Good day, ladies and gentlemen and welcome to the MSCI First Quarter 2017 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 be given at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Stephen Davidson, Head of Investor Relations. You may begin.

Thank you, Andrew. Good day, and welcome to the MSCI first quarter 2017 earnings conference call. Earlier this morning, we issued a press release announcing our results for the first quarter 2017. A copy of the release and the slide presentation that we have prepared for this call may be viewed at msci.com under 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 are 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 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 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 on Pages 26 to 30 of the earnings presentation. On the call today are Henry Fernandez, our Chief Executive Officer; and Kathleen Winters, our Chief Financial Officer. With that, let me now turn the call over to Mr. Henry Fernandez. Henry?

Thanks, Steve, and good day to everyone on the phone. Apologies for my scratchy voice as I suffer from pollen allergies at this time of the year. We reported another strong quarter, driven by the continued execution of our strategy, our focus on innovation and our drive to higher levels of integration within client activities, our content, our content-enabling applications and our services. Our results included a positive impact of about 27% increase year-over-year in quarter end AUM, in ETF linked to our indices to a record $555 billion, driving strong double-digit growth in Index revenues. On our call today, I will review the financial highlights for the quarter. And then, I will discuss how our financial performance is increasingly benefiting from more innovation and better integration of content within each product line as well as across product lines in the enterprise. Please turn to slide four for a review of our financial results for first quarter 2017. A 29% increase in adjusted EPS was driven by an 8% increase in operating revenue, a 3% increase in adjusted EBITDA expenses, a 13% increase in adjusted EBITDA and lower effective tax rate and an 8% decrease in diluted share count. Furthermore, we delivered a strong overall aggregate retention rate of 95%, with Index at an impressive aggregate retention rate of 97%. We have achieved these strong results because the management team is focused on three areas, as we have reported to you each quarter. We are focused on investing in new products, enhancing existing products and ramping up our go-to-market strategy with clients to drive revenue growth. Striving for further operating efficiency and productivity gains to free up resources for both to invest in our business and further improve our profitability and ensuring that capital is optimally deployed to enhance shareholder…

Thank you, Henry, and hello to everyone on the call. I'll start on slide 12, where I'll take you through our first quarter results. As you can see, we clearly continued the momentum we had coming out of 2016. While Q4 had strong revenue growth of 7%, 8% adjusting for FX, and adjusted EPS growth of 23% year-over-year, Q1 is even stronger. Let me take you through the numbers. In Q1 we delivered an 8% increase in revenue, driven primarily by a 6% increase in recurring subscription revenue and an 18% increase in asset-based fee revenue. Excluding the impact of foreign currency exchange rate fluctuations, total operating revenues increased 9%. As a reminder, we do not provide the impact of foreign currency fluctuations on our asset-based fees tied to average AUM. This is substantially billed and booked in U.S. dollars; however, approximately two-thirds of the underlying assets are invested in securities denominated in currencies other than the U.S. dollar. On a reported basis, operating expenses and adjusted EBITDA expenses increased by 3% each. Excluding the impact of foreign currency exchange rate fluctuations, first quarter operating expenses and adjusted EBITDA expenses increased 4.8% and 5.3%, respectively. The primary currency move that drove this benefit was the British pound, which was substantially weaker year-over-year. We delivered a 15% increase in operating income and a 13% increase in adjusted EBITDA, resulting in a 280 basis point increase in our operating margin and a 220 basis point increase in our adjusted EBITDA margin to 50%. Our effective tax rate was 28.2%, below the 33.5% effective tax rate in the prior year Q1. Diluted EPS and adjusted EPS increased 33% and 29%, respectively. Q1 free cash flow was $27.4 million, a decrease of $4 million. This was driven by higher cash operating expenses, higher interest…

Our first question comes from the line of Bill Warmington with Wells Fargo. Your line is now open.

Good morning, everyone.

Good morning, Bill.

Good morning.

So I noticed the improvement in the index retention rate there, looking on a year-over-year basis. So it's already at pretty high level, and to be able to bump it up another 60 bps, what has been driving that? And is that a reflection of some of the cross-selling?

