Exhibit 99.1
 | www.mscibarra.com |
MSCI Inc. Reports First Quarter 2009 Financial Results
New York – April 2, 2009 – MSCI Inc. (NYSE: MXB), a leading global provider of investment decision support tools, including indices and portfolio risk and performance analytics, today announced results for the first quarter ended February 28, 2009.
(Note: Percentage changes are referenced to the comparable period in fiscal year 2008, unless otherwise noted.)
| · | Operating revenues increased 0.9% to $105.9 million in first quarter 2009. |
| · | Adjusted EBITDA increased 1.9% to $48.5 million in first quarter 2009 for an adjusted EBITDA margin of 45.8%. See Table 10 titled "Reconciliation of Adjusted EBITDA to Net Income." |
| · | Net income decreased 6.7% to $16.7 million ($0.16 per diluted share) in first quarter 2009 for a net income margin of 15.8%. |
Henry A. Fernandez, Chairman and CEO, said “We continued to deliver strong financial results under very difficult economic conditions. In the first quarter, we grew revenues for our subscription business 8.6% from a year-ago and expanded our adjusted EBITDA margin by 50 bps to 45.8% through disciplined expense management.”
“Our pipeline of new subscriptions for many of our products remains solid reflecting the favorable response to recent product enhancements as well as the greater need for risk and performance analytical tools during turbulent and volatile market conditions. Yet, that demand is offset by lower retention rates and delays in subscription sales reflecting the budget constraints faced by many of our clients. Our diverse and global client base, the mission critical nature of many of our products and our strong balance sheet position us well for the quarters ahead,” added Mr. Fernandez.
Selected Financial Information
Table 1a
| MSCI Inc. |
| Selected Income Statement Items (unaudited) |
| Three Months Ended | ||||||||||||
| In thousands, except per share data | February 28, 2009 | February 29, 2008 | Change | |||||||||
| Operating revenues | $ | 105,915 | $ | 104,951 | 0.9 | % | ||||||
| Operating expenses | $ | 73,131 | $ | 69,789 | 4.8 | % | ||||||
| Net income | $ | 16,724 | $ | 17,934 | (6.7 | %) | ||||||
| % Margin | 15.8 | % | 17.1 | % | ||||||||
| Diluted EPS | $ | 0.16 | $ | 0.18 | ||||||||
Adjusted EBITDA1 | $ | 48,465 | $ | 47,567 | 1.9 | % | ||||||
| % Margin | 45.8 | % | 45.3 | % | ||||||||
1 See Table 10 titled "Reconciliation of Adjusted EBITDA to Net Income" and information about the use of non-GAAP financial information provided under “Notes Regarding the Use of Non-GAAP Financial Measures.”
Page 1 of 15
| www.mscibarra.com |
Table 1b
| MSCI Inc. | |||||
| Selected Balance Sheet Items (unaudited) | |||||
| February 28, 2009 | November 30, 2008 | |||||||
Cash and cash deposited with related parties1 | $ | 276,881 | $ | 268,077 | ||||
| Trade receivables (net of allowances) | $ | 99,476 | $ | 85,723 | ||||
| Total debt (net of discounts) | $ | 396,274 | $ | 401,795 | ||||
1 Prior to July 1, 2008 excess cash was deposited with Morgan Stanley and is shown separately on the balance sheet under cash deposited with related parties.
Summary of Results for Fiscal First Quarter 2009
Operating Revenues – See Table 7
Total operating revenues for the three months ended February 28, 2009 (first quarter 2009) increased 0.9% to $105.9 million compared to $105.0 million for the three months ended February 29, 2008 (first quarter 2008). The growth was comprised of an 8.6% increase in subscription revenues offset, in part, by a 32.7% decrease in asset based fees. The increase in subscription revenues was driven by growth in revenues related to equity index data subscriptions and Multi-Asset Class Portfolio Analytics, which were up 16.6% and 21.9%, respectively, in first quarter 2009 offset, in part, by declines of 0.6% in Equity Portfolio Analytics and 9.8% in Other Products. Within our subscription product categories, revenue growth was experienced across all client segments with the exception of hedge funds which reported a modest decline. Changes in foreign exchange rates (principally the strengthening of the US dollar) in first quarter 2009 compared to first quarter 2008 had an unfavorable impact on revenues of $1.1 million.
Equity Indices: Revenues related to Equity Indices increased 0.1% to $58.4 million in first quarter 2009 compared to the same period in 2008. Revenues from equity index data subscriptions were up 16.6% to $45.3 million in first quarter 2009 with strength across all regions, most notably the Americas. This growth was led by strong increases in our small cap, emerging market and developed market index modules as well as user fees, custom indices and our value/growth index modules.
