Exhibit 99.1
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MSCI Inc. Reports Second Quarter 2009 Financial Results
New York – July 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 second quarter ended May 31, 2009.
(Note: Percentage changes are referenced to the comparable period in fiscal year 2008, unless otherwise noted.)
| · | Operating revenues increased 1.1% to $109.4 million in second quarter 2009 and 1.0% to $215.3 million for first half 2009. |
| · | Adjusted EBITDA increased 12.6% to a record $53.4 million in second quarter 2009 for an adjusted EBITDA margin of a record 48.8% and increased 7.2% to $101.9 million for an adjusted EBITDA margin of 47.3% for first half 2009. See Tables 10 and 16 each titled "Reconciliation of Adjusted EBITDA to Net Income." |
| · | Net income increased 5.3% to $19.6 million ($0.19 per diluted share) in second quarter 2009 for a net income margin of 17.9% and decreased 0.6% to $36.3 million for first half 2009 for a net income margin of 16.9%. |
Henry A. Fernandez, Chairman and CEO, said “Our strong financial performance in the second quarter highlights the resiliency of our business model despite continuing uncertainty in financial markets globally. Our revenues and adjusted EBITDA increased 1.1% and 12.6% from a year-ago, respectively, and our adjusted EBITDA margin reached a record 48.8%. The recovery in our revenues from exchange traded fund licenses and continued expense management during the quarter contributed to the strong financial performance.”
“Moreover, the frequency of client inquiries increased and the tone of client dialogue improved during the quarter reflecting the rebound in financial markets as well as the ongoing demand for our risk and performance tools. However, this improvement has not yet contributed meaningfully to additional subscription sales and our retention rate remains under pressure as we continue to encounter budget constraints by many of our clients. Despite the near-term challenges, we remain enthusiastic about the growth opportunities in front of us and are accelerating our investment in the business by adding resources globally. We are also excited about achieving our complete independence as a public company and remain fully focused on growing our market leading businesses,” added Mr. Fernandez.
Selected Financial Information
Table 1a
MSCI Inc.
Selected Income Statement Items (unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
| May 31, | May 31, | |||||||||||||||||||||||
| In thousands, except per share data | 2009 | 2008 | Change | 2009 | 2008 | Change | ||||||||||||||||||
| Operating revenues | $ | 109,375 | $ | 108,195 | 1.1 | % | $ | 215,290 | $ | 213,146 | 1.0 | % | ||||||||||||
| Operating expenses | $ | 72,721 | $ | 75,288 | (3.4 | %) | $ | 145,852 | $ | 145,077 | 0.5 | % | ||||||||||||
| Net income | $ | 19,618 | $ | 18,631 | 5.3 | % | $ | 36,342 | $ | 36,565 | (0.6 | %) | ||||||||||||
| % Margin | 17.9 | % | 17.2 | % | 16.9 | % | 17.2 | % | ||||||||||||||||
| Diluted EPS | $ | 0.19 | $ | 0.18 | 5.6 | % | $ | 0.36 | $ | 0.36 | 0.0 | % | ||||||||||||
Adjusted EBITDA1 | $ | 53,392 | $ | 47,430 | 12.6 | % | $ | 101,857 | $ | 94,997 | 7.2 | % | ||||||||||||
| % Margin | 48.8 | % | 43.8 | % | 47.3 | % | 44.6 | % | ||||||||||||||||
1 See Tables 10 and 16 each 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.”
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Table 1b
MSCI Inc.
Selected Balance Sheet Items (unaudited)
| As of | ||||||||
| May 31, | February 28, | |||||||
| In thousands | 2009 | 2009 | ||||||
| Cash and cash equivalents | $ | 72,769 | $ | 276,881 | ||||
| Short-term investments | $ | 244,878 | $ | - | ||||
| Accounts receivable | $ | 95,374 | $ | 99,476 | ||||
| Total debt (net of discounts) | $ | 390,752 | $ | 396,274 | ||||
Summary of Results for Fiscal Second Quarter 2009
Operating Revenues – See Table 7
Total operating revenues for the three months ended May 31, 2009 (second quarter 2009) increased 1.1% to $109.4 million compared to $108.2 million for the three months ended May 31, 2008 (second quarter 2008). The growth was comprised of a 4.7% increase to $94.2 million in subscription revenues offset, in part, by a 16.9% decrease to $15.2 million in equity index asset based fees. The increase in subscription revenues was driven by growth in revenues related to equity index subscriptions, Multi-Asset Class Portfolio Analytics and Other Products which were up 13.1%, 11.3% and 2.4%, respectively, in second quarter 2009 offset, in part, by a decline of 6.8% in Equity Portfolio Analytics. Within our subscription product categories, revenue growth was experienced across all regions and all client segments with the exception of hedge funds. Our revenues, excluding asset based fees, for second quarter 2009 would have been higher by $1.2 million had the U.S. dollar not strengthened relative to the prior year using foreign exchange rates for the same period of the prior year.
Equity Indices: Revenues related to Equity Indices increased 4.0% to $62.5 million in second quarter 2009 compared to the same period in 2008. Revenues from equity index subscriptions were up 13.1% to $47.3 million in second quarter 2009 with strength across all regions. Revenue growth was experienced in all client categories, most notably broker dealers and the others category which includes vendors, custodians and private banks. This growth was led by strong increases in our emerging market, small cap and developed market index modules as well as derivative product license fees and user fees, which more than offset a decline in fees for historical index data.
