growth part of the investment process. And as I said, we'll gather quite a lot of assets. So that part of the volume, so to speak, will benefit us and many ETF managers significantly. Then inside that global ETF industry, there are a lot of different participants with a lot of different pricing strategies, market segments and product offerings and all of that. And there is increasing levels of competition particularly in the U.S., and especially for retail investors. So we are likely to see PTR erosion of this ETF product line particular in the more competitive areas of the market since we are in the U.S., particularly the retail competition and leading up to this fiduciary rule by the Department of Labor, it's going to drive some early adopters of lower fees and all of that in order to capture more assets, particularly assets away from mutual funds and actively managed mutual funds. So, clearly, all of that is happening and we, at MSCI, are partners with a lot of these ETF managers and we want to remain partners…

All right. Thanks for that. And then just, secondly, maybe, on the retention rate that came down, again, you addressed it already a little bit, too. But on the Analytics side, in particularly, do you feel like most of what led to that low retention, you kind of through that in terms of any sort of hedge fund pressure that is maybe leading some incremental cancels or do you think the environment is still very uncertain on the retention rate?

Yeah. So, look, it's a – I think that's a good question as well. And let me try to abstract from it again. We, at MSCI, continue to produce very strong financial results. But we do so – and we do so with a lot of strong wins in our back in terms of passive investing and in terms of ESG investing and risk management and all the things – globalization, all the things that we always talked about. But we are really selling into an investment industry around the world in which significant segments of that industry are being challenged. Active managers are being challenged. Banks, hedge funds, funds of funds, wealth managers, subsidiaries of banks, not because the wealth managers are not doing well, it's because when the banks – when the senior management of banks decide to have cost measures, cost management measures, they do so across the board in order to have the wealth management subsidiaries which are doing well contribute larger amounts of profitability to compensate for the pressure that they see on the investment bank or the commercial bank. So that leads to some pressures in segments of our marketplace. There are other segments that are doing well for us, like, non-bank subsidiaries – non-bank on wealth managers, patient funds, sovereign wealth funds and all of that and we can talk a lot about that. Right? So the pressure continue. In this particular quarter, we saw a meaningful pressure on funds of funds or our HedgePlatform product line, we saw meaningful pressure from the wealth management subsidiaries of U.S. banks, we saw some pressure from the investment banks in Europe as well and alike. And therefore, the majority of these $10 million in cancels, were attributed to those cost pressures and resulted in partial…

And, Alex, maybe I can just add to that a little bit. We did talk about; in Q2 we saw these conditions as well. And Q3 here is really a continuation of that, and as Henry said, probably will continue in the near-term. Right? And if you look at historically, Q4 is usually a higher quarter for us in terms of cancels. So, we'll see how that goes in Q4, but let's just put it in the overall context for Analytics. For the quarter, organically Analytics revenue up 4% and in fact new sales, recurring sales of 26%, and then if you include even one-time sales, up 31% for the quarter. In addition, continuing to make progress in Analytics on margin expansion. So, we continue to execute there. Certainly concerned about the cancels being high, don't like to see that, but we're working hard to minimize that.

Actually one other thought that I forgot, because there's been some speculation that the – some reports that some of these cancels came from are across the board price increases, in Analytics. There's very, very little effect of our price increase in these cancels. They had very little to do with our price increases. Our price increases are going relatively well, obviously, nobody likes to see price increases in our client base but they're going well. And we will continue to execute on them.

Excellent. Thanks for the color.

Our next question comes from the line of Ashley Serrao with Credit Suisse. Your line is now open. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Good morning. Henry, I just wanted to clarify your comment on Alex's question about the BlackRock fee cuts not impacting revenues. Is that because it's just too small as a percentage of AUM or is it because contractually the pricing change doesn't flow through to you guys?

