MSCI Earnings Call: Growth Strong Despite Cash Headwinds

MSCI Inc ((MSCI)) has held its Q4 earnings call. Read on for the main highlights of the call.

MSCI Earnings Call Shows Strong Growth Amid Near-Term Cash Headwinds

MSCI’s latest earnings call painted a picture of robust underlying growth and operational momentum, even as management flagged several near‑term pressures on free cash flow. The company reported double‑digit gains in organic revenue, EBITDA and EPS, record asset‑based fee inflows, broad‑based strength across client segments, and aggressive share repurchases. Offsetting this upbeat tone were warnings about higher cash taxes, rising interest expense, elevated capital expenditures and some product and regional softness, particularly in Sustainability and certain EMEA pockets. Overall, management’s confidence in the franchise, its data and index ecosystem, and its AI‑driven product strategy clearly outweighed the headwinds.

Strong Q4 and Full-Year Financial Growth

MSCI delivered another quarter of solid financial performance, extending a long track record of growth. Organic revenue rose more than 10% in the fourth quarter, while adjusted EBITDA increased over 13%, underscoring strong operating leverage. Adjusted EPS grew about 12% in Q4 and roughly 14% for the full year, marking the 11th consecutive year of double‑digit adjusted EPS growth. Management highlighted this consistency as evidence of the durability of the business model and its ability to compound earnings through market cycles.

Robust Share Repurchases Signal Confidence

Capital returns remained a core part of MSCI’s story. The company repurchased nearly $958 million of stock in Q4 alone at an average price of around $560 per share. Over the past two years, it has bought back roughly $3.3 billion of its own shares at an average price of $554. Management framed this as a clear vote of confidence in the company’s long‑term prospects and valuation, reinforcing its commitment to returning excess cash to shareholders while still investing heavily in growth.

High-Quality Recurring Sales and Run Rate Expansion

MSCI showcased strong momentum in recurring revenue, which underpins visibility and stability. In Q4, net new subscription sales reached $65 million, complemented by $31 million of nonrecurring sales, for total net sales above $96 million. The company’s overall run rate surpassed $3.3 billion, up 13% year over year. Within that, recurring subscription run rate exceeded $2.4 billion, growing more than 9%. Management emphasized that this recurring base is diversified across products and clients, providing a resilient revenue foundation.

Asset-Based Fees Outperformance and Record ETF Inflows

Asset‑based fees (ABF) were a standout, with the run rate hitting $852 million, up 26% year over year. Equity ETFs linked to MSCI indexes attracted a record $67 billion of inflows in the quarter and $204 billion for the full year, pushing assets under management tied to MSCI indices to roughly $7 trillion. This strength underscored MSCI’s entrenched position in passive investing and highlighted the ongoing shift toward index‑based strategies, which the company expects to remain a powerful multi‑year tailwind.

Index Momentum, Custom Index Growth and Strong Retention

The core Index business showed broad‑based health. Index subscription run rate growth accelerated to 9.4%, supported by particularly strong demand for custom indexes, which grew 16%. Retention in Index remained very high, at about 96% for the full year and 95% in Q4. Management noted that Q4 was the best quarter ever for new recurring index subscription sales, driven by clients seeking more tailored benchmarks and solutions. This performance reinforces MSCI’s role as a critical infrastructure provider for asset managers and owners.

Analytics and AI-Driven Product Innovation

In Analytics, MSCI posted its second‑best fourth quarter on record for recurring sales, with subscription run rate growth above 8%. Beyond the headline numbers, management stressed the role of product innovation and AI. Newer products are increasingly contributing to growth, with recent launches delivering about 20% more to recurring sales in 2025 than before. AI is being used both to enhance analytical tools for clients and to improve internal efficiency, positioning Analytics as a key engine of future expansion within the broader MSCI platform.

Private Capital Solutions Sees Rapid Adoption

Private Capital Solutions (PCS) emerged as one of the fastest‑growing areas. Recurring subscription sales in PCS surged 86% in Q4, with nearly $8 million of new recurring sales closed in the quarter. The business is gaining traction across both the Americas and EMEA as private markets investors seek better data, benchmarks and analytics for private equity, real estate and infrastructure exposures. Management presented PCS as an important long‑term growth vector that leverages MSCI’s strengths in data and index construction into less transparent private markets.

Broad-Based Strength Across Client Segments

Client demand was robust across multiple segments, reflecting the breadth of MSCI’s franchise. Hedge funds posted a 13% increase in subscription run rate, with recurring net new sales up 26%, signaling rising adoption of MSCI tools among alternative managers. Wealth managers saw run rate growth around 11%, supported by 15% growth in recurring sales, as advisors deepen their use of indexing, factor and ESG tools. Asset owners also grew around 11%, while banks and broker‑dealers were above 9%. Active asset managers recorded recurring net new sales growth of 13%, demonstrating that both passive and active clients continue to rely on MSCI’s platforms.

Reaffirmed Long-Term Targets and Strategic Positioning

Management reiterated its long‑term firm‑wide targets, underscoring confidence in the company’s strategic path. MSCI is still aiming for low double‑digit revenue growth excluding ABF, high single‑ to low double‑digit adjusted EBITDA expense growth, and low‑ to mid‑teens adjusted EBITDA growth overall, with ABF expected to be an outsized double‑digit grower through cycles. The company emphasized its integrated product strategy, using shared data, models and AI across Index, Analytics, Private Capital and other offerings to expand market opportunities. It also indicated it would stop providing product‑line‑specific long‑term targets, reflecting a more unified platform approach.