Revenues attributable to equity index asset based fees decreased 16.9% to $15.2 million in second quarter 2009 compared to second quarter 2008 reflecting decreases of 19.4% to $11.7 million for ETF asset based fees, 0.8% to $2.8 million for institutional and retail indexed funds asset based fees and 24.6% to $0.7 million for other asset and transaction based fees. The average value of assets in ETFs linked to MSCI equity indices decreased 27.0% to $134.7 billion for second quarter 2009 compared to $184.4 billion for second quarter 2008. As of May 31, 2009, the value of assets in ETFs linked to MSCI equity indices was $175.9 billion, representing a decrease of $23.7 billion, or 11.9%, from $199.6 billion as of May 31, 2008. We estimate that the $23.7 billion year-over-year decline in value of assets in ETFs linked to MSCI equity indices was attributable to $65.8 billion of net asset depreciation offset, in part, by $42.1 billion of net asset inflows.
Compared to first quarter 2009, equity index asset based fee revenues increased 15.5% led by a 17.5% increase in ETF asset based fees. The average value of assets in ETFs linked to MSCI equity indices increased 6.6% to $134.7 billion from $126.4 billion in first quarter 2009. The increase in the value of assets in ETFs linked to MSCI equity indices at the end of second quarter 2009 compared to first quarter 2009 was 63.1%, or $68.1 billion. We estimate that the $68.1 billion increase from February 28, 2009 was attributable to asset appreciation of $42.2 billion and asset inflows of $25.9 billion. The $25.9 billion of asset inflows was comprised of $24.6 billion of asset inflows into established ETFs supplemented by $1.3 billion of asset inflows into ETFs launched over the last 12 months.
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The three MSCI indices with the largest amount of ETF assets linked to them as of May 31, 2009 were the MSCI Emerging Markets, EAFE and US Broad Market Indices. The assets linked to these indices were $45.1 billion, $33.6 billion and $10.2 billion, respectively.
Equity Portfolio Analytics: Revenues related to Equity Portfolio Analytics products decreased 6.8% to $31.6 million in second quarter 2009 compared to the same period in 2008, resulting from lower levels of new subscriptions and lower retention rates in recent quarters, most notably for Aegis (our proprietary equity risk data and software product). Declines were reported in all client categories with the exception of asset owners and were most pronounced in EMEA. Revenues declined 9.7% to $21.0 million for Aegis, 0.5% to $9.3 million for Models Direct (our proprietary risk data product accessed directly) and 0.8% to $1.3 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 11.3% to $9.6 million in second quarter 2009 compared to the same period in 2008. This growth reflects an increase of 21.6% to $7.2 million for BarraOne and a decrease of 11.1% to $2.4 million for TotalRisk, which is in the process of being decommissioned with its existing users being offered the opportunity to transition to BarraOne. The growth in BarraOne was led by the asset manager category and, from a regional perspective, the Americas, reflecting growth in new subscriptions as well as relatively high retention rates.
Other Products: Revenues from Other Products increased 2.4% to $5.7 million in second quarter 2009 compared to the same period in 2008. The increase reflects growth of 12.6% to $3.7 million for our energy and commodity analytics products offset, in part, by a decline of 7.6% to $1.6 million for fixed income analytics and a decrease of 29.9% to $0.4 million in asset based fees from investment products linked to MSCI investable hedge fund indices. Revenue growth in our energy and commodity business largely reflects continued demand for models used by clients to help measure the value of natural gas storage and power generation facilities.
Operating Expenses – See Tables 8 - 9
Operating expenses decreased $2.6 million, or 3.4%, to $72.7 million in second quarter 2009 compared to second quarter 2008. The $2.6 million decrease reflects declines of $7.0 million in non-compensation expense and $0.7 million in amortization of intangibles offset, by increases of $2.7 million in compensation expense (including higher founders grant expense of $0.5 million) and $2.5 million in depreciation expense. Our operating expense for second quarter 2009 would have been higher by $3.9 million had the U.S. dollar not strengthened relative to the prior year using foreign exchange rates for the same period of the prior year.
In second quarter 2009, allocation and replacement expenses related to services previously provided by Morgan Stanley were $8.8 million ($3.1 million of compensation and $5.7 million of non-compensation) compared to $10.4 million ($1.8 million of compensation and $8.6 million of non-compensation) in second quarter 2008. The expense allocation from Morgan Stanley was $0.7 million in second quarter 2009 compared to $5.4 million in second quarter 2008. Replacement expenses associated with services previously provided by Morgan Stanley were $8.1 million (including $2.2 million of depreciation expense and $0.8 million of non-recurring expenses) in second quarter 2009 compared to $5.1 million in second quarter 2008. Please see tables 9a and 9b for details.
Compensation expense increased $2.7 million, or 6.1%, to $46.6 million in second quarter 2009. Excluding founders grant expenses, compensation expense increased 6.0% to $39.3 million. The increase includes compensation cost for new hires, $1.1 million associated with compensation costs related to the final separation from Morgan Stanley, $1.0 million of severance and $0.8 million of stock based compensation costs relating to the restricted stock units granted as a component of the 2008 annual bonus. These increases were 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 and a lower bonus accrual in second quarter 2009. The number of full-time employees increased by 119 to 805 on May 31, 2009 from 686 on May 31, 2008 and by 7 from 798 on February 28, 2009. In second quarter 2009, we continued to increase our staff in emerging market centers. As of May 31, 2009, 35% of our employees were located in emerging market centers compared to 23% as of May 31, 2008.
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Non-compensation expenses excluding depreciation and amortization of intangibles decreased $7.0 million to $16.7 million, a 29.6% decrease, 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, principally information technology infrastructure.
Depreciation and amortization expense increased to $3.0 million from $0.5 million reflecting greater depreciation and amortization of the property, equipment and leasehold improvements purchased to operate independently from Morgan Stanley.
Cost of services expenses decreased 1.2% to $29.3 million in second quarter 2009. Compensation expenses increased 15.2% to $22.4 million reflecting higher founders grant expense of $1.0 million and higher headcount which were offset, in part, by favorable foreign exchange rates which lowered reported compensation expense for staff outside the United States. Non-compensation expenses decreased 32.7% to $6.8 million largely reflecting a lower expense allocation from Morgan Stanley.
