Exhibit 99.1
MSCI Inc. Reports Third Quarter 2013 Financial Results
Exploring Strategic Alternatives for Governance Business
NEW YORK--(BUSINESS WIRE)--October 31, 2013--MSCI Inc. (NYSE:MSCI), a leading global provider of investment decision support tools, including indices, portfolio risk and performance analytics and corporate governance services, today announced results for the third quarter and nine months ended September 30, 2013.
(Note: Percentage changes are referenced to the comparable period in 2012, unless otherwise noted.)
- Operating revenues increased 9.7% to $258.2 million in third quarter 2013 and 9.2% to $768.0 million for nine months 2013.
- Net income increased 14.6% to $55.3 million in third quarter 2013 and net income grew 35.1% to $175.3 million for nine months 2013.
- Diluted EPS for third quarter 2013 rose 17.9% to $0.46 and nine months 2013 Diluted EPS increased 37.1% to $1.44.
- Adjusted EBITDA1 grew by 4.4% to $112.8 million in third quarter 2013. For nine months 2013, Adjusted EBITDA1 grew by 6.8% to $339.5 million. Third quarter 2013 Adjusted EBITDA1 margin fell to 43.7% from 45.9% and nine months 2013 Adjusted EBITDA1 margin fell to 44.2% from 45.2%.
- Third quarter 2013 Adjusted EPS2 rose 8.2% to $0.53. Nine months 2013 Adjusted EPS2 rose 17.5% to $1.68.
- MSCI’s Run Rate grew by 12.1% to $1,025.8 million in third quarter 2013, driven by organic3 subscription growth of 4.4%, asset-based fee growth of 28.3% and the acquisitions of IPD and InvestorForce.
- MSCI repurchased a total of 2.7 million shares in third quarter 2013 as part of the conclusion of its December 2012 accelerated share repurchase(“ASR”) agreement and the commencement of its August 2013 ASR.
- MSCI has engaged Morgan Stanley to explore strategic alternatives for its Governance business.
Table 1: MSCI Inc. Selected Financial Information (unaudited)
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| | | | Three Months Ended | | | Change from | | | Nine Months Ended | | | Change From |
| | | | September 30, | | | September 30, | | | September 30, | | | September 30, | | | September 30, | | | September 30, |
| In thousands, except per share data | | | | 2013 | | | 2012 | | | 2012 | | | 2013 | | | 2012 | | | 2012 |
| Operating revenues | | | | $ | 258,238 | | | $ | 235,444 | | | 9.7% | | | $ | 768,045 | | | $ | 703,061 | | | 9.2% |
| Operating expenses | | | | | 165,802 | | | | 151,915 | | | 9.1% | | | | 487,910 | | | | 451,432 | | | 8.1% |
| Net income | | | | | 55,310 | | | | 48,274 | | | 14.6% | | | | 175,300 | | | | 129,786 | | | 35.1% |
| % Margin | | | | | 21.4% | | | | 20.5% | | | | | | | 22.8% | | | | 18.5% | | | |
| Diluted EPS | | | | $ | 0.46 | | | $ | 0.39 | | | 17.9% | | | $ | 1.44 | | | $ | 1.05 | | | 37.1% |
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| Adjusted EPS2 | | | | $ | 0.53 | | | $ | 0.49 | | | 8.2% | | | $ | 1.68 | | | $ | 1.43 | | | 17.5% |
| Adjusted EBITDA1 | | | | $ | 112,818 | | | $ | 108,074 | | | 4.4% | | | $ | 339,473 | | | $ | 317,893 | | | 6.8% |
| % Margin | | | | | 43.7% | | | | 45.9% | | | | | | | 44.2% | | | | 45.2% | | | |
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1 Net Income before income taxes, other net expense and income, depreciation, amortization, non-recurring stock-based compensation, lease exit charge and restructuring costs. See Table 13 titled "Reconciliation of Adjusted EBITDA to Net Income (unaudited)" and information about the use of non-GAAP financial information provided under "Notes Regarding the Use of Non-GAAP Financial Measures." |
2 Per share net income before after-tax impact of amortization of intangibles, non-recurring stock-based compensation, restructuring costs, lease exit charge and debt repayment and refinancing expenses. See Table 14 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS (unaudited)" and information about the use of non-GAAP financial information provided under "Notes Regarding the Use of Non-GAAP Financial Measures." |
3 For the purposes of calculating organic Run Rate growth, comparisons exclude the Run Rate from the acquisitions of IPD and InvestorForce as well as the Run Rate of the CFRA product line, which was sold. |
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“MSCI’s revenues, Adjusted EBITDA and Adjusted EPS continued to grow in the third quarter. Our Run Rate grew 12%, driven by 10% growth in subscriptions and 28% growth in asset-based fees. The growth in our asset-based fees highlights the strong demand for MSCI-linked ETF products as well as the value that MSCI indices deliver to our clients. During the third quarter, MSCI repurchased a total of 2.7 million shares, underscoring our commitment to return capital to shareholders while we continue to invest in our organic growth,” Henry A. Fernandez, Chairman and CEO, said.
“We announced today that MSCI has engaged Morgan Stanley to help us explore strategic alternatives for our Governance business. Over the past three years, MSCI has worked hard to return that business to a growth track. We have launched new products, most notably executive compensation data and analytics and Quickscore, grown our salesforce, reached out to new clients and invested in the technology platform. We also strengthened the senior management team, which we expect will remain in place. In the third quarter of 2013, the Governance business reported organic revenue growth of 7% and Adjusted EBITDA growth of 12%. We believe the time is right to explore our strategic alternatives,” added Mr. Fernandez.
Summary of Results for Third Quarter 2013 Compared to Third Quarter 2012
Operating Revenues – See Table 4
Operating revenues for the three months ended September 30, 2013 (“third quarter 2013”) increased $22.8 million, or 9.7%, to $258.2 million compared to $235.4 million for the three months ended September 30, 2012 (“third quarter 2012”). For the purposes of analyzing revenue trends, organic growth comparisons exclude the impact of the acquisitions of IPD Group Limited (“IPD”) and Investor Force Holdings, Inc. (“InvestorForce”), acquired on November 30, 2012 and January 29, 2013, respectively, as well as the sale of the CFRA product line on March 31, 2013. On an organic basis, operating revenues grew by 4.8%.
Third quarter 2013 recurring subscription revenues rose $19.3 million, or 9.8%, to $216.9 million and 4.1% on an organic basis. Asset-based fees increased $2.8 million, or 8.1%, to $36.8 million and non-recurring revenues rose $0.7 million to $4.5 million.
Performance and Risk segment revenues rose $23.2 million to $228.6 million, an increase of 11.3% and 4.5% on an organic basis. The increase was primarily driven by higher revenues from index and environmental, social and governance (“ESG”) products.
| | | • | | Index and ESG products: Index and ESG product revenues increased $21.7 million, or 20.1%, to $129.6 million. Subscription revenues grew by $18.9 million, or 25.6%, to $92.8 million, driven by the acquisition of IPD and growth in revenues from equity index benchmark products. On an organic basis, index and ESG subscription revenue growth was 10.1%. |
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| | | | Revenues attributable to equity index asset-based fees rose $2.8 million, or 8.1%, to $36.8 million, largely as a result of higher revenues from non-ETF passive funds. In addition, a change in the mix of ETFs linked to MSCI indices more than offset a decline of $58.5 billion, or 17.0%, in average assets under management (“AUM”) in ETFs linked to MSCI indices. Excluding $5.6 million in asset-based fees linked to certain Vanguard ETFs that transitioned from third quarter 2012, asset-based fees would have grown by 29.3%. |
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| | • | | Risk management analytics: Revenues related to risk management analytics products increased $4.7 million, or 7.2%, to $69.7 million. On an organic basis, revenues grew by 3.2%, driven by higher revenues from our RiskManager and hedge fund transparency products. |
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| | • | | Portfolio management analytics: Revenues related to portfolio management analytics products declined $2.9 million, or 10.0%, to $26.2 million as a result of lower sales and elevated cancellations of equity analytics products in prior periods as well as lower fixed income analytics revenues. |
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| | • | | Energy and commodity analytics: Revenues from energy and commodity analytics products were $3.1 million, a decline of $0.2 million. |
Governance segment revenues fell $0.4 million, or 1.4%, to $29.6 million in third quarter 2013, as the loss of revenues resulting from the sale of the CFRA product line more than offset organic growth. On an organic basis, Governance revenues rose 7.4%, driven by higher revenues from executive compensation data and analytics products.
