Apr 30, 2015
Executives
Stephen C. Davidson - Managing Director & Director-Investor Relations Henry A.
Fernandez - Chairman, President, Chief Executive Officer & MD Unverified Participant Robert Qutub - Chief Financial Officer Wendy E. Lane - Independent Director
Analysts
George Mihalos - Credit Suisse Securities (USA) LLC (Broker) Toni M. Kaplan - Morgan Stanley & Co.
LLC Christopher Shutler - William Blair & Co. LLC Joel Michael Jeffrey - Keefe, Bruyette & Woods, Inc.
Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.
Keith Michael Housum - Northcoast Research Partners LLC
Operator
Good day, ladies and gentlemen, and welcome to the MSCI First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.
I would now like to turn the call over to Mr. Stephen Davidson, Head of Investor Relations.
You may begin.
Stephen C. Davidson - Managing Director & Director-Investor Relations
Thank you, Abigail. Good day and welcome to the MSCI first quarter 2015 earnings conference call.
Earlier this morning, we issued a press release announcing our results for the first quarter 2015. A copy of the release and the slide presentation that we have prepared for you for this call may be viewed at msci.com under the Investor Relations tab.
For the earnings presentation today, we have tried to make the information more additive to avoid repeating information that can be found in our release. So, we are happy to take your feedback on this different approach.
Let me remind you that this call may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which may speak as of the date on which they are made.
For a discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements in our most recent Form 10-K and our other filings with the SEC. During today's call, in addition to GAAP results, we also refer to non-GAAP measures including adjusted EBITDA, adjusted EBITDA expenses and adjusted EPS.
We believe our non-GAAP measures are more reflective of our core performance. You'll find a reconciliation to the equivalent GAAP term in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures on pages 29 to 32 of the earnings presentation.
On the call today are Henry Fernandez, Chief Executive Officer; and Bob Qutub, Chief Financial Officer. With that, let me now turn the call over to Mr.
Henry Fernandez. Henry?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Thank you, Steve. Good morning, everyone.
I am pleased to share with you today our first quarter 2015 results. For the quarter, we continue to execute our growth strategy.
We deliver solid financial performance and the benefits of the enhanced investment program continue to build. In the slides today, we have provided you with new naming conventions for our product lines.
Performance consists of our index, real estate and ESG products. Analytics consists of our risk management and portfolio management analytics products.
First, let's talk about our financial performance. We generated 10% growth in operating revenues, driven by 13% growth in Performance subscription revenues.
We recorded positive operating leverage in the quarter in advance of our second half 2015 commitment. And we expect to deliver continued margin expansion throughout the remainder of this year.
We achieved 9% growth in subscription run rate, excluding the impact of currency fluctuations. And we continued to achieve exceptionally strong retention rates across all of our product lines.
Next, we'll talk about the enhanced investment program. For the call today, we will be highlighting how our investments have helped us position MSCI as a leading index provider to the ETF market and a leader in factor indexes and analytics.
And how our investment are driving growth in our index and ESG products. Lastly, I will highlight how our investments have driven higher retention rates for the analytics product line, the steps that we have taken to reorganize analytics and why we feel this product line can return to higher growth, particularly exemplified by the client wins that we recorded in the quarter.
On slide four, we show a set of KPIs that we believe are leading indicators of growth. The first section of this slide highlight the drivers of higher subscription revenue growth over time.
Policy benchmark wins from asset owners, were up 7% year-over-year. And new index families launched were up 300%.
Growth in ESG has been driven by growth in clients who increased about 35% reflecting the contributions of GMI as well. In the next section of the slide, we highlight the drivers of increased asset flows, which lead to higher asset-based fees.
The number of MSCI-linked ETFs launched during the quarter increased 81% year-over-year. Active and passive assets tied to factor indexes of MSCI increased 29%.
Period-end AUM linked to our indexes amounted to a total of $418 billion, up 23%. And since the end of the first quarter, ETF AUM linked to our indexes have continued to grow reaching $451 billion as of yesterday, and representing a further 8% growth since the end of the quarter.
And lastly, listed futures and options trading volumes based on MSCI indexes increased 23% to 10 million contracts. The whole area of derivative products associated with our indexes is a major focus of our strategy and investment as well.
Lastly, we highlight the driver of higher portfolio management analytics revenue. Run rate from new risk models that we have invested in and introduced over the past several quarters stand at $23 million, up 64% from $14 million in the first quarter of 2014, and up from $20 million or so at the end of 2014.
The strong year-over-year increases across all these KPIs reflect the growth that we are seeing across the company. Slide five highlights the strength of our competitive position as a leading equity index provider to the exchange traded fund market.
The global equity ETF industry is to add $2.3 trillion in AUM at the end of the quarter of which a record $418 billion was linked to MSCI indexes. Net new assets have flown primarily to European, Japanese and other non-U.S.
developed market equities during 2015 with U.S. equities experiencing net outflows, reversing the trend that we saw at the end of 2014.
And therefore, MSCI has been a major beneficiary of that trend. We rank number one in net new assets in equity ETFs globally in the quarter, a total of $53 billion of net new assets flow into equity ETFs globally in the quarter, of which a record $32 billion or about 60% went to ETFs based on MSCI indexes.
As the U.S. dollar soared against other currencies in the quarter, currency-hedged ETFs have seen $28 billion in net new assets, with nearly half of those assets going to MSCI-linked ETFs.
