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 ended August 31, 2010 which
reflect the acquisitions of RiskMetrics Group, Inc. (“RiskMetrics”)
and Measurisk, LLC (“Measurisk”) effective June 1, 2010 and July
30, 2010, respectively. As a result of the acquisition of
RiskMetrics, MSCI now operates its business in two segments: the
Performance and Risk segment and the Governance segment. For
comparative purposes, selected results excluding the impact of the
acquisitions are presented, as are pro forma results as if MSCI had
acquired RiskMetrics on December 1, 2008.
(Note: Percentage changes are referenced to the comparable
period in fiscal year 2009, unless otherwise noted.)
- Operating revenues increased 86.2% to
$202.7 million in third quarter 2010 and 38.7% to $449.6 million
for the nine months ended August 31, 2010.
- Compared to pro forma 2009, revenues
grew by 10.9% to $202.7 million in third quarter 2010. Pro forma
nine months ended August 31, 2010 revenues rose 9.4% to $603.1
million.
- Adjusted EBITDA (defined below) rose
45.6% to $78.6 million in the quarter and the Adjusted EBITDA
margin was 38.8%. Adjusted EBITDA grew by 28.1% to $199.6 million
for the nine months ended August 31, 2010.
- Excluding restructuring costs, Adjusted
EBITDA grew to $85.5 million with an Adjusted EBITDA margin of
42.2% for the third quarter 2010 and for the nine months 2010 grew
by 32.6% to $206.6 million with a margin of 46.0%.
- Compared to pro forma 2009, Adjusted
EBITDA excluding restructuring costs grew by 12.6% to $85.5 million
and margins expanded to 42.2% from 41.5%. Pro forma nine months
2010 Adjusted EBITDA excluding restructuring costs rose 12.1% to
$255.6 million and margins expanded to 42.4% from 41.4%.
- Net income declined by 50.7% to $10.3
million in third quarter 2010. For the nine months ended August 31
2010, net income increased by 8.1% to $61.9 million. Diluted EPS
for the third quarter 2010 decreased 60.0% to $0.08. For the nine
months ended August 31, 2010, Diluted EPS remained flat at
$0.55.
- Third quarter 2010 Adjusted EPS
(defined below) rose 3.6% $0.29. Adjusted EPS rose 19.0% to $0.94
for the nine months ended August 31, 2010. Adjusted EPS excluding
restructuring costs rose 14.3% to $0.32 in third quarter and 24.1%
to $0.98 for nine months 2010.
Henry A. Fernandez, Chairman and CEO, said, “I am pleased with
the strong results of our first full quarter following the
acquisition of RiskMetrics. Compared to pro forma third quarter
2009, MSCI reported revenue growth of 10.9% and, excluding
restructuring costs, Adjusted EBITDA growth of 12.6%. Our Adjusted
EBITDA margin excluding restructuring costs rose to 42.2% from
41.5% in pro forma third quarter 2009. The integration of
RiskMetrics is well underway and we intend to achieve our $50
million target for total cost synergies.”
“I am further encouraged by the continued improvement in market
conditions, as evidenced by year-over-year gains in new sales and
the decline in cancellations. MSCI’s growth is supported by
long-term, secular trends including the increasing allocation of
capital to global markets, the increasing need to measure, manage,
and report risk, the increased emphasis on sound corporate
governance practices, and the growth of passive investment
vehicles. We intend to continue to invest in creating new products
and capabilities for our clients so that we can take advantage of
the opportunities these trends offer us,” added Mr. Fernandez.
Table 1: MSCI Inc. Selected Financial Information
(unaudited)
Three Months Ended Change from Nine Months
Ended Change from August 31, August 31, August 31, August
31, In thousands, except per share data 2010 2009 2009 2010
2009 2009 Operating revenues $ 202,733 $ 108,868 86.2% $
449,583 $ 324,158 38.7% Operating expenses 161,284 71,070 126.9%
314,180 216,922 44.8% Net income 10,319 20,924 (50.7%) 61,904
57,266 8.1% % Margin 5.1% 19.2% 13.8% 17.7% Diluted EPS $ 0.08 $
0.20 (60.0%) $ 0.55 $ 0.55 0.0% Adjusted EPS1 0.29 0.28 3.6%
0.94 0.79 19.0%
Adjusted EPS1 excl. restructuring
costs
0.32 0.28 14.3% 0.98 0.79 24.1%
Adjusted EBITDA2
$ 78,565 $ 53,955 45.6% $ 199,648 $ 155,812 28.1% % Margin 38.8%
49.6% 44.4% 48.1%
Adjusted EBITDA2 excl. restructuring
costs
$ 85,518 $ 53,955 58.5% $ 206,601 $ 155,812 32.6% % Margin 42.2%
49.6% 46.0% 48.1%
1 Per share net income before after-tax
impact of amortization of intangibles, founders grant, third party
transaction expenses associated with the acquisition of RiskMetrics
and debt repayment expenses. See Table 17 titled "Reconciliation of
Adjusted Net Income and Adjusted EPS to Net Income and EPS" and
information about the use of non-GAAP financial information
provided under "Notes Regarding the Use of Non-GAAP Financial
Measures.”
2 Income before interest income, interest
expense, other expense (income), provision for taxes, depreciation,
amortization, founders grant, and third party transaction expenses
associated with the acquisition of RiskMetrics. See Table 15 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.”
Summary of Results for Fiscal Third Quarter 2010 -
GAAP
Operating Revenues – See Table 4
Total operating revenues for the three months ended August 31,
2010 (third quarter 2010) increased $93.9 million, or 86.2%, to
$202.7 million compared to $108.9 million for the three months
ended August 31, 2009 (third quarter 2009). The biggest driver of
revenue growth was the acquisition of RiskMetrics, which
contributed revenues of $77.0 million to growth in the third
quarter. Total subscription revenue rose 97.5% to $171.4 million
while asset-based fees rose 24.7% to $25.1 million. Non-recurring
revenues increased $4.3 million to $6.2 million.
Excluding the impact of the acquisitions of RiskMetrics and
Measurisk, total operating revenues grew by $15.8 million, or
14.5%, to $124.6 million, subscription revenue grew $10.6 million,
or 12.2%, to $97.3 million in third quarter 2010 and non-recurring
revenues increased $0.2 million to $2.2 million.
By segment, Performance and Risk revenues rose $63.6 million, or
58.4%, to $172.4 million. The Performance and Risk segment is
comprised of index and ESG products, risk management analytics,
portfolio management analytics, and energy and commodity analytics.
Revenue trends in the Governance segment are described below.
In third quarter 2009, we adjusted certain foreign exchange
rates used to amortize deferred revenue. As a result, we recorded a
one-time negative adjustment of $3.3 million to revenues in third
quarter 2009 to correct for revenues previously reported through
May 31, 2009. By product category, the adjustment increased index
products by $0.7 million, and decreased risk management analytics
revenues by $2.3 million and portfolio management analytics by $1.7
million. Excluding the impact of the $3.3 million one-time revenue
adjustment made in the third quarter 2009, revenue growth excluding
the impact of acquisitions was $12.5 million, or 11.1%.
Index and ESG products: Our index and ESG products
primarily consist of index subscriptions, equity index asset based
fees products and environmental, social and governance (“ESG”)
products. Revenues related to index and ESG products increased
$16.5 million, or 24.5 %, to $84.1 million. Index and ESG
subscription revenue grew by $11.6 million, or 24.4%, to $59.0
million. The inclusion of RiskMetrics’ ESG products contributed
revenue growth of $4.7 million. Non-recurring subscription revenue
rose to $2.4 from $1.7 million.