Operating Expenses – See Table 6
Total operating expenses rose $13.9 million, or 9.1%, to $165.8 million.
| | | • | | Compensation costs: Total compensation costs rose $10.2 million, or 11.0%, to $103.2 million in third quarter 2013, driven primarily by increased costs from the acquisitions of IPD and InvestorForce and increased hiring, offset by lower severance costs and the sale of the CFRA product line. |
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| | • | | Non-compensation costs excluding depreciation and amortization, the lease exit charge and restructuring costs: Non-compensation costs rose $7.2 million, or 20.6%, to $42.2 million in third quarter 2013. The increase in non-compensation costs reflects the acquisitions of IPD and InvestorForce, and increases in travel and entertainment costs, marketing expenses and recruiting costs, among other items. |
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| | • | | Depreciation and amortization: Amortization of intangibles expense totaled $14.4 million compared to $16.0 million in third quarter 2012, a decline of 9.5%, primarily due to certain intangibles becoming fully amortized since the prior period, partially offset by additional amortization related to the IPD and InvestorForce acquisitions. Depreciation and amortization of property, equipment and leasehold improvements rose $1.3 million, or 28.1%, to $5.9 million. |
Other Expense (Income), Net
Other expense (income), net for third quarter 2013 was $6.2 million, a decline of $1.7 million from third quarter 2012 driven by lower interest rates and lower indebtedness.
Provision for Income Taxes
Income tax expense was $30.9 million in third quarter 2013, up $3.6 million from third quarter 2012. The effective tax rate in third quarter 2013 fell to 35.9% from 36.1% a year ago.
Net Income and Earnings per Share – See Table 14
Net income rose $7.0 million, or 14.6%, to $55.3 million for third quarter 2013. The net income margin increased to 21.4% from 20.5% as a result of the higher operating profit margin, lower interest costs and lower tax rate. Diluted EPS rose by $0.07, or 17.9%, to $0.46, driven by higher net income and a 2.3% decline in the weighted average diluted shares outstanding in third quarter 2013. Adjusted net income, which excludes the after-tax impact of amortization of intangibles, non-recurring stock-based compensation expense, and the lease exit charge, rose $3.7 million, or 6.0%, to $64.6 million. Adjusted EPS, which excludes the after-tax, per diluted share impact of amortization of intangibles and restructuring costs, non-recurring stock-based compensation expense, the lease exit charge and restructuring costs totaling $0.07, rose $0.04, or 8.2%, to $0.53.
See Table 14 titled “Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS (unaudited)” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.
Adjusted EBITDA – See Table 13
Adjusted EBITDA, which excludes income taxes, other net expense and income, depreciation, amortization, non-recurring stock-based compensation and the lease exit charge and restructuring costs was $112.8 million, up $4.7 million, or 4.4%, from third quarter 2012. The Adjusted EBITDA margin declined to 43.7% from 45.9%.
By segment, Adjusted EBITDA for the Performance and Risk segment increased $3.8 million, or 3.8%, to $104.2 million in third quarter 2013. The Adjusted EBITDA margin for this segment fell to 45.6% from 48.9%. Adjusted EBITDA for the Governance segment increased $0.9 million, or 11.6%, to $8.6 million and the Adjusted EBITDA margin rose to 29.1% from 25.7% on improved operating results. The increase in Governance segment Adjusted EBITDA was driven by a reduction in severance, occupancy and information technology costs compared to third quarter 2012.
See Table 13 titled “Reconciliation of Adjusted EBITDA to Net Income (unaudited)” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.
Summary of Results for Nine Months Ended September 30, 2013 compared to Nine Months Ended September 30, 2012
Operating Revenues – See Table 5
Total operating revenues for the nine months ended September 30, 2013 (“nine months 2013”) increased $65.0 million, or 9.2%, to $768.0 million compared to $703.1 million for the nine months ended September 30, 2012 (“nine months 2012”). Subscription revenues rose $56.7 million, or 9.7%, to $639.0 million, while asset-based fees rose $7.5 million, or 7.3%, to $110.3 million. Non-recurring revenues rose $0.7 million to $18.7 million. On an organic basis, total operating revenues grew by 3.9%.
Performance and Risk segment revenues rose $65.4 million, or 10.7%, to $676.5 million for nine months 2013, and 3.7% on an organic basis. Index and ESG products and risk management analytics revenues grew 18.2% and 5.4%, respectively, in nine months 2013, or organically by 7.0% and 2.1%, respectively. Portfolio management analytics revenues fell 8.7%. Energy and other commodity analytics revenues increased $3.5 million, or 60.8%, primarily as a result of a $5.2 million non-cash cumulative revenue reduction to correct an error that was recorded in first quarter 2012. Excluding the impact of that error, energy and commodity analytics revenues declined 15.2%.
Governance revenues were $91.5 million, down slightly versus nine months 2012. On an organic basis, revenue grew by 5.1%.
Operating Expenses – See Table 7
Total operating expenses increased $36.5 million, or 8.1%, to $487.9 million in nine months 2013 compared to nine months 2012 driven primarily by the acquisitions of IPD and InvestorForce. The increase largely reflects increases of $32.3 million, or 11.6%, in total compensation expenses and $6.0 million, or 5.4%, in non-compensation expenses including the lease exit charge of $3.3 million incurred in third quarter 2012, and offset by a decline of $1.9 million, or 3.1%, in total depreciation and amortization expenses.
Other Expense (Income), Net
Other expense (income), net for nine months 2013 was $19.1 million, a decline of $31.5 million from nine months 2012. Other expense (income), net includes debt repayment and refinancing expenses of $20.6 million in nine months 2012. Excluding the change in debt repayment and refinancing expenses, other expense (income), net declined by $10.9 million in nine months 2013 primarily as a result of a combination of a lower cost of debt and lower levels of indebtedness.
Provision for Income Taxes
The provision for income tax expense was $85.8 million in nine months 2013, up $14.4 million from nine months 2012. Year to date 2013 income tax expense benefited from discrete items of $3.3 million primarily related to a reduction in state taxes and the 2012 reinstatement of the research and development tax credit. The effective tax rate was 32.8% in nine months 2013, versus 35.5% a year ago.
Net Income and Earnings per Share – See Table 14
Net income increased $45.5 million, or 35.1%, to $175.3 million and the net income margin increased to 22.8% from 18.5%. Diluted EPS rose 37.1% to $1.44 from $1.05.
Adjusted net income, which excludes the after-tax impact of amortization of intangibles, non-recurring stock-based compensation expense, debt repayment and refinancing expenses, the lease exit charge and restructuring costs totaling $28.9 million, rose $27.2 million, or 15.4%, to $204.2 million. Adjusted EPS, which excludes the after-tax, per diluted share impact of amortization of intangibles, non-recurring stock-based compensation expense, debt repayment and refinancing expenses, the lease exit charge and restructuring costs totaling $0.24, rose 17.5% to $1.68 in nine months 2013.
See Table 14 titled “Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS (unaudited)” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.
Adjusted EBITDA – See Table 13
Adjusted EBITDA was $339.5 million, an increase of $21.6 million, or 6.8%, from nine months 2012. Adjusted EBITDA margin fell to 44.2% from 45.2%.
By segment, Adjusted EBITDA for the Performance and Risk segment increased $17.8 million, or 6.0%, to $315.0 million from nine months 2012. Adjusted EBITDA margin declined to 46.6% in nine months 2013 from 48.6% in nine months 2012. Adjusted EBITDA for the Governance segment rose $3.7 million, or 18.0%, to $24.5 million in nine months 2013. The Adjusted EBITDA margin for the Governance segment was 26.8%, up from 22.6% in nine months 2012.
See Table 13 titled “Reconciliation of Adjusted EBITDA to Net Income (unaudited)” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.
Key Operating Metrics – See Tables 10, 11, 12
Total Run Rate grew by $110.8 million, or 12.1%, to $1,025.8 million as of September 30, 2013 compared to September 30, 2012. Total subscription Run Rate grew by $78.4 million, or 9.8%, to $878.8 million as of September 30, 2013 compared to September 30, 2012. Changes in foreign currency rates over the past twelve months negatively impacted subscription Run Rate by $2.0 million. Relative to second quarter 2013, changes in foreign currency rates lifted subscription Run Rate by $6.2 million. On an organic basis, total subscription Run Rate grew by 4.4%.