In just three months, global ETF assets linked to MSCI currency-hedged indexes have increased by 94% compared to the fourth quarter of 2014, going from $16 billion to $31 billion, largely due to positive flows into MSCI currency-hedged index-linked ETF from Deutsche X-trackers, UBS, iShares and others. Additionally, there are now 68 currency-hedged ETFs globally linked to MSCI indexes, more than all other index providers combined.
Therefore, we are poised to continue to benefit from the volatility of currencies and the U.S. dollar in the months to come.
Globally, there were over 700 equity ETFs based on MSCI indexes as of the end of Q1, more than any other index provider. In the first quarter also, three ETF sponsors launched their first MSCI index linked exchange credit fund, and therefore continuing to expand the relationships that we have with various ETF managers.
If we turn to slide six, here we provide a bridge of our new record ETF AUM linked to our indexes, a record that continues to grow, as I said, since the end of Q1 due to record inflows that we're seeing. In the top half of the slide, of the total $137 billion of cash inflows since 2012, a net $32 billion or 23% of these inflows are from new funds that were launched in the last two years.
This is a direct result of the investment that we have made in launching new index families, which I referred to before to the first quarter, and in marketing to ETF managers around the world. In the bottom half of this slide, we have broken out for you the three primary buckets of what we call ABF revenue.
In addition to the fees that we earn on ETF AUM, we also earned fees on our client institutional passive investment products, which amounted to $11 million in quarterly revenue. We also earned $2 million from exchange traded futures and options contracts that are based on our indexes.
In addition to these volume-based revenues on exchange traded futures and options contracts, we also generate another meaningful amount of revenue in subscription fees related to broker dealers, licensing our products for over-the-counter equity derivative contacts. That part of the revenue is in the subscription revenue area.
Unverified Participant
(12:20) model.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
If we turn to slide 7, here we showcase our factor indexes, also known in the industry as smart beta indexes which are a key driver of our future growth. We have invested considerably in our factor indexes over the last year or two by bringing together our extensive equity index and equity risk model research capabilities and combining them with our wealth of data of over 40 years of Barra Factor data history.
This unparalleled expertise is what differentiates us in our factor offering from our competitors. As a result, we have developed one of the leading factor index and factor risk model franchises in the world.
Asset owners really get the best of both worlds as shown on the left side of the slide. They get the advantages of active management where they have the opportunity to outperform the market over long periods of time due to these factor indexes.
And that is combined with the advantages of indexation or index investing where you have transparency and lower costs. This has resulted in a strong growth in factor-related AUM for us as shown in the upper-right chart.
Active and passive AUM benchmark to MSCI Factor indexes grew 29% year-over-year. Included in these numbers is ETF AUM, and institutional passive AUM, and AUM related to clients who pay us subscription fees for data.
This latter category is not required to report their AUM to us. So, there is an element of estimation of the AUM these customers have in their assets linked to our indexes.
In the lower-right chart, we show the 67% year-over-year growth in the quarterly run rate related to factor indexes. We're also leveraging our research capabilities to assist ETF providers in launching new factor ETFs.
Year-to-date, there have been 11 ETFs launched that track MSCI Factor indexes. And of the record $32 billion of net new assets going into MSCI-linked ETF in the first quarter, over $4 billion of that or 13%, flow into ETF tracking MSCI Factor indexes.
Next on slide 8, we provide a snapshot of the index subscription product line. As you may remember, this is data that we sell to active managers for benchmarking purposes of their portfolio.
On the left side of the slide, we show the growth progression in the index subscription product line, which has grown steadily over the past few years at around 10% compounded growth rate. This growth has been driven in part by the investment that we have made to innovate and develop new products to sell to our existing customers as well as the investments we have made in distribution and marketing to sell into new segment such as insurance companies.
For example, one of the areas where we have seen significant growth in subscription revenues is in our thematic and custom indexes. And the run rate related to this product area has grown about 13% year-over-year.
The steady growth of the index subscription product line has been complemented by a strong retention that we have achieved with a record 97% in the first quarter of 2015, as shown on the right-hand side of the slide. All of this is a good indicator of the health of this flagship index subscription product line for us.
Moving to slide nine, we show the strong growth of the ESG product line as well as the benefits that our index products have received from ESG. As asset owners and asset managers around the world become more and more aware of the potential risks and the potential performance effects of environmental, social and governance factors, they are employing a range of ESG investment strategies and screens that are supported by MSCI's ESG offering.
The chart on the upper left side shows the growth in run rate related to ESG indexes which is recorded in the index subscription line and not in ESG. This is another example of how we're leveraging product capabilities across MSCI.
While we're still in the early stages in developing ESG indexes as shown by this lower dollar amount, we are very pleased with the trajectory of growth. ESG index clients grew 56% year-over-year and the run rate is up 50% to $1.3 million.
And we expect that to continue as all these ESG factors are taken into account more and more in the global investment process. In terms of – when you look at the lower-left part of the slide, the chart there shows organic subscription run rate of 22% in ESG and about 46% growth including the GMI acquisition.
So, this is clearly an area of fast growth for us, and we're very much focused on expanding it and investing in it. Slide 10, we highlight the new, reorganized analytics product line.
As we announced in the fourth quarter earnings call, we have taken steps to reorganize and streamline the analytics' product line under the leadership of Peter Zangari, who has worked for the past three years to return the portfolio management analytics products to growth. And we're hoping that he and his team can help us do the same on the risk management analytics product line.