Selling, general and administrative expenses decreased 10.4% to $34.1 million in second quarter 2009. Compensation expenses decreased 1.1% to $24.2 million, reflecting lower founders grant expense of $0.5 million, favorable foreign exchange rates which lowered reported compensation expense for staff outside the United States, and a lower bonus accrual offset, in part, by higher headcount, including positions associated with the replacement of Morgan Stanley services. Non-compensation expenses decreased 27.2% to $9.9 million reflecting declines in the expense allocation from Morgan Stanley, expenses related to replacing services previously provided by Morgan Stanley, and expenses related to occupancy and travel and entertainment. Selling expenses increased 10.3% to $12.3 million in second quarter 2009 and general and administrative expenses decreased 19.1% to $21.7 million.
Founders grant expenses increased to $7.3 million in second quarter 2009 compared to $6.9 million in second quarter 2008, reflecting less attrition of employees with founders grant awards. Expenses related to the founders grant awards reflect 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 $7.3 million of founders grant expenses in second quarter 2009, $2.9 million was recorded in cost of services and $4.4 million was recorded in selling, general and administrative.
Interest Expense (Income) and Other, Net
Interest expense (income) and other, net was an expense of $4.7 million in second quarter 2009 compared to an expense of $2.5 million in second quarter 2008. The $2.2 million increase reflects a reduction of $3.3 million in interest income resulting from lower interest returns on invested balances, partially offset by a decrease of $1.8 million in interest expense due to lower average outstanding debt and the impact of lower interest rates on the unhedged portion of our debt as well as lower income from the change in foreign exchange rates.
Provision for Income Taxes
The provision for income taxes increased 5.1% to $12.4 million in second quarter 2009. The effective tax rate for second quarter 2009 was 38.6% compared to 38.7% in second quarter 2008.
Net Income
Net income increased 5.3% to $19.6 million in second quarter 2009 from second quarter 2008 and the net income margin increased to 17.9% from 17.2%.The increase in net income primarily reflects higher revenue and lower operating expenses.
Adjusted EBITDA
Adjusted EBITDA increased 12.6% to $53.4 million for second quarter 2009 from $47.4 million for second quarter 2008. See Table 10 titled “Reconciliation of Adjusted EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP Financial Measures” below. The adjusted EBITDA margin increased to 48.8% in second quarter 2009 from 43.8% in second quarter 2008.
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Retention Rate
Our Aggregate Retention Rate (as defined in Table 3) declined to 87.7% for second quarter 2009 from 90.6% for second quarter 2008, reflecting year-over-year declines in each of the four product categories except Multi-Asset Class Portfolio Analytics. Our Core Retention Rate (as defined in Table 3) was 89.5% for second quarter 2009 compared to 91.9% for second quarter 2008. See Table 3 for Retention Rates by product category.
Client Count
At May 31, 2009, we had a total of 3,080 clients, excluding clients that pay only asset based fees, as compared to 3,032 at May 31, 2008 and 3,074 at February 28, 2009. The increase compared to February 28, 2009 reflects increases in all client categories with the exception of asset managers.
Summary of Results for First Half Fiscal 2009
Operating Revenues – See Table 12
Total operating revenues for first half ended May 31, 2009 (first half 2009) increased 1.0% to $215.3 million compared to $213.1 million for the first half ended May 31, 2008 (first half 2008). Revenue gains were reported in two of our four product categories. Our revenues, excluding asset based fees, for first half 2009 would have been higher by $2.3 million had the US dollar not strengthened relative to the prior year using foreign exchange rates for the same period of the prior year.
Revenues from our subscription products grew 6.6% in aggregate for first half 2009 to $186.9 million reflecting increased subscriptions from existing clients as well as new clients. Approximately 83% of our new subscriptions during first half 2009 came from existing clients. Revenues attributable to equity index asset based fees decreased 25.1% to $28.4 million in first half 2009 compared to $37.9 million in first half 2008. Within our subscription product categories, revenue growth was experienced across all regions and all client segments with the exception of hedge funds. On a percentage basis, revenue growth was led by our Multi-Asset Class Portfolio Analytics products which increased 16.4% to $19.2 million and was primarily driven by new subscriptions to BarraOne. Revenues related to equity index subscriptions increased 14.8% to $92.5 million for first half 2009 compared to first half 2008.
Revenues from Equity Portfolio Analytics decreased 3.8% to $63.7 million for first half 2009 reflecting lower levels of new subscriptions and lower retention rates and revenues from Other Products decreased 4.0% to $11.4 million for the first half 2009 compared to the same period in 2008. The decline reflects a decrease of 63.4% in asset based fees from investment products linked to MSCI investable hedge fund indices products and a decrease of 4.6% for fixed income analytics offset by an 11.8% increase for our energy and commodity analytics products.
Our Aggregate Retention Rate was 89.2% for the first half 2009 compared to 93.6% for first half 2008. Our Core Retention Rate was 90.4% for the first half 2009 compared to 94.6% for first half 2008.
In first half 2009, we lost 11 clients compared to November 30, 2008. At May 31, 2009, we had a total of 3,080 clients, excluding clients that pay only asset based fees.
Operating Expenses – See Tables 13 - 15
Operating expenses for first half 2009 increased $0.8 million, or 0.5%, to $145.9 million compared to first half 2008. The $0.8 million increase reflects increases of $6.0 million in compensation expense (including higher founders grant expense of $1.9 million) and $5.0 million in depreciation expense offset, in part, by decreases of $8.9 million in non-compensation expense and $1.4 million in amortization of intangibles. Our operating expense for first half 2009 would have been higher by $7.5 million had the U.S. dollar not strengthened relative to the prior year using exchange rates for the same period of the prior year.