Performance and Risk segment Run Rate grew by $113.8 million, or 14.2%, to $912.9 million. On an organic basis, Performance and Risk Run Rate grew by 7.7%.
| | | • | | Index and ESG products: Index and ESG subscription Run Rate grew by $67.3 million, or 23.0%, to $360.0 million. On an organic basis, index and ESG subscription Run Rate grew by 8.5%, driven by growth in equity index benchmark and data products. Changes in foreign currency rates increased Run Rate by $2.3 million on a sequential basis but had only a very modest negative effect versus third quarter 2012. |
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| | | | Run Rate attributable to asset-based fees rose $32.4 million, or 28.3%, to $147.0 million. The increase was primarily driven by inflows and higher market performance in ETFs linked to MSCI indices. The third quarter 2012 asset-based fee Run Rate excludes those Vanguard ETFs that later switched benchmarks. |
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| | | | As of September 30, 2013, AUM in ETFs linked to MSCI indices were $302.6 billion, down $61.1 billion, or 16.8%, from September 30, 2012 but up $32.9 billion, or 12.2%, from June 30, 2013. Of that $32.9 billion sequential increase, market gains accounted for $20.2 billion and net inflows added an additional $12.7 billion. |
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| | | | If the AUM in those Vanguard ETFs which transitioned earlier in 2013 were excluded from the September 30, 2012 balance, AUM in MSCI-linked ETFs would have risen $70.0 billion, or 30.1%, compared to September 30, 2012. |
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| | • | | Risk management analytics: Run Rate related to risk management analytics products increased $26.7 million, or 10.2%, to $288.5 million. On an organic basis, risk management analytics Run Rate grew by 6.3%. MSCI benefited from solid growth in Run Rate from BarraOne, RiskManager, and Hedge Platform. Changes in foreign currency positively benefited Run Rate by $1.3 million versus third quarter 2012 and by $2.5 million versus second quarter 2013. |
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| | • | | Portfolio management analytics: Run Rate related to portfolio management analytics products declined $11.0 million, or 9.5%, to $104.9 million. Year-over-year Run Rate was negatively impacted, in part, by product swaps totaling $2.4 million and by changes in foreign currency rates which lowered Run Rate by an additional $3.4 million. On a sequential basis, changes in foreign currency rates benefited portfolio management analytics Run Rate by $0.5 million. |
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| | • | | Energy and commodity analytics: Run Rate from energy and commodity analytics products declined to $12.5 million, down $1.5 million, or 11.0%, from third quarter 2012. |
Governance Run Rate declined by $2.9 million, or 2.5%, to $112.9 million. On an organic basis, Run Rate grew by 5.5%, reflecting strong growth in the Run Rate of executive compensation data and analytics products and services. Changes in foreign currency rates raised Governance Run Rate by $0.9 million versus second quarter 2013.
Accelerated Share Repurchase Agreements
During third quarter 2013, MSCI settled the $100.0 million ASR it had entered into on December 14, 2012, taking delivery of 0.8 million shares at that time. In addition, MSCI entered into a second $100.0 million agreement on August 2, 2013 and received 1.9 million shares at that time. The repurchased shares will be held in treasury. Additional shares may be delivered to MSCI at or prior to maturity of the second ASR agreement, which MSCI anticipates will be no later than December 2013.
Both of the ASR agreements were authorized pursuant to a $300.0 million share repurchase program approved by MSCI’s Board of Directors in 2012. The remaining $100.0 million balance of the authorization will be available for utilization from time to time through 2014 at management’s discretion.
Governance Update
MSCI has engaged Morgan Stanley to explore strategic alternatives for its Governance business, including the potential divestiture or other separation of the entire business. The products and services offered by MSCI’s Governance business include governance research and recommendations, as well as end-to-end proxy voting and distribution solutions, securities class-action claims management, and reliable governance data, analysis and modeling tools. The financial results of the Governance business are reported as the Governance segment.
There can be no assurance that the process of exploring strategic alternatives will result in a transaction or that any transaction will ultimately be consummated. MSCI does not intend to disclose further developments with respect to the process unless and until a definitive decision is reached with respect to a specific transaction or the process is otherwise terminated or concluded.
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.’s senior management review third quarter 2013 results on Thursday, October 31, 2013 at 11:00 am Eastern Time. To listen to the live event, visit the investor relations section of MSCI's website, http://ir.msci.com/events.cfm, or dial 1-877-312-9206 within the United States. International callers dial 1-408-774-4001.
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 November 2, 2013. To listen to the recording, visit http://ir.msci.com/events.cfm, or dial 1-855-859-2056 (passcode: 75611658) within the United States. International callers dial 1-404-537-3406 (passcode: 75611658).
About MSCI
MSCI Inc. is a leading provider of investment decision support tools to investors globally, including asset managers, banks, hedge funds and pension funds. MSCI products and services include indices, portfolio risk and performance analytics, and governance tools.
The company’s flagship product offerings are: the MSCI indices with approximately $7.5 trillion estimated to be benchmarked to them on a worldwide basis1; Barra multi-asset class factor models, portfolio risk and performance analytics; RiskMetrics multi-asset class market and credit risk analytics; IPD real estate information, indices and analytics; MSCI ESG (environmental, social and governance) Research screening, analysis and ratings; ISS governance research and outsourced proxy voting and reporting services; and FEA valuation models and risk management software for the energy and commodities markets. MSCI is headquartered in New York, with research and commercial offices around the world. MSCI#IR
1 As of March 31, 2013, as published by eVestment, Lipper and Bloomberg on July 31, 2013
For further information on MSCI, please visit our website at www.msci.com
Forward-Looking Statements
This earnings release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 December 31, 2012 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013, and in quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC, and may also include the risks and uncertainties associated with the process of evaluating strategic alternatives, including whether any appropriate alternatives will be identified and, if identified, whether any such alternative will result in a consummated transaction. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI projected. Any forward-looking statement in this release reflects MSCI’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI’s operations, results of operations, growth strategy and liquidity. MSCI assumes 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, except as required by law.
Website and Social Media Disclosure
MSCI uses its website and corporate Twitter account (@MSCI_Inc) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about MSCI when you enroll your email address by visiting the “Email Alert Subscription” section at http://ir.msci.com/alerts.cfm?. The contents of MSCI’s website and social media channels are not, however, incorporated by reference into this earnings release.
Notes Regarding the Use of Non-GAAP Financial Measures
MSCI has presented supplemental non-GAAP financial measures as part of this earnings release. A reconciliation is provided that reconciles each non-GAAP financial measure with the most comparable GAAP measure. The presentation of non-GAAP financial measures should not be considered as alternative measures for the most directly comparable GAAP financial measures. These measures are used by management to monitor the financial performance of the business, inform business decision making and forecast future results.
Adjusted EBITDA is defined as net income before provision for income taxes, other net expense and income, depreciation and amortization, non-recurring stock-based compensation expense, the lease exit charge and restructuring costs.
Adjusted net income and Adjusted EPS are defined as net income and EPS, respectively, before provision for non-recurring stock-based compensation expenses, amortization of intangible assets, restructuring costs, the lease exit charge and the accelerated amortization or write-off of deferred financing and debt discount costs as a result of debt repayment (debt repayment and refinancing expenses), as well as for any related tax effects.
We believe that adjusting for the lease exit charge, restructuring costs and debt repayment and refinancing expenses is useful to management and investors because it allows for an evaluation of MSCI’s underlying operating performance. Additionally, we believe that adjusting for non-recurring stock-based compensation expenses, debt repayment and refinancing expenses and depreciation and amortization may help investors compare our performance to that of other companies in our industry as we do not believe that other companies in our industry have as significant a portion of their operating expenses represented by these items. We believe that the non-GAAP financial measures presented in this earnings release facilitate meaningful period-to-period comparisons and provide a baseline for the evaluation of future results.
Adjusted EBITDA, Adjusted net income and Adjusted EPS are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies.