This change was made because as I said in the past, our risk management analytics product line is not where it needs to be in terms of its level of growth and profitability. This is a product line that we believe strongly has very strong fundamentals, has strong growth potential and leverages a lot of the core strength and capabilities of MSCI, so we cannot tolerate low levels of growth or profitability at this time.
The noncash charge that we took in the quarter was to stop a technology project that, while profitable, was not the right platform to take analytics to the higher level of performance. So, we're now moving in a new direction with a new technology platform that will serve as the basis for growth for the entire analytics product line and service lines.
While we're still in the early stages of the reorganization, we are focused on moving analytics from a product-centric approach to a more use case focus approach based on client demand. We're focusing on what client problems we're solving for, then what services we line up against the client use case.
By moving to this approach, we will be able to better leverage our core capabilities to deliver value-added solutions. This is what MSCI does best for its clients.
We believe that we have significant competitive advantages in our analytics products. We offer established best-of-breed solutions, research analytical content that sits at the center of our value proposition, with an incomparable set of assets across indexes and multi-asset class analytics that – and we have deep experience computing the risk of very large, very complex trading portfolios.
When we line this competitive advantage up against the key trends in the market, we feel very good about our positioning. We're seeing a growing focus by our clients of multi-asset class investing, and the tools necessary to understand performance and risk of those multi-asset class portfolios.
Clients are looking for flexible and complete analytical tools. They're also looking for partnership with their providers in order to develop solutions that help them address their needs.
And lastly, they're looking for quantitative tools that are becoming more and more standard and used widely as evident in some of the growth that we're talking about in factor investing. In short, we believe we have the right capabilities.
The market is very large, and the competitive environment is stable, so there is no reason to tolerate lower levels of growth or profitability for this product line. We will keep updating you on the progress on this area and how we can return it to higher levels of performance.
On slide 11, we show here a few – four examples of clients that we have won over the quarter in risk management analytics that we believe reflects the underlying strength of the value proposition. This win speak to the strength of our brand globally.
They're also a validation that increase regulation. It's a driver of adoption of multi-asset class risk offerings.
And overall, we also have a pipeline in our business that is strong with several large deal which slipped from the first quarter and have closed in the second quarter, and we hope to report that in the next call. With that, let me now pass it on to Bob.
Thank you.
Robert Qutub - Chief Financial Officer
Thank you. Thanks, Henry, and good morning to all of you on the phone.
Please turn to slide 12 for a brief overview of our financial results. Our results this quarter were strong with 10% revenue growth and adjusted EBITDA expense growth of 8%, driving 11% growth in adjusted EBITDA, and a return to positive operating leverage which is well in advance of our second half 2015 commitment.
Our adjusted EBITDA margin increased 67 basis points from the prior year quarter to 41%. Our net interest expense for the quarter now fully reflects the quarterly impact of our bond issuance in the fourth quarter 2014.
The higher-than-expected tax rate was driven by an increase in operating profits in higher tax jurisdictions, but we continue to guide to an expected 35% to 36% effective tax rate for the full year 2015. Adjusted EPS was up 9% to $0.50 per share, benefiting from a 4% decline in the weighted average shares outstanding year-over-year and stronger operating results.
The increase in share count compared to the fourth quarter reflects the impact of stock-based employee compensation in the first quarter. Before moving to the next slide, I wanted to comment on the impact of FX on our results.
As we previously indicated, foreign currency fluctuations have been a headwind for our subscription revenues and run rate. The headwind had been mitigated by a significant portion of our expense base that is denominated in foreign currency.
As a result, the net impact of foreign currency fluctuations on our earnings was not material in the quarter compared to a year ago. This framework, however, does not reflect the impact of foreign currency fluctuations on the underlying assets held in AUMs-linked to MCSI indexes which is the basis for asset-based fees.
To a large extent, foreign currency fluctuations are reflected as part of market appreciation or depreciation along with other market factors. Now turning to slide 13, we provide you with a bridge for the year-over-year change in our revenues.
Total revenues increased $23 million or 10% to $263 million. The growth was driven by an increase of $18 million or 9% in subscription revenues and an increase of $5 million or 12% in asset based fees.
From a product perspective, the increase in subscription revenue year-over-year was principally driven by the performance product line, which increased $13 million or 13% driven by a strong growth in the equity index benchmark and ESG product-related revenues. Analytics revenue grew $5.4 million or 5%, driven by a 7% or $4.9 million increase in risk management analytics.
As Henry made very clear earlier, we are not satisfied with the performance of the RMA product line, but we are not standing still. The actions that we're taking will take time, but we're confident of a positive outcome.
Our real estate business has been particularly impacted by foreign currency fluctuations. Revenue increased 2% on a reported basis, but adjusted for a $2 million negative impact from currency fluctuations grew 19%.
Real estate revenue in the quarter included the benefit of some early deliveries of client portfolio in our services reports, which normally would have been delivered in the second quarter. This is improving the efficiency of our platform, has been a focus of our investments which has allowed us to deliver client reports faster.
The $5 million increase in asset-based fee revenue to $46 million was driven primarily by a $62 billion increase in average AUM in ETFs linked to MSCI indexes to $393 billion, as well as higher revenue from futures and options trading in contracts linked to MSCI indexes and revenues from institutional passive AUMs. In the first quarter 2015, cash inflows to the ETF market were a total of $53 billion, of which $32 billion or 60% flowed into ETFs linked to MSCI indexes, reversing the trend we saw at the end of the fourth quarter 2014, as flows then moved into the U.S.