Excluding the impact of the RiskMetrics acquisition, index and
ESG subscription revenue grew by $6.9 million, or 14.5%, driven by
higher usage fees and revenues from MSCI’s core benchmark indices.
Non-recurring subscription revenues were $2.0 million, up from $1.7
million in third quarter 2009.
Revenues attributable to asset based fees increased to $25.1
million, or 24.7%, compared to third quarter 2009. The increase in
equity index asset-based fees was driven primarily by an increase
in ETF asset-based fees. The average value of assets in ETFs linked
to MSCI equity indices increased 39.8% to $252.0 billion for third
quarter 2010 compared to $180.3 billion for third quarter 2009. As
of August 31, 2010, the value of assets in ETFs linked to MSCI
equity indices was $258.7 billion, representing an increase of
$59.9 billion, or 29.9%, from $199.2 billion as of August 31, 2009
and $20.6 billion from $238.1 billion as of May 31, 2010. We
estimate that the $20.6 billion sequential increase was
attributable to $6.8 billion of net asset appreciation and cash
inflows of $13.8 billion in third quarter 2010. The three MSCI
indices with the largest amount of ETF assets linked to them as of
August 31, 2010 were the MSCI Emerging Markets, EAFE (an index of
stocks in developed markets outside North America), and U.S. Broad
Market indices. The assets linked to these indices were $82.8
billion, $36.6 billion, and $13.6 billion, respectively.
Risk management analytics: Our risk management analytics
products offer a consistent risk assessment framework for managing
and monitoring investments in a variety of asset classes and are
based on our proprietary integrated fundamental multi-factor risk
models, value-at-risk methodologies and asset valuation models.
Revenues related to risk management analytics increased $46.8
million, or 598.2%, to $54.6 million. The acquisitions of
RiskMetrics and Measurisk added $43.1 million, or 551.5%, to growth
in the third quarter.
Excluding the impact of the acquisitions, risk management
analytics revenues grew by $3.7 million, or 46.7%. Increased
revenues from the BarraOne product were the biggest driver of this
growth. Excluding the impact of the $2.3 million one-time revenue
adjustment made in the third quarter 2009, revenue grew $1.4
million, or 13.6%.
Portfolio management analytics: Our portfolio management
analytics products consist of analytics tools for equity and fixed
income portfolio management. Revenues related to portfolio
management analytics decreased slightly in the third quarter 2010
to $30.4 million. A slight decrease in revenues for MSCI’s fixed
income portfolio analytics offset very modest revenue growth for
equity portfolio management analytics products. Excluding the
impact of the $1.7 million one-time revenue adjustment made in the
third quarter 2009, revenue declined $1.7 million, or 5.9%.
Energy and commodity analytics: Our energy and commodity
analytics products consist of software applications which help
users value and model physical assets and derivatives across a
number of market segments including energy and commodity assets.
Revenues from energy commodity analytics products rose $0.2
million, or 7.7%, to $3.3 million from third quarter 2009. The
biggest driver of growth was an increase in revenues from option
valuation analytics.
Governance: Our governance products consist of corporate
governance products and services, including proxy research,
recommendation and voting services for asset owners and asset
managers as well as governance advisory and compensation services
for corporations. It also includes forensic accounting research as
well as class action monitoring and claims filing services to aid
institutional investors in the recovery of funds from securities
litigation, all of which were acquired as part of our acquisition
of RiskMetrics. Governance revenues were $30.3 million in third
quarter 2010.
Operating Expenses – See Table 6
Total operating expense increased $90.2 million, or 126.9%, to
$161.3 million in third quarter 2010 compared to third quarter
2009. The acquisitions added $65.2 million to operating expenses.
Operating expenses include third party transaction expenses of
$13.7 million and restructuring costs of $7.0 million, both of
which resulted from the acquisition and ongoing integration of
RiskMetrics.
Compensation costs: Total compensation costs rose $41.0
million, or 93.5%, to $84.8 million in third quarter 2010.
Excluding founders grant expense, compensation costs rose $45.7
million, or 123.6%, to $82.7 million. The increase in compensation
largely reflects an increase in headcount, most of which was due to
the acquisition of RiskMetrics.
On June 1, 2010, the Company awarded certain of its employees
grants of restricted stock units (“Performance Award”). The
Performance Award will performance-vest based upon the Company
achieving specific performance targets over a measurement period
ending on the fiscal year end 2012 and time-vest over a 31 month
period, with one-half time-vesting on December 31, 2011 and 2012,
respectively. The aggregate value of the grants was approximately
$15.9 million and the impact on third quarter compensation expense
was $2.1 million.
Total founders grant expense fell by $4.7 million, or 68.8%, to
$2.1 million. The drop in founders grant expense is a result of the
vesting of a portion of these awards on November 14, 2009 at the
two-year anniversary of the Company’s initial public offering
(IPO). 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, which are being amortized through 2011. Of the $2.1 million
of founders grant expense recorded in third quarter 2010, $0.6
million was recorded in cost of services and $1.5 million was
recorded in selling, general and administrative expense.
Non-compensation costs excluding depreciation and
amortization: Total non-compensation operating expenses
excluding depreciation and amortization were $48.2 million, up
169.0% from third quarter 2009. Excluding third party transaction
expenses and restructuring costs, non-compensation costs excluding
depreciation and amortization were $34.5 million, up $16.6 million,
or 92.6%. The acquisition of RiskMetrics was the biggest driver
behind the increase.
Cost of services: Total cost of services expenses rose by
$41.5 million, or 146.9%, to $69.7 million from third quarter 2009.
Within costs of services, compensation expenses increased by $30.9
million, or 146.8%, and non-compensation expenses increased by
$10.6 million, or 147.1%. In both cases, the biggest driver behind
the increase was the acquisition of RiskMetrics.
Selling, general and administrative expense (SG&A):
Total SG&A expense rose by $29.8 million, or 88.8%, to $63.3
million. Excluding the impact of $13.7 million of third party
transaction expense, total SG&A expense rose by $16.1 million,
or 48.0%, to $49.6 million. Most of the increase was a result of
the acquisition of RiskMetrics.
Restructuring costs: During the quarter 2010, MSCI’s
management approved, committed to and initiated a plan to
restructure the Company’s operations due to its acquisition of
RiskMetrics. Restructuring includes expenses associated with the
elimination of overlapping positions and duplicative occupancy
costs, the termination of overlapping vendor contracts and the
discontinuance of the planned integration of a product into
RiskMetrics’ standard product offering suite. Approximately $5.9
million of expense associated with the elimination of overlapping
positions and $1.1 million of expense associated with duplicative
occupancy costs and the discontinuance of the planned integration
of a product into RiskMetrics’ standard product offering suite was
recognized during third quarter 2010.
Amortization of intangibles: Amortization of intangibles
expense totaled $16.4 million compared to $6.4 million in third
quarter 2009. The increase of $10.0 million consisted of $12.1
million of increased amortization associated with the acquisitions
of RiskMetrics and Measurisk, partially offset by $2.1 million of
decreased amortization associated with the intangible assets
related to the acquisition of Barra.