Table 2: MSCI Inc. Condensed Consolidated Statements of Income (unaudited)
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| | | | Three Months Ended | | | Nine Months Ended |
| | | | September 30, | | | September 30, | | | June 30, | | | September 30, | | | September 30, |
| In thousands, except per share data | | | | | 2013 | | | | | 2012 | | | | | 2013 | | | | | 2013 | | | | | 2012 | |
| | | | | | | | | | | | | | | | |
| Operating revenues | | | | $ | 258,238 | | | | $ | 235,444 | | | | $ | 257,898 | | | | $ | 768,045 | | | | $ | 703,061 | |
| | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Cost of services | | | | | 80,040 | | | | | 68,350 | | | | | 83,359 | | | | | 243,584 | | | | | 213,884 | |
| Selling, general and administrative | | | | | 65,380 | | | | | 62,973 | | | | | 57,612 | | | | | 184,623 | | | | | 176,011 | |
| Restructuring costs | | | | | - | | | | | - | | | | | - | | | | | - | | | | | (51 | ) |
| Amortization of intangible assets | | | | | 14,448 | | | | | 15,959 | | | | | 14,509 | | | | | 43,443 | | | | | 47,877 | |
| Depreciation and amortization of property, | | | | | | | | | | | | | | | | |
| equipment and leasehold improvements | | | | | 5,934 | | | | | 4,633 | | | | | 5,246 | | | | | 16,260 | | | | | 13,711 | |
| Total operating expenses | | | | $ | 165,802 | | | | $ | 151,915 | | | | $ | 160,726 | | | | $ | 487,910 | | | | $ | 451,432 | |
| | | | | | | | | | | | | | | | |
| Operating income | | | | $ | 92,436 | | | | $ | 83,529 | | | | $ | 97,172 | | | | $ | 280,135 | | | | $ | 251,629 | |
| Operating margin | | | | | 35.8 | % | | | | 35.5 | % | | | | 37.7 | % | | | | 36.5 | % | | | | 35.8 | % |
| | | | | | | | | | | | | | | | |
| Interest income | | | | | (265 | ) | | | | (252 | ) | | | | (237 | ) | | | | (770 | ) | | | | (712 | ) |
| Interest expense | | | | | 5,827 | | | | | 7,314 | | | | | 6,504 | | | | | 19,351 | | | | | 49,250 | |
| Other expense (income) | | | | | 627 | | | | | 873 | | | | | (354 | ) | | | | 497 | | | | | 1,997 | |
| Other expenses (income), net | | | | $ | 6,189 | | | | $ | 7,935 | | | | $ | 5,913 | | | | $ | 19,078 | | | | $ | 50,535 | |
| | | | | | | | | | | | | | | | |
| Income before taxes | | | | | 86,247 | | | | | 75,594 | | | | | 91,259 | | | | | 261,057 | | | | | 201,094 | |
| | | | | | | | | | | | | | | | |
| Provision for income taxes | | | | | 30,937 | | | | | 27,320 | | | | | 30,206 | | | | | 85,757 | | | | | 71,308 | |
| Net income | | | | $ | 55,310 | | | | $ | 48,274 | | | | $ | 61,053 | | | | $ | 175,300 | | | | $ | 129,786 | |
| Net income margin | | | | | 21.4 | % | | | | 20.5 | % | | | | 23.7 | % | | | | 22.8 | % | | | | 18.5 | % |
| | | | | | | | | | | | | | | | |
| Earnings per basic common share | | | | $ | 0.46 | | | | $ | 0.39 | | | | $ | 0.50 | | | | $ | 1.45 | | | | $ | 1.06 | |
| Earnings per diluted common share | | | | $ | 0.46 | | | | $ | 0.39 | | | | $ | 0.50 | | | | $ | 1.44 | | | | $ | 1.05 | |
| | | | | | | | | | | | | | | | |
| Weighted average shares outstanding used | | | | | | | | | | | | | | | | |
| in computing earnings per share | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Basic | | | | | 119,607 | | | | | 122,261 | | | | | 121,149 | | | | | 120,497 | | | | | 122,016 | |
| Diluted | | | | | 120,578 | | | | | 123,450 | | | | | 122,069 | | | | | 121,446 | | | | | 123,287 | |
| | | | | | | | | | | | | | | | |
Table 3: MSCI Inc. Selected Balance Sheet Items (unaudited)
| | | | | | | | | | |
| | | | As of |
| | | | September 30, | | | June 30, | | | December 31, |
| In thousands | | | | 2013 | | | 2013 | | | 2012 |
| | | | | | | | | | |
| Cash and cash equivalents | | | | $ | 283,750 | | | $ | 334,701 | | | $ | 183,309 |
| Short-term investments | | | | | - | | | | - | | | | 70,898 |
| Accounts receivable, net of allowances | | | | | 179,920 | | | | 160,101 | | | | 153,557 |
| | | | | | | | | | |
| Deferred revenue | | | | $ | 334,094 | | | $ | 347,470 | | | $ | 308,022 |
| Current maturities of long-term debt | | | | | 54,130 | | | | 43,118 | | | | 43,093 |
| Long-term debt, net of current maturities | | | | | 753,285 | | | | 775,072 | | | | 811,623 |
| | | | | | | | | | |
Table 4: Quarterly Operating Revenues by Product Category and Revenue Type (unaudited)
| | | | | | | | | | | | | | | |
| | | | Three Months Ended | | | % Change from |
| | | | September 30, | | | September 30, | | | June 30, | | | September 30, | | | June 30, |
| In thousands | | | | 2013 | | | 2012 | | | 2013 | | | 2012 | | | 2013 |
| Index and ESG products | | | | | | | | | | | | | | | | |
| Subscriptions | | | | $ | 92,815 | | | $ | 73,894 | | | $ | 95,200 | | | 25.6 | % | | | (2.5 | %) |
| Asset-based fees | | | | | 36,801 | | | | 34,042 | | | | 36,970 | | | 8.1 | % | | | (0.5 | %) |
| Index and ESG products total | | | | | 129,616 | | | | 107,936 | | | | 132,170 | | | 20.1 | % | | | (1.9 | %) |
| Risk management analytics | | | | | 69,666 | | | | 64,998 | | | | 67,099 | | | 7.2 | % | | | 3.8 | % |
| Portfolio management analytics | | | | | 26,213 | | | | 29,138 | | | | 26,089 | | | (10.0 | %) | | | 0.5 | % |
| Energy and commodity analytics | | | | | 3,113 | | | | 3,317 | | | | 3,065 | | | (6.2 | %) | | | 1.6 | % |
| | | | | | | | | | | | | | | | |
| Total Performance and Risk revenues | | | | $ | 228,608 | | | $ | 205,389 | | | $ | 228,423 | | | 11.3 | % | | | 0.1 | % |
| | | | | | | | | | | | | | | | |
| Total Governance revenues | | | | | 29,630 | | | | 30,055 | | | | 29,475 | | | (1.4 | %) | | | 0.5 | % |
| | | | | | | | | | | | | | | | |
| Total operating revenues | | | | $ | 258,238 | | | $ | 235,444 | | | $ | 257,898 | | | 9.7 | % | | | 0.1 | % |
| | | | | | | | | | | | | | | | |
| Recurring subscriptions | | | | $ | 216,905 | | | $ | 197,591 | | | $ | 213,502 | | | 9.8 | % | | | 1.6 | % |
| Asset-based fees | | | | | 36,801 | | | | 34,042 | | | | 36,970 | | | 8.1 | % | | | (0.5 | %) |
| Non-recurring revenue | | | | | 4,532 | | | | 3,811 | | | | 7,426 | | | 18.9 | % | | | (39.0 | %) |
| Total operating revenues | | | | $ | 258,238 | | | $ | 235,444 | | | $ | 257,898 | | | 9.7 | % | | | 0.1 | % |
| | | | | | | | | | | | | | | | |
Table 5: Nine Months Operating Revenues by Product Category and Revenue Type (unaudited)
| | | | | | | | | |
| | | | Nine Months Ended | | | % Change from |
| | | | September 30, | | | September 30, | | | September 30, |
| In thousands | | | | 2013 | | | 2012 | | | | 2012 |
| Index and ESG products | | | | | | | | | | |
| Subscriptions | | | | $ | 272,903 | | | $ | 221,362 | | | | 23.3 | % |
| Asset-based fees | | | | | 110,286 | | | | 102,745 | | | | 7.3 | % |
| Index and ESG products total | | | | | 383,189 | | | | 324,107 | | | | 18.2 | % |
| Risk management analytics | | | | | 204,039 | | | | 193,622 | | | | 5.4 | % |
| Portfolio management analytics | | | | | 79,948 | | | | 87,527 | | | | (8.7 | %) |
| Energy and commodity analytics | | | | | | | | | | |
| Recurring Energy and commodity analytics | | | | | 9,324 | | | | 11,001 | | | | (15.2 | %) |