Of the $32 billion in inflows for the quarter, $13 billion was related to assets linked to currency hedged indexes with another $4 billion of inflows into factors. The reported average basis point fee for ETF AUMs linked to MSCI indexes was 3.38 at the end of the first quarter, down slightly from 3.39 recorded at the end of the fourth quarter 2014 driven primarily by mix shift.
Now let's turn to slide 14 where we provide the adjusted EBITDA expense trends. The first quarter adjusted EBITDA expenses rose 8% to $155 million, as we continued to move more towards normalized levels of cost growth.
The year-over-year increase was driven by a 13% increase in compensation expense, partially attributable to a 10% increase in head count, but also the compensation expense includes $2.9 million of the total $3.4 million non-cash charge we took in the quarter to terminate a technology project in analytics. Employees in emerging market centers increased to 51% in the first quarter 2015, up from 47% in the first quarter 2014, and in line with 51% reported in the fourth quarter 2014.
The increase in compensation expenses was partially offset by a 3% decline in non-compensation expense, driven by general corporate efficiency efforts. Of the total $9 million growth shown on this chart, the $5 million was carryover on the 2014 spend.
While the first quarter included a non-cash charge of seasonally higher payroll tax expense in the coming quarters, we expect to see higher cost bases on compensation-related inflationary increases, backfills of positions and other corporate costs. For the full year 2015, given some efficiencies that we have achieved on our expense base, we now expect our adjusted EBITDA expenses to come in solidly in the lower half of the previously announced range of $620 million to $640 million.
Obviously, FX will continue to have some impact on the reported full year, but on a constant currency basis, we remain comfortable with this guidance. Turning to slide 15, we provide the run rate bridge for the quarter.
Our reported run rate increased 8%, consisting of a 6% increase in the subscription run rate to $840 million, an 18% increase in ABF run rate to $191 million. Adjusting for foreign currency fluctuations, subscription run rate grew 9% year-over-year.
In terms of subscription run rate growth, sales in the first quarter of 2015 amounted to a total of $29.5 million compared to $30.4 million in the prior year quarter. Performance of recurring sales increased 3%, negatively impacted by a 23% decline in real estate sales.
The decline in real estate sales year-over-year was driven by timing and, to a certain extent, FX fluctuations. Analytics recurring sales declined 9% driven by a 19% decline in risk management analytics sales, partially offset by a 37% increase in portfolio management analytics sales.
The first quarter in analytics of 2014 included very strong sales of InvestorForce and RiskManager products for the risk management analytics. And several deals in the first quarter 2015 rolled into the second quarter, some of which have already closed.
Cancels amounted to a $12 million for the quarter, a decrease of 17% from the prior-year quarter, resulting in net new recurring sales of $18 million, an increase of 9% year-over-year. The lower level of cancels drove year-over-year increases in retention across both products for performance and analytics product lines, resulting in aggregate retention of 94.4% with a record index subscription retention of 97.3%.
FX fluctuations had a $25 million rolling four quarter negative impact on our subscription run rate. GMI acquired in August 2014 contributed $7 million to our run rate build year-over-year.
Now, turning to ABF run rate. The $29 million increase was driven primarily by $77 billion period increase in ETF AUMs linked to MSCI indexes on inflows of $75 billion that I discussed earlier.
Strong growth in institutional passive AUMs, as well as higher futures and options trade volumes in contract based on MSCI indexes also contributed to a year-over-year increase. Just to note, revenue recognition for trading volumes is on a one-month lag.
A total of 10.1 million futures and options contracts on MSCI indexes were traded in the prior quarter, up 23% year-over-year, and open interest was a total of 1.1 million contracts. On March 16, aggregate volume with MSCI Index-based futures listed on ICE topped 395,000 contracts, a record trading day for MSCI-linked contracts.
CBOE also recently launched options trading on our emerging markets and IPA indexes on April 21. Turning to slide 16, we provide our key balance sheet indicators.
We ended the quarter with cash and cash equivalents of $538 million, which includes cash held outside of the United States of $84 million. As a general policy, we prefer to maintain U.S.
cash buffer of approximately $100 million to $125 million for operational purposes. Our gross leverage was 1.9 times based on total debt of $800 million to our trailing 12-month adjusted EBITDA within our stated guidelines of maintaining leverage at 1.5 times to 2.5 times.
We generated strong operating cash flows of $67 million, up from $25 million in the prior year which were lower due to timing of account receivable collections. We continue to expect that we will generate between $275 million and $325 million in operating cash flows for 2015.
We spent $6.3 million on capital expenditures in the quarter compared to $10.1 million in the prior year. The lower CapEx in the first quarter was due to timing and we are reaffirming our fiscal year 2015 capital expense range of $55 million to $65 million.
Our board approved the second quarter dividend of $0.18 per share, which is payable on May 29. And lastly, as you know, we are in the market now with our current ASR, and we are committed to returning cash to our investors.
Before we open the line to your questions on slide 17, I want to wrap up the call by providing a summary of key takeaways. In the first quarter, we continue to execute and we delivered solid financial performance.
The benefits of our investments are taking hold, and we continue to see continued momentum in the coming quarters. In our core analytics product area, we have the right team in place, and we are taking the right steps to drive future growth and we look forward to updating you on our progress in the second quarter.
And lastly, we remain committed to returning excess capital to shareholders. With that, I'd like to open the line to your questions.
Operator
Thank you. Our first question comes from the line of George Mihalos with Credit Suisse.
Your line is open.
George Mihalos - Credit Suisse Securities (USA) LLC (Broker)
Hey, guys, thanks for taking my questions. Henry and Bob, you guys – you did a nice job sort of segmenting the businesses going into a lot of detail.
