明晟 (MSCI) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the MSCI First Quarters 2011 Earnings Conference Call. At this time, all participants are in listen only mode.

(Operator Instructions)

As a reminder, this conference may be recorded. I would now like to turn the conference over to today's host, Mr. Edings Thibault, Head of Investor Relations. Sir, you may begin.

Thank you. Good morning and thank you for joining our first quarter 2011 earnings call. Please note that earlier this morning we issued a press release describing our results for the first quarter 2011. A copy of that release can be viewed on our website at www.msci.com under the investor relations tab.

This presentation 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, would 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 the future results of the company, please see the description of risk factors and forward looking statements in our form 10K for our fiscal year ending November 30th, 2010.

Today's earnings call may also include discussion of certain non GAAP financial measures including adjusted EBITDA and adjusted ETF. Adjusted EBITDA and adjusted ETF exclude the following, third party transaction expenses resulting from the acquisition of RiskMetrics, restructuring costs related to the acquisition of RiskMetrics and non recurring stock based expense. Adjusted ETF also excludes the amortization of intangibles resulting from the acquisitions and debt repayment and refinancing expenses resulting from our decision to repay $88 million of our preexisting term loans and reprice the remaining $1.125 billion in March 2011.

Please refer to today's earnings release for the required reconciliation of non GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures.

Since we will be referring to run rate frequently in our discussion this morning. Let me remind you that our run rate is an approximation at a given point in time of the forward looking fees 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's licensed to our indices or changes in foreign currency rates.

Please refer to table 12 in our press release for a detailed explanation. Henry Fernandez will begin the discussion this morning with an overview of the first quarter and then David Obstler will provide some details on the financial results.

In the case of financial accounting metrics, the discussion will focus on pro forma results which assume the acquisition of risk metrics occurred at the beginning of MSCI's 2010 fiscal year. Pro forma first quarter 2010 results reflect the combination of MSCI's historical fiscal first quarter ending February 28, 2010 with RiskMetrics fourth quarter ending December -- excuse me, December 31, 2009.

All operating metrics, s distinct from financial accounting metrics have been restated to reflect the company's results on a combined basis during the comparable period during 2010. That means all quarterly operating metrics reflect the calendar quarter indicated rather than the prior fiscal quarter. I will now turn the call over to Mr. Henry Fernandez. Henry?

Thank you, Edings. Good morning and thank you, all, for joining us. This morning MSCI reported first quarter revenues of $223 million. Adjusted EBITDA of $104 million and adjusted ETF of $0.43. Our first quarter revenues grew by 13%, versus pro forma first quarter 2010. And our adjusted EBITDA rose 24%. Our adjusted EBITDA margin rose to 46.8% from 42.6%. Our adjusted ETF rose 39% versus the first quarter of 2010.

From an operating perspective, MSCI had a strong start to 2011. Sales were strong, overall cancels declined, and our total run rate grew 5% sequentially and 15% versus the first quarter - the first calendar quarter of 2010. Total sales, which includes recurring subscription sales as well as one time sales, rose 25% year over year to $48 million. New recurring subscription sales were $35 million, an increase of 29% from the first calendar quarter of 2010. Recurring subscription sales rose in every major product category.

Our aggregate retention rate rose to 92% from 88% in first calendar quarter of 2010. In dollar terms, cancellations fell by 26% year over year. Retention rates rose in three of our largest product categories. The overall retention rate is now only slightly below the pre crisis levels of early 2008.

I will now provide a more detailed description of the performance of each of our major product lines. First index and ESG products. Our index business got off to a strong start to 2011. We reported revenues of $100 million, up 26% from pro forma first quarter 2010 and a run rate of $382 million, up 22% year over year. Total sales in index and ESG rose 33% year over year to $21 million.

Recurring subscription sales rose 42% to $15 million. The subdued rate of cancellations, which enable our retention rate to creep up to 95% from 94% is a sign that our clients continued to regain their footing on our equity index and ESG business expanding. The combination of strong sales and modest cancels boost our subscription run rate up 5% sequentially and 17% year over year.

