MSCI Inc. (MSCI) Earnings Call Transcript & Summary

Thank you. Good afternoon, everyone, and thanks for joining us at the financial conference. I'm Ashish Sabadra, and I cover information services companies at RBC Capital Markets. We are excited to host Andy, CFO of MSCI, at our conference. Andy, welcome to the conference, and thanks for giving us this opportunity.

Of course. Thank you, Ashish. It's great to be here and great to engage with you through this venue but also everybody listening and everybody that's been at the conference. It's a great event.

Thanks, Andy. Before we talk about all the exciting things, I just wanted to briefly talk about the recent geopolitical crisis, pretty unfortunate. But I was just wondering if you could provide any color on your exposure to Ukraine, Russia. In addition, if you could also talk about any potential ripple impact. Have you seen any impact on any of your businesses? I know it's still pretty early days, but any color that you can provide will be helpful.

Sure. Sure. Yes. Clearly, top of mind for everybody, and including everybody at MSCI, it's an area that we are focused on enormously. We're making sure that we are actively engaged with our clients, which is a critical part of our business always, but during these times in this terrible war, really helping them to understand the impacts on markets, the impacts on their investment portfolios, that some of the big shifts that are taking place is front and center in everything we do. And so you've seen some of the announcements that we put out around Russia being moved from our emerging market index to a single country index. You've seen some of the announcements around ESG and climate and the ESG ratings of Russia. You've seen us put out insights around some of the tools that we offer and insights that our clients can get access to and working with us around things like economic exposure of countries to the region, things like stress testing and scenario analyses, where clients can try to understand what some shifts in macro factors and asset prices could mean for their portfolios and to help better position them, and then even what this all means for the broader ESG dialogue. And so we are being very proactive in engaging with our clients. In terms of MSCI as an organization from an operations and financial standpoint, it's important to underscore we don't have material impact to Russia or Ukraine. We don't have offices in either country. We have less than $1 million of run rate from clients in Russia and Ukraine, including organizations that are owned by Russia and Ukraine entities. And we only have 3 data sources -- material data sources from the region: a Russian exchange, a Ukrainian exchange and data-submitter to a real estate offering out of Russia. So as an organization, have very little exposure. But obviously, given that we serve the global investment community with their mission-critical functions, we are very focused on being proactive and helping our clients navigate these turbulent times and what it means for their portfolios.

That's very helpful color, Andy. Maybe switching gears and talking about the longer-term growth drivers. Maybe starting off just with the subscription growth at a very high level at the company level. And on the last call, it was mentioned that asset owners and asset managers were up 11% year-on-year. You're making some great traction even with wealth managers, hedge funds, broker-dealers, insurance companies and corporates, so definitely diversifying your customer base. What's really driving the strength in the subscription revenue growth? What are the key drivers there?

Yes. There's a lot of underlying drivers. I would say the short answer is that we are in the strike zone of many key trends and transformations that are taking place in the investment industry. So you're seeing rapid growth in indexation as indexes are increasingly being used as an efficient mechanism to achieve investment objectives. And our broad index frameworks are a natural tool to help investors develop systematic outcomes across so many different dimensions. You're seeing the rise in focus on developing sustainable portfolios and sustainable investment strategies. The need for climate and ESG insights is growing rapidly. You're seeing increased allocations to private assets and these institutions who are allocating larger portions of their portfolio to private assets are screaming for tools to understand those markets, not only how they relate to their other assets but also understand what is -- how to define the market, what's driving the markets, what's driving their returns in the market; and then the need related to that for analytics to navigate the markets, understand the drivers of performance and risk, being able to construct more complex and systematic portfolios. We are uniquely positioned to help on that front. And so you can look at the growth story across a number of dimensions, whether it's products or asset classes. You highlighted client segments. As you alluded to, within asset managers and asset owners, which is a core part of MSCI and the franchise that we've built over the years, we're growing 11% among those organizations. And the punchline is we're doing more for them. We're helping them to capitalize on the trends that I alluded to and really helping to position them in where the investment industry is going. But you alluded to some of these other large asset pools and client segments where we have historically been small and actually continue to be small but where we're seeing the applications of our solutions really take hold and seeing strong demand. So within wealth management, we saw 19% growth as we're helping organizations to develop model portfolios with our indexes, helping them to achieve more sustainable outcomes for their clients, traction with hedge funds where we grew 18%. Many parts of our business, we had 0 -- not 0 but very little success selling to hedge funds in the past. And we're now at a point where these organizations recognize that they can use our index content and our ESG insights to develop quantitative strategies and navigate and capitalize on global markets. And they're taking advantage of trading and the growing ecosystem of tradable products based on our indexes. With broker-dealers, we're helping them serve their clients, whether institutions through over-the-counter derivatives or high net worth clients with index-based, index-linked notes and then insurance companies and issuers, huge markets where we're just starting to scratch the surface. And so there's so many layers to growth, but the punchline is we're kind of in the strike zone of these compelling trends, and we're well positioned to help organizations take advantage of those trends.