You mentioned several times you're not pleased with where the analytics business is presently. I'm just curious, as you think of your subscription run rate business on the index side, which is sort of – call it a low double-digit grower from a run rate perspective.
Where do you ultimately think with the investments you've made that you can take the analytics business to relative to that growth rate in index?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Yeah, George. First of all, I think we have made tremendous progress in returning the equity analytics products to growth.
If you see the growth in run rates there excluding the impact of foreign exchange fluctuations, we are in the 7% or so, 6%, 7% growth category. And it continues to feel good because we have launching a lot of new risk models that were selling well, as I mentioned.
The Barra Portfolio Manager analytical application is complete and now really getting into strides for sales. And obviously, the negative overhang that we have is the ESG product line that is shrinking.
And obviously, a large part of that shrinking is going to BPM, and we're trying to encourage customers to move there. So, that is a fairly good indicator of continued growth; all of that is a fairly good indicator of continued growth in the equity analytics line.
And we expect that in the coming quarters and coming couple of years that that equity analytics growth rate and run rate will continue to increase. We have to see how far it goes, but we are pretty hopeful that will continue to increase through the high single digits and maybe at some point get to the low teens, right?
So, I think on the risk analytics product line, we are clearly lower in run rate growth there when you exclude foreign exchange fluctuations. I think we're about, what, 5%, Bob, or something like that?
Robert Qutub - Chief Financial Officer
5% to 6%...
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
5.5-or-so percent growth in the risk analytics product line, excluding foreign exchange fluctuations. And we're hoping that given the refocusing on the business, the streamlining of the teams that we're going to have a similar progression to what we did with equity analytics.
First, getting it to the high-single digits and maybe eventually getting into the 10%, 11% range. But at this point, it's too early to tell when that will happen.
Those are our expectations. And very importantly, also we're very focused on the cost structure of all of this.
They're fairly profitable, but we like them to be even more profitable. So, we're focusing on combining functions, combining cost, combining technology, combining a lot of things so that we can expand the margins of this product line.
George Mihalos - Credit Suisse Securities (USA) LLC (Broker)
Okay. I appreciate that color.
And then, just a point of clarification, you sounded a little bit more encouraged about your sales. Some of them may have slipped from the first quarter into 2Q.
Should we be assuming that on the RMA side, you are likely to post a sales number in 2Q higher than the $10 million in Q1?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Hard to tell at this point. I will say that – the comment that we made was that that we had a couple of larger deals that just slipped by a few days, the end of the quarter and therefore, the carryover into the second quarter.
We obviously have to continue to work the pipeline in the second quarter and if everything closes in the way we would like it to be there, it'd be a good quarter. But we may have again two or three larger deals at the end of the second quarter that slipped into the third quarter, and so on and so forth.
So, I think importantly, the way to think about risk analytics right now is without the actions that we are taking, our sales are kind of trading in that range. And what we're trying to do by the actions that we want to take that we are taking is to try to break out of that range into a higher amount of sales.
And we'll be able to update you more where we are on that by the next call. But your expectation should be that we're in that sort of narrow range of sales per quarter of the risk analytics and it could be plus or minus, which is fine, but what we're trying to do is break out of that range to a much higher number.
George Mihalos - Credit Suisse Securities (USA) LLC (Broker)
Okay. Thank you.
Operator
Thank you. Our next question comes from the line of Toni Kaplan with Morgan Stanley.
Your line is open.
Toni M. Kaplan - Morgan Stanley & Co. LLC
Hi. Thanks for taking my questions.
Just to follow-up on risk management analytics, can you just talk about the market environment there? Basically, are the challenges that you're seeing market-related as well as just company-specific?
And when customers aren't using RiskManager, are they going to competitors or are they not using any products?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Yeah. So, Toni, the large majority of our clients, when they don't buy from somebody like us, they're not necessarily going to a competitor.
It just means that the product or the functionality that they're looking for does not exist or doesn't exist in the way they wanted it, and therefore, they sit and wait, or they try to sort of patch things together internally in a sub-optimal fashion. So, now we want to continue to move forward the state-of-the-art in multi-asset class risk management and performance management analytics.
And that's – because we believe that there is a fairly large feel here to help fulfill a lot of needs that people have to take a whole scientifically of their portfolios and understand on a more timely and more scientific basis what's happening with those portfolios, those total (44:16) portfolios and multi-asset class portfolios. I think the – going back to your first question, I attribute a meaningful part of our – when you look at it globally, a meaningful part of our slower growth to the fact that over the last two years or so, we have been really focused on upgrading the technology platform, including the data centers, making sure that our resilience was high, making sure we're complying with the increasing number of demands that people have about data security and Internet security and sort of cyber-attack security.
Many of the diversified financial companies that have asset management subsidiaries are really wanting to see the vendors like ourselves, have airtight procedures in that. So, we've been working on putting all of that in place, and therefore, with the limited investment plan on this product line, we haven't been as aggressive in building a lot of new functionality, a lot of new products, a lot of new features and the likes of, largely but not totally.
We're finding ourselves selling just an upgrade of what we have been selling a couple of years ago, and therefore, a meaningful part of the process here is to refocus the investment or the operating expenses if you want to call it of the business, streamline it, consolidate and the like, so we can free up some operating expenses to put into building more functionality, more capabilities and all of that which is going to be good to grow. That's what we did obviously on the equity analytics product line.
We tightened up a lot of costs. We refocused efforts and refocused people and all of that, and we started launching our new models.