We continue to see the strong acceptance of our MSCI all country world index or ACWI as a policy benchmark for the equity investments of pension plans and sovereign wealth funds. The MSCI ACWI index combines developed and emerging markets and importantly it combines domestic and international equities under a single measure.

Over the past 18 months, we have won more than 50 such mandates, totaling more than $1 trillion in total assets. This progress is a testament to our [fat] leadership in this area and our ability to influence the investment process of our most sophisticated clients worldwide. Last, but not least, in index and ESG, we continue to innovate with new products.

In early April we launch a family of risk weighted indices. These are the third in a series of non market capitalization weighted indices from MSCI going in the minimum volatility indices we launch in 2008 and the value weighted -- or fundamentally weighted indices we launch in late 2010. We are seeing significant interest in alternative weighted indices and are rolling out the products to meet that demand.

Our asset base fee business continued to be a strong engine of growth with first quarter revenues of $38 million and a run rate of $134 million. Most of that 14% sequential increase in our run rate related to the use of our indices by providers of exchange credit funds worldwide.

At the end of March, there were $350 billion of assets under management in ETF linked to our indices, up $95 billion or 37% compared to March 31, 2010. Versus December 31, 2010 a combination of a 3% appreciation in market value and $7 billion of additional inflows drove 5% sequential growth in AUM. That $7 billion of inflows is up 37% from the same period in 2010 and marks the twelfth consecutive quarter of positive inflows into ETF linked to MSCI indices.

I would also like to point out that those net inflows of $7 billion came despite gross outflows of $9 billion from ETF linked to our emerging market indices. As we reported a couple days ago, at the end of April, there were $371 billion in assets under management linked to our indices, up 6% from the end of March.

In addition to the growth in AUM, our asset based fee run rate also benefited from an increase in the average basis points fee including -- excluding, excluding minimum fees. We ended the quarter at 3.2 basis points from three basis points in the fourth quarter. Additionally, during the quarter 19 new ETF linked to our indices were launched. Bringing the total to 434 ETFs worldwide.

Onto our risk management business, which also deliver strong operating results in the first quarter with revenues of $59 million, up 17% year over year? The risk management analytics run rate of $244 million grew by 4% sequentially and by 24% year over year. Excluding the impact of the MeasuRisk acquisition of last July, our run rate -- our growth was 17% year over year.

Total sales in RMA rose 26% to $12 million during the quarter. Recurring subscription sales increased 15% to $10 million. The biggest driver of that growth continues to be sales of our flagship RiskManager from the legacy RiskMetrics company and BarraOne risk systems to customers in the Americas and in Europe. The overall strength in financial markets led to fewer disruptions among our clients, which in turn drove a big decline in the level of cancellations from early 2010.

Cancellations in fact fell 59% from the first calendar quarter of 2010, which resulted in an increase in the RMA retention rate to 94% from 83% last year. Changes in foreign exchange rates, especially the strengthening of the euro against the dollar also contributed $3 million to the growth in run rate versus December 2010.

Our portfolio management analytics business remains stable during the quarter with revenues of $29 million and a run rate of $117 million. The market environment in this business remains challenging, but we are seeing early indications of improvement. The run rate for portfolio management analytics grew 1.5% sequentially which is a positive sign. Moreover recurring subscription sales in this business rose 39% in the quarter to $5 million. Sales of our industry leading equity risk models and data led the way.

Cancellations fell slightly by 3% from the first calendar quarter of 2010 and the aggregate retention rate was on change at 89%. We continue to see strong interest in Barra portfolio manager, our new equity analytics software system. We have conducted more than 350 demonstrations for clients since its launch and added our first subscription clients during the first quarter. We are continuing to work on building to the functionality of this product and expect a second release by the end of the year.

We continue to innovate with new risk models. During the first quarter, we launched the latest version of our Barra Integrated Model, or BIM, which would sell to both risk management and portfolio management clients. This new multi asset class risk model incorporates the latest in our cutting edge global equity models, expands our asset coverage worldwide, and includes significant upgrades to our credit models.

The governance business was also stable during the quarter, with revenues of $31 million and a run rate of $106 million. I am pleased to note that our proxy research and voting business, the core of ISS posted strong year over year growth in new recurring subscription rates. This is an early sign that our clients budgets are loosening.