We already have a formula with them on the core shares – the core iShares. That has a formula that is relative to the management fee – percentage of the management fee and it has a floor, it has a ceiling. And a lot of that was already in the lower end of that range. So, the management fee gets cut or the fee are gets cut, we're already at those low levels. And there hasn't been any change on the pricing of the product at all with them. Now, over time, for sure, right, as we tried to capture assets, they tried to capture assets and what I mean more aggressive we may have other discussions about how to create pricing strategies that get us much more volume and even if it's lower fees. But none of those discussions are taking place right now. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Okay. Appreciate the clarification. And then just on the Analytics revenue projection over the next few years, does that include any contributions from potential wins from replacing the Barclays, Bloomberg POINT system, which I think was announced after you gave your initial guidance. And then how should we be thinking about the timing of the incremental investment for growth to flow through the business?

Yeah. So all of these projections that we show have in them both the investments, the organic investments that we referred to, so I don't want anybody thinking that these incremental investments that I referred to will be added to this and, therefore, lower our targets of EBITDA margin in the future. And secondly, they also do reflect the contributions to revenues from all these initiatives, the fixed income analytics initiative, the services offering Analytics and the new platform – the new sort of a technology platform Analytics product line. So, all of that is there. Now, they are back-ended because as you developed a fixed income capabilities for both, not only for fixed income analytics – for fixed income portfolio management but also fixed income analytics in the context of the multi-asset class analytics offering, right. So the investments we're making there give you incremental revenue that are part of that progression of revenue growth, constant currency revenue growth to the high-single-digit, and the same thing with the offering, the service offering on the new platform. But they are back ended. So I don't anticipate or I would anticipate us getting closer to the 30% to 35% EBITDA margin first before we get closer to the high-single-digit revenue growth, because revenue, it gets back-ended in terms of the investment and the progression of getting clients and all of that. I mean, as you know, it just takes time to accumulate those run rates. So within fixed income analytics, per se, yeah, this is a strategic area for us for many, many years as we talked about for many years we also wanted to solve this inorganically through some acquisition and we're praying and hoping that that will happen, and properties have come to the market, but we haven't liked the prices. We've been very – very disciplined buyers and have passed therefore. And now the time has come in which we got to do it organically because we've been waiting too long. And we really need to start filling out this whole area and that's what we're doing gradually now. Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker): Okay. Thank you for taking my questions.

Our next question comes from the line of Chris Shutler with William Blair. Your line is now open. Andrew Owen Nicholas - William Blair & Co. LLC: Hi. This is actually Andrew Nicholas filling in for Chris. Just one question. I believe most of my other ones have been answered. On EBITDA expense, I believe your guidance implies fourth quarter expense around $150 million at its midpoint. If I take that run rate into 2017, it looks like year-over-year growth on a constant currency basis would be around 3%. I'm just curious if that's a fair way to be thinking about next year, and if so, in either case, what are the key spending areas that we should be thinking about that would drive EBITDA expense higher than that Q4 run rate?

So as we think about our planning, Andrew, and as we've talked about, we think about our model being strong top-line growth coupled with really controlling our expenses. Right? And we talk about high-single-digit revenue growth rate but capping expenses at a 5%-ish growth rate. Now we are in the midst of our planning process right now, so I really can't say specifically what 2017 is going to look at, but when you just think about conceptually the nature of our expenses and our expense base and our expense base being primarily compensation-related because we're a people business, right, and you think about the inflation associated with that year-over-year. Add onto that, right, the investments that we want to continue to make in our fast-growing spaces, particularly in Index and ESG, in fixed income analytics, that's kind of how we think about our expenses. We want to be able to fund the fast-growing parts of our business, but at the same time, we want to be able to find productivity to fund that really for all of the projects that we see across the board that have high returns. Andrew Owen Nicholas - William Blair & Co. LLC: All right, that's helpful. That's all I had. Thank you.

Our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open. Toni M. Kaplan - Morgan Stanley & Co. LLC: Hey, good morning.

Good morning. Toni M. Kaplan - Morgan Stanley & Co. LLC: So, as you mentioned, new sales in Analytics were actually strong and – but clearly the retention rate in Analytics was a little bit light, as we've been discussing. Could you just give some color on whether there's a difference between the products that are being demanded on the new sales front versus the products that clients are canceling.