Adjusted EBITDA – See Table 15
Adjusted EBITDA, which excludes the impact of founders grant
expense and transaction expenses, was $78.6 million, an increase of
$24.6 million, or 45.6%, from third quarter 2009. Adjusted EBITDA
margin declined to 38.8% from 49.6% as a result of the acquisitions
of RiskMetrics and Measurisk. Adjusted EBITDA excluding the impact
of restructuring costs was $85.5 million, up $31.6 million, or
58.5%, from third quarter 2009. The adjusted EBITDA margin
excluding restructuring costs was 42.2%, down from 49.6% in third
quarter 2009. The decline in margin was a result of the acquisition
of the lower margin RiskMetrics business.
See Table 15 titled “Reconciliation of Adjusted EBITDA to Net
Income” and “Notes Regarding the Use of Non-GAAP Financial
Measures” below.
Other Expense (Income), Net
Other expense (income), net for third quarter 2010 was
$20.8 million, an increase of $16.7 million from third quarter
2009. In third quarter 2010, MSCI repaid $70.9 million of its
former term loan facilities prior to completing the acquisition of
RiskMetrics. As a result, the company incurred a total of $2.0
million of interest expense resulting from the recognition of
deferred financing and debt discount costs. In addition, third
quarter 2010 interest expense also includes $0.8 million of third
party transaction expenses relating to the acquisition of
RiskMetrics. Excluding debt repayment and transaction expense,
other expense (income) for the third quarter 2010 was $18.0
million, an increase of $13.9 million from third quarter 2009. The
increase largely reflects increased interest expense resulting from
the $1,275.0 million term loan assumed as part of our acquisition
of RiskMetrics.
Provision for Income Taxes
The provision for income tax expense was $10.3 million for the
three months ended August 31, 2010, a decrease of $2.5 million, or
19.4%, compared to $12.8 million for the same period in 2009. Our
effective tax rate was 50.0% for the three months ended August 31,
2010. This rate reflects the impact of the transaction expenses,
some of which are not tax deductible, and net discrete tax benefits
recognized during third quarter 2010 which increased our effective
tax rate by approximately 12.7%. Our effective tax rate was 37.9%
for the three months ended August 31, 2009. This rate reflects the
impact of net discrete tax benefits recognized during third quarter
2009 which decreased our effective tax rate by approximately
0.3%.
Net Income and Earnings per Share - See Table 17
Net income decreased $10.6 million, or 50.7%, to $10.3 million
as higher interest expense related to the refinancing of a term
loan prior to completing the acquisition of RiskMetrics and higher
overall indebtedness offset an increase in operating income. The
net income margin decreased to 5.1% from 19.2%. Diluted EPS fell to
$0.08 from $0.20.
Net income excluding the after-tax impact of amortization of
intangibles, founders grant expense, transaction expenses and debt
repayment expenses totaling $24.4 million, rose $5.8 million, or
19.2%, to $34.8 million in third quarter 2009. Adjusted EPS, which
excludes the after-tax, per share impact of amortization of
intangibles, founders grant expense, transaction expenses and debt
repayment expenses totaling $0.21, rose 3.6% to $0.29 in third
quarter 2010. See table 17 titled “Reconciliation of Adjusted Net
Income and Adjusted EPS to Net Income and EPS."
The after-tax impact of the $7.0 million of restructuring costs
incurred in third quarter 2009 was $4.4 million. As a result,
adjusted net income excluding restructuring costs was $39.1
million, an increase of $10.0 million, or 34.2%, from third quarter
2009. Adjusted EPS after restructuring costs was $0.32, up 14.3%
from third quarter 2009.
Summary of Results for Nine Months Ended August 31, 2010 -
GAAP
Operating Revenues – See Table 5
Total operating revenues for the nine months ended August 31,
2010 (nine months 2010) increased $125.4 million, or 38.7%, to
$449.6 million compared to $324.2 million for the nine months ended
August 31, 2009 (nine months 2009). The acquisitions of RiskMetrics
and Measurisk added $78.1 million in revenues in the third quarter
2010. Total subscription revenue rose 34.5% to $361.0 million while
asset-based fees rose 54.3% to $75.8 million. Total non-recurring
revenues increased $6.2 million to $12.9 million mostly as a result
of the acquisition of RiskMetrics, which contributed $4.1
million.
Excluding the impact of the acquisitions, total operating
revenues grew by $47.3 million, or 14.6%, subscription revenues
grew by $18.6 million, or 6.9%, and non-recurring subscription
revenues grew by $2.1 million, to $8.8 million, from nine months
2009. Excluding the impact of the acquisitions, index and
ESG products and risk management analytics revenues grew 13.4%
and 23.7%, respectively, in nine months 2010. Portfolio management
analytics revenues declined 5.4%.
By segment, Performance and Risk revenues rose $95.1 million, or
29.3%, from nine months 2009 to $419.3 million. Governance revenues
were $30.3 million.
Operating Expenses – See Table 7
Total operating expense increased $97.3 million, or 44.8%, to
$314.2 million in nine months 2010 compared to nine months 2009.
Operating expenses included third party transaction expenses of
$21.2 million and restructuring costs of $7.0 million, both of
which resulted from the acquisition of RiskMetrics. Excluding these
expenses, total operating expenses would have risen by $69.1
million, or 31.9%. The $69.1 million increase reflects increases of
$43.0 million, or 49.8%, in cost of services and $17.4 million, or
17.1%, in SG&A expense.
Adjusted EBITDA – See Table 15
Adjusted EBITDA was $199.6 million, an increase of $43.8
million, or 28.1%, from nine months 2009. Adjusted EBITDA margin
decreased to 44.4% from 48.1%. Adjusted EBITDA excluding the impact
of restructuring costs was $206.6 million, up $50.8 million, or
32.6% from nine months 2009.
By segment, Performance and Risk Adjusted EBITDA was up $37.2
million, or 23.8%, to $193.0 million. Adjusted EBITDA margin fell
to 46.0% from 48.1% in nine months 2009. Adjusted EBITDA excluding
restructuring costs rose $43.2 million, or 27.7%, to $199.0
million. The margin declined to 47.5% from 48.1%. Adjusted EBITDA
for the Governance segment was $6.7 million and the Adjusted EBITDA
margin was 22.0%. Governance Adjusted EBITDA excluding
restructuring costs was $7.6 million and the margin was 25.1%.
See Table 15 titled “Reconciliation of Adjusted EBITDA to Net
Income” and “Notes Regarding the Use of Non-GAAP Financial
Measures” below.
Other Expense (Income), Net
Other expense (income), net for the nine months ended
August 31, 2010 was $33.0 million, an increase of $17.8 million
compared to $15.2 million for the nine months 2009. In 2010,
MSCI repaid all of its former term loan facilities prior to
completing the acquisition of RiskMetrics. As a result, the company
incurred a total of $8.3 million of interest expense resulting from
the recognition of deferred financing and debt discount costs and
the termination of an interest rate swap. Excluding that debt
repayment expense, other expense (income) for the nine months 2010
was $24.7 million, an increase of $9.5 million from third quarter
2009. The increase reflects increased interest expense resulting
from the $1,275.0 million term loan entered into in connection with
our acquisition of RiskMetrics.
Provision for Income Taxes
The provision for income tax expense was $40.5 million for nine
months 2010, an increase of $5.7 million, or 16.4%, compared to
$34.8 million for the same period in 2009. Our effective tax rate
was 39.6%. This rate reflects the impact of the transaction costs,
some of which were not tax deductible, and net discrete tax
benefits recognized during nine months 2010 which increased our
effective tax rate by 2.7%. The effective tax rate was 37.8% for
nine months 2009.