That was very helpful. So it looks like a lot of good -- great secular growth drivers and pretty broad-based. Maybe drilling down further on the indices just to segue based on what you -- the things that you highlighted in response, you obviously have the market cap within indices, which are the dominant -- where you are the dominant player in the space. But can you also talk about the investment thesis indices and the custom indices, those are relatively smaller portions of the revenue, but potentially a bigger growth driver going forward? How should we think about that?

Yes. Yes. It's a great point. And it relates heavily to our market cap indexes as well. I think one of the things that has differentiated us as a company and particularly an index provider is we are more than an index provider, right? We're a tools provider. And so our indexes, unlike many other index providers, are not just meant to be a market barometer that measures whether an exchange went up or down or a specific market went up and down. Yes, our indexes can be used for that and they do that. But at their core, they're a tool to help investors understand an addressable market, what's the universe of securities that I can invest in, and then understand the various dimensions of that universe across geographies, countries, sizes, sectors, styles, factors, increasingly ESG and climate considerations, thematic megatrends, other critical dimensions in a very cohesive and systematic fashion. And so that is a big differentiator for us, and it's the key engine of growth in this world. And I touched on this in your prior question, where the world has seen indexes as a very effective way to implement an investment view, whether that's an overlay on an existing portfolio or to represent their opinion or view on an investment opportunity in the index itself. And so they can develop a systematic strategy that tracks an index to their liking across all those dimensions. And so we've seen this outsized growth in demand for our ESG and climate and our factor indexes, which grew in the most recent quarter at 20% -- 28%; and our custom and special index modules, which grew at 18%. And so they're driving outsized growth relative to the market cap modules, which grew at about 9% in the most recent quarter. And I touched on some of the dynamics in the prior question, but each client segment has variations on that theme that I described, and we believe we're uniquely positioned to take advantage of them.

That's great. And maybe just -- one of the questions that we get a lot from investors is -- and maybe you addressed it here, but market performance and the fund flows, how could that potentially affect some of the AUM-based fees, understanding that your revenues from AUM-based fees are just a small portion within the overall revenues, but just trying to better understand how we should think about sensitivity there.