Revenues attributable to equity index asset based fees decreased 32.7% to $13.2 million in first quarter 2009 compared to first quarter 2008 reflecting decreases of 32.1% to $9.9 million for ETF asset based fees, 31.5% to $2.7 million for retail and institutional indexed funds asset based fees and 45.3% to $0.6 million for other asset and transaction based fees. The average value of assets in ETFs linked to MSCI equity indices decreased 31.0% to $126.4 billion for first quarter 2009 compared to $183.2 billion for first quarter 2008. As of February 28, 2009, the value of assets in ETFs linked to MSCI equity indices was $107.8 billion, representing a decrease of $71.4 billion, or 39.8%, from $179.2 billion as of February 29, 2008. We estimate that the $71.4 billion year-over-year decline in value of assets in ETFs linked to MSCI equity indices was attributable to $98.1 billion of net asset depreciation offset, in part, by $26.7 billion of net asset inflows.
Compared to fourth quarter 2008, equity index asset based fee revenues decreased 2.2%, including a 5.9% decrease in ETF asset based fees. The average value of assets in ETFs linked to MSCI equity indices declined 6.3% to $126.4 billion from $134.9 billion in fourth quarter 2008. The decline in the value of assets in ETFs linked to MSCI equity indices at the end of first quarter 2009 compared to fourth quarter 2008 was 9.4%, or $11.2 billion. We estimate that the $11.2 billion decrease from November 30, 2008 was attributable to asset depreciation of $13.6 billion offset, in part, by asset inflows of $2.4 billion. The $2.4 billion of asset inflows was comprised of $1.4 billion of asset inflows into established ETFs supplemented by $1.0 billion of asset inflows into ETFs launched over the last 12 months.
Page 2 of 15
| www.mscibarra.com |
The three MSCI indices with the largest amount of ETF assets linked to them as of February 28, 2009 were the MSCI EAFE, Emerging Markets and US Broad Market Indices. The assets linked to these indices were $24.0 billion, $23.6 billion and $7.5 billion, respectively.
Equity Portfolio Analytics: Revenues related to Equity Portfolio Analytics products decreased 0.6% to $32.1 million compared to the same period in 2008, resulting from lower levels of new subscriptions and retention rates during the second half of 2008, most notably for Aegis (our proprietary equity risk data and software product). Revenue from Aegis declined 6.0% to $21.5 million. This decline was offset by gains of 13.9% to $9.4 million for Models Direct (our proprietary risk data product accessed directly) and 2.1% to $1.2 million for Barra on Vendors (our proprietary risk data product accessed through third party vendors).
Multi-Asset Class Portfolio Analytics: Revenues related to Multi-Asset Class Portfolio Analytics increased 21.9% to $9.6 million in first quarter 2009 compared to the same period in 2008. This growth reflects an increase of 37.4% to $7.4 million for BarraOne and a decrease of 12.0% to $2.2 million for Total Risk, which is in the process of being transitioned and decommissioned as its existing users are being offered the opportunity to transition to BarraOne. The strong revenue performance of BarraOne reflects growth in new subscriptions to asset managers and asset owners, particularly in fourth quarter 2008, and relatively high retention rates.
Other Products: Revenues from Other Products decreased 9.8% to $5.7 million in first quarter 2009 compared to the same period in 2008. The decrease reflects a decline of 1.4% to $1.6 million for fixed income analytics and a decrease of 76.6% to $0.3 million in asset based fees from investment products linked to MSCI investable hedge fund indices offset, in part, by an increase of 11.1% to $3.8 million for our energy and commodity analytics products. Revenue growth in our energy and commodity business was, in part, due to increased sales of models used to measure the value of natural gas storage and power generation facilities.
Operating Expenses – See Tables 8 - 9
Operating expenses increased $3.3 million, or 4.8%, to $73.1 million in first quarter 2009 compared to first quarter 2008. The $3.3 million increase reflects increases of $3.3 million in compensation expense (including higher founders grant expense of $1.4 million) and $2.6 million in depreciation expense offset, in part, by decreases of $1.9 million in non-compensation expense and $0.7 million in amortization of intangibles. Changes in foreign exchange rates (principally the strengthening of the US dollar) in first quarter 2009 compared to first quarter 2008 had a favorable impact on reported operating expenses of $3.6 million.
In first quarter 2009, allocation and replacement expenses related to Morgan Stanley services were $9.8 million ($3.0 million of compensation and $6.8 million of non-compensation) compared to $8.9 million ($1.2 million of compensation and $7.7 million of non-compensation) in first quarter 2008. The expense allocation from Morgan Stanley was $1.0 million in first quarter 2009 compared to $6.2 million in first quarter 2008. Replacement expenses associated with services previously provided by Morgan Stanley were $8.7 million (including $2.2 million of depreciation expense and $1.4 million of non-recurring expenses) in first quarter 2009 compared to $2.7 million in first quarter 2008. Please see tables 9a and 9b for details.