Net Income and Earnings per Share – See Table 17
Net income increased $4.6 million, or 8.1%, to $61.9 million and
the net income margin decreased to 13.8% from 17.7%. Diluted EPS
was unchanged at $0.55.
Adjusted net income, which excludes the after-tax impact of
amortization of intangibles, founders grant expense, transaction
expenses and debt repayment expenses totaling $44.0 million, rose
$23.9 million, or 29.2%, to $105.9 million in third quarter 2009.
Adjusted EPS, which excludes the after-tax, per share impact of
amortization of intangibles, founders grant expense, transaction
expenses and debt repayment expenses totaling $0.39, rose 17.7% to
$0.94 in nine months 2010. See table 17 titled “Reconciliation of
Adjusted Net Income and Adjusted EPS to Net Income and EPS."
The after-tax impact of the $7.0 million of restructuring costs
incurred in third quarter 2009 was $4.4 million and the per share
impact was $0.04. As a result, adjusted net income after
restructuring costs for nine months 2010 was $110.3 million, an
increase of $28.3 million, or 34.5%, from nine months 2009.
Adjusted EPS after restructuring costs was $0.98, up 24.1% from
nine months 2009.
Summary of Results for Pro Forma Third Quarter 2010 compared
to Pro Forma Third Quarter 2009
Operating Revenues – See Table 9
Compared to pro forma third quarter 2009, total operating
revenues increased $19.9 million, or 10.9%, to $202.7 million. By
segment, Performance and Risk revenues rose $21.1 million, or
13.9%, from $151.4 million. Revenue trends in the Governance
segment are described below. Subscription revenues rose by $14.7
million, or 9.4%, to $171.4 million and non-recurring revenues rose
$0.2 million, or 4.1%, to $6.2 million.
Index and ESG products: Compared to pro forma third
quarter 2009, index and ESG subscription revenues rose by $8.6
million, or 17.0%, to $59.0 million from $50.4 million. The change
was driven by higher revenues from MSCI’s core benchmark indices,
higher usage fees, and higher revenues from ESG research and
analytics products. Revenues attributable to asset based fees
increased to $25.1 million, or 24.7%, compared to pro forma third
quarter 2009.
Risk management analytics: Compared to pro forma third
quarter 2009, risk management analytics revenues rose by 15.4% from
$47.3 million, driven by growth in revenues from both BarraOne and
RiskManager products. The acquired risk management analytics
revenues grew by $3.6 million, or 9.2%, to $43.1 million.
Governance: Compared to pro forma third quarter 2009,
governance revenues declined $1.2 million, or 3.7%, to $30.3
million. Gains in corporate compensation advisory services were
offset by declines in proxy research and voting and forensic
accounting services. Non-recurring revenues were $3.2 million in
third quarter 2010 versus $3.1 million in the pro forma third
quarter 2009.
The acquisitions did not significantly impact the revenues
attributable to the asset-based fees sub-category of index and ESG
products, portfolio management analytics and energy and commodity
analytics. Comparison to pro forma third quarter 2009 revenues is
therefore not discussed.
Operating Expenses – See Table 10
Compared to pro forma third quarter 2009, total operating
expenses excluding restructuring costs rose $3.0 million, or 2.2%,
to $140.2 million.
Compensation costs: Compared to pro forma third quarter
2009, compensation costs excluding founders grant expense rose $8.8
million, or 11.9%, from $73.9 million. The increase in compensation
costs reflects higher headcount, higher bonus accruals and higher
stock-based compensation expense. Total founders grant expense fell
by $4.7 million, or 68.8%, to $2.1 million.
Non-compensation costs excluding depreciation and
amortization: Compared to pro forma third quarter 2009, total
non-compensation costs excluding depreciation and amortization as
well as restructuring costs rose $1.5 million, or 4.5%. Higher
outside professional expenses, market data, and travel and
entertainment expenses drove the increase. These costs include $0.7
million of integration expenses related to the ongoing integration
of RiskMetrics and $0.9 million related to non-recurring market
data and non-income tax expense.
Cost of services: Compared to pro forma third quarter
2009, total cost of services expense rose $5.5 million, or 8.6%, to
$69.7 million. Compensation expenses excluding founders grant
expense rose $5.4 million, or 11.8%. Non-compensation expenses rose
$1.8 million, or 11.1%, driven by higher information technology,
travel and entertainment, and outside professional costs.
Selling, general and administrative expense (SG&A):
Compared to pro forma third quarter 2009, total SG&A expense
was flat versus pro forma third quarter 2009. Within SG&A,
compensation expenses excluding founders grant increased $3.4
million, or 12.1%. Non-compensation expenses excluding third party
transaction expense declined by $0.3 million, or 1.6%. The decline
in non-compensation expenses was a result of lower spending on
insurance and marketing expenses, among other items.
Adjusted EBITDA – See Table 16
Compared to pro forma third quarter 2009, Adjusted EBITDA
excluding the impact of restructuring costs increased $9.6 million,
or 12.6%, to $85.5 million and the margin expanded to 42.2% from
41.5%. Performance and Risk segment Adjusted EBITDA excluding
restructuring costs grew by $8.9 million, or 12.9%, to $78.0
million and the margin declined to 45.2% from 45.6%. Governance
Adjusted EBITDA excluding restructuring charges grew $0.7 million,
or 10.1% to $7.6 million and the margin expanded to 25.1% from
21.9%.
See Table 16 titled “Reconciliation of Pro Forma Adjusted EBITDA
to Pro Forma Net Income” and “Notes Regarding the Use of Non-GAAP
Financial Measures” below.
Summary of Results for Pro Forma Nine Months Ended August 31,
2010 compared to Pro Forma Nine Months Ended August 31,
2010
Operating Revenues – See Table 9
Total operating revenues for the pro forma nine months 2010
compared to the pro forma nine months 2009 results, rose 9.4% to
$603.1 million. Subscription revenue rose $23.5 million, or 4.9%,
to $502.2 million, driven by growth in index and ESG subscriptions
and risk management analytics partially offset by declines in
revenues from portfolio management analytics and governance. The
acquired risk management analytics revenues grew by $3.8 million,
or 3.2%, to $122.9 million. Asset-based fees rose $26.7 million, or
54.3%, to $75.8 million. Non-recurring revenues increased by 4.1%
to $25.2 million, as higher non-recurring index and ESG
subscription revenues offset a $0.6 million decline in governance
products revenues.
By segment, Performance and Risk revenues rose by $57.1 million,
or 12.7%, to $508.1 million. Governance revenues fell by $5.1
million, or 5.1%, to $95.0 million.
Operating Expenses – See Table 10
Compared to pro forma nine months 2009, total operating expense
for pro forma nine months 2010 increased $11.5 million, or 2.5%, to
$425.1 million. The increase was driven by growth of $19.5 million,
or 8.7%, in compensation excluding founders grant expense and
restructuring costs of $7.0 million, offset, in part, by decreases
of $14.1 million, or 69.4%, in founders grant expense.
Non-compensation costs excluding depreciation and amortization and
restructuring costs rose $5.0 million, or 5.0%.
Compared to pro forma nine months 2009, total cost of services
sold for pro forma nine months 2010 increased $12.8 million, or
6.7%, to $203.2 million. The increase was driven by growth of $12.2
million, or 8.9%, in compensation excluding founders grant expense
and a $5.9 million, or 12.8%, increase in non-compensation
expense.