| Correction1 | | | | | - | | | | (5,203 | ) | | | n/m | |
| Net energy and commodity analytics | | | | | 9,324 | | | | 5,798 | | | | 60.8 | % |
| | | | | | | | | | |
| Total Performance and Risk revenues | | | | $ | 676,500 | | | $ | 611,054 | | | | 10.7 | % |
| | | | | | | | | | |
| Total Governance revenues | | | | | 91,545 | | | | 92,007 | | | | (0.5 | %) |
| | | | | | | | | | |
| Total operating revenues | | | | $ | 768,045 | | | $ | 703,061 | | | | 9.2 | % |
| | | | | | | | | | |
| Recurring subscriptions | | | | $ | 639,032 | | | $ | 582,330 | | | | 9.7 | % |
| Asset-based fees | | | | | 110,286 | | | | 102,745 | | | | 7.3 | % |
| Non-recurring revenue | | | | | 18,727 | | | | 17,986 | | | | 4.1 | % |
| Total operating revenues | | | | $ | 768,045 | | | $ | 703,061 | | | | 9.2 | % |
| | | | | | | | | | |
| 1 In first quarter 2012, MSCI recorded a non-cash $5.2 million cumulative revenue reduction to correct an error related to energy and commodity analytics revenues previously reported prior to January 1, 2012. MSCI’s previous policy had resulted in the immediate recognition of a substantial portion of the revenue related to a majority of its contracts rather than amortizing that revenue over the life of that contract, which is now the method of recognition. n/m = not meaningful |
| |
Table 6: Quarterly Operating Expense Detail (unaudited)
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | | % Change from |
| | | | September 30, | | | September 30, | | | June 30, | | | September 30, | | | June 30, |
| In thousands | | | | 2013 | | | 2012 | | | | 2013 | | | | 2012 | | | 2013 |
| Cost of services | | | | | | | | | | | | | | | | |
Compensation | | | | $ | 58,751 | | | $ | 50,111 | | | $ | 61,768 | | | | 17.2 | % | | | (4.9 | %) |
Non-recurring stock based compensation | | | | | - | | | | 267 | | | | - | | | | n/m | | | | n/m | |
Total compensation | | | | $ | 58,751 | | | $ | 50,378 | | | $ | 61,768 | | | | 16.6 | % | | | (4.9 | %) |
Non-compensation | | | | | 21,289 | | | | 16,448 | | | | 21,734 | | | | 29.4 | % | | | (2.0 | %) |
Lease exit charge1 | | | | | - | | | | 1,524 | | | | (143 | ) | | | n/m | | | | n/m | |
Total non-compensation | | | | | 21,289 | | | | 17,972 | | | | 21,591 | | | | 18.5 | % | | | (1.4 | %) |
| Total cost of services | | | | $ | 80,040 | | | $ | 68,350 | | | $ | 83,359 | | | | 17.1 | % | | | (4.0 | %) |
| | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | | | | | | | | | | | | | | |
Compensation | | | | $ | 44,495 | | | $ | 42,296 | | | $ | 39,890 | | | | 5.2 | % | | | 11.5 | % |
Non-recurring stock based compensation | | | | | - | | | | 359 | | | | - | | | | n/m | | | | n/m | |
Total compensation | | | | $ | 44,495 | | | $ | 42,655 | | | $ | 39,890 | | | | 4.3 | % | | | 11.5 | % |
Non-compensation | | | | | 20,885 | | | | 18,515 | | | | 17,944 | | | | 12.8 | % | | | 16.4 | % |
Lease exit charge1 | | | | | - | | | | 1,803 | | | | (222 | ) | | | n/m | | | | n/m | |
Total non-compensation | | | | | 20,885 | | | | 20,318 | | | | 17,722 | | | | 2.8 | % | | | 17.8 | % |
| Total selling, general and administrative | | | | $ | 65,380 | | | $ | 62,973 | | | $ | 57,612 | | | | 3.8 | % | | | 13.5 | % |
| | | | | | | | | | | | | | | | |
| Restructuring costs | | | | | - | | | | - | | | | - | | | | n/m | | | | n/m | |
| Amortization of intangible assets | | | | | 14,448 | | | | 15,959 | | | | 14,509 | | | | (9.5 | %) | | | (0.4 | %) |
| Depreciation and amortization of property, | | | | | | | | | | | | | | | | |
| equipment and leasehold improvements | | | | | 5,934 | | | | 4,633 | | | | 5,246 | | | | 28.1 | % | | | 13.1 | % |
| Total operating expenses | | | | $ | 165,802 | | | $ | 151,915 | | | $ | 160,726 | | | | 9.1 | % | | | 3.2 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Compensation | | | | $ | 103,246 | | | $ | 92,407 | | | $ | 101,658 | | | | 11.7 | % | | | 1.6 | % |
| Non-recurring stock-based compensation | | | | | - | | | | 626 | | | | - | | | | n/m | | | | n/m | |
| Non-compensation expenses | | | | | 42,174 | | | | 34,963 | | | | 39,678 | | | | 20.6 | % | | | 6.3 | % |
| Lease exit charge1 | | | | | - | | | | 3,327 | | | | (365 | ) | | | n/m | | | | n/m | |
| Restructuring costs | | | | | - | | | | - | | | | - | | | | n/m | | | | n/m | |
| Amortization of intangible assets | | | | | 14,448 | | | | 15,959 | | | | 14,509 | | | | (9.5 | %) | | | (0.4 | %) |
| Depreciation and amortization of property, | | | | | | | | | | | | | | | | |
| equipment and leasehold improvements | | | | | 5,934 | | | | 4,633 | | | | 5,246 | | | | 28.1 | % | | | 13.1 | % |
| Total operation expenses | | | | $ | 165,802 | | | $ | 151,915 | | | $ | 160,726 | | | | 9.1 | % | | | 3.2 | % |
| | | | | | | | | | | | | | | | | | | | | | |
1 Second quarter 2013 and third quarter 2012 included benefits of $0.4 million and charges of $3.3 million, respectively, associated with an occupancy lease exit charge resulting from the consolidation of our New York offices. n/m = not meaningful |
| |
Table 7: Nine Months Operating Expense Detail (unaudited)
| | | | | | | | | | |
| | | | Nine Months Ended | | | % Change from |
| | | | September 30, | | | September 30, | | | September 30, |
| In thousands | | | | | 2013 | | | | | 2012 | | | | 2012 |
| Cost of services | | | | | | | | | | |
| Compensation | | | | $ | 181,668 | | | | $ | 159,152 | | | | 14.1 | % |
| Non-recurring stock based compensation | | | | | - | | | | | 629 | | | | (100.0 | %) |
| Total compensation | | | | $ | 181,668 | | | | $ | 159,781 | | | | 13.7 | % |
| Non-compensation | | | | | 62,059 | | | | | 52,579 | | | | 18.0 | % |
| Lease exit charge1 | | | | | (143 | ) | | | | 1,524 | | | | n/m | |
| Total non-compensation | | | | | 61,916 | | | | | 54,103 | | | | 14.4 | % |
| Total cost of services | | | | $ | 243,584 | | | | $ | 213,884 | | | | 13.9 | % |
| | | | | | | | | | |
| Selling, general and administrative | | | | | | | | | | |
| Compensation | | | | $ | 130,041 | | | | $ | 118,813 | | | | 9.5 | % |
| Non-recurring stock based compensation | | | | | - | | | | | 771 | | | | (100.0 | %) |
| Total compensation | | | | $ | 130,041 | | | | $ | 119,584 | | | | 8.7 | % |
| Non-compensation | | | | | 54,804 | | | | | 54,624 | | | | 0.3 | % |
| Lease exit charge1 | | | | | (222 | ) | | | | 1,803 | | | | n/m | |
| Total non-compensation | | | | | 54,582 | | | | | 56,427 | | | | (3.3 | %) |
| Total selling, general and administrative | | | | $ | 184,623 | | | | $ | 176,011 | | | | 4.9 | % |
| | | | | | | | | | |
| Restructuring costs | | | | | - | | | | | (51 | ) | | | (100.0 | %) |
| Amortization of intangible assets | | | | | 43,443 | | | | | 47,877 | | | | (9.3 | %) |
| Depreciation and amortization of property, | | | | | | | | | | |
| equipment and leasehold improvements | | | | | 16,260 | | | | | 13,711 | | | | 18.6 | % |
| Total operating expenses | | | | $ | 487,910 | | | | $ | 451,432 | | | | 8.1 | % |