Compensation expense increased 8.1% to $44.5 million in first quarter 2009. Excluding founders grant expenses, compensation expense increased 5.3% to $38.3 million. The increase reflects compensation cost for new hires which was offset, in part, by favorable foreign exchange rates (principally the strengthening of the US dollar) which lowered reported compensation expense for staff located outside the United States. The number of full-time employees increased by 146 to 798 on February 28, 2009 from 652 on February 28, 2008 and by 32 from 766 on November 30, 2008. In first quarter 2009, we continued to increase our staff in emerging market centers. As of February 28, 2009, 32% of employees were located in emerging market centers compared to 21% as of February 28, 2008. On February 28, 2009, 160 full-time employees were located in Mumbai and Budapest compared to 83 on February 28, 2008 and 120 on November 30, 2008.
Page 3 of 15
| www.mscibarra.com |
Non-compensation expenses excluding depreciation and amortization of intangibles decreased 8.9% to $19.2 million reflecting the reduction in the expense allocation from Morgan Stanley offset, in part, by increases in expenses related to replacing services previously provided by Morgan Stanley including information technology and professional services expenses.
Depreciation expense increased to $3.1 million from $0.5 million reflecting the depreciation expense related to capitalized information technology expenditures we incurred in order to replace services previously provided by Morgan Stanley.
Cost of services expenses decreased 6.2% to $28.9 million in first quarter 2009. Compensation expenses increased 5.3% to $21.3 million reflecting higher founders grant expense of $0.8 million and higher headcount which was offset, in part, by favorable foreign exchange rates which lowered reported compensation expense for staff outside the United States. Non-compensation expenses decreased 28.2% to $7.6 million largely reflecting a lower expense allocation from Morgan Stanley.
Selling, general and administrative expenses increased 10.8% to $34.7 million in first quarter 2009. Compensation expenses increased 10.8% to $23.2 million, reflecting higher founders grant expense of $0.6 million and higher headcount including positions associated with the replacement of Morgan Stanley services offset, in part, by favorable foreign exchange rates which lowered reported compensation expense for staff outside the United States. Non- compensation expenses increased 10.9% to $11.5 million reflecting an increase in expenses related to replacing services previously provided by Morgan Stanley including higher information technology and professional services expenses offset, in part, by a reduction in the expense allocation from Morgan Stanley. Selling expenses decreased 0.9% to $12.0 million in first quarter 2009 and general and administrative expenses increased 18.2% to $22.7 million.
Founders grant expenses increased to $6.2 million in first quarter 2009 compared to $4.8 million in first quarter 2008, reflecting less attrition of employees with founders grant awards. Expenses related to the founders grant awards reflects the amortization of share based compensation expenses associated with restricted stock units and options awarded to employees as a one-time grant in connection with our IPO completed in November 2007. Of the $6.2 million of founders grant expenses in first quarter 2009, $2.0 million was recorded in cost of services and $4.2 million was recorded in selling, general and administrative.
Interest Expense (Income) and Other, Net
Interest expense (income) and other, net was an expense of $6.4 million in first quarter 2009 compared to an expense of $6.4 million in first quarter 2008 with lower interest expense of $2.8 million offset by a $0.5 million increase in foreign currency and other losses and $2.3 million of lower interest income.
Provision for Income Taxes
The provision for income taxes decreased 10.6% to $9.7 million in first quarter 2009 as a result of lower pre-tax income. The effective tax rate for first quarter 2009 was 36.6% compared to 37.6% in first quarter 2008. The lower effective tax rate largely reflects one-time tax benefits in first quarter 2009 not related to current year earnings.
Net Income
Net income decreased 6.7% to $16.7 million in first quarter 2009 from first quarter 2008 and the net income margin decreased to 15.8% from 17.1%. The decline in net income primarily reflects higher depreciation ($3.1 million in first quarter 2009 compared to $0.5 million in first quarter 2008), higher founders grant expense ($6.2 million compared to $4.8 million) and higher allocation and replacement expenses related to services provided by Morgan Stanley ($9.8 million compared to $8.9 million) offset, in part, by lower income taxes ($9.7 million compared to $10.8 million) and higher revenues ($105.9 million compared to $105.0 million).
Adjusted EBITDA
Adjusted EBITDA increased 1.9% to $48.5 million for first quarter 2009 from $47.6 million for first quarter 2008. See Table 10 titled “Reconciliation of Adjusted EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP
Page 4 of 15
| www.mscibarra.com |
Financial Measures” below. The adjusted EBITDA margin increased to 45.8% in first quarter 2009 from 45.3% in first quarter 2008.