Total SG&A declined $2.5 million, or 1.6%, to $150.6 million
as an $8.9 million decrease in founders grant expense offset an
increase in compensation expense excluding founders grant of $7.3
million, or 8.5%, to $93.4 million. Non-compensation costs declined
by $0.9 million, or 1.7%, to $52.9 million.
Adjusted EBITDA – See Table 16
Compared to pro forma nine months 2009, pro forma nine months
adjusted EBITDA excluding the impact of restructuring costs
increased $27.6 million, or 12.1%, to $255.6 million and the margin
expanded to 42.4% from 41.4%.
By segment, Performance and Risk Adjusted EBITDA excluding
restructuring costs rose $29.4 million, or 14.4%, to $232.8
million. The margin expanded to 45.8% from 45.1%. Governance
Adjusted EBITDA excluding the impact of restructuring costs
declined $1.8 million, or 7.3%, to $22.8 million and the margin
declined to 24.0% from 24.6%.
See Table 16 titled “Reconciliation of Pro Forma Adjusted EBITDA
to Pro Forma Net Income” and “Notes Regarding the Use of Non-GAAP
Financial Measures” below.
Acquisitions of RiskMetrics Group, Inc. and Measurisk
LLC
On June 1, 2010, MSCI completed the acquisition of RiskMetrics
Group, Inc. For the three and nine months ended August 31, 2010,
RiskMetrics contributed approximately $77.0 million to MSCI’s
revenue and $4.7 million to MSCI’s earnings. On July 30, 2010, MSCI
acquired Measurisk, LLC (“Measurisk”). For the three and nine
months ended August 31, 2010, Measurisk contributed approximately
$1.1 million to MSCI’s revenue and $0.3 million to MSCI’s
earnings.
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s
senior management review third quarter 2010 results on Thursday,
September 30, 2010 at 11:00 am Eastern Time. To hear 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 October 7, 2010. To
listen to the recording, visit http://ir.msci.com/events.cfm, or
dial 1-800-642-1687 (passcode: 10697017) within the United States.
International callers dial 1-706-645-9291 (passcode: 10697017).
About MSCI Inc.
MSCI Inc. is a leading provider of investment decision support
tools to investors globally, including asset managers, banks, hedge
funds and pension funds. MSCI’s products and services include
indices, portfolio risk and performance analytics, and governance
tools.
The company’s flagship product offerings are: the MSCI indices
which include over 120,000 daily indices covering more than 70
countries; Barra portfolio risk and performance analytics covering
global equity and fixed income markets; RiskMetrics market and
credit risk analytics; ISS governance research and outsourced proxy
voting and reporting services; FEA valuation models and risk
management software for the energy and commodities markets; and
CFRA forensic accounting risk research, legal/regulatory risk
assessment, and due-diligence. MSCI is headquartered in New York,
with research and commercial offices around the world. MSCI#IR
For further information on MSCI Inc. or our products please
visit www.msci.com.
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, 2009 and filed with the Securities and Exchange
Commission (SEC) on January 29, 2010, and in quarterly reports on
form 10-Q and current reports on form 8-K, filed with the SEC. 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.
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 below
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, amortization of intangible assets, other net expense
and income, depreciation and amortization, founders grant expense
and third party transaction costs related to the acquisition of
RiskMetrics.
Adjusted net income and Adjusted EPS are defined as net income
and EPS, respectively, before provision for founders grant
expenses, amortization of intangible assets, third party
transaction costs related to the acquisition of RiskMetrics, and
the accelerated interest expense resulting from the termination of
an interest rate swap and the acceleration of deferred financing
and debt discount costs (debt repayment expenses), as well as for
any related tax effects.
We believe that adjustments related to transaction costs and
debt repayment expenses are useful to management and investors
because it allows for an evaluation of the MSCI’s underlying
operating performance by excluding the costs incurred in connection
with the acquisition of RiskMetrics. Additionally, we believe that
adjusting for founders grant expenses and the amortization of
intangible assets 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 one-time founders grant
expenses and amortization of intangible assets. 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. Consolidated Statement of Income
(unaudited)
Three Months Ended Nine Months Ended August 31,
May 31, August 31, In thousands, except per share data 2010
2009 2010 2010 2009 Operating revenues $ 202,733 $
108,868 $ 125,170 $ 449,583 $ 324,158 Operating expenses
Cost of services 69,741 28,247 30,463 129,495 86,451 Selling,
general and administrative 63,306 33,525 40,177 140,944 102,293
Restructuring costs 6,953 6,953 Amortization of intangible assets
16,350 6,429 4,277 24,905 19,286 Depreciation and amortization of
property, 4,934 2,869 3,556 11,883 8,892 equipment, and leasehold
improvements Total operating
expenses $ 161,284 $ 71,070 $ 78,473 $ 314,180
$ 216,922 Operating income 41,449 37,798
46,697 135,403 107,236 Interest income (114 ) (373 ) (343 )
(865 ) (714 ) Interest expense 20,415 4,628 8,991 33,842 15,170
Other expense (income) 524 (168 ) 98
14 712 Other expense (income),
net $ 20,825 $ 4,087 $ 8,746 $ 32,991 $
15,168 Income before income taxes 20,624 33,711
37,951 102,412 92,068 Provision for income taxes 10,305
12,787 13,884 40,508 34,802 Net
income $ 10,319 $ 20,924 $ 24,067 $ 61,904
$ 57,266 Earnings per basic common share $
0.09 $ 0.20 $ 0.23 $ 0.56 $ 0.55
Earnings per diluted common share $ 0.08 $ 0.20 $
0.22 $ 0.55 $ 0.55 Weighted average
shares outstanding used in computing earnings per share Basic
118,339 100,402 105,345
109,672 100,350 Diluted 120,341
100,833 106,003 110,762
100,498
Table 3: MSCI Inc. Selected Balance Sheet Items
(unaudited)
As of August 31, November 30, In thousands 2010 2009
Cash and cash equivalents $ 197,735 $ 176,024 Short-term
investments 42,593 295,304 Trade receivables, net of allowances
114,527 77,180 Deferred revenue $ 283,834 $ 152,944 Current
maturities of long-term debt 11,663 42,088 Long-term debt, net of
current maturities 1,254,048 337,622
Table 4: Third quarter 2010 Operating Revenues by Product
Category
Three Months Ended Change from August 31,
May 31, August 31, May 31, In thousands 2010
2009 2010 2009 2010 Index and ESG products Subscriptions $ 58,984 $
47,418 $ 54,250 24.4 % 8.7 % Asset-based fees 25,134
20,151 25,674 24.7 % (2.1 %) Index and ESG products total
84,118 67,569 79,924 24.5 % 5.2 % Risk management analytics 54,593
7,819 11,105 598.2 % 391.6 % Portfolio management analytics 30,424
30,425 30,266 (0.0 %) 0.5 % Energy and commodity analytics
3,290 3,055 3,875 7.7 % (15.1 %) Total Performance
and Risk revenues $ 172,425 $ 108,868 $ 125,170 58.4 % 37.8 %
Total Governance revenues 30,308 - - n/m n/m Total operating
revenues $ 202,733 $ 108,868 $ 125,170 86.2 % 62.0 %
Subscriptions $ 171,384 $ 86,776 $ 95,318 97.5 % 79.8 % Asset-based
fees 25,134 20,151 25,674 24.7 % (2.1 %) Non-recurring revenues
6,215 1,941 4,178 220.2 % 48.8 % Total
operating revenues $ 202,733 $ 108,868 $ 125,170 86.2 % 62.0 %
Table 5: The First Nine Months 2010 Operating Revenues by
Product Category
Nine Months Ended August 31, In
thousands 2010 2009 Change Index and ESG products
Subscriptions $ 163,457 $ 140,077 16.7 % Asset-based fees
75,754 49,092 54.3 % Index and ESG products total 239,211
189,169 26.5 % Risk management analytics 76,541 27,016 183.3 %
Portfolio management analytics 92,166 97,387 (5.4 %) Energy and
commodity analytics 11,357 10,586 7.3 % Total
Performance and Risk revenues $ 419,275 $ 324,158 29.3 %
Total Governance revenues 30,308 - n/m Total operating revenues $
449,583 $ 324,158 38.7 % Subscriptions $ 360,978 $ 268,371
34.5 % Asset-based fees 75,754 49,092 54.3 % Non-recurring revenues
12,851 6,695 91.9 % Total operating revenues $
449,583 $ 324,158 38.7 %
Table 6: Additional Third Quarter 2010 Operating Expense
Detail
Three Months Ended Change from August 31,
May 31, August 31, May 31, In thousands 2010
2009 2010 2009 2010 Cost of services Compensation $ 51,313 $ 18,727
$ 21,639 174.0 % 137.1 % Founders grant 624 2,315
715 (73.0 %) (12.7 %) Total Compensation $ 51,937 $ 21,042 $
22,354 146.8 % 132.3 % Non-compensation 17,804 7,205
8,109 147.1 % 119.6 % Total cost of services $ 69,741 $
28,247 $ 30,463 146.9 % 128.9 % Selling, general and administrative
Compensation 31,367 18,257 21,085 71.8 % 48.8 % Founders grant
1,516 4,544 1,325 (66.6 %) 14.4 % Total
Compensation $ 32,883 $ 22,801 $ 22,410 44.2 % 46.7 % Transaction
expenses 13,692 - 5,264 n/m 160.1 % Non-compensation excl.