In total, allocation and replacement expenses related to services previously provided by Morgan Stanley were $18.6 million ($6.1 million of compensation and $12.5 million of non-compensation) for first half 2009 compared to $19.3
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million ($3.0 million of compensation and $16.3 million of non-compensation) in first half 2008. Expenses associated with replacing services previously provided by Morgan Stanley were $16.8 million for first half 2009 compared to $7.8 million for first half 2008. The expense allocation from Morgan Stanley was $1.7 million for first half 2009 compared to $11.6 million for first half 2008.
Compensation expense increased $6.0 million, or 7.1%, to $91.1 million for first half 2009. Excluding founders grant expenses, compensation expense increased 5.7% to $77.6 million. The increase in compensation expense reflects costs for new hires, $1.5 million of stock based compensation costs relating to the restricted stock units granted as a component of the 2008 annual bonus, $1.1 million associated with compensation costs related to the final separation from Morgan Stanley, and $1.1 million of severance. These increases were 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 and a lower bonus accrual in first half 2009. Non-compensation expense decreased $8.9 million, or 19.8%, to $35.9 million reflecting a reduction in the expense allocation from Morgan Stanley offset, in part, by an increase in expenses related to replacing services previously provided by Morgan Stanley.
Cost of services decreased $2.3 million, or 3.8%, to $58.2 million in first half 2009. The change was largely due to a decrease in costs allocated by Morgan Stanley and a decrease in information technology costs related to our separation from Morgan Stanley, partially offset by an increase in compensation expense.
Selling, general and administrative expenses decreased to $68.8 million in first half 2009. The decline resulted from a decrease in costs allocated by Morgan Stanley, partially offset by an increase in compensation and benefit expense, an increase in the allowance for bad debt compared to the prior year due to market conditions and an increase in franchise and license fees.
Interest Expense (Income) and Other, Net
Interest expense (income) and other, net was an expense of $11.1 million for first half 2009 compared to an expense of $8.9 million for first half 2008. The $2.1 million increase reflects a decrease in interest income resulting from lower interest returns on invested balances and a loss on foreign currency exchange rate changes in first half 2009 compared to a gain for first half 2008, partially offset by a decrease in interest expense due to lower average outstanding debt and the impact of interest rate decreases on the unhedged portion of our debt.
Provision for Income Taxes
The provision for income taxes decreased 2.4% to $22.0 million for first half 2009 compared to first half 2008 as a result of lower pre-tax income, partially offset by the effect of one-time tax items. The effective tax rate for first half 2009 was 37.7% compared to 38.2% for first half 2008. The decrease is largely due to tax credits available during first half 2009 that were not available during the same period in 2008.
Net Income
Net income decreased 0.6% to $36.3 million for first half 2009 from first half 2008 and the net income margin was 16.9%. The decrease in net income primarily reflects higher operating expenses and lower interest income offset, in part, by higher revenues, lower interest expense and a lower effective tax rate.
Adjusted EBITDA
Adjusted EBITDA increased 7.2% to $101.9 million for first half 2009 from $95.0 million for the comparable period in 2008. See Table 16 titled “Reconciliation of Adjusted EBITDA to Net Income.” The adjusted EBITDA margin increased to 47.3% for first half 2009 from 44.6% for first half 2008.
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Table 2
Run Rate Metrics
| As of | Change from | |||||||||||||||||||
| May 31, | February 28, | May 31, | February 29, | |||||||||||||||||
| In thousands | 2009 | 2008 | 2009 | 2008 | 2009 | |||||||||||||||
Run Rates 1 | ||||||||||||||||||||
| Equity indices | ||||||||||||||||||||
| Subscription | $ | 178,634 | $ | 158,989 | $ | 174,242 | 12.4 | % | 2.5 | % | ||||||||||
Asset based fees 2 | 68,892 | 78,926 | 50,574 | (12.7 | %) | 36.2 | % | |||||||||||||
| Equity Indices total | 247,526 | 237,915 | 224,816 | 4.0 | % | 10.1 | % | |||||||||||||
| Equity portfolio analytics | 126,344 | 135,616 | 126,789 | (6.8 | %) | (0.4 | %) | |||||||||||||
| Multi-asset class analytics | 37,194 | 31,861 | 35,309 | 16.7 | % | 5.3 | % | |||||||||||||
Other Products 3 | 21,612 | 22,329 | 20,993 | (3.2 | %) | 2.9 | % | |||||||||||||
| Total Run Rate | $ | 432,676 | $ | 427,721 | $ | 407,907 | 1.2 | % | 6.1 | % | ||||||||||
| Subscription total | 362,784 | 346,010 | 356,333 | 4.8 | % | 1.8 | % | |||||||||||||
| Asset based fees total | 69,892 | 81,711 | 51,574 | (14.5 | %) | 35.5 | % | |||||||||||||
| Total Run Rate | $ | 432,676 | $ | 427,721 | $ | 407,907 | 1.2 | % | 6.1 | % | ||||||||||
| Subscription based fees by region | ||||||||||||||||||||
| % Americas | 44 | % | 44 | % | 45 | % | ||||||||||||||
| % non-Americas | 56 | % | 56 | % | 55 | % | ||||||||||||||
| Subscription based fees by client type | ||||||||||||||||||||
| % Asset Managers | 61.4 | % | 62.2 | % | 60.8 | % | ||||||||||||||
| % Broker Dealers | 12.2 | % | 12.2 | % | 12.3 | % | ||||||||||||||
| % Hedge Funds | 6.0 | % | 6.3 | % | 6.1 | % | ||||||||||||||
| % Asset Owners | 6.1 | % | 5.7 | % | 6.1 | % | ||||||||||||||
| % Others | 14.4 | % | 13.7 | % | 14.6 | % | ||||||||||||||
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 determine that such notice evidences the client's final decision to terminate or not renew the applicable subscription or agreement, even though the notice is not effective until a later date.