We upgraded – we finished the upgrade on BPM and the completion of that and bingo, you start selling a lot more. So, it's not very complex.
It's not very difficult. We've just got to tackle it and focus on it and get going because we believe that there is demand there.
That's not to say that parts of the world are challenged. I mean, clearly, a lot of our asset managers in Continental Europe, for example, are going through difficult times because of the economy and the investment market there.
And they maybe less expansive in investing, but we have a lot of clients in Asia, a lot of clients in the Americas and in other parts of the world that are waiting for us to give them better products and enhanced capabilities.
Toni M. Kaplan - Morgan Stanley & Co. LLC
Great. And just a quick one on the share of the flows.
I think you mentioned a 60% share of global inflows this quarter. I think, last quarter the number that you gave was like a 40% ex-U.S.
number. Are those comparable and also like very big increase?
So, I just wanted to know any – your thoughts on the drivers behind the increase. Thanks.
Robert Qutub - Chief Financial Officer
Not comparable, Toni. This is Bob.
We had significantly reduced inflows. We had positive inflows.
Recall in the fourth quarter, a significant portion of inflows flowed into the U.S. You saw it in S&P and you saw in the first quarter a lot of it flowed out.
Total flows in the ETFs were $53 billion. We captured $32 billion of it which is 60%.
So, you can see some of the tone in there which was interesting, continued inflows into factors, which is $4 billion. But the interesting piece was we saw currency-hedged ETFs become popular in the first quarter given all the FX volatility.
That's not necessarily a new product for us. That was something that we had in our tool kit and our investors were prepared to use and offer that to their clients and their investors.
So, not comparable, back to your first question but...
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
The methodology is comparable.
Robert Qutub - Chief Financial Officer
Methodology.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Yeah. The methodology is comparable.
It's just that the – where the money flows is different, right, Bob?
Robert Qutub - Chief Financial Officer
Correct. Yeah.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Yeah. So, I think in a nutshell, when – we're strongest around the world, developed markets, emerging markets and the like.
So, when you see major flows of assets going to a lot of markets around the world, developed, emerging and the like, we benefit significantly. When you see a lot of flows going into the U.S., we do have a lot of U.S.
products. So, we see inflows in those U.S.
products. But relative to some of our own competitors and relative to the strength that we have around the world, you don't see as large amount of inflows.
And the second part is that we're benefiting from factor indexes, obviously a lot of money going into there, as Bob indicated, and we're benefiting from the strong dollar, and people wanting investment products that are hedged against the dollar, right? So, that's what's happening, right?
Now, look, this can reverse, right? If you see a huge amount of money flowing back to the U.S.
at some point, we'll continue to get a major, a meaningful share of the flows because this is a category that is growing, but it may not be 60%, may be lower.
Toni M. Kaplan - Morgan Stanley & Co. LLC
Thank you.
Operator
Thank you. Our next question comes from the line of Chris Shutler with William Blair.
Your line is open.
Christopher Shutler - William Blair & Co. LLC
Hey, guys. Good afternoon or good morning.
On the non-cash charge, Bob, I'm just curious to get some more details on exactly what the project was that you discontinued and what the new direction is that you're going in.
Robert Qutub - Chief Financial Officer
Sure, Chris. We were focusing in on working on bringing together our product lines in the risk management analytics area, and that has been going on internally.
So, the accounting convention that is capitalizing internally developed software cost, $2.9 million of that was compensation, $0.5 million was non-compensation. As Henry pointed out, we reached to the point where, yes, we could still continue to achieve sales.
It's probably better. There's a better way to look at the platform as we combined the analytics, so we made a decision that this was not the highest and best use of where we focused our attention, and now we're looking at a new platform going forward.
So, again, it was an accounting charge, previously deferred costs that were related to an analytics technical project.
Christopher Shutler - William Blair & Co. LLC
But what is the difference between the old platform and the new platform? I hope you can be any more specific there.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Yeah. Let me try that, the challenge that we're facing at the company is that we have a few analytic application platforms that are – as a result of our own sort of growing and as a result of the acquisitions that we made, right.
So, if you think about we have the RiskManager platform that came with the RiskMetrics acquisition and that supports a large number of use cases and significant amount of run rate. And then you have the BarraOne Technology platform that also has a lot of risk multi-asset class risk management capabilities, some fixed income portfolio management capabilities and some equity portfolio management capabilities and you have Barra Portfolio Manager platform which has a lot of equity portfolio management capabilities and is dealt on top of the BarraOne platform.
So, what we're trying to do is in order to satisfy the convergence that clients have or need of having a much more integrated content and application that unites the risk management function, the equity portfolio management function and the fixed income portfolio management function into one consolidated approach. We've been taking – instead of trying to rebuild the whole thing which is not a good thing, we have been trying to come up with various technologies and programs to pull them together, as we think about it at the operational level, and then provide a much more integrated approach to the client.
So, we went down this path, with this project, with technology that was good and tested, but it didn't do what we wanted it to do. So simultaneously with that, we had another approach to look at a different kind of technology that is probably newer and more innovative that could do it.
And we are going with the second one, and therefore, stop doing the first one and discontinued it. And given that the accounting rules indicate that capitalize the time and effort in building that then we wrote it off.