Yes. Yes. No, obviously, something that we're always focused on, but environments like this, something we are intensely focused on. I would highlight that there are 3 main components to the asset-based fee revenue, the one that gets the most attention, and it is the largest, is revenue from ETF providers, which is about 63% of the ABF run rate. And as you alluded to, ABF run rate is just a small portion of the overall run rate. But within that asset-based fee run rate, 63% is coming from ETF providers. It's worth noting that we are very broadly geographically diverse with about 45% of AUM in products linked to our indexes with developed markets ex U.S. exposure, so the developed markets outside the U.S.; 30% in U.S. exposure products; and 25% in emerging market exposure products. And so we've seen in the past that the flows and market dynamics can be quite different across those geographies, which just inherently create some stability in the asset levels. And then on top of that, we're seeing growth in nonmarket cap-weighted products, which can have different dynamics in and of themselves. And so it is a very resilient franchise generally, and then you've got the secular trends and secular flows that offset some of the cyclical volatility that we can see. I would highlight that the other components also are quite resilient and very complementary to the ETF side. The second largest category is non-ETF passive, which represents about 27% of that asset-based fee run rate. That's generally been actually quite stable in areas like institutional passive mandates, which are linked to our indexes, have tended to be quite resilient through volatility with less redemptions and continued new product creation. And this is also an area of significant secular growth as institutions are leveraging index-based strategies to effectively achieve their specific outcomes related to the prior question. And then the third category, which has grown quite a bit for us over the last several years, which is listed futures and options based on our indexes, which represents about 9% of the asset-based fee run rate or a little over $50 million as of 12/31 is actually not linked to AUM. It's linked to transaction volumes. And so that line tends to benefit in periods of elevated volatility when you see more transactions in derivatives and derivatives on our indexes. And so that can oftentimes help offset some of the AUM volatility you see. But yes, when you see markets go down meaningfully, you can see reductions in our asset-based fee revenue. But overall, the line has been quite resilient. And I think we put out a slide recently that showed from 2010 through 2021, you've seen an asset-based fee run rate growth CAGR of 16%. And over that time, we've seen many different ups and downs.

Yes. Yes, absolutely, Andy. That's again, very helpful. Maybe here, I just wanted to drill into one of the comments that were made last quarter, I believe, but the focus of leveraging the strength in data processing and building on the data sources internally. And again, it's an initiative that's been going on for multiple years, but I think it was really honed in by Henry on the last call. Can you just discuss the evolution of the strategy and how does MSCI plan to better monetize those data assets? Is it through the as-a-service strategy? So any color on that front?

Sure. Sure. Yes. And it's an area that we are focusing on more and more because we see the client demand for it and we hear the client demand for it. And so MSCI has always been a data company. What we sell -- a large part of what we sell is content in the form of data. Now it's derived data that we run algorithms and models on to create unique IP in the form of data that we sell as modules to our clients. To produce that, we source external data, third-party data sets, and that's been -- a big part of MSCI's business is taking that third-party data, put in research-based models on top of it to develop derived content and really differentiated content on that front. But what we're starting to see is additional commercial opportunities and value-added opportunities, leveraging new technologies, but also importantly because we're entering areas where we get unique proprietary content. And so as I alluded to, for areas like our equity indexes and our equity risk models and many other of our analytics content sets, we are using mostly third-party data, market data, terms and conditions, fundamental data points that feed into the models that we run. But in areas like ESG and climate, in areas like private assets, a lot of the data that we are collecting is nonstandard data, and it ends up being proprietary in nature. And so there's 3 dimensions to the opportunity that we see with unlocking the full value of the data that we have. One is on the -- relates to that last topic I was touching on, which is unlocking the value of some of the metadata that we sit on, so some of these proprietary data sources that we're collecting within ESG and climate and within private assets where, in many instances, either the clients are giving us data or we're in kind of a network position where the industry is submitting data to us. And being able to unlock unique insights from within that data is an area that we see demand from our clients. And so we are curating many of those data sets, putting them into a form. It's within the investment-as-a-service notion that you alluded to, investment-solutions-as-a-service notion that you alluded to, but doing it in a way that we know there's demand from our clients, and they want to access that underlying data as they want to do their own research around it and do quantitative analyses around it. And so that's one layer of opportunity. On top of that, collecting broader data sets. So we're recognizing there is demand for this stuff. And so as we continue to enrich our ESG and climate insights and tools as well as our private asset solutions, we are focused on collecting these unique data points then because we know there's value in them. And so this is an area of growth that we are focused on expanding. And we know these are long-term secular opportunities. So it feeds into those opportunities that we see. And then lastly, I would say, insights from the data that we sit on, and that includes client portfolios as well. And so in many parts of the business, actually, we have client positions. We're very protective. They're confidential. But in certain areas, there are ways that we can glean insights into what's happening in the industry or even help serve their clients better themselves to help them get insights into their portfolios relative to other trends that we might be seeing. And so this is all in an area of creating unique content and insights, but there's also a technology element where, as you alluded to, we're investing in our APIs and investing in areas like data lake that will allow clients to access existing content that we have as well as some of these new content areas in a very flexible and dynamic fashion to do more with them, and that should unlock additional use cases.