Yeah. So, on the cancel side, Toni, the epicenter, so to speak, of the cancels this past quarter were in multi-asset class RiskManager product – the product line there to hedge funds, some smaller hedge funds that shut down, for example. Also to wealth in the U.S., let's say, to wealth management subsidiaries of banks in the U.S. which also offer that multi-asset class RiskManager product line. So that was one area. Another area is HedgePlatform or funds of funds, a much smaller negative impact with that. We have had relatively little cancels on BarraOne which is more of the factor-based multi-asset class risk management product line. A lot of that is to asset managers and pensions funds, so very little cancels there, if anything good sales there. Very strong sales in equity analytics models and applications, particularly to equity long/short hedge funds that are being asked by various institutional clients to report the performance and risk of their portfolios on a factor basis. That is definitely an increasing trend and we hope to capture that. Those have been the areas where some of these issues have been focused on. Toni M. Kaplan - Morgan Stanley & Co. LLC: Okay. Great. And then you've mentioned success in fixed income analytics. Are you targeting sort of existing customers that already have some of the equity analytics or multi-asset class analytics or are you going after sort of new fixed income only shops?

Yeah. Well, first of all, the success has been in just launching the product and putting cost in the company. We are hoping to have success in generating revenues, but not yet, right, because we just started this effort. Our main focus on – clearly, there are two focus. Right. The fixed income analytics as it relates to the multi-asset class offering. And then there is the fixed income analytics for the fixed income portfolio managers alone. Right? So in that area, our main focus is to go to those clients that we already have a large relationship with in multi-asset class analytics and in equity analytics for their equity portfolio management team and round-up the efforts in fixed income and the fixed income portfolio management side, that's been one big effort. And the second big effort has been targeted in the high-end of that as opposed to the low-end, the small and medium-size clients, but the bigger clients that we've had very extensive relationship with and that is – there is a lot of changes that are going on in fixed income analytics because the providers of fixed income analytics have been changing hands and all of that. So this has been driven by both. A lot of our clients have come to us and say, how can you help us manage these transitions? And obviously we've been eager to help them as well. Toni M. Kaplan - Morgan Stanley & Co. LLC: Thanks a lot.

Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald. Your line is now open.

Hi. Has the focus of your clients shifted towards cost versus quality particularly in the Index business? And could that shift get worse if the economy continues to do poorly? I'm wondering if you have any worries around pricing.

With respect to indices and our clients, well, let me go back – with respect to our clients, particularly our active management clients are for sure, there is a lot of emphasis on cost – not dramatically different than it has been in the last two years, three years. There's a lot of emphasis on cost. Now, with respect to the Index product line, with those clients, we've been successful at selling them more things, particularly, factor indices, for example, or emerging market indices, because the emerging markets asset class has began to come back or custom indices, ESG indices and the like. And therefore, our share of their wallet has increased. Because at a time in which they need us the most. So, obviously that is coming at the expense of reductions in budgets of those clients from other providers.

Got it. And so – and then my second question is how would you characterize the cancellations in the Analytics business? Were most of those due to hedge funds going out of business versus just kind of not needing the product anymore? And if you could – I know this is very difficult – can you quantify the percentage of spending in that business as typically discretionary? Thanks.

Yeah. So the expense of this is typically mission-critical for sure. So some of these cancels have been hedge funds, medium and small hedge funds shutting down, because these are largely multi-strategy hedge funds by the way, not equity long/short hedge funds. These are largely multi-strategy hedge funds that have done that, or that they have partial reduction of service because their assets under management have declined significantly. And therefore, they're less processing or they've got out modules or whatever. Right? So that's being one area. Clearly, another area is funds of funds. We know that this is an area that has been challenged, the funds of funds industry in hedge funds. And we've had some cancels there. We have wanted to make up those cancels by higher sales of our HedgePlatform product line to endowment, foundations and pension funds meaning all other forms of asset owners. But that has – we haven't spent as much time in increasing those sales. We will, in the future, but we haven't, to make up for those funds of funds decline and the like. So that has been the nature of the cancels.

Thank you.