Total sales in governance rose 4% to $11 million. Recurring subscription sales rose 21% to $4 million as the strong gains in sales of our proxy research and boarding products offset declines in other product categories in governance. Cancellations declined 4% and the aggregate retention rate for the governance business was stable at 85%.

In summary, MSCI reported a strong operating and financial results during the first quarter of 2011. Demand for our equity index business and our products and risk management analytics continued to be the biggest drivers of growth as evidenced by double digit gains in new sales in both product lines. Our sales growth for both the portfolio analytics business and the governance business was also encouraging. Let me now turn it over to David.

Thanks, Henry. MSCI reported first quarter 2011 revenues of $223 million. First quarter growth was driven by organic growth of $20 million or 17% and the acquisitions of RiskMetrics and MeasuRisk which added an additional $81 million.

Compared to pro forma first quarter 2010, operating revenues increased by 13%. Revenues were driven by a 26% growth in index and ESG products revenues and a 17% growth in risk management analytics revenues. These gains were offset by a 7% decline in portfolio management analytics and a 4% decline in governance revenues.

Also on a pro forma basis, subscription revenues grew 7%. Asset based fees grew 35% and non recurring revenues grew 61%. In the first quarter, non recurring revenues benefited from $4.3 million of non recurring asset based fee revenues. On a pro forma basis, performance in risk revenues grew by 16% year over year to $192 million in the first quarter of 2011. Governance revenues declined 4% to $31 million compared to pro forma of the previous year.

Now, turning to the cost side, the progress we are making on synergy realization is really starting to be felt in the income statement. We realized $11 million of total synergy savings during the first quarter, up from $5.5 million in the fourth quarter. We are on target for a $50 million synergy goal.

Overall, total pro forma adjusted EBITDA expenses, which exclude depreciation and amortization, non recurring stock based compensation, restructuring costs and transaction costs rose 5% year over year to $119 million. Pro forma compensation expenses excluding nonrecurring stock base compensation expenses rose 9% and non compensation expenses declined by 6%. Much of which can be attributable to the synergies we have realized.

In the first quarter we generated $104 million of adjusted EBIDA, a pro forma increase of 24% from the first quarter of 2010. Our adjusted EBITDA margin expanded to 46.8% from 42.6% in the first quarter of last year and from 43% - 43.7% for all of 2010 pro forma.

On a pro forma segment basis, performance and risk adjusted EBITDA grew 25% to $95 million and the adjusted EBITDA margin expanded to 49.4% from 45.8% in the first quarter of last year. Governance adjusted EBITDA rose 11% to $10 million and the margin expanded to [30.4 from 26.5].

We incurred $17 million of interest expense in the first quarter and $22 million of total other expenses, including net interest expense. Included in the total other expenses is $6.4 million of expenses related to the repricing of our outstanding debt and concurrent repayment of $88 million of principal in mid March. Of the $6.4 million, $0.3 million was recognized in interest expense and $6.1 million was recognized in the other expense line

On March 14, MSCI repriced $1.125 billion of its senior loan and repaid $88 million of outstanding principal. The repricing resulted in a decrease of the spread to libor to 2.75% from 3.25% as well as a decrease in the libor floor to 1% from 1.5%. As a result, based on current libor rates, we expect the repricing to reduce our effective cost of debt by almost 100 basis points to 4.6% from approximately 5.5% including deferred financing expenses. That reduction in the cost of our debt combined with $144 million of total debt repayments made in the first quarter should reduce our quarterly interest expense to approximately $13 million in the second quarter. Again, assuming no significant change in libor.

Our effective tax rate in the first quarter was 37.2% or flat from a year ago. Excluding several net discrete benefits, our effective tax rate in the first quarter of 2011 would have been 37.8%. GAAP earnings for the quarter per share was $0.27. our adjusted earnings per share which is a non GAAP measure that excludes the after tax impact -- per share impact of restructuring costs -- non recurring stock based comp, amortization of intangibles, transaction expenses and debt repayment and refinancing costs was $0.43 per share, up 39% from $0.31 per share in the previous quarter.

