Toni Kaplan: Great. Very helpful. I wanted to also ask just in this sort of current environment, how you’re thinking about investment in ESG products. So I know long-term view as the trends are positive but I guess in maybe near-term, do you shift your investment towards other areas or have you been shifting your investment towards other areas just in light of what’s been going on? Thanks.
Baer Pettit: Hi, Toni, Baer here. So look, maybe just using a slightly different tone, I can’t control myself. Look, ESG and climate still grew 30% in this quarter, right? That’s a very attractive growth rate, and for sure, if we can sustain that sort of growth rate on the run rate we have, that remains a very significant opportunity and adding the – that amount in dollars in run rate every quarter, for sure, will continue to require a lot of investment. And as Henry has pointed out, we have continuous demand across a variety of client segments, geographies, etcetera. So there certainly isn’t anything between this quarter and the last which changes our view that this is a structurally important opportunity, right? So we have to balance it with the environment.
And Henry alluded to certain strains, if you want to call it that. But certainly, from our perspective, this is a growth opportunity. It is structurally so and we have a lot of client demand for continued data and improvements in the product line.
Henry Fernandez: Let me just add something else here, and that is ESG and climate is one category that we use. Within that category, you also have to look at the ESG component, which obviously has climate – a part of that is climate. So you have to look at the climate tools themselves on a stand-alone basis, and we’ve been able to – we began to create more disclosures about that for all of you. So on the climate side, the run rate grew 68% to about $84 million, $85 million in run-rate. We believe that in the next few years and probably the next 5 to 10 years, climate is going to be the biggest opportunity that all of us are going to be faced with the whole world needs to figure out – the whole world of the capital markets, the investment industry and the finance and insurance industry will need to deal with climate risk in their portfolio, decarbonization of their portfolios and the like.
So we continue to make a steady investment in that area because we want to be one of the undisputed leaders on climate and the consequent growth that we can see in value creation.
Toni Kaplan: Makes sense. Thank you.
Operator: The next question comes from Alex Kramm with UBS. Please go ahead.
Alex Kramm: Yes. Hey, good morning, everyone. Just wanted to talk about the sales environment in particular, what happened in the first quarter. Clearly, the second half of March got very volatile with some of the bank issues. So knowing salespeople, I know sometimes those sales can happen right at the end of the quarter. So just wondering if that was a big headwind at the time, if you actually think some of the 1Q opportunities got pushed into the second quarter or if somewhat you just saw at the end of the first quarter, actually, is just a look at what may be to come and things actually get worse from here near-term on the sales side.
Henry Fernandez: Definitely, Alex, you’re absolutely right. The – a lot of stress in the system happens in the last 2 weeks of a quarter in terms of clients and making budgetary decisions, and we’re trying to close on sales. And the banking scare and the banking crisis took place around that time. There probably was some smaller impact in delaying some sales at that time, but it wasn’t anything that we spend a lot of time on. So that tells you that within sort of that as pretty serious to the closing of the sales in the quarter. And the banking crisis per se, it doesn’t have a huge direct effect on us because it has been concentrated in some of the smaller banks, obviously, with the exception of Credit Suisse, which was already in difficulties.
The bigger banks, which are our clients are extremely well capitalized, they are extremely regulated, so we’re not as concerned about them. But I think the overall banking crisis does add to the stress in the overall financial system. It adds to uncertainty. It will add to cautiousness and a little bit of risk aversion. So that’s likely to add one more variable to the environment that we have depicted here. We remain pretty – with respect to our pipeline and sales, it remains pretty solid. It remains pretty healthy with a caveat that the larger deals have slowed down what we call the big-ticket items have slowed down. Secondly, the sales cycles are longer and maybe there is a little bit of pickup in cancellations. But we’re not looking into the near future and thinking that we have a big problem coming our way.