| | | | | | | | | | |
| | | | | | | | | | | |
| Compensation | | | | $ | 311,709 | | | | $ | 277,965 | | | | 12.1 | % |
| Non-recurring stock-based compensation | | | | | - | | | | | 1,400 | | | | (100.0 | %) |
| Non-compensation expenses | | | | | 116,863 | | | | | 107,203 | | | | 9.0 | % |
| Lease exit charge1 | | | | | (365 | ) | | | | 3,327 | | | | n/m | |
| Restructuring costs | | | | | - | | | | | (51 | ) | | | (100.0 | %) |
| Amortization of intangible assets | | | | | 43,443 | | | | | 47,877 | | | | (9.3 | %) |
| Depreciation and amortization of property, | | | | | | | | | | |
| equipment and leasehold improvements | | | | | 16,260 | | | | | 13,711 | | | | 18.6 | % |
| Total operation expenses | | | | $ | 487,910 | | | | $ | 451,432 | | | | 8.1 | % |
| | | | | | | | | | | | | | | |
1 Nine months ended 2013 and 2012 included benefits of $0.4 million and charges of $3.3 million, respectively, associated with an occupancy lease exit resulting from the consolidation of our New York offices. n/m = not meaningful |
| |
Table 8: Summary Quarterly Segment Information (unaudited)
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | | % Change from |
| | | | September 30, | | | September 30, | | | June 30, | | | September 30, | | | June 30, |
| In thousands | | | | | 2013 | | | | | 2012 | | | | | 2013 | | | | 2012 | | | 2013 |
| | | | | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | |
| Performance and Risk | | | | $ | 228,608 | | | | $ | 205,389 | | | | $ | 228,423 | | | | 11.3 | % | | | 0.1 | % |
| Governance | | | | | 29,630 | | | | | 30,055 | | | | | 29,475 | | | | (1.4 | %) | | | 0.5 | % |
| Total Operating revenues | | | | $ | 258,238 | | | | $ | 235,444 | | | | $ | 257,898 | | | | 9.7 | % | | | 0.1 | % |
| | | | | | | | | | | | | | | | |
| Operating Income: | | | | | | | | | | | | | | | | |
| Performance and Risk | | | | | 88,172 | | | | | 80,472 | | | | | 93,574 | | | | 9.6 | % | | | (5.8 | %) |
| Margin | | | | | 38.6 | % | | | | 39.2 | % | | | | 41.0 | % | | | | | | |
| Governance | | | | | 4,264 | | | | | 3,057 | | | | | 3,598 | | | | 39.5 | % | | | 18.5 | % |
| Margin | | | | | 14.4 | % | | | | 10.2 | % | | | | 12.2 | % | | | | | | |
| Total Operating Income | | | | $ | 92,436 | | | | $ | 83,529 | | | | $ | 97,172 | | | | 10.7 | % | | | (4.9 | %) |
| Margin | | | | | 35.8 | % | | | | 35.5 | % | | | | 37.7 | % | | | | | | |
| | | | | | | | | | | | | | | | |
| Adjusted EBITDA: | | | | | | | | | | | | | | | | |
| Performance and Risk | | | | | 104,210 | | | | | 100,362 | | | | | 108,816 | | | | 3.8 | % | | | (4.2 | %) |
| Margin | | | | | 45.6 | % | | | | 48.9 | % | | | | 47.6 | % | | | | | | |
| Governance | | | | | 8,608 | | | | | 7,712 | | | | | 7,746 | | | | 11.6 | % | | | 11.1 | % |
| Margin | | | | | 29.1 | % | | | | 25.7 | % | | | | 26.3 | % | | | | | | |
| Total Adjusted EBITDA | | | | $ | 112,818 | | | | $ | 108,074 | | | | $ | 116,562 | | | | 4.4 | % | | | (3.2 | %) |
| Margin | | | | | 43.7 | % | | | | 45.9 | % | | | | 45.2 | % | | | | | | |
| | | | | | | | | | | | | | | | |
Table 9: Summary Nine Months Segment Information (unaudited)
| | | | | | | | | | |
| | | | Nine Months Ended | | | % Change from |
| | | | September 30, | | | September 30, | | | September 30, |
| In thousands | | | | | 2013 | | | | | 2012 | | | | 2012 |
| | | | | | | | | | |
| Revenues: | | | | | | | | | | |
| Performance and Risk | | | | $ | 676,500 | | | | $ | 611,054 | | | | 10.7 | % |
| Governance | | | | | 91,545 | | | | | 92,007 | | | | (0.5 | %) |
| Total Operating revenues | | | | $ | 768,045 | | | | $ | 703,061 | | | | 9.2 | % |
| | | | | | | | | | |
| Operating Income: | | | | | | | | | | |
| Performance and Risk | | | | | 268,445 | | | | | 243,927 | | | | 10.1 | % |
| Margin | | | | | 39.7 | % | | | | 39.9 | % | | | |
| Governance | | | | | 11,690 | | | | | 7,702 | | | | 51.8 | % |
| Margin | | | | | 12.8 | % | | | | 8.4 | % | | | |
| Total Operating Income | | | | $ | 280,135 | | | | $ | 251,629 | | | | 11.3 | % |
| Margin | | | | | 36.5 | % | | | | 35.8 | % | | | |
| | | | | | | | | | |
| Adjusted EBITDA: | | | | | | | | | | |
| Performance and Risk | | | | | 314,980 | | | | | 297,142 | | | | 6.0 | % |
| Margin | | | | | 46.6 | % | | | | 48.6 | % | | | |
| Governance | | | | | 24,493 | | | | | 20,751 | | | | 18.0 | % |
| Margin | | | | | 26.8 | % | | | | 22.6 | % | | | |
| Total Adjusted EBITDA | | | | $ | 339,473 | | | | $ | 317,893 | | | | 6.8 | % |
| Margin | | | | | 44.2 | % | | | | 45.2 | % | | | |
| | | | | | | | | | |
Table 10: Key Operating Metrics (unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | | As of | | | % Change from |
| | | | | September 30, | | | September 30, | | | June 30, | | | September 30, | | | June 30, |
| Dollars in thousands | | | | | 2013 | | | | | 2012 | | | | | 2013 | | | | 2012 | | | 2013 |
| | | | | | | | | | | | | | | | | |
| Run Rates1 | | | | | | | | | | | | | | | | |
| Index and ESG products | | | | | | | | | | | | | | | | |
| Subscription | | | | $ | 360,042 | | | | $ | 292,787 | | | | $ | 350,833 | | | | 23.0 | % | | | 2.6 | % |
| Asset-based fees | | | | | 146,979 | | | | | 114,576 | | | | | 131,716 | | | | 28.3 | % | | | 11.6 | % |
| Index and ESG products total | | | | | 507,021 | | | | | 407,363 | | | | | 482,549 | | | | 24.5 | % | | | 5.1 | % |
| Risk management analytics | | | | | 288,452 | | | | | 261,776 | | | | | 281,022 | | | | 10.2 | % | | | 2.6 | % |
| Portfolio management analytics | | | | | 104,938 | | | | | 115,958 | | | | | 104,524 | | | | (9.5 | %) | | | 0.4 | % |
| Energy and commodity analytics | | | | | 12,493 | | | | | 14,040 | | | | | 12,794 | | | | (11.0 | %) | | | (2.4 | %) |
| Total Performance and Risk | | | | | 912,904 | | | | | 799,137 | | | | | 880,889 | | | | 14.2 | % | | | 3.6 | % |
| | | | | | | | | | | | | | | | | |
| Governance | | | | | 112,911 | | | | | 115,840 | | | | | 111,686 | | | | (2.5 | %) | | | 1.1 | % |
| Total Run Rate | | | | $ | 1,025,815 | | | | $ | 914,977 | | | | $ | 992,575 | | | | 12.1 | % | | | 3.3 | % |
| | | | | | | | | | | | | | | | | |
| Subscription total | | | | $ | 878,836 | | | | $ | 800,401 | | | | $ | 860,859 | | | | 9.8 | % | | | 2.1 | % |
| Asset-based fees total | | | | | 146,979 | | | | | 114,576 | | | | | 131,716 | | | | 28.3 | % | | | 11.6 | % |
| Total Run Rate | | | | $ | 1,025,815 | | | | $ | 914,977 | | | | $ | 992,575 | | | | 12.1 | % | | | 3.3 | % |
| | | | | | | | | | | | | | | | | |
| New Recurring Subscription Sales | | | | $ | 30,157 | | | | $ | 27,164 | | | | $ | 31,133 | | | | 11.0 | % | | | (3.1 | %) |
| Subscription Cancellations | | | | | (16,458 | ) | | | | (19,134 | ) | | | | (16,082 | ) | | | (14.0 | %) | | | 2.3 | % |
| Net New Recurring Subscription Sales | | | | $ | 13,699 | | | | $ | 8,030 | | | | $ | 15,051 | | | | 70.6 | % | | | (9.0 | %) |
| Non-recurring sales | | | | $ | 4,359 | | | | $ | 3,878 | | | | $ | 6,664 | | | | 12.4 | % | | | (34.6 | %) |
| | | | | | | | | | | | | | | | | |