Robert Qutub - Chief Financial Officer
The one thing I want to add on that, Chris, is that in between here, we're still going through the research and development phase, so the deferred capitalizations are not occurring because we haven't reached that point. So as Henry pointed out, we're still going through the review process of it.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
But the goal is still the same, and I'm glad you asked this question, Chris, because the goal is still the same which is how do we take the existing operating system so to speak that we have built on the data libraries, the analytical libraries, and the computational abilities, the datacenters, and the like, and how do we glue them together and put them together with an overarching technology that connects them all, so that we can provide a much better integrated service to our clients that unites all these process in an efficient and fast way. And I think this new thing that we're looking at that is still in obviously developmental stage is very promising.
But again, we'll have to report more on that in the future, right. So, there's a little bit of good news and bad news.
The bad news is we wrote it off. The good news is that we find an alternative way that is better, and it holds more promise.
And so, we're on that path right now.
Christopher Shutler - William Blair & Co. LLC
Okay. Thanks for the detail, gentlemen.
Just one more, Bob, on the guidance which I recognized on the adjusted EBITDA expense, it didn't change so it's $620 million to $640 million. How much growth does that imply I guess in dollars on a constant currency basis?
Robert Qutub - Chief Financial Officer
There's really – the growth would be, as I related to, if you take the first quarter and analyze it, it's more inflationary-based related to compensation. We had a little bit higher turnover in the first quarter.
We'll be backfilling some of that, and we've got some other charges out there that we see in the future coming through. But I would hesitate to call it growth other than normal business as usual, Chris.
Christopher Shutler - William Blair & Co. LLC
So, I mean, as I looked at it, Bob, I mean, at the midpoint of $630 million, it was I believe somewhere in the low $40 million range is what the year-over-year increase implies. But FX is maybe helping that number by, I'd like to call it, $15 million to $20 million.
And then you also have the $15 million to $20 million that you called out last quarter of investment spend. So, kind of fair ex that investment spend and ex currency, you're in that low-$40 million sort of ballpark at the midpoint constant currency?
Robert Qutub - Chief Financial Officer
I think the message is that constant currency, we're in the mid – we're looking now at the lower end of $620 million to $640 million, probably benchmarked somewhere at the lower half on a constant currency. Obviously, FX seems to be volatile.
Look what's happened in this first quarter or the second quarter. Sterling has climbed back up, euro has climbed back up.
So, that's why I said, the impact has been on FX given our exposure. Yes, it's been there, but that could be a reversal as we proceed through the year, which we focus on the constant currency.
And again, a piece of that growth is really, I'd call it, growth that was carried over that I mentioned in the first quarter and that'll continue on a year-over-year basis that we've talked about last quarter.
Christopher Shutler - William Blair & Co. LLC
Okay. Thanks.
Operator
Thank you. Our next question comes from the line of Joel Jeffrey with Keefe, Bruyette Woods.
Your line is open.
Joel Michael Jeffrey - Keefe, Bruyette & Woods, Inc.
Hey. Good morning, guys.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Hi.
Joel Michael Jeffrey - Keefe, Bruyette & Woods, Inc.
So just thinking about – looks like you guys are getting more comfortable with your margin growth. Just curious, I mean, how quickly do you think you can get margins back up into kind of the mid-40 (57:39) ranges, and how dependent is that on the improvements from the analytics business?
Robert Qutub - Chief Financial Officer
When we look at our forecasting, and as we take a look at it, we feel – I mean, our run rate is giving you a very good indication top line and what's happening out there, and we're managing our expenses to what we told you would be a midpoint. And as Henry pointed out, we're pulling for the timing of when our margin expansion would occur year-over-year in the first quarter.
So we'll continue to see that steadily increase and we'll measure our costs going forward as we move forward, progress, and expanding the margin over the course of the year.
Joel Michael Jeffrey - Keefe, Bruyette & Woods, Inc.
But I guess in terms of thinking about your business lines, I guess, is the analytics – yeah, the analytics business enough of a headwind to slow that down or could you just actually grow the margin meaningfully enough through the performance line?
Robert Qutub - Chief Financial Officer
No. I think – look, we look at this completely.
We've had some very strong top-line performers, as Henry has pointed out. The index subscription which is core continues to show double-digit growth.
The AUMs have been phenomenal on the ETF. Again, there could be a reversal of fortune out there, but then again, that's a significant piece of our revenue.
Very promising top line growth on both ESG. And when you currency adjust the real estate, that continues to grow as well.
Now, remember, that's the currency adjusted for real estate. Remember, there is exposure on the expenses so we get a benefit offsetting that as well.
The PMA business grew significantly, when you think about it from that context, so it really is isolated to the RMA. And as Henry pointed out, the constant currency run rate was about 5.5%, so we're not all dependent on RMA.
It does have a piece. If it does taper off, that does have some headwinds, but that's focusing in on the run rate on there.
So, we still – look we haven't as of the end of the first quarter, we feel confident of continued margin expansion over the course of the year based on our analysis.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
And I'll also add that everything that I said about the better leverage and better profitability of analytics including RMA, is not factored in in all the communication that we have given you about margin expansion in the course of this year, right. So, if that were to happen faster, it will be better.
But obviously it's hard to tell at this point, clearly how fast we can turn growth around to a faster level and higher profitability so that would be – if we do it and happens this year or next year that would be on top of what we're thinking in terms of margin expansion.
Robert Qutub - Chief Financial Officer
Yeah, Henry's point, we're proactively managing our cost. We're constantly looking for efficiencies, we've demonstrated that in the first quarter.
We will continue to demonstrate that and make tradeoffs going forward for the rest of the year with an eye on profitability.
Joel Michael Jeffrey - Keefe, Bruyette & Woods, Inc.