Our next question comes from the line of Warren Gardiner with Evercore. Your line is now open.

Hey. Good morning. So I was wondering if you guys could – I know you sort of mentioned that there was no impact – cancels had no impact on gross – on the pricing from the pricing you exerted in the quarter. But I was wondering if you guys can just quantify the impact on gross sales from maybe some of the pricing increases you've been passing through.

So, on the Analytics side, going back, I guess, a year or so, we really started to more systematically look at our pricing. And we continue to do that now in Analytics, really had not had an impact with regard to the cancellations. And we're going to continue to, kind of, focus on that as one of our key areas usually around 15%-ish of our revenues.

For Analytics and Index or just Analytics?

Yeah. For Analytics.

Okay, great. And then I think you guys mentioned some asset-based fees or mutual funds in the quarter, I think you talked – I think you term them initial funds fees. I mean, should we be thinking about that as a one-off like event or is that maybe – or is that the right run rate to use going forward for that line item?

So, can you just clarify what you're asking?

All right. So, in the asset-based fees, the funds from passive mutual funds, I think there's a nice tick up, and I think you guys noted initial fund fees as one of the reasons. I was wondering if that's more a one-off or is this now kind of the right run rate to think about going forward?

Yeah, I mean, that can be kind of lumpy. I wouldn't assume that that's an ongoing run rate. That can, kind of, bounce around a little bit.

Okay, great. Thank you.

Our next question comes from the line of Keith Housum with Northcoast. Your line is now open.

Good morning. Henry, the adjusted expense guidance for the year has come down, obviously, significantly. If you look at over the past year, what's been the drivers of that decrease, has it been driven a combination of like FX and delayed spending and just better performance, or if you had to weigh – like, where are the savings is, how would you weigh that?

So, look, I think in general, it's been driven by a very, very tight management of the head count, right. For example, in years past, we were growing our head count aggressively. So, we came to a situation where we felt that we had enough head count all over the world and we needed to just focus on productivity of that head count in the company. So, when you see it's almost flattish head count growth that has helped dramatically to decrease the rate of growth of EBITDA expenses. Clearly, foreign exchange has benefited us immensely there. But that's why we give you the numbers on FX adjusted basis versus non-FX adjusted basis. And you like anything else, Kathleen?

No. I mean, we're – as you said, really strong rigorous keeping an eye on expenses, on head count, particularly driving for more efficiency in Real Estate and Analytics. And you can see that in the margin rate. I mean we've had pretty steady margin expansion. We're going to continue to keep an eye on that.

Okay. As a follow-up, as I look at the guidance you guys gave a few quarters back in terms of your long-term adjusted EBITDA margins, the Index business is already at the top end of that range and the range was 68% to 72% now. Should we think of that range to be bumped up or are you guys be increasing your investment area commensurate with your revenue growth?

No, no, I think that rate – that range to stay like it is. There will be times in which we would be at the lower end of the range like we have been in prior quarters this year on the basis of lower ETF fees or at the same time couple with investment. There'll be times in which we would be a little bit over on the upper side of the range. But given – clearly, it's a built-in margin expansion in the Index product line, but if we really would like to see this Index product line expand for years and years and years to come, we need to continue to invest in a lot of new areas there and that's what we're doing and that's what we are capping, so to speak, the margin range to those levels. And the investments, clearly factors, it's a huge part. We need to do that and everything that goes with factor, distribution, client service, the production environment for factor indices and all of that, right, ESG indices, another part, et cetera.

Yeah. So, as Henry said, we really are making it a priority to make sure we are funding our growth initiatives and innovation. Right? So – but we're very happy to be in that target range of 68% to 72%. And it's clearly a priority for us. Look, we've got lots of great projects that we want to fund high return projects and we want to continue to be able to do that, and it makes sense to do that for the long-term growth of the business.

Okay. Thank you.

At this time, I'm showing no further questions. I would like to turn the call back over to Don (sic) [Steve] for any closing remarks.

Thank you, everyone. We went over a little bit to get everyone in – on the queue. So, thank you and we'll speak again next quarter.

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