Retention Rate
Our Aggregate Retention Rate (as defined in Table 3) declined to 90.8% for first quarter 2009 from 96.6% for first quarter 2008, reflecting year-over-year declines in each of the four product categories. Our Core Retention Rate (as defined in Table 3) was 91.3% for first quarter 2009 compared to 97.2% for first quarter 2008. See Table 3 for Retention Rates by product category.
Client Count
At February 28, 2009, we had a total of 3,074 clients, excluding clients that pay only asset based fees, as compared to 2,980 at February 29, 2008 and 3,091 at November 30, 2008. The sequential decline in the client count largely reflects a decline in the number of hedge fund clients resulting from the transfer of our hedge fund index data business to Morningstar offset, in part, by an increase in the number of asset manager and asset owner clients. Excluding the transfer of our hedge fund index data business, our client count increased by four from November 30, 2008.
Page 5 of 15
| www.mscibarra.com |
Table 2
| Run Rate Metrics | ||||||||||||||||||||
| As of | Change from | |||||||||||||||||||
| February 28, | February 29, | November 30, | February 29, | November 30, | ||||||||||||||||
| In thousands | 2009 | 2008 | 2008 | 2008 | 2008 | |||||||||||||||
Run Rates1 | ||||||||||||||||||||
| Equity indices | ||||||||||||||||||||
| Subscription | $ | 174,242 | $ | 151,945 | $ | 170,992 | 14.7 | % | 1.9 | % | ||||||||||
Asset based fees2 | 50,574 | 72,927 | 51,596 | (30.7 | %) | (2.0 | %) | |||||||||||||
| Equity Indices total | 224,816 | 224,872 | 222,588 | 0.0 | % | 1.0 | % | |||||||||||||
| Equity portfolio analytics | 126,789 | 132,457 | 129,168 | (4.3 | %) | (1.8 | %) | |||||||||||||
| Multi-asset class analytics | 35,309 | 30,344 | 35,105 | 16.4 | % | 0.6 | % | |||||||||||||
| Other | ||||||||||||||||||||
| Subscription | 19,993 | 18,630 | 19,699 | 7.3 | % | 1.5 | % | |||||||||||||
| Hedge fund asset based fees | 1,000 | 4,471 | 1,380 | (77.6 | %) | (27.5 | %) | |||||||||||||
| Other total | 20,993 | 23,101 | 21,079 | (9.1 | %) | (0.4 | %) | |||||||||||||
| Total Run Rate | $ | 407,907 | $ | 410,774 | $ | 407,940 | (0.7 | %) | 0.0 | % | ||||||||||
| Subscription total | 356,333 | 333,376 | 354,964 | 6.9 | % | 0.4 | % | |||||||||||||
| Asset based fees total | 51,574 | 77,398 | 52,976 | (33.4 | %) | (2.6 | %) | |||||||||||||
| Total Run Rate | $ | 407,907 | $ | 410,774 | $ | 407,940 | (0.7 | %) | 0.0 | % | ||||||||||
| Subscription based fees by region | ||||||||||||||||||||
| % Americas | 45 | % | 44 | % | 45 | % | ||||||||||||||
| % non-Americas | 55 | % | 56 | % | 55 | % | ||||||||||||||
| Subscription based fees by client type | ||||||||||||||||||||
| % Asset Managers | 60.8 | % | 62.2 | % | 61.6 | % | ||||||||||||||
| % Broker Dealers | 12.3 | % | 12.3 | % | 12.1 | % | ||||||||||||||
| % Hedge Funds | 6.1 | % | 6.2 | % | 6.1 | % | ||||||||||||||
| % Asset Owners | 6.1 | % | 5.7 | % | 6.0 | % | ||||||||||||||
| % Others | 14.6 | % | 13.6 | % | 14.3 | % | ||||||||||||||
1 The run rate at a particular point in time represents the forward-looking fees for the next 12 months from all subscriptions and investment product licenses we currently provide to our clients under renewable contracts assuming all contracts that come up for renewal are renewed and assuming then-current exchange rates. For any license whose fees are linked to an investment product’s assets or trading volume, the run rate calculation reflects an annualization of the most recent periodic fee earned under such license. The run rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we remove from the run rate the fees associated with any subscription or investment product license agreement with respect to which we have received a notice of termination or non-renewal at the time we receive such notice, even if the notice is not effective until a later date. |
2 Includes asset based fees for ETFs, retail and institutional indexed funds, transaction volume-based fees for futures and options traded on certain MSCI indices and other structured products. |
Page 6 of 15
| www.mscibarra.com |