Our operating cash flow in the first quarter was negative $26 million versus negative $15 million a year ago. The biggest change year over year came in accrued compensation as MSCI paid out higher amounts of bonus as combined -- the combined company paid out more than it did as a stand along. To remind everybody because of the seasonality of bonus payments, operating cash flow is usually negative in the first quarter.

Also note, on the cash flow statement was total debt repayment, as I mentioned above, of $144 million, including $88 million related to the refinancing, as well as capital expenditures of $4 million. As a result of the repayment, we ended the quarter at $1.12 billion of total debt outstanding, of which roughly $420 million was swapped into fixed rate instruments. We also had $178 million of cash and cash equivalents on the balance sheet. Finally, our weighted average fully diluted share count at the end of the quarter was $122 million, up from $121 million in the fiscal fourth quarter. And with that, we would be happy to take your questions.

(Operator Instructions)

Your first question comes from George Mihalos from Bank of America.

Hi, guys. Congrats on the quarter.

Thank you, George.

Thank you, George.

Just wanted to get a better sense, looking at your headcount totals, they've declined from the December ended quarter. Just wanted to get an update as to your hiring plans going forward in the year.

Yes, I think in terms of the quarter it is -- it has been a typical quarter in which we hire close to about 100 people in the quarter. And - which is typical in our first quarter. We also do have attrition as a result of a pickup in the labor markets and other factors. And therefore there was not a lot of movement of incremental headcount.

We are continued to be committed on -- as we've said before, on investing in our business, which obviously is mostly headcount across the world in our various categories, and a lot of that, 40$-50% of that is in the client organization and another 40 plus percent of that is in our product -- in a new product development organization to meet the demand that we're seeing in the marketplace and the balance is in our infrastructure area, particularly in IT infrastructure in order to continue to expand our IT platform to supply higher levels of volume in our risk management business.

Do you have a sense of what your target headcount will be, Henry? Or --

We have a number of -- a range of headcount that we want to achieve towards the next three quarters and our plan now is to report specifically in each quarter where we are in terms of actual in that target.

Okay and then, just on the -- on the index side of the business, strength there again, how should we think about pricing initiatives now as we're in May again and how comfortable are you with continuing sort of that mid teens type growth in your run rate in the index subscription business?

I think what we have seen in the index subscription business is clearly a decline in cancels as clients begin to expand into new products, new areas, new territories and the like and their budgets are less constrained compared to where they were last year and the prior year. So that has mitigated the cancels and have a much higher retention rates as we said. That has also had a positive effect on sales of new products. I think that we will continue to see a gradual pickup in sales of benchmark data products to -- to levels similar to pre crisis and if -- but its gradual. Nothing is going to be abrupt in our estimation.

We will continue to try to roll out modest price increases per year in the area of 3% to 5% like we have done in the last I think three or four years and therefore -- I men we feel very, very good about this business. Not only in the operating metrics, but also in the dialogue that we're having with clients in the [fat] leadership. I mentioned obviously in my remarks, a lot of what is happening in the investment processes of the asset owners, particularly pension funds and several wealth funds with respect to a globally integrated investment process including emerging and developed and domestic and international and that bodes very well for our penetration into the domestic market in around the world. For example, in the US -- US equity indices for US equity investors and that over time is going to translate into more opportunities for us to expand our footprint and our revenues.

Thank you, sir. Our next question comes from [Suzy Stein] with Morgan Stanley.

Hi, so last quarter you talked about your desire to accelerate your investment in refreshing your product offering in the portfolio management analytics business, but it seems like your expenses didn't seem to rise this quarter to suggest any major change. Is the expense associated with product development that you talked about just not going to be a significant maybe as some expected? Or is it going to be more of a Q2 or Q3 issue?

Yes, Suzy, I think the -- if you break down our expenses -- I'm sorry, if you break down our investments this year into broad categories, you know something like 40% of that investment is likely to be in the risk management analytics business and another quarter to a third investment would be in the -- in the portfolio management analytics business, which is obviously mostly equity -- equity portfolio management. That's just to frame of the total investment what we're looking for in terms of breakdown. We feel that the bulk of the investment in the equity portfolio analytics business in order to enhance that product line and revive its growth has already been made in the last three or four years.