That's great, Andy. And maybe just switching gears a bit, talking about analytics. It seems like, to us, it feels like analytics growth has been relatively modest compared to some of your peers out there. However, we saw some pretty strong sales momentum in the fourth quarter. So can you just talk about some of the weakness we might have seen? And then the strength in the business going forward, what's really driving the strong subscription sales that we saw in the fourth quarter?

Yes. It was definitely a great quarter for analytics as well as across the company more broadly. As a reminder, and as you're alluding to, sales and cancels can be a bit lumpy in analytics. And so 1 quarter doesn't necessarily create a new trend. But I would say, looking at the run rate growth does capture a little bit more of the momentum or trends that we're seeing. And we ended 2021 with organic subscription run rate growth of roughly 7%, which is in the right direction. We want to continue to grow it even faster, but the run rate growth was in the right direction. I would underscore that analytics is strategically very important for the firm. And so it serves a number of different areas of different competitive differentiation for us across index, even across ESG increasingly, and private assets. So it's something that's adding value in a number of areas that don't -- aren't reflected in the analytics P&L. But analytics in its own right, we do believe, is an attractive opportunity as well. And there are a number of areas that we continue to make headway and grow. I'll break it down into a few areas. So one is growth and adoption in front office use cases. So this is our fixed income and equity front office portfolio management tools, and this is supported by our leading position in areas like equity factor models, but also, even more broadly, our fixed income and multi-asset class factor models. As investment processes and portfolios become factor-aware and increasingly quantitative in nature, our tools are best in class on that front, and we can definitely help the existing clients do more but also new clients that are increasingly thinking along those lines, how to adopt it into their investment processes. We've also been successful in building out our fixed income analytics offering. And so we've spent years now -- several years building out very strong quality coverage of fixed income instruments and high-quality coverage, so very strong pricing and curves and terms and conditions, but also the models overlaying all that as well as the capabilities supporting it in areas like liquidity and performance attribution and hard-to-price instruments and securities out there where we now have a formidable offering that is complementary to many of these large organizations that we might serve in a multi-asset class sense or might serve in the equity side, and they want to adopt our fixed income solution. So small for us on the fixed income side, but we're seeing very strong growth. I would say also, we are -- related to that and the analytics franchise more broadly, rapidly investing and continuing to build out new offerings and new content that just adds more value to our clients. But a second category I would highlight is we're helping clients operate more efficiently and making it easier for them to use everything that we do, and this relates to your prior question about some of the investments we've made in our technology infrastructure, where we are leaning towards much more cloud-hosted APIs to facilitate integration with clients' workflows and existing systems and make it much easier to access our analytic engines and our content in a seamless fashion, and that will unlock additional use cases. But also related to that, we are making it easier for clients to access what we do through partners. So through whether that's distribution partner partners or workflow partners like our partnership with Charles River and thinkFolio and Goldman Sachs Marquee. We are just making our leading content available through many different platforms out there, so it's easy for clients to access what we do. And so we have a number of initiatives across those several dimensions that we believe will continue to support the growth of analytics.

That's great. I think this was very helpful color, just to better appreciate all the growth drivers there. And as you mentioned, all the technology investment plus the content that you're bringing in is going to help differentiate analytics further. Maybe switching gears, talking about ESG. Obviously, MSCI is the dominant player in the space. I was just wondering, one of the questions that we get from investors is does the recent energy crisis drive more demand for ESG offering? With what's happening with the Ukraine and Russia, investors get more aware of the ESG, the governance part particularly? Or could there be some blowback or pushback as well on ESG offering because of the underinvestment in energy? So any thoughts there on the demand for ESG?