Retention Rates
| As of | |||||||||
| February 28, | February 29, | November 30, | |||||||
| 2009 | 2008 | 2008 | |||||||
Aggregate Retention Rate 1,3 | |||||||||
| Equity indices | 94.9% | 98.0% | 89.3% | ||||||
| Equity portfolio analytics | 86.2% | 95.2% | 69.6% | ||||||
| Multi-asset class analytics | 92.0% | 98.6% | 85.1% | ||||||
| Other products | 83.3% | 91.7% | 80.8% | ||||||
| Total aggregate retention | 90.8% | 96.6% | 80.6% | ||||||
Core Retention Rate 2,3 | |||||||||
| Equity indices | 95.0% | 98.1% | 89.5% | ||||||
| Equity portfolio analytics | 87.4% | 96.8% | 80.5% | ||||||
| Multi-asset class analytics | 92.0% | 98.6% | 86.8% | ||||||
| Other products | 84.0% | 91.7% | 83.6% | ||||||
| Total core retention | 91.3% | 97.2% | 85.3% | ||||||
1 Our Aggregate Retention Rate represents the percentage of the subscription run rate as of the beginning of the period that is not cancelled during the period. The Aggregate Retention Rate is computed on a product-by-product basis. Therefore, if a client reduces the number of products to which it subscribes or switches between our products, we treat it as a cancellation. In addition, we treat any reduction in fees resulting from renegotiated contracts as a cancellation in the calculation to the extent of the reduction. The Aggregate Retention Rate for non-annual periods are annualized. Aggregate Retention Rates are generally higher during the first three fiscal quarters and lower in the fourth fiscal quarter.
2 Our Core Retention Rate is calculated similarly to our Aggregate Retention Rate except that the Core Retention Rate does not treat switches between our products as cancellation.
3 The Aggregate and Core Retention Rates shown are for the three-month periods ended February 28, 2009, February 29, 2008 and November 30, 2008, respectively.
Table 4
| Clients and Employees | ||||||||||||||||||||
| As of | Change from | |||||||||||||||||||
| February 28, | February 29, | November 30, | February 29, | November 30, | ||||||||||||||||
| 2009 | 2008 | 2008 | 2008 | 2008 | ||||||||||||||||
Client count 1 | 3,074 | 2,980 | 3,091 | 3.2% | (0.5%) | |||||||||||||||
| Full-time employees | 798 | 652 | 766 | 22.4% | 4.2% | |||||||||||||||
1 The client count excludes clients that pay only asset based fees. Our client count includes affiliates, cities and certain business units within a single organization as distinct clients when they separately subscribe to our products.
Page 7 of 15
| www.mscibarra.com |
Table 5
| ETF Assets Linked to MSCI Indices | |||||||||||||
| Quarter-end AUM | |||||||||||||
| Change from | ||||||||||||||||||||||||||||
| 2008 | 2009 | February 29, | November 30, | |||||||||||||||||||||||||
| In billions | February | May | August | November | February | 2008 | 2008 | |||||||||||||||||||||
| AUM in ETFs linked to MSCI Indices | $ | 179.2 | $ | 199.6 | $ | 166.3 | $ | 119.0 | $ | 107.8 | (39.8%) | (9.4%) | ||||||||||||||||
| Sequential Change (In billions) | ||||||||||||||||||||||||||||
| Appreciation/Depreciation | $ | (15.2 | ) | $ | 9.9 | $ | (31.2 | ) | $ | (63.2 | ) | $ | (13.6 | ) | ||||||||||||||
| Cash Inflow / Outflow | 2.7 | 10.5 | (2.1 | ) | 15.9 | 2.4 | ||||||||||||||||||||||
| Total Change | $ | (12.5 | ) | $ | 20.4 | $ | (33.3 | ) | $ | (47.3 | ) | $ | (11.2 | ) | ||||||||||||||
| Source: Bloomberg and MSCI | ||||||||||||||||||||||||||||
| Quarterly Average AUM |
| Change from | ||||||||||||||||||||||||||||
| 2008 | 2009 | February 29, | November 30, | |||||||||||||||||||||||||
| In billions | February | May | August | November | February | 2008 | 2008 | |||||||||||||||||||||
| AUM in ETFs linked to MSCI Indices | $ | 183.2 | $ | 184.4 | $ | 178.3 | $ | 134.9 | $ | 126.4 | (31.0%) | (6.3%) | ||||||||||||||||
Source: Bloomberg and MSCI
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s senior management review first quarter 2009 results on Thursday, April 2, 2009 at 11:00 am Eastern time. To hear the live event, visit the investor relations section of MSCI's website, www.mscibarra.com, or dial 1-877-419-6593 within the United States. International callers dial 1- 719-325- 4856.