Alex Kramm: Okay. Great. And then secondarily, you made some comments about still very focused on profitability and growing profitability. I think over the last few months, I’ve heard you speak a little bit more when it comes to profitability in terms of EPS, earnings per share, and not as much on margins or EBITDA margin. So just curious, when it comes to EBITDA margin, which a lot of us care about, are you still very committed when you talk about profitability on growing core margins? Or are you thinking more holistically? Or what’s your latest thinking about profitability?
Henry Fernandez: That’s a great question because, as you know, I’m a large shareholder in MSCI. So when I look at myself as a shareholder, at the end, what I care is about the long-term growth of the adjusted EPS. And that’s what’s going to – if we have very healthy growth of adjusted EPS over years and years, with healthy top line and healthy sort of EBITDA margins and the like, the market will reward us with good multiples and good valuation. So we’re beginning to focus a lot more on that, but it’s not at the exclusion of clearly top line growth. It’s not at the exclusion of our EBITDA and our EBITDA margin. It’s just a little bit of a mixing of the variables. The problem in the past for us has been that we were so focused and so obsessed with EBITDA and EBITDA margin that at times when elected the EPS growth is not a big company, so I thought I was wrong because our shareholders that’s what they eat.
They eat EPS growth. That’s what they value the company on the basis of that. Obviously, there are a lot of other things that make up that, but that’s a little bit of the – it’s not an exclusion. It’s just a pivoting of emphasis.
Alex Kramm: Thank you. Thanks for clarifying me.
Operator: The next question comes from Ashish Sabadra with RBC Capital Markets. Please go ahead.
Ashish Sabadra: Thanks for taking my question. Baer, in your prepared remarks, I believe you mentioned there are some promising larger deals that the teams are currently working on to close in the second quarter. I was wondering if you could just provide some more color on those deals, which are the uncertain end markets. Is it focused more on index analytics or ESG? Any color on those fronts? Thanks.
Baer Pettit: Sure. No, look, I think it’s the normal mix, Ashish. I don’t think that there is any particular color to it. There is some important stuff we have, for sure, in Analytics. We have some large ESG deals and index. So the point was more to make a broader observation and picking up from Henry’s observations that we haven’t seen a decline in our pipeline. We’ve got – we had a few things referencing the larger deals that had a slightly longer sales cycle than we thought, and again, referencing also Alex’s question. So it was more of a general observation just to say we’ve got some – we’ve got a healthy pipeline going into the next quarter. And we’re very focused on trying to close.
Ashish Sabadra: That’s very helpful color. And maybe just a quick follow-up. As we think about the sales slowdown on the subscription growth, obviously, subscription growth has been really robust 12% despite the macro challenges, but how should we think about some of these sales slowdown headwind on subscription growth. But on the other side, we also have ABF improving as the AUM fund flows improve. So any puts and takes on the top line as we think about going forward? Thanks.
Andy Wiechmann: Yes. Ashish – and Henry alluded to this in his prepared remarks. We have this nice balance in our top line, where the ABF revenue tends to lead a cycle and the subscription revenue tends to be impacted on a lagging basis. I don’t want to overemphasize that we might be seeing some lagging impacts on the subscription base right now, but there probably are some impacting it, although it’s important to underscore that our retention rates remain quite healthy, in line with historical averages here, particularly in index and analytics, and ESG is even 96% plus. And it is quite a diverse book of business. And the two biggest pieces of it, index and analytics, are actually remaining quite strong here. And the outlook is okay on those fronts.
And so in the short-term, there could continue to be some impacts on operating metrics, which impacts the subscription growth. But I’d say, overall, we’ve got quite a resilient franchise. And to your point about asset-based fees, to the extent the market starts to recover and has a sustained recovery, that just adds to some of the momentum we have in the business and the resilience we have in the business. I would underscore, as I mentioned in the guidance comments that we have a cautious outlook in the short-term. So our guidance is based on the assumption that ETF AUMs declined in the second quarter and then rebound gradually in the back half of the year. But any upside there is obviously beneficial to us and creates capacity for us to invest more.
Ashish Sabadra: Very helpful color. Thanks, Andy.
Operator: The next question comes from Alexander Hess with JPMorgan. Please go ahead.