I think it's, Bill, a variety of factors. But very importantly, at the core, this is a very critical – mission-critical growth that clients need to have. In this case, active managers and with the continued pressure on active managers by passive products, many of them obviously benchmark to or index to MSCI indices, then the client needs to be a lot more focused on the performance against the index. Because the index is the competition to passive, right? So therefore, the essential and criticality of this product line has increased and that has allowed us to sell more into them, to sell more modules of all types and the likes of those. So that's one area. And the second area, just referring to the module selling factoring those module, small-cap modules, I mean small-cap is poised to do well in kind of an inflation rate and domestically in many countries, so that's another aspect over there.

Yeah. And then I also wanted as my follow-up, ask about the Analytics business. That's one where you talked about the challenges in the retention in the second quarter, third quarter and fourth quarter, so last year, on – if you look at the – you showed improvement on a quarter-to-quarter basis for the retention rate, but if you look at it year-over-year, which is probably more meaningful, that was still down. What does it take to get that revenue growth back to the mid-single digits or up to the mid-single digit?

Yes, so just to, first of all, address the retention, right, the first thing to understand and when you compare it to all of the people in this space is that our Analytics product line is – it's a lot of products to a very diversified client base. So we sell a lot to Asia, multi-strategy in Asia, for example. We sell a lot to European – Continental European asset managers, right? We sell a lot to asset owners and to global asset managers and to wealth managers, some of them owned by banks and the like. So therefore, in order to really understand the retention, it's always important to go underneath the hood, not just the aggregate retention, and say where are the areas of strength and the areas of weakness of that retention? And clearly, the areas of weakness in the last 12 months or so have been the multi-strategy hedge funds, haven't done that well and have been cutting costs. The wealth managers that are owned by European banks and some American banks that even though their wealth management business has done well, they just give orders to cut across cost-savings, across the whole divisions and the like. Now, in order to get to the second half of the question is how do we get these sales up, right? Largely, the way to think about it is that there are largely two – and very generically two segments of this market. One is the people that are self-helped. They want tools for them to do the work and they want some of the tools that are applied to fixed income only or fixed equity only or the central office of risk only on that and that market is still vibrant and is still there and that's where we're highly well positioned. And the other part of the market is a market that is saying, look, I don't longer want a lot of that. I don't want the tools. I want people to do it for me. I fire all those people and I'm closing down those areas and can you do it for me and therefore can you give me an integrated data platform, and integrated application and integrated processing and solutions and services and just do it for me. So that's the area that we are doing some work. We clearly are – we're trying to get a lot of that revenue, but that's the area that in addition to the tool side, self-help tools, that's the area where we can see – we're positioning ourselves to see significant growth.

Okay. Well, thank you for the...

Hi, Bill, it's Kathleen. Let me just add a couple of more comments to what Henry said. Just to give you a little more specificity around the retention rate. Sure, we're up versus Q4, as you'd expect to see that seasonality impact, right?

Right.

But important to note that we're up versus each of the last three quarters from a retention rate perspective. Now obviously, not back up to where we were Q1 2016, so we've got more work to do there. But the way we're doing that is focusing on where we see pockets of strength, right? In particular, sales for Analytics in the quarter we saw strength in multi-asset class asset managers. In fact, net new sales were up over 40% for that client segment in Q1. So focusing there, as well as demand in the banking segment for risk solutions.

Got it. Thank you for the insight.

And our next question comes from the line of Chris Shutler with William Blair. Your line is now open. Chris Charles Shutler - William Blair & Co. LLC: Hi, guys, good morning. Question on the EBITDA expense, just the cadence as we think about over the course of the year. I think you said in the past that Q1 is a seasonally high quarter for EBITDA expense. So maybe just help us with how much of the expense in Q1 falls out of the P&L in Q2? And just given that seasonality, I'm just curious on the maintenance of the expense guide and if it's conservatism or if you're expecting expense levels to ramp over the course of the year?

Yeah, you'll see it ramp up, maybe slightly, but nothing very substantial here. And I think the commentary with regard to Q1 was more around it being a heavily tasked quarter if you're referring to the comments from last earnings release. Chris Charles Shutler - William Blair & Co. LLC: Okay. But is that...

...heavy cash usage. Chris Charles Shutler - William Blair & Co. LLC: Okay. Q1 is not necessarily seasonally strong in terms of expense?

Well, look, as we continue to invest, you'll see it ramp up slightly as we go through the year. Chris Charles Shutler - William Blair & Co. LLC: Okay. And then, I guess, a little different question on the – I just wanted to get an update on the Analytics platform, the integrated platform, just what timing is there.