| Employees | | | | | 3,123 | | | | | 2,416 | | | | | 2,957 | | | | 29.3 | % | | | 5.6 | % |
| % Employees by location | | | | | | | | | | | | | | | | |
| Developed Market Centers | | | | | 55 | % | | | | 56 | % | | | | 56 | % | | | | | | |
| Emerging Market Centers | | | | | 45 | % | | | | 44 | % | | | | 44 | % | | | | | | |
| | | | | | | | | | | | | | | | |
| 1 The Run Rate at a particular point in time represents the forward-looking revenues for the next 12 months from all subscriptions and investment product licenses we currently provide to our clients under renewable contracts or agreements assuming all contracts or agreements that come up for renewal are renewed and assuming then-current currency exchange rates. For any license where 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 or subscription. The Run Rate for IPD products was approximated using the trailing 12 months of revenues primarily adjusted for estimates for non-recurring sales, new sales and cancellations. 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 during the period and 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. |
| |
Table 11: ETF Assets Linked to MSCI Indices1 (unaudited)
| | | | | | | | | | |
| | | | Three Months Ended 2012 | | | Three Months Ended 2013 | | | Nine Months Ended |
| In Billions | | | | March | | | June | | | September | | | December | | | March | | | June | | | September | | | September 2012 | | | September 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning Period AUM in ETFs linked to MSCI Indices | | | | $ | 301.6 | | | $ | 354.7 | | | | $ | 327.4 | | | $ | 363.7 | | | $ | 402.3 | | | | $ | 357.3 | | | | $ | 269.7 | | | $ | 301.6 | | | $ | 402.3 | |
| Cash Inflow/Outflow2 | | | | | 15.2 | | | | 0.3 | | | | | 15.2 | | | | 25.9 | | | | (61.0 | ) | | | | (74.4 | ) | | | | 12.7 | | | | 30.7 | | | | (122.7 | ) |
| Appreciation/Depreciation | | | | | 37.9 | | | | (27.6 | ) | | | | 21.1 | | | | 12.7 | | | | 16.0 | | | | | (13.2 | ) | | | | 20.2 | | | | 31.4 | | | | 23.0 | |
Period End AUM in ETFs linked to | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
MSCI Indices | | | | $ | 354.7 | | | $ | 327.4 | | | | $ | 363.7 | | | $ | 402.3 | | | $ | 357.3 | | | | $ | 269.7 | | | | $ | 302.6 | | | $ | 363.7 | | | $ | 302.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period Average AUM in ETFs linked to | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
MSCI Indices | | | | $ | 341.0 | | | $ | 331.6 | | | | $ | 344.7 | | | $ | 376.6 | | | $ | 369.0 | | | | $ | 324.1 | | | | $ | 286.2 | | | $ | 339.2 | | | $ | 326.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1 ETF assets under management calculation methodology is ETF net asset value multiplied by shares outstanding. Source: Bloomberg and MSCI |
2 Cash Inflow/Outflow for the first and second quarter of 2013 includes the migration of $82.8 billion of AUM in 9 Vanguard ETFs and $74.8 billion of AUM in 13 Vanguard ETFs, respectively, that transitioned to other indices during each quarter. |
| |
Table 12: Supplemental Operating Metrics (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales & Cancellations |
| | | | Three Months Ended 2012 | | | Three Months Ended 2013 | | | Nine Months Ended |
| In thousands | | | | March | | | June | | | September | | | December | | | March | | | June | | | September | | | September 2012 | | | September 2013 |
| New Recurring Subscription Sales | | | | $ | 33,506 | | | | $ | 28,453 | | | | $ | 27,164 | | | | $ | 29,742 | | | | $ | 30,928 | | | | $ | 31,133 | | | | $ | 30,157 | | | | $ | 89,123 | | | | $ | 92,218 | |
| Subscription Cancellations | | | | | (13,498 | ) | | | | (17,229 | ) | | | | (19,134 | ) | | | | (28,725 | ) | | | | (16,691 | ) | | | | (16,082 | ) | | | | (16,458 | ) | | | | (49,861 | ) | | | | (49,231 | ) |
| Net New Recurring Subscription Sales | | | | $ | 20,008 | | | | $ | 11,224 | | | | $ | 8,030 | | | | $ | 1,017 | | | | $ | 14,237 | | | | $ | 15,051 | | | | $ | 13,699 | | | | $ | 39,262 | | | | $ | 42,987 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-recurring sales | | | | | 9,338 | | | | | 5,099 | | | | | 3,878 | | | | | 7,443 | | | | | 8,935 | | | | | 6,664 | | | | | 4,359 | | | | | 18,315 | | | | | 19,958 | |
| Total Sales | | | | $ | 42,844 | | | | $ | 33,552 | | | | $ | 31,042 | | | | $ | 37,185 | | | | $ | 39,863 | | | | $ | 37,797 | | | | $ | 34,516 | | | | $ | 107,438 | | | | $ | 112,176 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Aggregate & Core Retention Rates |
| | | | Three Months Ended 2012 | | | Three Months Ended 2013 | | | Nine Months Ended |
| | | | | March | | | June | | | September | | | December | | | March | | | June | | | September | | | September 2012 | | | September 2013 |
| Aggregate Retention Rate1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Index and ESG products | | | | | 94.5 | % | | | | 94.9 | % | | | | 94.0 | % | | | | 90.4 | % | | | | 95.0 | % | | | | 94.0 | % | | | | 94.7 | % | | | | 94.4 | % | | | | 94.6 | % |
| Risk management analytics | | | | | 93.9 | % | | | | 90.0 | % | | | | 88.5 | % | | | | 84.4 | % | | | | 93.5 | % | | | | 92.5 | % | | | | 92.3 | % | | | | 90.7 | % | | | | 92.8 | % |
| Portfolio management analytics | | | | | 91.9 | % | | | | 84.2 | % | | | | 84.9 | % | | | | 78.0 | % | | | | 81.7 | % | | | | 87.0 | % | | | | 89.1 | % | | | | 87.0 | % | | | | 85.9 | % |
| Energy & commodity analytics | | | | | 90.2 | % | | | | 85.5 | % | | | | 76.6 | % | | | | 60.4 | % | | | | 90.1 | % | | | | 86.0 | % | | | | 80.2 | % | | | | 84.1 | % | | | | 85.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Performance and Risk | | | | | 93.7 | % | | | | 90.9 | % | | | | 89.8 | % | | | | 85.2 | % | | | | 92.4 | % | | | | 92.3 | % | | | | 92.7 | % | | | | 91.4 | % | | | | 92.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Governance | | | | | 88.7 | % | | | | 92.1 | % | | | | 91.1 | % | | | | 83.6 | % | | | | 90.0 | % | | | | 92.9 | % | | | | 88.5 | % | | | | 90.7 | % | | | | 90.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Aggregate Retention Rate | | | | | 93.0 | % | | | | 91.0 | % | | | | 90.0 | % | | | | 84.9 | % | | | | 92.1 | % | | | | 92.3 | % | | | | 92.2 | % | | | | 91.3 | % | | | | 92.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core Retention Rate1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Index and ESG products | | | | | 94.6 | % | | | | 95.0 | % | | | | 94.0 | % | | | | 90.5 | % | | | | 95.0 | % | | | | 94.1 | % | | | | 94.8 | % | | | | 94.5 | % | | | | 94.7 | % |
| Risk management analytics | | | | | 94.0 | % | | | | 92.0 | % | | | | 89.3 | % | | | | 84.4 | % | | | | 93.9 | % | | | | 93.1 | % | | | | 92.3 | % | | | | 91.6 | % | | | | 93.1 | % |
| Portfolio management analytics | | | | | 92.2 | % | | | | 87.0 | % | | | | 86.5 | % | | | | 83.6 | % | | | | 82.8 | % | | | | 87.5 | % | | | | 90.3 | % | | | | 88.5 | % | | | | 86.9 | % |