transaction expenses 16,731 10,724 12,503 56.0
% 33.8 % Total selling, general and administrative $ 63,306 $
33,525 $ 40,177 88.8 % 57.6 % Restructuring costs 6,953 - - n/m n/m
Amortization of intangible assets 16,350 6,429 4,277 154.3 % 282.3
% Depreciation and amortization 4,934 2,869
3,556 72.0 % 38.8 % Total operating expenses $ 161,284 $ 71,070 $
78,473 126.9 % 105.5 % In thousands
Total founders grant $ 2,140 $ 6,859 $ 2,040 (68.8 %)
4.9 % Compensation excluding founders grant 82,680 36,984 42,724
123.6 % 93.5 % Transaction expenses 13,692 - 5,264 n/m 160.1 %
Non-compensation excluding transaction expenses 34,535 17,929
20,612 92.6 % 67.5 % Restructuring charges 6,953 - - n/m n/m
Amortization of intangible assets 16,350 6,429 4,277 154.3 % 282.3
% Depreciation and amortization 4,934 2,869
3,556 72.0 % 38.8 % Total operating expenses $ 161,284 $
71,070 $ 78,473 126.9 % 105.5 %
Table 7: Additional First Nine Months 2010 Operating Expense
Detail
Nine Months Ended August
31, In thousands 2010 2009 $Change %
Change Cost of services Compensation $ 94,636 $ 57,517
37,119 64.5 % Founders grant 2,021 7,252 (5,231 )
(72.1 %) Total Compensation $ 96,657 $ 64,769 31,888 49.2 %
Non-compensation 32,838 21,682 11,156 51.5 % Total
cost of services $ 129,495 $ 86,451 43,044 49.8 % Selling, general
and administrative Compensation 73,722 57,028 16,694 29.3 %
Founders grant 4,230 13,146 (8,916 ) (67.8 %) Total
Compensation $ 77,952 $ 70,174 7,778 11.1 % Transaction expenses
21,206 - 21,206 n/m Non-compensation excl. transaction expenses
41,786 32,119 9,667 30.1 % Total selling, general and
administrative $ 140,944 $ 102,293 38,651 37.8 % Restructuring
costs 6,953 - 6,953 n/m Amortization of intangible assets 24,905
19,286 5,619 29.1 % Depreciation and amortization 11,883
8,892 2,991 33.6 % Total operating expenses $ 314,180 $
216,922 97,258 44.8 % In thousands $Change
% Change Total founders grant $ 6,251 $ 20,398 (14,147 )
(69.4 %) Compensation excluding founders grant 168,358 114,545
53,813 47.0 % Transaction expenses 21,206 - 21,206 n/m
Non-compensation excluding transaction expenses 74,624 53,801
20,823 38.7 % Restructuring charges 6,953 - 6,953 n/m Amortization
of intangible assets 24,905 19,286 5,619 29.1 % Depreciation and
amortization 11,883 8,892 2,991 33.6 % Total
operating expenses $ 314,180 $ 216,922 97,258 44.8 %
Table 8: Summary Third Quarter 2010 Segment
Information
Three Months Ended Nine Months Ended
Change from August 31, May 31, August 31, 9 Mths In
thousands 2010 2009 2010 2010 2009 Q3 2009 8/31/2009
Revenues: Performance and Risk $ 172,425 $ 108,868 $
125,170 $ 419,275 $ 324,158 58.4% 29.3% Governance 30,308
- - 30,308 - n/m n/m
Total Operating
revenues $ 202,733 $ 108,868
$ 125,170 $ 449,583 $
324,158 86.2% 38.7% Operating
Income Performance and Risk 38,672 37,798 46,698 132,626
107,236 2.3% 23.7% Margin 22.4% 34.7% 37.3% 31.6% 33.1% Governance
2,777 - - 2,777 - n/m n/m Margin 9.2% 9.2%
Total Operating
Income $ 41,449 $ 37,798 $
46,698 $ 135,403 $ 107,236
9.7% 26.3% Margin 20.4% 34.7% 37.3% 30.1% 33.1%
Adjusted EBITDA Performance and Risk 71,887 53,955
61,834 192,970 155,812 33.2% 23.8% Margin 41.7% 49.6% 49.4% 46.0%
48.1% Governance 6,678 - - 6,678 - n/m n/m Margin 22.0% 22.0%
Total Adjusted EBITDA $ 78,565 $
53,955 $ 61,834 $ 199,648
$ 155,812 45.6% 28.1% Margin 38.8%
49.6% 49.4% 44.4% 48.1%
Adjusted EBITDA excl.