Yes. It's -- I would say it's a very active discussion topic, which is probably why you're bringing it up, but it is something that our clients are engaging on and thinking about. And the great thing about our ESG and climate offerings is they're not just one thing. And so they -- at its core, and what I talked about earlier, what we're trying to do is provide systematic frameworks and insights and tools that investors can use to navigate the markets and help them achieve their investment objectives more broadly. And so what it's doing is putting ESG in the spotlight, for the reasons that you highlighted, but it's also forcing investors who were already focused on ESG to think about what it means for their portfolios, not only from, as you said, the governance ratings or other social factors that feed into what companies are doing about it. Obviously, what the sovereign nations are doing about it, and many of them are issuers, but also starting to think about how do they optimize their portfolio to navigate this environment. And that has -- as you're highlighting, there are short-term implications where, as energy prices go up, and there might be a resurgence of certain fuels and certain energy sources that might be more brown in nature in the short term, that might create opportunities. But on the flip side, with energy prices going up dramatically, is that going to, over the medium and long term, actually drive a faster transition to renewable energy sources? And so these are all important questions. And the great thing about MSCI is we provide the tools to help have that conversation and navigate that. And ultimately, when our clients are talking to their clients, firstly, they're taking a view, but then they can communicate to their clients, relative to MSCI or based on MSCI, here's the position that we take and why we think it matters. And ultimately, my view is ESG is a source of alpha for the clients, but it's -- our clients need to make the view. They take the view. We give them the tools, we give them the insights and the tools to navigate what's going on, and hopefully, that enables them to create that alpha ultimately. And so it's going to be a fluid discussion. It will be dynamic. It will have many implications, up or down. But one thing I can say is it is leading to more engagement and more dialogue on the topic.

That's very helpful, Andy. And if anything, maybe just one data point, but I can definitely attest to -- at least at RBC and our discussions with the client, it doesn't seem like the focus on ESG is going away. Rather, there is increased focus on ESG over the longer term. Switching gears...

That's great to hear.

And just maybe within ESG, just talking about your climate offering. That has grown 300% over the last 12 months. Obviously, a smaller number, but still a great growth engine there. There was a Carbon Delta acquisition also that you had done a couple of years back. Can you just talk about your climate offering? What are you seeing there in terms of opportunity, again, over the mid to long term?

Yes. I mean the opportunity is huge. I can say that confidently, although it is so big and it's so early that it is very tough to quantify. The one thing that we know is the industry is going to need to have insights into the impact of climate change on their portfolios, and they're going to need certain tools to understand an asset level, a security level, a portfolio level, an enterprise level, what it means for them. And so that's the approach that we're taking. And I think we are differentiated in that right. I think the industry is going to need those common languages to communicate across all constituencies what climate means. I would say, for us today, the solutions are across a few categories. So it is our climate metrics and other data modules, content modules that we're selling that allow investors to understand, for certain issuers, certain categories, what their climate metrics are, as the name implies, so where they have exposure to green technologies or brown technologies, how exposed they are to certain trends, what they're doing in the space. And so it's kind of a key input into a research process, and that's a big part of our franchise. Our climate indexes as well. And so our climate indexes are starting to get adopted broadly. You're seeing a lot of ETFs and other tradable products being launched on our Paris Climate Accord-aligned indexes, but other climate-related indexes. And so that is a chunk of that run rate out there. And then the next wave, and this is where the big opportunities are for us in climate, are in creating some of those common languages that the industry can use to think about how companies and portfolios are aligned with certain temperature rise scenarios or how they are -- which is our implied temperature rise offerings or how they are aligned with or how exposed they are to a transition to a low-carbon economy through their physical risk, through their regulatory risk, through their transition risk and opportunities. So in many instances, it's not just a negative, but it's a company might be well positioned based on where the markets and the economy are going. And so we're trying to provide those common tools to have those discussions and those languages, and it's very early days, and there's dimensions of growth across regulatory reporting and insights and helping to serve different constituents in the industry, and it's just exploding, but it's an area we are really focused on, heavily investing in and really trying to differentiate on.

That's great. That's great. I'll just ask a question on competition. That's a question that we get a lot that from investors is how is the competition evolving? And particularly, S&P bought INFO. That does increase their presence in ESG front. Again, our view is it's not a winner-take-all market, there's enough opportunity for everyone. But you can also talk about what you're seeing from Sustainalytics and ISS. Or overall, just the competitive environment on the ESG side.