It's -- it has taken a while and it's not yet fully baked into our products sitting in clients desks, and that's clearly been our frustration and clearly the frustration of clients that the progress was -- was slower than anticipated, particularly during the financial crisis but we are at the cusp of quite a significant number of product introductions on the heels of the ones that we've done in the last 12, 18 months on models. Now you remember we launched the global equity model number two, we launched a new European last summer I believe, we launched an Asia pacific model, we just launched this BIM 301 release for the Barra integrated model.

We're hoping to launch a fairly advanced model on the US equity markets, it's out there, our research people are talking to clients and the reviews are just spectacular in terms of the predicted power of the model and all of that. So then, on the heels that, there is a model factory that is coming into play that is going to start banking out models more frequently than we have in the last 11, 18 months and the software side, we are extremely pleased that we're able to bring to market the Barra portfolio manager, which over time gradually is going to hopefully replace a lot of what [Egis] does for clients and its early days, but we've done quite a lot of demos, there's quite a lot of interest in both about this.

We unexpectedly we've signed up a few clients already which - we thought it was going to happen in latter part of the year and we're working already in the second release of that and planning the third release of that so hopefully the second release with more functionality will come by the end of the year, and the third release, with additional functionality can come in the second half of next year. So we're feeling pretty good about that. Even though clients, particularly [quandt] clients are still not feeling ebullient, but at least their budgets are not as constrained, they're loosening.

We see that in a slight improvement of the cancellation rate. We definitely see it in a pickup in sales through both fundamental and quandt clients so we feel pretty good about it and the investment that is going to -- the incremental investment that is going to come with this business along that line of a quarter to - 25% to 30% of the total investment in the company we think is warranted, its good, but it's not large in relation to the investment that is already made and baked into past income statements.

And Suzy, as it is, often with us the investment is mainly people that Henry's spoken about and that comes into our P&L gradually over the year as we add to the headcount.

Okay, and then if I could just have one more follow up, I know it's a small part of the business, but I was just wondering if you could comment on why energy and commodity analytics was down year over year. It just seems in this environment there might be greater demand for commodity analytics.

That's a great question and two comments on that. There is -- there should be more demand, unfortunately given the cloud -- significantly cloud over the over the counter swap market, which will include energy and commodity analytics, even though they are steps or proposals to not include them has put a huge damp on the ability of energy companies and energy traders and other players to enter into all sorts of over the counter agreements to hedge their positions and leverage their positions and like. This is a business that creates energy and commodity option valuation models for purposes of hedging and leveraging and the like. And that's put a big damp on the business, even through the fundamental demand of energy and commodity is pretty large.

The second thing to note is that our run rate in this business is about fault. Meaning sales are about -- about the same as cancels over the last 12 months, maybe a little less. But the way it gets accounted in the financial statements, revenue wise is roughly 60% or 80% or -- of the sale gets booked up front and the remaining gets amortized, which is very different to the other businesses, and therefore you see in the financial revenues as opposed to the run rate on sales, you know a decline on that is -- it's a decline which is obviously true to the financial statement but it may exaggerate the real and operating metrics of this business which are more flat than declining.

Yes, given the seasonality of this business, as Henry mentioned, revenue recognition we have a sequential down in revenues from Q4 to Q1 on an ongoing -- on a usual basis.

Great. Thank you.

Thank you. Our next question comes from Aaron Teitelbaum from KBW.

Hey, good morning, guys. Thanks for taking my question. Really quick, I was surprised to hear and during Henry's comments that the weighted average ETF basis point fee increased. What's going on there? sit hat really just a mixed shift of the managers or is that -- should I interpret that as maybe a momentum in some of the non US ETFs in which I think you guys earn a higher fee?

There's always a change in mix and fortunately for us, people were concerned about the outflow of funds from emerging markets and that was made up recently by inflows of funds into developed markets so it's been pretty good for us, even though there's nervousness on the emerging markets.

I think in terms of the -- and those fees are in some respects actually the developed market fees sometimes are higher than the emerging market fees because the emerging market has much larger volumes, much larger assets at the margin.