2 Includes asset based fees for ETFs, institutional and retail indexed funds, transaction volume-based fees for futures and options traded on certain MSCI indices and other structured products.
3 Includes run rate related to subscriptions to other products, including energy and commodity valuation tools and fixed income analytics, and to hedge fund asset based fees.
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Table 3
Retention Rates
| As of | ||||||||||||
| May 31, | February 28, | |||||||||||
| 2009 | 2008 | 2009 | ||||||||||
Aggregate Retention Rate 1,3 | ||||||||||||
| Equity indices | 92.8 | % | 94.3 | % | 94.9 | % | ||||||
| Equity portfolio analytics | 82.0 | % | 88.9 | % | 86.2 | % | ||||||
| Multi-asset class analytics | 83.2 | % | 76.9 | % | 92.0 | % | ||||||
| Other products | 88.3 | % | 96.1 | % | 83.3 | % | ||||||
| Total aggregate retention | 87.7 | % | 90.6 | % | 90.8 | % | ||||||
Core Retention Rate 2,3 | ||||||||||||
| Equity indices | 93.2 | % | 94.5 | % | 95.0 | % | ||||||
| Equity portfolio analytics | 83.5 | % | 91.8 | % | 87.4 | % | ||||||
| Multi-asset class analytics | 93.7 | % | 76.9 | % | 92.0 | % | ||||||
| Other products | 89.6 | % | 96.1 | % | 84.0 | % | ||||||
| Total core retention | 89.5 | % | 91.9 | % | 91.3 | % | ||||||
1 The quarterly Aggregate Retention Rates are calculated by annualizing the cancellations for which we have received a notice of termination or non-renewal during the quarter and we have determined that such notice evidences the client’s final decision to terminate or not renew the applicable subscription or agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscription Run Rate at the beginning of the year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the quarter. 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. Aggregate Retention Rates are generally higher during the first three fiscal quarters and lower in the fourth fiscal quarter. For the calculation of the Core Retention Rate the same methodology is used except the amount of cancellations in the quarter is reduced by the amount of product swaps.
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 a cancellation.
3 The Aggregate and Core Retention Rates shown are for the three-month periods ended May 31, 2009, May 31, 2008 and February 28, 2009, respectively.
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Table 4
| Clients and Employees |
| As of | Change from | |||||||||||||||||||
| May 31, | February 28, | May 31, | February 28, | |||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
Client count 1 | 3,080 | 3,032 | 3,074 | 1.6 | % | 0.2 | % | |||||||||||||
| Full-time employees | 805 | 686 | 798 | 17.4 | % | 0.9 | % | |||||||||||||
| % Full-time employees by location | ||||||||||||||||||||
| Developed Market Centers | 65 | % | 77 | % | 68 | % | ||||||||||||||
| Emerging Market Centers | 35 | % | 23 | % | 32 | % | ||||||||||||||
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.
Table 5
| ETF Assets linked to MSCI Indices |
| (Quarter-End) |
| 2008 | 2009 | |||||||||||||||||||||||
| In Billions | February | May | August | November | February | May | ||||||||||||||||||
| AUM in ETFs linked to MSCI Indices | $ | 179.2 | $ | 199.6 | $ | 166.3 | $ | 119.0 | $ | 107.8 | $ | 175.9 | ||||||||||||
| Sequential Change ($ Growth in Billions) | ||||||||||||||||||||||||
| Appreciation/Depreciation | $ | (15.2 | ) | $ | 9.9 | $ | (31.2 | ) | $ | (63.2 | ) | $ | (13.6 | ) | $ | 42.2 | ||||||||
| Cash Inflow/ Outflow | 2.7 | 10.5 | (2.1 | ) | 15.9 | 2.4 | 25.9 | |||||||||||||||||
| Total Change | $ | (12.5 | ) | $ | 20.4 | $ | (33.3 | ) | $ | (47.3 | ) | $ | (11.2 | ) | $ | 68.1 | ||||||||
| Source: Bloomberg and MSCI | ||||||||||||||||||||||||
| ETF Assets linked to MSCI Indices |
| (Quarterly Average) |
| 2008 | 2009 | |||||||||||||||||||||||
| In Billions | February | May | August | November | February | May | ||||||||||||||||||
| AUM in ETFs linked to MSCI Indices | $ | 183.2 | $ | 184.4 | $ | 178.3 | $ | 134.9 | $ | 126.4 | $ | 134.7 | ||||||||||||
| Source: Bloomberg and MSCI |
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s senior management review second quarter 2009 results on Thursday, July 2, 2009 at 11:00 am Eastern time. To hear the live event, visit the investor relations section of MSCI's website, http://ir.msci.com, or dial 1-877-856-1964 within the United States. International callers dial 1-719-325-4830.
Page 9 of 18
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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 July 9, 2009. To listen to the recording, visit the investor relations section at http://ir.msci.com, or dial 1-888-203-1112 (passcode: 4599144) within the United States. International callers dial 1-719-457-0820 (passcode: 4599144).
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 include over 120,000 indices calculated daily across more than 70 countries, 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. MXB#IR
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.