An audio recording of the conference call will be available on our website approximately two hours after the conclusion of the live event and will be accessible through April 9, 2009. To listen to the recording, visit the investor relations section of www.mscibarra.com, or dial 1-888-203-1112 (passcode: 3422785) within the United States. International callers dial 1-719-457-0820 (passcode: 3422785).
About MSCI Inc.
MSCI Inc. is a leading provider of investment decision support tools to investment institutions worldwide. MSCI Inc. products include indices and portfolio risk and performance analytics for use in managing equity, fixed income and multi-asset class portfolios.
The company’s flagship products are the MSCI International Equity Indices, which are estimated to have over USD 3 trillion benchmarked to them, and the Barra risk models and portfolio analytics, which cover 56 equity and 46 fixed income markets. MSCI Inc. is headquartered in New York, with research and commercial offices around the world. Morgan Stanley, a global financial services firm, is the controlling shareholder of MSCI Inc. MXB#IR
Page 8 of 15
| www.mscibarra.com |
| For further information on MSCI Inc. or our products please visit www.mscibarra.com. | |
| MSCI Inc. Contact: | |
| Lisa Monaco, MSCI, New York | + 1.866.447.7874 |
| For media inquiries please contact: | |
| Sally Todd | Clare Milton, Penrose Financial, London | + 44.20.7786.4888 |
| Pen Pendleton | Patrick Clifford, Abernathy MacGregor, New York | + 1.212.371.5999 |
| Forward-Looking Statements |
This release contains forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements.
Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in MSCI's Annual Report on form 10-K for the fiscal year ended November 30, 2008 and filed with the Securities and Exchange Commission on January 29, 2009 and in quarterly reports on form 10-Q and current reports on form 8-K. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this release reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise.
Page 9 of 15
| www.mscibarra.com |
Table 6
MSCI Inc.
Consolidated Statements of Income (unaudited)
| Three Months Ended | ||||||||||||
| In thousands, except per share data | February 28, 2009 | February 29, 2008 | November 30, 2008 | |||||||||
| Operating revenues | $ | 105,915 | $ | 104,951 | $ | 107,416 | ||||||
| Operating expenses | ||||||||||||
Cost of services1 | 28,935 | 30,860 | 35,094 | |||||||||
Selling, general and administrative1 | 34,716 | 31,320 | 32,299 | |||||||||
| Amortization of intangible assets | 6,429 | 7,125 | 7,125 | |||||||||
Depreciation and amortization of property, equipment, and leasehold improvement1 | 3,051 | 484 | 2,696 | |||||||||
| Total operating expenses | 73,131 | 69,789 | 77,214 | |||||||||
| Operating income | 32,784 | 35,162 | 30,202 | |||||||||
| Interest income | (121 | ) | (2,372 | ) | (419 | ) | ||||||
| Interest expense | 5,638 | 8,463 | 5,810 | |||||||||
| Other expense | 882 | 336 | 4,435 | |||||||||
| Interest expense (income) and other, net | 6,399 | 6,427 | 9,826 | |||||||||
| Income before income taxes | 26,385 | 28,735 | 20,376 | |||||||||
| Provision for income taxes | 9,661 | 10,801 | 7,551 | |||||||||
| Net income | $ | 16,724 | $ | 17,934 | $ | 12,825 | ||||||
| Earnings per basic common share | $ | 0.17 | $ | 0.18 | $ | 0.13 | ||||||
| Earnings per diluted common share | $ | 0.16 | $ | 0.18 | $ | 0.13 | ||||||
| Weighted average shares outstanding used in computing earnings per share | ||||||||||||
| Basic | 100,286 | 100,011 | 100,060 | |||||||||
| Diluted | 101,471 | 100,728 | 101,067 | |||||||||
1During the three months ended February 28, 2009, certain balances for prior periods have been reclassified to conform to current period presentations.