Yeah, so we are – because the new Analytics platform is ready to be rolled out for the equity investing process. So we're positioning this in the first day for equity and factor investing and all of that and that we are very excited about that because then we can sell equity factor models, equity indices to that and all sorts of analysis, et cetera, et cetera. And that's – we're within a few days or weeks of launching it to the marketplace. The next phase of this will be to then, which we're really excited, do a work on expanding the Analytics platform to the multi-asset class risk side and particularly to put a lot of the fixed income analytics that we have been building, that's probably going to take us a year or so before we can release that to the marketplace, so that's where we are on that.

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

Hi. I was wondering if you could frame for us the size and the impact of the new products. I think you said factor investing was $116 million, maybe growing 13% and I didn't really catch ESG, maybe at $13 million. But what's the size of the full suite there? And maybe some growth rates and what else could be considered one of the new products?

Yeah, so the – and these are examples. I mean we don't plan to be providing this level of granularity in our quarterly reports but if you look at the totality of the run rate of the company, $1.2 billion. And instead of looking at it from the prism of the product operating segments like Index and ESG and Real Estate, Analytics and all of that, you look at it across from equity factors only. Equity factors, not all factors. Because we have stopped these fixed income factors where a lot of the BarraOne revenues are about a multifactor models, that is called the MSCI multifactor model and the like. So – but if you look at equity factors only, that revenue across all product lines is more than $180 million and grew 13%, right, in the last 12 months. And that is composed of equity factor indices, equity factor models and all the ancillary services and permutations to all of that. So that was that example that I used. Now the – and we are very focused on equity factor investing, because that's a big wave that is going on in the world. And we will like to see that sort of – that across the product line revenue or run rate continued to grow at a double-digit rate, and that's one metric that we used to analyze how well we're doing on equity factors. Now, when you look at ESG, it's a different example that I was giving, but what I was saying is that again, going back to the cross in relation between product lines is the equity index team is taking all the IP associated with the ESG research, the rating, the company formation and everything, and we've created ESG indices that are coming out of…

Okay. And then my second question is just on Analytics. Is it fair to think of that as a 2018 story? Or is it going to take maybe a little bit longer than that? And any rough long-term targets for revenue growth in margins as in the upcoming years? Thanks.

Yeah. So on the latter, we continue to stick to our guns, which is we would like this product line to have EBITDA margins in the 30% to 35%, and revenue growth in the mid-to-high single-digits.

Mid-to-high single-digits.

Mid-to-high single-digits. And we continue to be focused on that. And we clearly have done very well in getting us to those targets of profitability. And we have more work to do, and stronger work to do to get to the high-single-digits, mid-to-high single-digits in revenue growth. We all believe that it is feasible to achieve that because there is an inherent amount of demand for this in the complexity of portfolios, the efficiencies of investment processes, all the things that I've mentioned in the prepared remarks. We just got to position the product line to ride that wave in addition to the current wave that we're doing. And I don't know whether it would take a year or two, hard to say, but we clearly, as we develop more confidence as to the timeline, we'll be talking to all of you about it.

And our next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is now open. Patrick T. Halfmann - Morgan Stanley & Co. LLC: Good morning. This is Patrick in for Toni. BlackRock's Aladdin platform seems to be gaining share in the Analytics space, and the management team at that firm has talked about aggressively growing the product suite. I'm wondering if you would attribute any of the deceleration you've seen in Analytics or the uptick in cancellations to an increase in the competitive intensity in that industry?

Not much, to be honest. When you look at the cancels that we have had, they have been – a lot of them have been cancels that a hedge fund shut down, and they've canceled the service, some of the wealth management cancels have been partial cancels, in which the cost-cutting pressure was such that even though there's part of what these tools do that is mission-critical, they just scaled back the ancillary services that we provided for example and the like. So we haven't seen that level of keen competition in all of these. I think that clearly, we are much more positioned into the area where the tools are adaptable to the client investment processes, a little bit of self-help, meaning they do a lot of things themselves. And what we're trying to do is capture the opportunity that they are capturing which is the one that I don't want the tools, I want somebody to do it for us, and that's where our solutions and services come in, more integrated platform of data and analytics and models and all of that.