In terms of the average basis points, what happens is that we have a number of clients around the world with very long data contracts as we have said before, most if not all -- all of those contracts are years away from renewal but from time to time, clients come to us and ask us to extend even further the tenure of those contracts in order to protect themselves from a steady supply of good MSCI indices in a way into the future and when that happens and the come to us, it give us an opportunity and we want to obviously accommodate that. It gives us an opportunity to take a look at the terms and conditions of those contracts and see if there are ways in which they can be enhanced and that's what's happened this quarter.

And Aaron, this case, this accounts for the $4.3 million of the one time, but more importantly the -- as you mentioned, the increase of the basis points and the increase of the run rate which is -- would be a recurring item.

Great. And another question I had is maybe just kind of in terms of the discretionary spending patterns for your clients, particularly -- mostly in the index business. I'm curious, I didn't hear it in your remarks, to your comments regarding demand for custom products, custom indices and how that's sort of shaped out this quarter or relative to maybe the past several quarters.

You know that continues the same. Not inordinately higher, necessarily, but that continues. I think the way to sort of think through the demand for our products, emerging markets continues to be very strong, developed markets also right behind that. And as I've said, even though it doesn't yet have translated into significant revenues, there is quite a lot of interest around the world for alternative weighted indices that captured different investment strategies and that's going to bode well with -- with product introduction and future revenues.

So for example, the minimum volatility indices that we launched some time ago have been very well received. A number of products, investment products that have been launched on that we have certain fees that we are receiving from that, but more importantly we have assets under management fees that to the extent those product take off, are going to add to the -- to the revenue line and I think importantly the thing to recognize is that there is a shift going on in our business from us -- in addition to us providing market indices of all types, what is the small caps in Japan or large caps in the US and things like that to -- to another dimension which is helping people codify or quantify investment strategies of all sorts in order to capture the beta in markets and replicate it either passively.

Or if they give it a mandate pay only the active managers for the alpha of that strategy and not the beta, quite a lot of happen in that area and obviously coming off the financial crisis clearly the products that you see are reduction in volatility, reduction in risk, given the low yield that have been high dividends and things like that and obviously the next three years is going to be a different cycle and there will be other investment products have -- which have a different investment thesis, and where there really providing a lot of that to clients and that's going to bode well for the expansion of our business.

Great, and just one more question if you'll indulge me, I guess this one's for David. On the tax rate, should we still be thinking about excluding the discrete items this quarter about 38 to 38 and a half, which is what you guys guided to in January?

Well, in splitting the discrete, the tax rate would be 37.8% and so we experienced a 0.6% benefit from the discrete. 37.8% is the -- is our effective tax rate for the year, based on the first quarter excluding the impact of the discrete.

Great. Thanks.

Yes.

Thank you. Our next question comes from Drew Gaputis from Davenport.

Hi, yes. Thank you. my first question is with regards to new subscription sales, which were stronger in the quarter but I guess I was a little bit surprised with the sequential deceleration at risk management and I was wondering if you could comment on new subscription sales in that segment relative to your expectations and maybe what we should think about as like kind of a normalized quarterly sales rate in that business. Thank you.

Yes, the risk management business, because of the lumpiness of tends to have some variability in it, based on whether certain deals close in the quarter. we continue to see strong demand for risk systems from our clients, both in the risk manager and BarraOne product lines and what we've been seeing the last few quarters is that where the gross new sales come out is dependent upon whether certain deals are closed and booked in that quarter versus the previous or next quarter.

Okay, great and then just a question with regards to free cash flow. Do you guys have any restrictions remaining on use of free cash flow and if not, kind of can you give us an update on priorities for use of that cash? Thank you.

Yes, yes. In the -- we have -- as we said earlier paid down debt $144 million of debt. The first piece of it was as a result of the cash flow sweep in our credit agreement, and the second part of the [88] was as a result of our voluntary prepayment of a debt as it relates to the financing. In doing the refinancing we have covenants but we were able to get improvements in those covenants providing significantly flexibility for us. So in terms of mandatory prepayments they are not substantial, they are about 1% of the debt outstanding in the next year. And we elected in the first quarter to use free cash to prepay the debt. As we said previously, we're going to look at investments, acquisition opportunities, and debt prepayment and to the extent that there are not other uses of the cash, move as we did in the first quarter towards debt repayment.