Page 10 of 15
| www.mscibarra.com |
Operating Revenues by Product Category
| Three Months Ended | Change from | |||||||||||||||||||
| February 28, | February 29, | November 30, | February 29, | November 30, | ||||||||||||||||
| In thousands | 2009 | 2008 | 2008 | 2008 | 2008 | |||||||||||||||
| Equity indices | ||||||||||||||||||||
| Equity index subscriptions | $ | 45,267 | $ | 38,809 | $ | 45,538 | 16.6 | % | (0.6 | %) | ||||||||||
| Equity index asset based fees | 13,182 | 19,588 | 13,472 | (32.7 | %) | (2.2 | %) | |||||||||||||
| Equity indices total | 58,449 | 58,397 | 59,010 | 0.1 | % | (1.0 | %) | |||||||||||||
| Equity portfolio analytics | 32,140 | 32,342 | 32,495 | (0.6 | %) | (1.1 | %) | |||||||||||||
| Multi-asset class portfolio analytics | 9,623 | 7,892 | 9,384 | 21.9 | % | 2.5 | % | |||||||||||||
| Other products | 5,703 | 6,320 | 6,527 | (9.8 | %) | (12.6 | %) | |||||||||||||
| Total operating revenues | $ | 105,915 | $ | 104,951 | $ | 107,416 | 0.9 | % | (1.4 | %) | ||||||||||
| Subscription | 92,733 | 85,363 | 93,944 | 8.6 | % | (1.3 | %) | |||||||||||||
| Equity index asset based fees | 13,182 | 19,588 | 13,472 | (32.7 | %) | (2.2 | %) | |||||||||||||
| Total operating revenues | $ | 105,915 | $ | 104,951 | $ | 107,416 | 0.9 | % | (1.4 | %) | ||||||||||
Table 8a
Operating Expenses by Category
(Compensation vs. Non-compensation)
| Three Months Ended | ||||||||||||
| February 28, | February 29, | |||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Compensation | $ | 38,299 | $ | 36,367 | 5.3 | % | ||||||
| Non-compensation excluding depreciation | 19,151 | 21,017 | (8.9 | %) | ||||||||
| Total | 57,450 | 57,384 | 0.1 | % | ||||||||
| Amortization of intangible assets | 6,429 | 7,125 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 3,051 | 484 | nm | |||||||||
| Operating expenses excluding founders grant | 66,930 | 64,993 | 3.0 | % | ||||||||
| Founders grant | 6,201 | 4,796 | 29.3 | % | ||||||||
| Operating expenses including founders grant | $ | 73,131 | $ | 69,789 | 4.8 | % | ||||||
| All nm figures are not meaningful |
Page 11 of 15
| www.mscibarra.com |
Table 8b
Operating Expenses by Category
(Cost of Services vs. Selling, General and Administrative)
| Three Months Ended | ||||||||||||
| February 28, | February 29, | |||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Cost of services | ||||||||||||
| Compensation | $ | 19,252 | $ | 18,938 | 1.7 | % | ||||||
| Non-compensation excluding depreciation | 7,638 | 10,633 | (28.2 | %) | ||||||||
| Total | 26,890 | 29,571 | (9.1 | %) | ||||||||
| Selling, general and administrative | ||||||||||||
| Compensation | 19,047 | 17,429 | 9.3 | % | ||||||||
| Non-compensation excluding depreciation | 11,513 | 10,384 | 10.9 | % | ||||||||
| Total | 30,560 | 27,813 | 9.9 | % | ||||||||
| Amortization of intangible assets | 6,429 | 7,125 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 3,051 | 484 | nm | |||||||||
| Operating expenses excluding founders grant | 66,930 | 64,993 | 3.0 | % | ||||||||
| Founders grant | 6,201 | 4,796 | 29.3 | % | ||||||||
| Operating expenses including founders grant | $ | 73,131 | $ | 69,789 | 4.8 | % | ||||||
| All nm figures are not meaningful |
| Table 8c |
Operating Expenses by Category including founders grant
(Cost of Services vs. Selling, General and Administrative)
| Three Months Ended | ||||||||||||
| February 28, | February 29, | |||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Cost of services | ||||||||||||
| Compensation | $ | 19,252 | $ | 18,938 | 1.7 | % | ||||||
| Founders grant | 2,045 | 1,289 | - | |||||||||
| Total | 21,297 | 20,227 | 5.3 | % | ||||||||
| Non-compensation excluding depreciation | 7,638 | 10,633 | (28.2 | %) | ||||||||
| Total | 28,935 | 30,860 | (6.2 | %) | ||||||||
| Selling, general and administrative | ||||||||||||
| Compensation | 19,047 | 17,429 | 9.3 | % | ||||||||
| Founders grant | 4,156 | 3,507 | 18.5 | % | ||||||||
| Total | 23,203 | 20,936 | 10.8 | % | ||||||||
| Non-compensation excluding depreciation | 11,513 | 10,384 | 10.9 | % | ||||||||
| Total | 34,716 | 31,320 | 10.8 | % | ||||||||
| Amortization of intangible assets | 6,429 | 7,125 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 3,051 | 484 | nm | |||||||||
| Operating expenses including founders grant | $ | 73,131 | $ | 69,789 | 4.8 | % | ||||||
All nm figures are not meaningful
Page 12 of 15
| www.mscibarra.com |
Table 9a
Allocation and Replacement Expenses Related to Morgan Stanley Services
| Three Months Ended | ||||||||
| February 28, | February 29, | |||||||
| In thousands | 2009 | 2008 | ||||||
| Allocation Expenses | $ | 1,040 | $ | 6,176 | ||||
| Replacement Expenses | ||||||||
| Compensation | 2,994 | 1,192 | ||||||
| Non-compensation | ||||||||