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Table 6
| MSCI Inc. | ||||||
| Consolidated Statements of Income (unaudited) |
| Three Months Ended | ||||||||||||
| May 31, | February 28, | |||||||||||
| In thousands, except per share data | 2009 | 2008 | 2009 | |||||||||
| Operating revenues | $ | 109,375 | $ | 108,195 | $ | 105,915 | ||||||
| Operating expenses | ||||||||||||
| Cost of services | 29,269 | 29,636 | 28,935 | |||||||||
| Selling, general and administrative | 34,052 | 38,005 | 34,716 | |||||||||
| Amortization of intangible assets | 6,428 | 7,125 | 6,429 | |||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 2,972 | 522 | 3,051 | |||||||||
| Total operating expenses | 72,721 | 75,288 | 73,131 | |||||||||
| Operating income | 36,654 | 32,907 | 32,784 | |||||||||
| Interest income | (220 | ) | (3,508 | ) | (121 | ) | ||||||
| Interest expense | 4,904 | 6,668 | 5,638 | |||||||||
| Other expense | (2 | ) | (638 | ) | 882 | |||||||
| Interest expense (income) and other, net | 4,682 | 2,522 | 6,399 | |||||||||
| Income before income taxes | 31,972 | 30,385 | 26,385 | |||||||||
| Provision for income taxes | 12,354 | 11,754 | 9,661 | |||||||||
| Net income | $ | 19,618 | $ | 18,631 | $ | 16,724 | ||||||
| Earnings per basic common share | $ | 0.20 | $ | 0.19 | $ | 0.17 | ||||||
| Earnings per diluted common share | $ | 0.19 | $ | 0.18 | $ | 0.16 | ||||||
| Weighted average shares outstanding used in computing earnings per share | ||||||||||||
| Basic | 100,360 | 100,026 | 100,286 | |||||||||
| Diluted | 101,915 | 101,282 | 101,471 | |||||||||
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Table 7
| Operating Revenues by Product Category |
| Three Months Ended | Change from | |||||||||||||||||||
| May 31, | February 28, | May 31, | February 28, | |||||||||||||||||
| In thousands | 2009 | 2008 | 2009 | 2008 | 2009 | |||||||||||||||
| Equity indices | ||||||||||||||||||||
| Equity index subscriptions | $ | 47,282 | $ | 41,804 | $ | 45,267 | 13.1 | % | 4.5 | % | ||||||||||
| Equity index asset based fees | 15,220 | 18,307 | 13,182 | (16.9 | %) | 15.5 | % | |||||||||||||
| Equity indices total | 62,502 | 60,111 | 58,449 | 4.0 | % | 6.9 | % | |||||||||||||
| Equity portfolio analytics | 31,582 | 33,902 | 32,140 | (6.8 | %) | (1.7 | %) | |||||||||||||
| Multi-asset class portfolio analytics | 9,572 | 8,598 | 9,623 | 11.3 | % | (0.5 | %) | |||||||||||||
| Other products | 5,719 | 5,584 | 5,703 | 2.4 | % | 0.3 | % | |||||||||||||
| Total operating revenues | $ | 109,375 | $ | 108,195 | $ | 105,915 | 1.1 | % | 3.3 | % | ||||||||||
| Subscription | 94,155 | 89,888 | 92,733 | 4.7 | % | 1.5 | % | |||||||||||||
| Equity index asset based fees | 15,220 | 18,307 | 13,182 | (16.9 | %) | 15.5 | % | |||||||||||||
| Total operating revenues | $ | 109,375 | $ | 108,195 | $ | 105,915 | 1.1 | % | 3.3 | % | ||||||||||
Table 8a
| Operating Expenses by Category excluding founders grant |
| (Compensation vs. Non-compensation) |
| Three Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Compensation | $ | 39,262 | $ | 37,028 | 6.0 | % | ||||||
| Non-compensation excluding depreciation | 16,721 | 23,737 | (29.6 | %) | ||||||||
| Total | 55,983 | 60,765 | (7.9 | %) | ||||||||
| Amortization of intangible assets | 6,428 | 7,125 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 2,972 | 522 | 469.3 | % | ||||||||
| Operating expenses excluding founders grant | 65,383 | 68,412 | (4.4 | %) | ||||||||
| Founders grant | 7,338 | 6,876 | 6.7 | % | ||||||||
| Operating expenses including founders grant | $ | 72,721 | $ | 75,288 | (3.4 | %) | ||||||
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Table 8b
| Operating Expenses by Category excluding founders grant |
| (Cost of Services vs. Selling, General and Administrative) |
| Three Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Cost of services | ||||||||||||
| Compensation | $ | 19,538 | $ | 17,585 | 11.1 | % | ||||||
| Non-compensation excluding depreciation | 6,839 | 10,164 | (32.7 | %) | ||||||||
| Total | 26,377 | 27,749 | (4.9 | %) | ||||||||
| Selling, general and administrative | ||||||||||||
| Compensation | 19,724 | 19,443 | 1.4 | % | ||||||||
| Non-compensation excluding depreciation | 9,882 | 13,573 | (27.2 | %) | ||||||||
| Total | 29,606 | 33,016 | (10.3 | %) | ||||||||
| Amortization of intangible assets | 6,428 | 7,125 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 2,972 | 522 | 469.3 | % | ||||||||
| Operating expenses excluding founders grant | 65,383 | 68,412 | (4.4 | %) | ||||||||
| Founders grant | 7,338 | 6,876 | 6.7 | % | ||||||||
| Operating expenses including founders grant | $ | 72,721 | $ | 75,288 | (3.4 | %) | ||||||
Table 8c
| Operating Expenses by Category including founders grant |
| (Cost of Services vs. Selling, General and Administrative) |
| Three Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Cost of services | ||||||||||||
| Compensation | $ | 19,538 | $ | 17,585 | 11.1 | % | ||||||
| Founders grant | 2,892 | 1,887 | 53.3 | % | ||||||||
| Total | 22,430 | 19,472 | 15.2 | % | ||||||||