restructuring costs Performance and Risk 77,919 53,955 61,834
199,002 155,812 44.4% 27.7% Margin 45.2% 49.6% 49.4% 47.5% 48.1%
Governance 7,599 - - 7,599 - n/m n/m Margin 25.1% 25.1%
Total
Adjusted EBITDA excl. restructuring $ 85,518
$ 53,955 $ 61,834 $
206,601 $ 155,812 58.5% 32.6%
Margin 42.2% 49.6% 49.4% 46.0% 48.1%
Table 9: Pro Forma Operating Revenues by Product
Category
Nine Months Ended1 Change from
Third Quarter August 31, 9 Mths In thousands 2010 2009 2010
2009 Q3 2009 8/31/2009 Index and ESG products Subscriptions
$ 58,984 $ 50,434 $ 172,523 $ 147,821 17.0 % 16.7 % Asset-based
fees 25,134 20,151 75,754 49,092 24.7 %
54.3 % Index and ESG products total 84,118 70,585 248,277 196,913
19.2 % 26.1 % Risk management analytics 54,593 47,305 156,346
146,119 15.4 % 7.0 % Portfolio management analytics 30,424 30,425
92,165 97,387 (0.0 %) (5.4 %) Energy and commodity analytics
3,290 3,055 11,357 10,586 7.7 % 7.3 % Total
Performance and Risk revenues $ 172,425 $ 151,370 $ 508,145 $
451,005 13.9 % 12.7 % Total Governance revenues 30,308
31,478 94,956 100,042 (3.7 %) (5.1 %) Total operating revenues $
202,733 $ 182,848 $ 603,101 $ 551,047 10.9 % 9.4 %
Subscriptions $ 171,384 $ 156,728 $ 502,178 $ 478,641 9.4 % 4.9 %
Asset-based fees 25,134 20,151 75,754 49,092 24.7 % 54.3 %
Non-recurring revenues 6,215 5,969 25,169
23,314 4.1 % 8.0 % Total operating revenues $ 202,733 $
182,848 $ 603,101 $ 551,047 10.9 % 9.4 %
1 YTD 2009 numbers consist of MSCI's
results for the period ending 8/31/2009 and RiskMetrics' nine
months ended 9/30/2009. YTD 2010 consists of MSCI's nine months
ended 8/31/2010 as well as RiskMetrics's fourth quarter ending
12/31/09 and first quarter ending 3/31/2010.
Table 10: Pro Forma Operating Expense Detail
Nine Months Ended2 Change from
Third Quarter1 August 31, 9 Mths In thousands 2010 2009 2010
2009 Q3 2009 8/31/2009 Cost of services Compensation $
51,312 $ 45,891 $ 149,438 $ 137,246 11.8 % 8.9 % Founders grant
624 2,315 2,021 7,252 (73.0 %) (72.1 %)
Total Compensation $ 51,936 $ 48,206 $ 151,459 $ 144,498 7.7 % 4.8
% Non-compensation 17,805 16,032 51,778
45,895 11.1 % 12.8 % Total cost of services $ 69,741 $ 64,238 $
203,237 $ 190,393 8.6 % 6.7 % Selling, general and administrative
Compensation 31,367 27,993 93,431 86,132 12.1 % 8.5 % Founders
grant 1,516 4,544 4,230 13,146 (66.6 %)
(67.8 %) Total Compensation $ 32,883 $ 32,537 $ 97,661 $ 99,278 1.1
% (1.6 %) Transaction expenses - - - - n/m n/m Non-compensation
excl. transaction expenses 16,731 17,004
52,900 53,790 (1.6 %) (1.7 %) Total selling, general and
administrative $ 49,614 $ 49,541 $ 150,561 $ 153,068 0.1 % (1.6 %)
Restructuring costs 6,953 - 6,953 - n/m n/m Amortization of
intangible assets 15,887 18,331 48,246 54,992 (13.3 %) (12.3 %)
Depreciation and amortization 4,934 5,057
16,131 15,145 (2.4 %) 6.5 % Total operating expenses $
147,129 $ 137,167 $ 425,128 $ 413,598 7.3 % 2.8 % In
thousands Total
founders grant $ 2,140 $ 6,859 $ 6,251 $ 20,398 (68.8 %) (69.4 %)
Compensation excluding founders grant 82,679 73,884 242,869 223,378
11.9 % 8.7 % Transaction expenses - - - - n/m n/m Non-compensation
excluding transaction expenses 34,536 33,036 104,678 99,685 4.5 %
5.0 % Restructuring charges 6,953 - 6,953 - n/m n/m Amortization of
intangible assets 15,887 18,331 48,246 54,992 (13.3 %) (12.3 %)
Depreciation and amortization 4,934 5,057
16,131 15,145 (2.4 %) 6.5 % Total operating expenses
$ 147,129 $ 137,167 $ 425,128 $ 413,598 7.3 % 2.8 %
1 Q3 2009 numbers consist of MSCI's third
quarter ending 8/31/2009 and RiskMetrics' third quarter ended
9/30/2009
2 YTD 2009 numbers consist of MSCI's
results for the period ending 8/31/2009 and RiskMetrics' nine
months ended 9/30/2009. YTD 2010 consist of MSCI's nine months
ended 8/31/2010 as well as RiskMetrics's fourth quarter ending
12/31/09 and first quarter ending 3/31/2010.
Table 11: Pro Forma Summary Segment
Nine Months Ended2 Change from
Third Quarter1 August 31, 9 Mths In thousands 2010 2009 2010
2009 Q3 2009 8/31/2009
Revenues: Performance
and Risk $ 172,425 $ 151,369 $ 508,146 $ 451,005 13.9 % 12.7 %
Governance 30,308 31,479 94,955
100,042 (3.7 %) (5.1 %)
Total Operating
revenues $ 202,733 $ 182,848
$ 603,101 $ 551,047 10.9
% 9.4 % Operating Income
Performance and Risk 52,827 45,592 173,959 132,862 15.9 % 30.9 %
Margin 30.6 % 30.1 % 34.2 % 29.5 % Governance 2,777 89 4,014 4,587
3,020.2 % (12.5 %) Margin 9.2 % 0.0 % 4.2 % 0.8 %
Total
Operating Income $ 55,604 $ 45,681
$ 177,973 $ 137,449 21.7
% 29.5 % Margin 27.4 % 25.0 % 29.5 % 24.9 %
Adjusted EBITDA Performance and Risk 71,887 69,023
226,719 203,390 4.1 % 11.5 % Margin 41.7 % 45.6 % 44.6 % 45.1 %
Governance 6,678 6,905 21,882 24,594 (3.3 %) (11.0 %) Margin 22.0 %
21.9 % 23.0 % 24.6 %
Total Adjusted EBITDA $
78,565 $ 75,928 $ 248,601
$ 227,984 3.5 % 9.0 %
Margin 38.8 % 41.5 % 41.2 % 41.4 %
Adjusted EBITDA excl.
restructuring costs Performance and Risk 77,919 69,023 232,751
203,390 12.9 % 14.4 % Margin 45.2 % 45.6 % 45.8 % 45.1 % Governance
7,599 6,905 22,803 24,594 10.1 % (7.3 %) Margin 25.1 % 21.9 % 24.0
% 24.6 %
Total Adjusted EBITDA excl. restructuring $
85,518 $ 75,928 $ 255,554
$ 227,984 12.6 % 12.1 %
Margin 42.2 % 41.5 % 42.4 % 41.4 %
1 Q3 2009 numbers consist of MSCI's third
quarter ending 8/31/2009 and RiskMetrics' third quarter ended
9/30/2009
2 YTD 2009 numbers consist of MSCI's
results for the period ending 8/31/2009 and RiskMetrics' nine
months ended 9/30/2009. YTD 2010 consist of MSCI's nine months
ended 8/31/2010 as well as RiskMetrics's fourth quarter ending
12/31/09 and first quarter ending 3/31/2010.