Yes, Patrick, we track the reasons for cancels very closely. And as Henry said, we are seeing the reasons particularly attributed to cost pressure, reductions across our clients, hedge fund shutdowns. So that's what we're seeing when we take a look at that. Patrick T. Halfmann - Morgan Stanley & Co. LLC: Thanks. And then can you remind us what you typically see when two clients merge, I guess, particularly, on the Index side, it seems like consolidation is coming up more often as a way for the industry to manage some top-line pressures. So I'm wondering what you typically see when two customers come together?

Well, first of all, we've been waiting for this consolidation for 20 years, right. So I think that it looks like it will accelerate. But trust me, I've been saying that for 20 years, and it hasn't happened, right. So we'll have to see if this time is different, right. Secondly is that, when there is consolidation, there are times in which you do lose a little bit of the Index subscription because one plus one is not two, and that merger is one and a half. But what happens is that this firm becomes bigger and more sophisticated and, therefore, they need more information in more places in order to manage their business. So it tends to be a wash, to be honest, in many instances. You may lose a little bit. You'll lose because you have a cancel. And then in a year or two later, the client sort of begins to subscribe to more things. So we are not as worried about that at this point with respect to Index. If there is more consolidation in Analytics and in active managers, we will get more impacted in Analytics, maybe a bit more. But, again, they have more complex processes. They want to have a better platform, sophisticated, to cut costs and all of that, and that's where we come in. So, again, it's a little bit of six of one, half a dozen of the other, right. Patrick T. Halfmann - Morgan Stanley & Co. LLC: Got it. Thanks for the color.

And our next question comes from the line of Anj Singh with Credit Suisse. Your line is now open. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Hi. Thanks for taking my questions. Henry, I wanted some of your thoughts on the integrated effort. What do you think are some of the bigger hurdles to growth, once you do get to, say, end of Phase 2? Is it going to be the incumbency of competitor solutions? Is it the missionary sale to new clients? Clearly, you folks have a lot of tailwinds that should grease the wheels, but I just wanted to think about the puts and takes looking a bit further out. Thanks.

Yeah. So are you asking about the totality of the company or just 1 product line? Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Totality.

Yeah. Look, in the totality of the company, I just want to reiterate, we're largely a content company. And when you look at the vast majority of our revenues and our valuation, and all of that it's about selling content. And the content is about investment problems and challenges and putting a model or a methodology and then turning that into data and into analytical algorithm for calculations and things like that. Now, so there is a lot of technology in producing that content, but we've mastered that very well. Now, all of that content needs to be enabled by very sophisticated content-enabling applications – workflow applications, if you want to call it that. And that has traditionally been the clients build their own or they use third-party services. And, increasingly, the clients don't want to build that because they're under a lot of cost pressure. They don't want to build that. So they're either relying on third-party applications or they want us to build those applications. So when you look at our niching of our growth is the smaller bet that we're placing on the company of pulling (62:07) those applications to enable that content and drive much higher levels of growth. Even in the Index product line, which is a product line that is largely sold as content, as data to be enabled by client applications or third-party applications, with factor indices, the clients are asking us, we got to have the analytical tools for them to understand what factors are driving those indices, and that's what we call index metrics. And we started with reports, then get sent on paper, then we automated a little bit, and now we need to put that into BarraOne because the client cannot (62:40) understand what's going on on those factor indices, with those analytical tools. So I think that is an area, we'll continue to do very well in content and the production of that content and that will be – continue to be a big part of the growth of the company. But I think we're looking for that incremental growth to be – to how do we put our content through all, every single type of application, whether it's client, or third-party or our own. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Okay. That's really helpful. And as a follow-up, I was wondering if you can share some thoughts around the chatter amongst your customers about a push to self-indexing. Any updated thoughts on how you're viewing that as an opportunity versus risk? Thank you.

Look, that's what has been, it's a chatter. Look, we're always obsessed and paranoid about everything, that's how we built the company and continue to stay well. But it's not something we're losing sleep on. These are the – MSCI, in this position is very entrenched. It's part of our language, we're innovating all the time. There's an ecosystem built around our indices from active to passive to derivatives to over-the-counter products and all of that, very, very hard to make it into that. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Understood. Thanks for your time.

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

Great. Thanks. Good afternoon. I was wondering if you guys just dig in a bit more around the point you made about being able to reduce costs for the asset manager. I mean, have you guys executed on any examples in that yet, or is this really more just sort of the crocks of the solutions initiative you were talking about?