Thank you. Our next question comes from Robert Riggs with William Blair and Company.

Hi, thanks for taking my question. In the past I think you guys have hired more kind of experienced hires, people with two, three multiyear's out of school, but I think on the last call you mentioned that you were considering looking to add more personnel kind of right out of either an MBA program, a PhD program. Does that change the seasonality in the hiring or David, could you kind of just remind us what the expectation is in terms of how you hire throughout the year?

Yes, the -- we are definitely shifting. A company like ours with say 2,100 people or so, approximately and major growth in our business and some of that growth will continue to move up, in future years, would be our guess. We need to clearly hire people and make investments to fuel that growth. And therefore it will -- and on top of that, companies like ours which are a great training ground for people in the investment business, in investment processes and risk management and the like are likely to use people particularly to our clients because we teach clients how to do some of these tools and sometimes the clients want to come and get the people to use them themselves right? In their organization. So therefore, that means that we will have larger and larger numbers of people to hire and the model of hiring exclusively in the secondary market throughout the year with only seasoned and experienced people, which we will continue to use needs to be supplemented by hiring direct from graduate programs around the world.

Now, where we are right now is the two areas where we are doing the most of that direct from university hiring are in our data operations, especially in our centers of operations around the world. We're doing a good amount of that, not the majority, but a good amount of that. And then clearly in our research when we hire PhDs but those are not large numbers, highly qualified people, but not large numbers. Our sense is that over time gradually we are going to switch more and more to that type of hiring. I'm not sure it's going to be more than 50% yet. It's too early to tell, and I think this year we will be doing some of that hiring but it is clearly already late in the year in terms of the sort of the academic cycle, so if we see any meaningful impact on that, we'll probably likely be in 2012, so --

I think in terms of the hiring in the normal course, get started in the first quarter and then that's concentrated later in the first, second, third and ramps down later in the year.

In attrition as Henry mentioned, it tends often to be front weighted and in terms the other effecting head count here, any compensation costs of synergies and I think we reported on the substantial progress we've made in synergies which means that over the last few quarters, that's had an impact o n the headcount etc. and would tend to be related to the integration which is as we've accomplished our goals, we'll not be as concentrated on that.

Just to add again, since this was a question that was asked earlier. It is typical that in the first quarter you do a lot of hiring. I mean we hire almost 100 people. But it's also typically that you have a large attrition relative to the size of the company. So it is not a typical that in the first quarter your headcount net does not grow. And then -- and then what -- and then you add in the second quarter, in the third quarter. And it is also not atypical that in the fourth quarter your attrition is low, you get people waiting for year end and bonuses and the like and recognition etc. And if you continue to hire it's not atypical that you expand your head count on a net basis.

Thank you. Our next question comes from David Scharf from JMP Securities.

Hi, good morning. Thank you for taking my questions. First off, Henry, maybe I - maybe I need a little product tutorial refresher, but can you expand a little on your comment that Barra portfolio manager, which you've just launched, you mentioned all the demos that it replicates a lot of what Egis does. I mean are we talking about a long term kind of mass product upgrade cycle for Egis, which is obviously been probably the most mature staple in all your products. Just trying to get a sense for how to think about that business, whether effectively what the pricings going to look like its -- are people going to be ultimately upgrading? Swapping out into Barra portfolio manager over time, or is this just an adjunct?

I think it will be -- well let me, David, let me step back for a minute. First of all, it is a -- it is -- this product, Barra portfolio manager it's in the first couple of innings of a nine inning game, right? In terms of full levels of functionality as compared to Egis, which is a product that has I don't know, ten, 15 years of product additions and improvements and the like. Secondly, the plan is that yes over say a three, five year period, again it's a guess, but in a three, five year period or so, that we're able to add incrementally more and more functionality to Barra portfolio manager or import it, so to speak, from Egis that -- and on the latter part of that period, that many more of the uses of our equity risk models and analytics are through Barra portfolio manager software than through Egis.