Sustainability and Climate Demand Softness

Not all areas were firing equally. Sustainability and Climate (S&C) saw weaker new subscription sales than last year, with notable softness in the Americas and more volatile regional dynamics overall. Management acknowledged some pressure on retention in S&C and referenced pockets of churn, reflecting both regulatory uncertainty and shifting client priorities. While MSCI still views climate and ESG as long‑term structural themes, current demand is more uneven and sensitive to regional policy and political developments.

Free Cash Flow Headwinds from Higher Cash Taxes

Despite strong operational momentum, MSCI flagged a meaningful headwind to free cash flow from higher cash taxes. The company expects roughly $100 million of additional cash taxes in 2026 compared with 2025. This is driven by about $30 million of tax payments deferred from 2025 into 2026 and roughly $50 million of one‑time tax benefits realized in 2025 that will not repeat, along with other smaller factors. While this will weigh on reported free cash flow in the near term, management framed it as largely timing‑related and not indicative of underlying earnings power.

Step-Up in Cash Interest Expense

Another drag on 2026 cash flow will come from higher interest costs. MSCI issued debt in the third and fourth quarters of 2025, which did not carry cash interest expense in that year. As a result, cash interest is expected to step up by around $90 million in 2026. Management cautioned that this will create some “noise” in year‑over‑year comparisons of net income and free cash flow, but stressed that the balance sheet remains manageable and that the leverage supports continued investment and share repurchases.

Incremental CapEx and Capital Allocation Pressures

Capital expenditures are also set to rise in 2026. MSCI plans a new London office build‑out with associated occupancy CapEx of roughly $25 million, plus increased software capitalization tied to ongoing product investments and platform enhancements. These higher CapEx levels will add further pressure to free cash flow in the coming year. Even so, management argued that these are strategic investments—particularly in technology—that should support future growth and margin expansion, especially as AI‑driven initiatives scale.

Minor Revenue Drag from ETF Fee Floor Changes

On the revenue side, MSCI disclosed a modest headwind from changes to ETF fee floors in its extended agreement with BlackRock, which now runs through 2035. The revised terms lower certain fee floors, implying a small reduction in aggregate economics of about 0.1 basis points based on year‑end 2025 AUM levels, split into roughly 0.05 basis points this year and another 0.05 basis points next year. Management characterized this as a minor drag relative to the strong growth in assets and inflows into MSCI‑linked ETFs and highlighted the long‑dated nature of the partnership.

Expense Lumpiness and Analytics Cost Pressure

Investors were also cautioned about some short‑term volatility in operating expenses, especially within Analytics. Operating costs there rose around 11–12% in the back half of 2025, driven by infrastructure investments, foreign‑exchange exposure, capitalization timing and some severance charges. While this created a lumpy expense profile, management framed these costs as largely tied to capacity building and modernization efforts that should pay off in future growth and efficiency, particularly as AI‑powered tools are rolled out.

Regional Retention and Cancellation Pockets

Regionally, MSCI remains strong but not without weak spots. EMEA retention in Q4 was slightly below 93%, trailing the Americas, which was slightly above 94%. The company has seen historically higher cancellations among European asset managers, and there are ongoing pockets of churn in Real Assets and parts of Sustainability. Management suggested these issues are contained but is focusing on product enhancements and client engagement in these areas to stabilize and improve retention over time.

Forward-Looking Guidance and Outlook

Looking ahead to 2026, MSCI’s guidance balances solid operational expectations with clear acknowledgment of cash‑flow headwinds. The company guided to a Q1 tax rate of 18–20% and reiterated that cash taxes will be roughly $100 million higher in 2026 due to timing shifts and one‑off benefits in 2025. Cash interest expense is projected to increase by about $90 million as new debt begins to accrue interest, and CapEx will rise with the London office project and additional software investments. Ending cash was above $515 million at year‑end 2025, and the company reduced its revolver balance by $125 million to $175 million, with only modest future revolver activity expected. Free cash flow guidance incorporates these burdens but assumes strong double‑digit growth in collections and stable working capital. Importantly, MSCI reaffirmed its long‑term firm‑wide targets, including low double‑digit revenue growth (excluding ABF), high single‑ to low double‑digit adjusted EBITDA expense growth and low‑ to mid‑teens adjusted EBITDA growth, with ABF positioned to grow at an outsized double‑digit rate through cycles.

In summary, MSCI’s earnings call underscored a business firing on many cylinders: strong double‑digit growth in key financial metrics, record ABF inflows, broad‑based client demand and accelerating traction in newer areas like Private Capital Solutions and AI‑enhanced Analytics. While investors will need to look through a period of higher cash taxes, interest expense and CapEx, management’s reaffirmed long‑term targets and aggressive capital returns suggest confidence that these are temporary headwinds, not structural setbacks. For shareholders and market watchers, the message was clear: MSCI remains a high‑quality, strategically well‑positioned franchise with multiple growth levers, even as near‑term cash metrics face pressure.