MSCI Inc. (NYSE:MSCI) Q2 2020 Earnings Conference Call - Final Transcript
Jul 28, 2020 • 11:00 am ET
analytics and technology applications. Hedge funds have, therefore, been both a source of higher cancellations, but also of significant recurring subscription sales growth. As we enter the second half of 2020, while we continue to observe tighter transaction and procurement controls from certain clients, we remain confident in the overall long-term trajectory of our franchise.
Let me now turn the call over to Linda, who will discuss more specifics of our quarterly performance. Linda?
Linda S. Huber
Thank you, Baer, and hello to everyone on the call this morning. The second quarter was another quarter of solid execution for MSCI. Operating revenue grew just over 6%, and recurring subscription run rate grew nearly 10%, reflecting strength in Index recurring subscriptions and ESG as well as more modest growth in asset-based fees, Analytics and Real Estate.
Turning now to assets under management. Assets under management and equity ETFs linked to MSCI indexes ended the second quarter at $825.4 billion, recovering nearly $116 billion from the end of the first quarter. All of this AUM improvement came from a rebound in market levels across all exposures. During the second quarter, we saw net cash outflows of $1.5 billion, driven by ETFs with international exposures that were only partially offset by positive inflows into ETFs linked to MSCI indexes with U.S. exposures. Notably, sequential cash inflows into equity ESG and climate ETFs linked to MSCI indexes totaled $10.4 billion. Additionally, equity ETFs linked to MSCI Factor Indexes saw $2.9 billion of inflows from the first quarter. As of July 22, assets under management linked to MSCI Indexes has further improved to more than $880 billion.
I'll turn now to asset-based fees, which were up slightly at 0.4%. We recorded substantially higher year-over-year asset-based fees in futures and options linked to MSCI indexes, which grew more than 90% to $8.6 million in the quarter. Asset-based fees from non-exchange traded funds linked to MSCI indexes were $26.8 million, growing approximately 7%. Year-over-year, the relatively flat AUM levels and lower basis point fee levels resulted in a decline in asset-based fees from equity ETFs linked to MSCI indexes.
Sequentially, the basis point fee on equity ETFs linked to MSCI indexes decreased 0.04 basis points, predominantly reflecting a mix shift into funds with lower total expense ratios. We ended the second quarter at 2.67 basis points. Our quarter-end ETF AUM linked to MSCI indexes was higher among U.S. exposures sequentially and year-over-year. Our international market exposures in emerging markets and developed markets outside the U.S. were down year-over-year, but both have increased quarter-over-quarter.
And I'll turn now to our adjusted earnings per share growth year-over-year. Higher subscription revenue was the largest driver of our almost 15% growth in adjusted earnings per share. Excluding the impact of FX and including depreciation and amortization, total expenses increased slightly. This was offset by our tighter expense management in the quarter, including the hiring freeze we noted during our last earnings call as well as significantly lower travel and entertainment and other non-compensation expenses.