| Energy & commodity analytics | | | | | 90.7 | % | | | | 85.5 | % | | | | 77.1 | % | | | | 60.4 | % | | | | 90.1 | % | | | | 86.0 | % | | | | 80.2 | % | | | | 84.4 | % | | | | 85.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Performance and Risk | | | | | 93.8 | % | | | | 92.2 | % | | | | 90.5 | % | | | | 86.2 | % | | | | 92.7 | % | | | | 92.6 | % | | | | 92.9 | % | | | | 92.1 | % | | | | 92.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Governance | | | | | 88.7 | % | | | | 92.2 | % | | | | 91.2 | % | | | | 83.8 | % | | | | 90.2 | % | | | | 92.9 | % | | | | 88.5 | % | | | | 90.7 | % | | | | 90.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Core Retention Rate | | | | | 93.1 | % | | | | 92.2 | % | | | | 90.6 | % | | | | 85.9 | % | | | | 92.4 | % | | | | 92.6 | % | | | | 92.4 | % | | | | 91.9 | % | | | | 92.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 The 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. For the calculation of the Core Retention Rates the same methodology is used except the amount of cancellations in the quarter is reduced by the amount of product swaps. |
| |
Table 13: Reconciliation of Adjusted EBITDA to Net Income (unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended September 30, 2013 | | | Three Months Ended September 30, 2012 |
| In thousands | | | | Performance
and Risk | | | Governance | | | Total | | | Performance
and Risk | | | Governance | | | Total |
| Net Income | | | | | | | | | | $ | 55,310 | | | | | | | | | | $ | 48,274 | |
| Plus: | | | Provision for income taxes | | | | | | | | | | | 30,937 | | | | | | | | | | | 27,320 | |
| Plus: | | | Other expense (income), net | | | | | | | | | | | 6,189 | | | | | | | | | | | 7,935 | |
| Operating income | | | | $ | 88,172 | | | | $ | 4,264 | | | | $ | 92,436 | | | | $ | 80,472 | | | | $ | 3,057 | | | | $ | 83,529 | |
| Plus: | | | Non-recurring stock-based compensation | | | | | - | | | | | - | | | | | - | | | | | 572 | | | | | 54 | | | | | 626 | |
| Plus: | | | Depreciation and amortization of property, | | | | | | | | | | | | | | | | | | | |
| | | equipment and leasehold improvements | | | | | 4,845 | | | | | 1,089 | | | | | 5,934 | | | | | 3,755 | | | | | 878 | | | | | 4,633 | |
| Plus: | | | Amortization of intangible assets | | | | | 11,193 | | | | | 3,255 | | | | | 14,448 | | | | | 12,638 | | | | | 3,321 | | | | | 15,959 | |
| Plus: | | | Lease exit charge | | | | | - | | | | | - | | | | | - | | | | | 2,925 | | | | | 402 | | | | | 3,327 | |
| Plus: | | | Restructuring costs | | | | | - | | | | | - | | | | | - | | | | | - | | | | | - | | | | | - | |
| Adjusted EBITDA | | | | $ | 104,210 | | | | $ | 8,608 | | | | $ | 112,818 | | | | $ | 100,362 | | | | $ | 7,712 | | | | $ | 108,074 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Nine Months Ended September 30, 2013 | | Nine Months Ended September 30, 2012 |
| In thousands | | | | Performance
and Risk | | | Governance | | | Total | | | Performance
and Risk | | | Governance | | | Total |
| Net Income | | | | | | | | | | $ | 175,300 | | | | | | | | | | $ | 129,786 | |
| Plus: | | | Provision for income taxes | | | | | | | | | | | 85,757 | | | | | | | | | | | 71,308 | |
| Plus: | | | Other expense (income), net | | | | | | | | | | | 19,078 | | | | | | | | | | | 50,535 | |
| Operating income | | | | $ | 268,445 | | | | $ | 11,690 | | | | $ | 280,135 | | | | $ | 243,927 | | | | $ | 7,702 | | | | $ | 251,629 | |
| Plus: | | | Non-recurring stock-based compensation | | | | | - | | | | | - | | | | | - | | | | | 1,269 | | | | | 131 | | | | | 1,400 | |
| Plus: | | | Depreciation and amortization of property, | | | | | | | | | | | | | | | | | | | |
| | | equipment and leasehold improvements | | | | | 13,263 | | | | | 2,997 | | | | | 16,260 | | | | | 11,137 | | | | | 2,574 | | | | | 13,711 | |
| Plus: | | | Amortization of intangible assets | | | | | 33,580 | | | | | 9,863 | | | | | 43,443 | | | | | 37,916 | | | | | 9,961 | | | | | 47,877 | |
| Plus: | | | Lease exit charge | | | | | (308 | ) | | | | (57 | ) | | | | (365 | ) | | | | 2,925 | | | | | 402 | | | | | 3,327 | |
| Plus: | | | Restructuring costs | | | | | - | | | | | - | | | | | - | | | | | (32 | ) | | | | (19 | ) | | | | (51 | ) |
| Adjusted EBITDA | | | | $ | 314,980 | | | | $ | 24,493 | | | | $ | 339,473 | | | | $ | 297,142 | | | | $ | 20,751 | | | | $ | 317,893 | |
| | | | | | | | | | | | | | | | | | | |
Table 14: Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS (unaudited)
| | | | | | | | | | | | | |
| | | | | | | Three Months Ended | | | Nine Months Ended |
| | | | | | | September 30, | | | September 30, | | | June 30, | | | September 30, | | | September 30, |
| In thousands, except per share data | | | | | 2013 | | | | | 2012 | | | | | 2013 | | | | | 2013 | | | | | 2012 | |
| Net Income | | | | $ | 55,310 | | | | $ | 48,274 | | | | $ | 61,053 | | | | $ | 175,300 | | | | $ | 129,786 | |
| Plus: | | | Non-recurring stock-based compensation | | | | | - | | | | | 626 | | | | | - | | | | | - | | | | | 1,400 | |
| Plus: | | | Amortization of intangible assets | | | | | 14,448 | | | | | 15,959 | | | | | 14,509 | | | | | 43,443 | | | | | 47,877 | |
| Plus: | | | Debt repayment and refinancing expenses | | | | | - | | | | | - | | | | | - | | | | | - | | | | | 20,639 | |
| Plus: | | | Lease exit charge | | | | | - | | | | | 3,327 | | | | | (365 | ) | | | | (365 | ) | | | | 3,327 | |
| Plus: | | | Restructuring costs | | | | | - | | | | | - | | | | | - | | | | | - | | | | | (51 | ) |
| Less: | | | Income tax effect | | | | | (5,172 | ) | | | | (7,280 | ) | | | | (4,711 | ) | | | | (14,151 | ) | | | | (25,954 | ) |
| | | | | | | | | | | | | | | | | | | |
| Adjusted net income | | | | $ | 64,586 | | | | $ | 60,906 | | | | $ | 70,486 | | | | $ | 204,227 | | | | $ | 177,024 | |
| | | | | | | | | | | | | | | | | | | |
| Diluted EPS | | | | $ | 0.46 | | | | $ | 0.39 | | | | $ | 0.50 | | | | $ | 1.44 | | | | $ | 1.05 | |
| Plus: | | | Non-recurring stock-based compensation | | | | | - | | | | | 0.01 | | | | | - | | | | | - | | | | | 0.01 | |
| Plus: | | | Amortization of intangible assets | | | | | 0.12 | | | | | 0.13 | | | | | 0.12 | | | | | 0.36 | | | | | 0.39 | |
| Plus: | | | Debt repayment and refinancing expenses | | | | | - | | | | | - | | | | | - | | | | | - | | | | | 0.17 | |
| Plus: | | | Lease exit charge | | | | | - | | | | | 0.03 | | | | | - | | | | | - | | | | | 0.03 | |
| Plus: | | | Restructuring costs | | | | | - | | | | | - | | | | | - | | | | | - | | | | | - | |
| Less: | | | Income tax effect | | | | | (0.05 | ) | | | | (0.07 | ) | | | | (0.04 | ) | | | | (0.12 | ) | | | | (0.22 | ) |
| Adjusted EPS | | | | $ | 0.53 | | | | $ | 0.49 | | | | $ | 0.58 | | | | $ | 1.68 | | | | $ | 1.43 | |
CONTACT:
MSCI Inc.:
W. Edings Thibault, MSCI, New York + 1-212-804-5273
or
Media Inquiries:
Jo Morgan, MSCI, London + 44.20.7618.2224
W. Edings Thibault, MSCI, New York + 1-212-804-5273
Sally Todd | Christian Pickel, MHP Communications, London + 44.20.3128.8100