| Non-compensation excluding depreciation | 6,839 | 10,164 | (32.7 | %) | ||||||||
| Total | 29,269 | 29,636 | (1.2 | %) | ||||||||
| Selling, general and administrative | ||||||||||||
| Compensation | 19,724 | 19,443 | 1.4 | % | ||||||||
| Founders grant | 4,446 | 4,989 | (10.9 | %) | ||||||||
| Total | 24,170 | 24,432 | (1.1 | %) | ||||||||
| Non-compensation excluding depreciation | 9,882 | 13,573 | (27.2 | %) | ||||||||
| Total | 34,052 | 38,005 | (10.4 | %) | ||||||||
| Amortization of intangible assets | 6,428 | 7,125 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 2,972 | 522 | 469.3 | % | ||||||||
| Operating expenses including founders grant | $ | 72,721 | $ | 75,288 | (3.4 | %) | ||||||
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Table 9a
| Allocation and Replacement Expenses Related to Morgan Stanley Services |
| Three Months Ended | Six Months Ended | |||||||||||||||
| May 31, | May 31, | |||||||||||||||
| In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Allocation Expenses | $ | 706 | $ | 5,378 | $ | 1,746 | $ | 11,554 | ||||||||
| Replacement Expenses | ||||||||||||||||
| Compensation | 3,139 | 1,862 | 6,133 | 3,054 | ||||||||||||
| Non-compensation | ||||||||||||||||
| Recurring | 1,966 | 1,499 | 4,033 | 2,254 | ||||||||||||
| Non-recurring | 781 | 1,659 | 2,213 | 2,416 | ||||||||||||
| Depreciation | 2,240 | 30 | 4,467 | 40 | ||||||||||||
| Non-compensation total | 4,987 | 3,188 | 10,713 | 4,710 | ||||||||||||
| Replacement Expenses - Total | 8,126 | 5,050 | 16,846 | 7,764 | ||||||||||||
| Total Allocation and Replacement Expenses | $ | 8,832 | $ | 10,428 | $ | 18,592 | $ | 19,318 | ||||||||
| Compensation Total | 3,139 | 1,862 | 6,133 | 3,054 | ||||||||||||
| Non-Compensation Total | 5,693 | 8,566 | 12,459 | 16,264 | ||||||||||||
| Total Allocation and Replacement Expenses | $ | 8,832 | $ | 10,428 | $ | 18,592 | $ | 19,318 | ||||||||
Table 9b
| Allocation and Replacement Expenses Related to Morgan Stanley Services |
| (Cost of Services vs. Selling, General & Administrative) |
| Three Months Ended | Six Months Ended | |||||||||||||||
| May 31, | May 31, | |||||||||||||||
| In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Cost of services | ||||||||||||||||
| Allocation | $ | 129 | $ | 2,631 | $ | 396 | $ | 6,040 | ||||||||
| Cost of services total | 129 | 2,631 | 396 | 6,040 | ||||||||||||
| Selling, general & administrative | ||||||||||||||||
| Replacement Compensation | 3,139 | 1,862 | 6,133 | 3,054 | ||||||||||||
| Non-Compensation | ||||||||||||||||
| Allocation | 577 | 2,747 | 1,350 | 5,514 | ||||||||||||
| Replacement | ||||||||||||||||
| Recurring | 1,966 | 1,499 | 4,033 | 2,254 | ||||||||||||
| Non-Recurring | 781 | 1,659 | 2,213 | 2,416 | ||||||||||||
| Depreciation | 2,240 | 30 | 4,467 | 40 | ||||||||||||
| Non-compensation total | 5,564 | 5,935 | 12,063 | 10,224 | ||||||||||||
| Selling, general & administrative total | 8,703 | 7,797 | 18,196 | 13,278 | ||||||||||||
| Total Allocation and Replacement Expenses | $ | 8,832 | $ | 10,428 | $ | 18,592 | $ | 19,318 | ||||||||
| Cost of services total | 129 | 2,631 | 396 | 6,040 | ||||||||||||
| Selling, general & administrative total | 8,703 | 7,797 | 18,196 | 13,278 | ||||||||||||
| Total Allocation and Replacement Expenses | $ | 8,832 | $ | 10,428 | $ | 18,592 | $ | 19,318 | ||||||||
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Table 10
| Reconciliation of Adjusted EBITDA to Net Income |
| Three Months Ended | ||||||||||||
| May 31, | February 28, | |||||||||||
| In thousands | 2009 | 2008 | 2009 | |||||||||
Adjusted EBITDA1 | $ | 53,392 | $ | 47,430 | $ | 48,465 | ||||||
| Less: Founders grant expense | 7,338 | 6,876 | 6,201 | |||||||||
| Less: Depreciation and amortization | 2,972 | 522 | 3,051 | |||||||||
| Less: Amortization of intangible assets | 6,428 | 7,125 | 6,429 | |||||||||
| Less: Interest expense (income) and other, net | 4,682 | 2,522 | 6,399 | |||||||||
| Less: Provision for income taxes | 12,354 | 11,754 | 9,661 | |||||||||
| Net income | $ | 19,618 | $ | 18,631 | $ | 16,724 | ||||||
1 All stock based compensation other than the founders grant is considered an expense for purposes of calculating adjusted EBITDA
Table 11
| MSCI Inc. |
| Consolidated Statements of Income (unaudited) |
| Six Months Ended | ||||||||
| May 31, | ||||||||
| In thousands, except per share data | 2009 | 2008 | ||||||
| Operating revenues | $ | 215,290 | $ | 213,146 | ||||
| Operating expenses | ||||||||
| Cost of services | 58,204 | 60,496 | ||||||
| Selling, general and administrative | 68,768 | 69,325 | ||||||
| Amortization of intangible assets | 12,857 | 14,250 | ||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 6,023 | 1,006 | ||||||
| Total operating expenses | 145,852 | 145,077 | ||||||
| Operating income | 69,438 | 68,069 | ||||||
| Interest income | (341 | ) | (5,880 | ) | ||||
| Interest expense | 10,542 | 15,131 | ||||||
| Other expense | 880 | (302 | ) | |||||
| Interest expense (income) and other, net | 11,081 | 8,949 | ||||||
| Income before income taxes | 58,357 | 59,120 | ||||||