Yes. And I don't disagree, there's going to be big opportunities for many different providers, and it is rapidly evolving and there are so many dimensions to the wallet and market opportunity. I would say in kind of the some of the biggest parts of our franchise, so ESG, ratings and research, we really continue to differentiate based on our focus on materiality, so what really matters within an investment process from an ESG standpoint and within a portfolio, the breadth and quality of the data that we use, the ecosystem of tools that we have. So the fact that our indexes are using the same frameworks as our ratings and research and some of their reporting solutions that we have and stress testing capabilities are leveraging not only the ESG content but also our analytic engines and then our private assets, insights and tools that we're very early days in releasing are compatible with and interoperable with all those other solutions I alluded to. And the fact that we have this ecosystem of clients that just MSCI operates in, we continue to be very differentiated on that front. And the competitive dynamics in that core area haven't changed dramatically. There's definitely competition, but I think we're in a strong position there. The reason why the competitive landscape is more dynamic is because we're starting to enter so many new markets that are broad and nascent and are evolving. And so as we enter into certain pockets in climate, there's such a wide range of new and potentially significant market opportunities. You're seeing different players that have different solutions, serving different constituencies, whether that's issuers themselves and parts of issuers that we might never serve, but we're starting to touch, whether that's the capital markets area. And so yes, there are a lot of players out there who have probably niches and opportunities, and we're starting to get into those areas, which are -- is exciting for us. But we are continuing and we'll focus on continuing to differentiate in providing those common languages used in the investment process, and that's an area where we're confident we have very strong competitive advantage, and we'll continue to differentiate.

That was very helpful color. And I agree with you. Again, the dominant position that you have in ESG has definitely created a strong moat around your business and growth opportunities, obviously. Just shifting gears and talking about the RCA acquisition, I was just wondering if you could talk about how the integration has been coming along. You've owned the asset for a few months now. Can you just talk about the cross-sell, upsell opportunity, the customer feedback since acquisition, just overall how has the integration come on so far?

Yes. Yes. Sure. It's still very early days. But I would say client and employee feedback has been positive and constructive, which is always something good and you don't always see that, but definitely positive early indications. The employees seem to be integrating well into MSCI, and we've made a number of those moves to integrate them within functions and product and sales areas across the firm. To that point, the sales teams have been integrated and are -- have been and are being cross-trained across products, and so the RCA salespeople starting to understand what MSCI products do and vice versa. That takes some time for them to get up to speed, to understand the sales pitch and land new sales, but that is underway. I'd say we're actively continuing to build out the strength of their database, so kind of building out local databases in key markets. And we're continuing to enhance their offering. It's just a regular part of driving their business forward, and we are going to continue to expand across different markets. And so that is the goal, and we continue to invest in driving that. But more generally, I think the near-term focus is selling the strong existing products that we have and that they have in that scenario where we're heavily focused and continue to believe there's a strong opportunity.

Yes, that's great. One other question that we get a lot from investors is, yes, you're definitely focused on leveraging the real estate information for investment purposes, but RCA also operated in the real estate broker market. And now that you've improved the data -- or focus on improving the transaction-level details, how are you thinking about the opportunity on the real estate broker market as well in addition to your traditional investment market?

Yes. Yes. Listen, it's a great point and it's an area that we are excited about. To your point, it's a little bit outside of MSCI's core client focus, which is within that investment process, the asset owners, asset managers, even to a certain extent, some of the lenders and financial market participants. RCA had about 15% or has about 15% of their run rate in broker clients. And what we're finding, and a large part of this is the views from the RCA team, but we're confirming this, there continues to be a big market for selling more to that channel. And so even though it's not our historical focus, there is really some low-hanging fruit for us to continue to drive growth and add another leg to the stool. And what we've found in other parts of MSCI, where we have just this track record of establishing standards, and we are trying to do that within the real estate market, creating this ecosystem has benefits throughout all parts of the industry. And so not only is there a commercial opportunity with the brokers directly, but it reinforces the standards that we're trying to drive creates that network of being the go-to source to get real estate transaction information but also even broader data sets and information. And so it is an area that we think is not only important commercially, but it's something that has strategic value, and we'll continue to focus on.