Great. And then just on the CapEx side, I know you said there was some timing in it, it was a little bit lower, clearly lower than the sort of run rate would imply for the full year based on guidance.
But just from a cash flow perspective, is there any sort of significant CapEx charge you're expecting in the coming quarters, or should we just think about it as sort of a $16 million per quarter rate through the end of the year?
Robert Qutub - Chief Financial Officer
It's kind of chunky. I mean, Joel, I would look at it because as Henry talked to, you've got timing related to certain projects (61:09) so hesitant to make it a straight line.
We're trying to give you a guidance on where we come in for the full year of $55 million to $65 million. For the full year obviously, it was a little bit lower in, so anticipated higher in the out quarters for the rest of the year.
Joel Michael Jeffrey - Keefe, Bruyette & Woods, Inc.
Great. Thanks for taking my questions.
Robert Qutub - Chief Financial Officer
Yeah.
Operator
Thank you. Our next question comes from the line of Patrick O'Shaughnessy with Raymond James.
Your line is open.
Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.
Hi. So, my first question is on smart beta factor indexes, how do you think that what MSCI offers in that arena is differentiated from your competitors?
Is it mostly just a function of your underlying strengths, and then you just apply factor indices to those ETFs, or is there something in your methodology, in your mechanisms that differentiates you from the other index providers?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Well, I mean, through the equity analytics product line, we have been the leader in factor investing since 1975. So, when you think about the content that goes into the analytics product line, remember, there's a lot of content that then gets enabled by an application like BPM.
So, the content is all about factor investing. It's about what are the factors that give you the sources of risk and return in an equity portfolio.
So, the entire DNA of our equity analytics organization is about understanding market factors that are driving risk and return in portfolios. So, when you combine that expertise with the significant expertise that we have in building equity indexes, you end up with something that no other competitor in the marketplace has right now, which is a major expertise on understanding factors and understanding how factors drive portfolios and back-testing those portfolios, and so on and so forth.
Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.
Okay, great. And then for my follow-up, I know it's only been a couple of months, but can you characterize the contributions that you've gotten from your three new board members?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Well, we've had, by now, two board meetings with them. And there was a fairly extensive onboarding process.
Wendy Lane, which is one of our new directors, is sitting here in the room with us. So, welcome, Wendy, to the – to our first quarterly call here.
Wendy E. Lane - Independent Director
Thank you.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
And it has been a significant amount of contribution because they went through a rigorous onboarding process. They are looking at the business with fresh eyes, and that's always good, including people like me looking it for a long time.
So, it's good to see people looking at it from a fresh perspective. And they are very, very good directors that are really eager to contribute to the success of the company.
So, there's been a lot of discussion and debate about all of that. And importantly, because we are – in the next few months, we have our usual annual strategy discussion with the board in the summer, and they're very engaged in doing that with us and helping us sort of think through all the opportunities that we have ahead of us.
Patrick J. O'Shaughnessy - Raymond James & Associates, Inc.
Great. Thank you.
Operator
Thank you. Our next question comes from the line of Keith Housum with Northcoast Research.
Your line is open.
Keith Michael Housum - Northcoast Research Partners LLC
Thanks, guys, I appreciate the opportunity to ask questions. Looking at your employee count sequentially, it actually went down, I think, by 37 employees.
Was this intentional decrease in the head count, or is this a factor of hirings and firings that go on in traditional day-to-day work?
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Well, remember, investments for us is largely, largely people, right? So when we say that we invested as much as we wanted to by now, now is more of a consolidation of that investment plan and (65:12) a lot of return out of that investment plan, and therefore, come back to more normalized levels of investment in the company and expense growth in the company.
You're likely to see that tapering of the growth of head count. So since we have expanded quite a lot in the last 18 months, there was a meaningful deceleration in growth in the first quarter.
It's not clear that that is what's going to continue for the next few quarters because it was one of those things in which we felt we had enough and we took a pause, but that's the rationale for it. But I will not read too much into it on the quarter-to-quarter change at this point, and we're not really managing to our head count, we're managing to an expense base, right?
Robert Qutub - Chief Financial Officer
The first quarter's always got a higher turnover.
Henry A. Fernandez - Chairman, President, Chief Executive Officer & MD
Yeah.
Keith Michael Housum - Northcoast Research Partners LLC
Yeah, got you. Okay.
Then for my follow-up if I may, yeah, the non-comp expense also came down, and I think you guys cited increased discipline. Was there any one-time items in there that perhaps would say that we shouldn't expect the same level of discipline for the rest of the year?
Robert Qutub - Chief Financial Officer
The only item – I mean, is obviously is going to be seasonality some of it. I mean, you can look at the non-cash charge of $500,000 that I referred to in my comments.
If you recall, $3.4 million non-cash, $2.9 million of it was related to compensation. The other half was reversed in non-compensation.
There's going to be some other seasonal charges in there. Obviously, CapEx was low.
We can correlate some of the non-compensation costs to CapEx as we get equipment up and running and get licenses. So, there'd be some correlation there.
But we're really effectively managing the cost on a discretionary basis as tight as we can – as well as we can with good corporate governance.
Keith Michael Housum - Northcoast Research Partners LLC
Got you. Thank you.
Operator
Thank you. I would now like to turn the call over to Stephen Davidson for further remarks.
Stephen C. Davidson - Managing Director & Director-Investor Relations
Thanks, everyone, for your interest in MSCI, and we look forward to speaking with you all soon.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program.
You may all disconnect. Everyone, have a great day.