Now, on top of that, Barra portfolio manager is also software system that is very useful -- I mean very user friendly for people who don't have a PhD in math or finance and therefore the hope is that we will also expand the market from the quandt and the semi quandt to more sort of [relocated] or numeric portfolio managers that will be able to use the product because its much more intuitive and easier to use. In fact, our surprise of those sales that we made in the quarter which were unexpected, think all of them went to new clients and to people who are not quandt portfolio managers and the like.

So, therefore, I think it's all of the above, it's an ASP solution rather than a desktop or enterprise hosted solution inside decline organization so it gives a lot more flexibility. It is a lot more user to friendly with people and you can expand the market to a lot more people rather than the hardcore quandt.

But having said all of that. As I said, its -- its early days in its full functionality and we are in a hurry to continue to do maybe one or two o three releases of this software per year, so that by the timeframe that I'm talking about, people can hopefully easily switch from Egis to this because it has within that -- their favorite tolls and models and functionality and traits, right?

Okay, it sounds like we're a ways off, but it's -- it sounds like it's something between a cross between an upgrade cycle for Egis and a whole new end market. Got you.

Well, let me switch lastly to just the risk side, risk manager. We've obviously seen a turnaround over the last three, six months in hedge fund formation in asset flows. Can you give us a little more commentary on the pipeline as well as the nature of the $10 million in new subscription sales and risks this quarter? Was it more weighted towards Europe, where I know the last few years or pre recession most of the growth in risk manager came from? Or was it domestic in how we -- and I realize three are lumpy closings, but how we ought to think about perhaps an annualized maybe bookings forecast.

Absolutely, and I think, David, the first thing to do is to make sure we are very open and direct this is a business that there are some large sticker items here, loan sales cycle, needs C level approval of our clients given they are -- how important it is. And therefore it will be lumpy and I think it is very important not to read too much into our quarter by quarter variation of sales and revenues and the like because you will be misled if you do that.

Secondly, the fundamental demand for risk management system by us is strong across pretty much all client segments, asset owners, [several] wealth funds, asset managers, hedge funds, private wealth management organizations and the like. Even banks are coming to us to help them do this in a major way. And we're trying to sort of focus on what we -- what we can deliver but there is quite a lot of demand across the board.

That demand is going to vary, depending on circumstances of the client segment in a particular location. So private wealth managers are strong, asset managers in the Americas are strong, hedge funds are strong, asset managers in Europe, which traditionally have been strong are more cautious right now. There is quite a lot of spookiness that has happened in the asset management industry in Europe given the -- the potential defaults of Portugal and -- I guess defaults in Portugal and in Spain and Italy and things like that. So people are very cautious in many asset management companies in Europe. So the demand there is not as strong as we have seen it in the past, but will come back. We have no problem for that.

If anything, in terms of the demand and the pipeline -- the pipeline and the [stroke] pipeline that we have in implementing systems that we already sold and adding features that people expected to be added in the next year or two, if anything what we are is really not being able to catch our breath in being able to supply all of those features and counterparty risk and liquidity risk which are things beyond market risk and in all levels of other functionality. So that's where we are in that business and we feel very confident on that business.

Just to add some other color. This has been a continuation of trend last year. We discussed where we had said the US market had recovered significantly, that was across asset managers, hedge funds, and banks and that continues versus the previous years where Europe may have had more momentum relative to the US In addition, as you're remarking the hedge fund industry has recovered significantly, resulting in strong pipelines in hedge funds and strong demand for hedge fund transparency in the investors with hedge funds and funds with funds and other pension funds, et cetera.

And again, one other comment on that if -- the other thing that we're trying to be is to be cautious. Not to oversell into that demand and then have a significant indigestion in terms of implementing a lot of the systems with our clients and delivering a lot of additional functionality that they're looking to do. So if anything, we're trying to be more restrained in pushing this.

Thank you, sir. And I am showing no more questions in the queue. I would like to turn it back to Mr. Thibault for final remarks.

Thank you, everyone, for joining us on today's call. We appreciate your interest in MSCI, and have a great day.

Thank you, ladies and gentlemen, this does conclude your call for today. You may now all disconnect. Thank you very much and have a wonderful day.