No, no. We have a number of initiatives with clients that are looking to get out of building data sets, get out of building models, and get out of building technology. And actually, not to have all those people that are doing all of that. In some cases, the client has already fired those people and they're looking for us to help them. This is most prevalent right now in Europe, particularly in Continental Europe, that's an area that we're spending a great deal of time with those clients. And they are really at the leading edge of doing that, but it's definitely beginning to creep into the U.S. as well.

Great. Thanks. And then I guess just a quick one, you mentioned 13% growth in factor-based run rate, I think, for the quarter. Does that include ETFs? Or is it just the subscription side?

No, it includes everything. Subscription – remember, this is not just indices, also includes factor models, equity factor models, equity factor models did very well, what we call equity analytics, it's very well within the Analytics segment this past quarter. So it's across every tool that is used to invest along equity factor basis.

Okay. Great. Thank you.

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

Good afternoon. Thanks for taking my question. Can you guys just revisit your – the thought process regarding share repurchases. Obviously, the share repurchases in the quarter were made out of a type loss planked in the quarter and the shares appreciated quite a bit there. But in terms of the overall free cash flow, at what price point you guys buy those shares? Give us a guidance, discuss what your thought processes to that?

Yes, so look, I think it's highly predicated on volatility of the stock. The more volatility on the stock, the more we buy shares. So it's not – there is clearly an overlay of evaluation and levels and all of that, but we believe that there has been volatility in the stock in prior quarters. And we want to mark up the truck and load it up when there is that. Unfortunately, this past quarter, there was not a lot of volatility. Obviously, look we're a risk company, we look at volatility all over the world and that's what we sell in our risk models. And volatility in all equity markets around the world has been extremely muted, right, as we know. So that has been the case with our stock also, and that has prevented us from buying. To the extent that there will be volatility in the future, we'll continue that strategy. If it happens a lot, we'll have to change and modify the strategy. But right now, we continue to believe that that's what we want to do. And therefore, we will buy a lot more when prices are low and a lot less when prices are high, right. It's not a thoroughly a fundamental view on the valuation of the company is that we like to take advantage of volatility.

It is based on the amount of free cash flow you have in any given period as kind of the baseline of where you go from there? Is that where you start?

Yes, well, we start there, being if you have no cash, then it's academic, right? And – but look, we didn't have the huge amount of cash that we used to have. We still have a meaningful amount of excess cash, somewhere around $350 million, $400 million would be the – when you exclude the international cash and cash flow operation and working capital and all of that. So look, if there were a lot of volatility, we would've blown out through all that cash, so that's – our goal is to carry as legal exit cash as possible, but to ensure that we do it in the proper way.

And our next question comes from the line of Patrick O'Shaughnessy with Raymond James. Your line is now open. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.: Hey, good afternoon. Just one quick question for me. So as we think about your ESG business, obviously, that's an area that it seems like a lot of companies and competitors are trying to get into. So as you think about yours, certainly, the growth rate is really nice, but how do you defend that growth? How do you defend that market share? What sort of structural advantages do you guys have that are sustainable?

Well, you've got to first understand that a lot of people are getting into the thing, into the data side. Just producing data and giving data to customers, and some of the big players, big financial information companies, that's what they do, that's not where we are. I mean, where we are is in the ESG business to enable investment decisions by client. So at the front end, a portfolio manager making a decision, an equity analyst making a decision, a fixed income manager making a decision as to think about if somebody wanted to buy $100 million worth of MSCI share, and they look at all the financials, and they look at ESG and they say, I like the rating of $450 million. Or I don't like the rating of $250 million, right, that's overweighting or underweighting whatever they will do. That's exactly where we are. And to do that, we do ESG ratings, for sure. And we, obviously, will increasingly do ESG indices so that their underlying basis for portfolios and things like that. That is in the sweet spot what we do. So we have all these relationship with all these asset managers. We have great trust by them and we – they consult with us as to which is the best way to integrate this. And as a result, they buy the service and then they say, well, I need to have a benchmark my portfolio that is actively managed or I need a passive management approach. It's a sweet spot. So that has a huge bulk and a big competitive advantage for us. Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.: Thank you.

And I'm showing no further questions at this time. So with that, I'd like to turn the call back over to Stephen Davidson for closing remarks.

Thank you, all, for your time, and have a great afternoon.

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