| Recurring | 2,067 | 755 | ||||||
| Non-recurring | 1,432 | 757 | ||||||
| Depreciation | 2,227 | 10 | ||||||
| Non-compensation total | 5,726 | 1,522 | ||||||
| Replacement Expenses total | 8,720 | 2,714 | ||||||
| Total Allocation and Replacement Expenses | $ | 9,760 | $ | 8,890 | ||||
| Compensation total | 2,994 | 1,192 | ||||||
| Non-compensation total | 6,766 | 7,698 | ||||||
| Total Allocation and Replacement Expenses | $ | 9,760 | $ | 8,890 | ||||
Table 9b
Allocation and Replacement Expenses Related to Morgan Stanley Services
(Cost of Services vs. Selling, General & Administrative)
| Three Months Ended | ||||||||
| February 28, | February 29, | |||||||
| In thousands | 2009 | 2008 | ||||||
| Cost of services | ||||||||
| Allocation | $ | 267 | $ | 3,409 | ||||
| Cost of services total | 267 | 3,409 | ||||||
| Selling, general & administrative | ||||||||
| Replacement compensation | 2,994 | 1,192 | ||||||
| Non-compensation | ||||||||
| Allocation | 773 | 2,767 | ||||||
| Replacement | ||||||||
| Recurring | 2,067 | 755 | ||||||
| Non-Recurring | 1,432 | 757 | ||||||
| Depreciation | 2,227 | 10 | ||||||
| Non-compensation total | 6,499 | 4,289 | ||||||
| Selling, general & administrative total | 9,493 | 5,481 | ||||||
| Total Allocation and Replacement Expenses | $ | 9,760 | $ | 8,890 | ||||
| Cost of services total | 267 | 3,409 | ||||||
| Selling, general & administrative total | 9,493 | 5,481 | ||||||
| Total Allocation and Replacement Expenses | $ | 9,760 | $ | 8,890 | ||||
Page 13 of 15
| www.mscibarra.com |
| Table 10 | |||||||
Reconciliation of Adjusted EBITDA to Net Income
| Three Months Ended | ||||||||||||
| February 28, | February 28, | November 30, | ||||||||||
| In thousands | 2009 | 2008 | 2008 | |||||||||
| Adjusted EBITDA | $ | 48,465 | $ | 47,567 | $ | 48,590 | ||||||
| Less: Founders grant expense | 6,201 | 4,796 | 8,567 | |||||||||
| Less: Depreciation and amortization | 3,051 | 484 | 2,696 | |||||||||
| Less: Amortization of intangible assets | 6,429 | 7,125 | 7,125 | |||||||||
| Less: Interest expense (income) and other, net | 6,399 | 6,427 | 9,826 | |||||||||
| Less: Provision for income taxes | 9,661 | 10,801 | 7,551 | |||||||||
| Net income | $ | 16,724 | $ | 17,934 | $ | 12,825 | ||||||
Notes Regarding the Use of Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is defined as income before interest income, interest expense, other income, provision for income taxes, depreciation, amortization and founders grant expense. Adjusted EBITDA is not presented as an alternative measure of operating results, as determined in accordance with accounting principles generally accepted in the U.S. Rather, we believe adjusted EBITDA is one additional measure that investors use to evaluate companies, like our company, that have substantial amortization of intangible assets and other unusual one-time non-cash charges included in their statement of income. This is particularly relevant to a company in our industry because we do not believe other companies in our industry have as significant a proportion of their operating expenses represented by amortization of intangible assets and one-time founders grant as we do. As stated above, adjusted EBITDA excludes expense for the one-time $68.0 million founders grant which is being amortized through 2011. Management believes that it is useful to exclude the founders grant expense in order to focus on what is deemed to be a more reliable indicator of ongoing operating performance. Amortization expense for the one-time $68.0 million founders grant, representing restricted stock units and options awarded to employees effective with the IPO, is expected to be amortized through 2011.
Additionally, our management uses adjusted EBITDA to compare MSCI to other companies in the same industry when evaluating relative performance and industry development. Adjusted EBITDA as presented herein, however, may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA is a non-GAAP measure that should not be considered as an alternative to net income, as an indication of financial performance or as an alternative to cash flow from operations as a measure of liquidity.
Page 14 of 15
| www.mscibarra.com |
Operating Expenses excluding Founders Grant
Operating expenses excluding founders grant (described above), cost of services expenses excluding founders grant, and selling, general, and administrative expenses excluding founders grant are deemed to be a more reliable indicator of ongoing expense trends. Management believes that it is useful to exclude founders grant expenses from operating expenses because the founders grant was a one-time event, although the amortization expense of the award will be recognized over four years.
Page 15 of 15