Yes. No, that's helpful, Andy. Again, I'm talking to a CFO, so we have to talk about margins and capital allocation. On the margin front, again, you don't guide to margins, but you guide to expenses, and you've guided to, I think, if I'm not mistaken, mid-teens expense growth in fiscal year '23. I was just wondering, a question that we get very often is that if the revenue growth were to slow down because of the macro headwinds, is there an opportunity for you to flex your expenses? How would you respond to that?

Yes. Yes. I would say we are -- it is a constant calibration. And you've seen this in past years. You saw it last year when we flexed up and ended up having higher investment than what we had indicated based on our guidance at the beginning of the year, and that was a reflection of the equity markets and the broader investment environment or business performing even more strongly than we thought at the beginning of the year. The opposite can be the case. And so we are continually assessing the outlook and business performance and managing the business proactively to balance investing in these very compelling long-term growth opportunities with managing an attractive financial profile in all environments. And so you've heard us talk about our upturn and downturn playbook, I would say, I think you're alluding to. And the focus right now tends to be on the downturn side of things. It's something that we are very actively monitoring and continuing to assess. The last thing we want to do, though, is take actions prematurely unnecessarily. And so we are being very measured in kind of what we do and how we assess it. And as I alluded to, we really want to continue to drive growth in these compelling -- very compelling investment areas where we know there will be long-term value creation, but it's something that we want to be proactive on at the same time. And we've got 3 main categories of levers that we -- if we do decide to move in that downturn direction that we can turn to. One is really self-adjusting, which is related mainly to our annual incentive plans or our bonus plans where there's a big chunk of our bonus accrual and our bonus payments that are tied to financial performance. And so as soon as we start to adjust the outlook for the business relative to the plan for the year, that the bonus accruals start to adjust. Behind that, there's a whole host of noncomp categories that we can start to turn to if we want to slow walk certain expenses, and we'll do it in a very measured and prioritized fashion where we'll try to hit the areas of lowest priority first. Everything we do is important in adding value. We don't have a lot of easy things to cut, but we do have prioritization within what we have. And then the last category is around investment and hiring, and hiring is a lever that we can turn to if we need to, or we can slow down the pace of hiring in certain areas and to varying degrees based on the outlook. But the punchline is we've got the levers, we've got the playbook. We're just going to be very cautious and measured about when and how we go to it. But ultimately, we're trying to drive long-term value for our shareholders, but also create an attractive financial profile through all environments at the same time.

That's great. And maybe in a quick 30 seconds, if you can just talk about use of capital. You still have $1.4 billion remaining on your balance sheet. Any color on that front on use of capital?

Yes. I mean the short answer is that cash and capital is being used for general corporate purposes, as you've seen in the past, mainly share repurchases and potential M&A. I would highlight, and this was in some -- an investor presentation we put out recently and it was in our 10-K as well, that we have repurchased a significant amount of shares year-to-date. And so as you've seen in the past, we take advantage when there are periods in which we have more excess cash and capital, where there's volatility in our shares and where there's some element of long-term value that we see attractiveness. And so you've seen those 3 things in this environment. And while we're not going to pick the bottom and there will be times we buy and the stock goes down more, we do think there's attractive opportunities for -- with the long-term prospects of the company are to create value by repurchasing in the short term. The only other point I would highlight is we want to make sure we are well positioned in the event there is dislocations in the market and opportunities. I think the strength of our financial model allows us to be nimble. And as we do with repurchases, sometimes can be contrarian. And if there are unique opportunities to do investments, acquisitions, partnerships, we want to be positioned to do that if they are at attractive values and in strategic areas for us.

That's very helpful. Thanks a lot, Andy. Thank you very much for giving us this opportunity.

Absolutely. Thank you for the time, and great to see you. Thank you, everyone.

Thanks.