| Provision for income taxes | 22,015 | 22,555 | ||||||
| Net income | $ | 36,342 | $ | 36,565 | ||||
| Earnings per basic common share | $ | 0.36 | $ | 0.37 | ||||
| Earnings per diluted common share | $ | 0.36 | $ | 0.36 | ||||
| Weighted average shares outstanding used in computing earnings per share | ||||||||
| Basic | 100,324 | 100,019 | ||||||
| Diluted | 101,693 | 101,223 | ||||||
Page 15 of 18
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Table 12
| Operating Revenues by Product Category |
| Six Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Equity indices | ||||||||||||
| Equity index subscriptions | $ | 92,549 | $ | 80,613 | 14.8 | % | ||||||
| Equity index asset based fees | 28,402 | 37,895 | (25.1 | %) | ||||||||
| Equity indices total | 120,951 | 118,508 | 2.1 | % | ||||||||
| Equity portfolio analytics | 63,722 | 66,244 | (3.8 | %) | ||||||||
| Multi-asset class portfolio analytics | 19,195 | 16,490 | 16.4 | % | ||||||||
| Other products | 11,422 | 11,904 | (4.0 | %) | ||||||||
| Total operating revenues | $ | 215,290 | $ | 213,146 | 1.0 | % | ||||||
| Subscription | 186,888 | 175,251 | 6.6 | % | ||||||||
| Equity index asset based fees | 28,402 | 37,895 | (25.1 | %) | ||||||||
| Total operating revenues | $ | 215,290 | $ | 213,146 | 1.0 | % | ||||||
Table 13
| Operating Expenses by Category excluding founders grant |
| (Compensation vs. Non-compensation) |
| Six Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Compensation | $ | 77,561 | $ | 73,395 | 5.7 | % | ||||||
| Non-compensation | 35,872 | 44,754 | (19.8 | %) | ||||||||
| Total | 113,433 | 118,149 | (4.0 | %) | ||||||||
| Amortization of intangible assets | 12,857 | 14,250 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 6,023 | 1,006 | 498.7 | % | ||||||||
| Operating expenses excluding founders grant | 132,313 | 133,405 | (0.8 | %) | ||||||||
| Founders grant | 13,539 | 11,672 | 16.0 | % | ||||||||
| Operating expenses including founders grant | $ | 145,852 | $ | 145,077 | 0.5 | % | ||||||
Page 16 of 18
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Table 14
| Operating Expenses by Category excluding founders grant | ||||||
| (Cost of Services vs. Selling, General and Administrative) |
| Six Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Cost of services | ||||||||||||
| Compensation | $ | 38,790 | $ | 36,523 | 6.2 | % | ||||||
| Non-compensation | 14,477 | 20,797 | (30.4 | %) | ||||||||
| Total | 53,267 | 57,320 | (7.1 | %) | ||||||||
| Selling, general and administrative | ||||||||||||
| Compensation | 38,771 | 36,872 | 5.2 | % | ||||||||
| Non-compensation | 21,395 | 23,957 | (10.7 | %) | ||||||||
| Total | 60,166 | 60,829 | (1.1 | %) | ||||||||
| Amortization of intangible assets | 12,857 | 14,250 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 6,023 | 1,006 | 498.7 | % | ||||||||
| Operating expenses excluding founders grant | 132,313 | 133,405 | (0.8 | %) | ||||||||
| Founders grant | 13,539 | 11,672 | 16.0 | % | ||||||||
| Operating expenses including founders grant | $ | 145,852 | $ | 145,077 | 0.5 | % | ||||||
Table 15
| Operating Expenses by Category including founders grant |
| (Cost of Services vs. Selling, General and Administrative) |
| Six Months Ended | ||||||||||||
| May 31, | ||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||
| Cost of services | ||||||||||||
| Compensation | $ | 38,790 | $ | 36,523 | 6.2 | % | ||||||
| Founders grant | 4,937 | 3,176 | 55.4 | % | ||||||||
| Total | 43,727 | 39,699 | 10.1 | % | ||||||||
| Non-compensation | 14,477 | 20,797 | (30.4 | %) | ||||||||
| Total | 58,204 | 60,496 | (3.8 | %) | ||||||||
| Selling, general and administrative | ||||||||||||
| Compensation | 38,771 | 36,872 | 5.2 | % | ||||||||
| Founders grant | 8,602 | 8,496 | 1.2 | % | ||||||||
| Total | 47,373 | 45,368 | 4.4 | % | ||||||||
| Non-compensation | 21,395 | 23,957 | (10.7 | %) | ||||||||
| Total | 68,768 | 69,325 | (0.8 | %) | ||||||||
| Amortization of intangible assets | 12,857 | 14,250 | (9.8 | %) | ||||||||
| Depreciation and amortization of property, equipment, and leasehold improvement | 6,023 | 1,006 | 498.7 | % | ||||||||
| Operating expenses including founders grant | $ | 145,852 | $ | 145,077 | 0.5 | % | ||||||
Page 17 of 18
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Table 16
| Reconciliation of Adjusted EBITDA to Net Income |
| Six Months Ended | ||||||||
| May 31, | ||||||||
| In thousands | 2009 | 2008 | ||||||
Adjusted EBITDA1 | $ | 101,857 | $ | 94,997 | ||||
| Less: Founders grant expense | 13,539 | 11,672 | ||||||
| Less: Depreciation and amortization | 6,023 | 1,006 | ||||||
| Less: Amortization of intangible assets | 12,857 | 14,250 | ||||||
| Less: Interest expense (income) and other, net | 11,081 | 8,949 | ||||||
| Less: Provision for income taxes | 22,015 | 22,555 | ||||||
| Net income | $ | 36,342 | $ | 36,565 | ||||
1 All stock based compensation other than the founders grant is considered an expense for purposes of calculating adjusted EBITDA
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.
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.