Table 12: Key Operating Metrics1
As of or For the Quarter Ended Change from
August May August May Dollars in thousands 2010
2009 2010 2009 2010 Run Rates 2 Index and ESG products
Subscriptions $ 224,496 $ 193,264 $ 218,780 16.2 % 2.6 %
Asset-based fees 100,577 81,249
91,877 23.8 % 9.5 % Index and ESG products total 325,073
274,513 310,657 18.4 % 4.6 % Risk management analytics 224,581
191,715 196,717 17.1 % 14.2 % Portfolio management analytics
121,795 125,019 121,388 (2.6 %) 0.3 % Energy and commodity
analytics 15,254 14,706 15,340
3.7 % (0.6 %) Total Performance and Risk Run Rate $ 686,703
$ 605,953 $ 644,102 13.3 % 6.6 % Governance Run Rate
105,735 113,907 105,481 (7.2 %)
0.2 % Total Run Rate $ 792,438 $ 719,860 $ 749,583
10.1 % 5.7 % Subscription total 691,861 638,611
657,706 8.3 % 5.2 % Asset-based fees total 100,577
81,249 91,877 23.8 % 9.5 % Total Run
Rate $ 792,438 $ 719,860 $ 749,583 10.1 % 5.7
% Subscription Run Rate by region % Americas 53.0 % 51.0 %
52.0 % % non-Americas 47.0 % 49.0 % 48.0 % Subscription Run
Rate by client type % Asset Management 57.0 % 58.0 % 58.0 % %
Banking & Trading 15.0 % 15.0 % 16.0 % % Alternative Invt Mgmt
12.0 % 11.0 % 10.0 % % Asset Owners & Consultants 9.0 % 9.0 %
9.0 % % Corporate 2.0 % 2.0 % 2.0 % % Others 5.0 % 5.0 % 5.0 %
New Recurring Sales $ 34,556 $ 23,469 $ 34,280 47.2 % 0.8 %
Subscription Cancellations (19,113 ) (28,690 )
(17,495 ) (33.4 %) 9.2 % Net New Recurring Subscription Sales $
15,444 $ (5,221 ) $ 16,785 n/m (8.0 %) Non-subscription sales 6,440
6,831 8,877 (5.7 %) (27.5 %) Employees 2,063 1,983 2,054 4.0
% 0.4 % % Employees by location High Cost Centers 72 % 78 %
74 % Low Cost Centers 28 % 22 % 26 % 1 MSCI Inc. in Q3 2010 and for
combined MSCI and RiskMetrics in prior periods. 2 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
subscription or 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
during the period 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 the notice is not
effective until a later date.
3 Includes $13.2 million added as a result
of the acquisition of Measurisk LLC, which was completed on the
July 31, 2010.
Table 13: Supplemental Operating Metrics
Recurring Subscription Sales &
Subscription Cancellations
2009 2010 February
May August November February May August
2009 YTD 2010 YTD New Recurring Subscription Sales $ 24,711 $
21,254 $ 23,469 $ 27,757 $ 30,273 $ 34,280 $ 34,556 $ 69,434 $
99,109 Subscription Cancellations (22,692 ) (23,712 )
(28,690 ) (28,640 ) (22,434 ) (17,495 )
(19,113 ) (75,094 ) (59,041 ) Net New
Recurring Subscription Sales $ 2,019 ($2,457 )
($5,221 ) ($883 ) $ 7,839 $ 16,785 $ 15,444
($5,660 ) $ 40,068
Aggregate & Core Retention Rates
2009 2010 February May August November February May
August 2009 YTD 2010 YTD
Aggregate Retention Rate 1
Index and ESG products 93.8 % 92.8 % 90.5 % 88.5 % 93.8 % 92.4 %
90.9 % 92.4 % 92.4 % Risk management analytics 85.5 % 79.5 %
80.4 % 80.2 % 81.5 % 91.3 % 89.7 % 81.8 % 88.0 % Portfolio
management analytics 86.5 % 82.2 % 69.1 % 77.7 % 92.3 % 84.6 % 83.7
% 79.2 % 86.9 % Energy & commodity analytics 90.5 % 91.3
% 84.5 % 88.5 % 85.5 % 80.5 % 90.5 % 88.8 % 85.5 %
Total
Performance and Risk 88.8 % 85.0 %
81.0 % 82.5 % 88.7 %
89.9 % 88.8 % 84.9 %
89.3 % Total Governance 73.0
% 84.6 % 85.4 % 78.7
% 74.2 % 86.0 % 86.4
% 81.0 % 82.2 %
Total Aggregate
Retention Rate
85.6 % 85.1
% 81.9 % 82.0 %
86.2 % 89.2 %
88.4 % 84.2 % 88.1
% Core Retention Rate 2 Index and ESG products 94.0 %
93.1 % 91.2 % 89.1 % 94.5 % 92.9 % 91.2 % 92.8 % 92.9 % Risk
management analytics 85.5 % 81.4 % 81.0 % 81.2 % 82.9 % 92.3 % 92.0
% 82.7 % 89.5 % Portfolio management analytics 87.8 % 83.7 %
70.5 % 78.4 % 94.3 % 86.3 % 86.8 % 80.7 % 89.1 % Energy
& commodity analytics 90.6 % 91.3 % 84.5 % 89.9 % 85.5 % 80.5 %
90.5 % 88.8 % 85.5 %
Total Performance and Risk
89.2 % 86.3 % 81.8 %
83.4 % 89.9 % 90.8 %
90.5 % 85.8 % 90.6 %
Total Governance 73.0 % 84.6
% 85.4 % 78.7 % 74.2
% 86.0 % 86.4 % 81.0
% 82.2 %
Total Core Retention Rate
85.9 % 86.1 % 82.6
% 82.6 % 87.2 %
90.0 % 89.8 %
84.9 % 89.1 %
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.
Table 14: ETF Assets Linked to MSCI Indices1
2009 2010
In Billions February May
August November February May August
Quarterly Average AUM in ETFs linked to MSCI Indices $ 126.4 $
134.7 $ 180.3 $ 216.8 $ 239.3 $ 252.3 $ 252.0 Quarter-End AUM in
ETFs linked to MSCI Indices 107.8 175.9 199.2 234.2 233.5 238.1
258.7
Sequential Change ($ Growth in Billions)
Appreciation/Depreciation $ (13.6 ) $ 42.2 $ 20.1 $ 18.0 $ (8.6 ) $
(4.4 ) $ 6.8 Cash Inflow/ Outflow 2.4 25.9
3.2 17.0 8.3 9.0
13.8 Total Change
$ (11.2 ) $
68.1 $ 23.3 $ 35.0 $
(0.3 ) $ 4.6 $
20.6
1 To conform with industry standards, we
have changed our ETF assets under management calculation
methodology from ETF price multiplied by shares outstanding to net
asset value (NAV) multiplied by shares outstanding. The numbers in
the tables are presented on this basis beginning with the February
2010 quarter. Periods prior to the February 2010 quarter have not
been restated and are therefore not comparable.
Source: Bloomberg and MSCI
Table 15: Reconciliation of Adjusted EBITDA to Net
Income
Three Months Ended Nine Months Ended August 31,
May 31, August 31, In thousands 2010 2009 2010 2010
2009 GAAP - Net income $ 10,319 $ 20,924 $ 24,067 $ 61,904 $
57,266 Provision for income taxes 10,305 12,787 13,884 40,508
34,802 Other expense (income), net 20,825 4,087 8,746 32,991 15,168
Amortization of intangible assets 16,350 6,429 4,277 24,905
19,286 Depreciation and amortization 4,934 2,869 3,556 11,883 8,892
Founders grant expense 2,140 6,859 2,040 6,251 20,398 Transaction
expenses 13,692 - 5,264 21,206 -
Adjusted EBITDA $ 78,565 $
53,955 $ 61,834 $ 199,648
$ 155,812 Plus: Restructuring costs
6,953 - - 6,953 -
Adjusted EBITDA
excl. restructuring costs $ 85,518 $
53,955 $ 61,834 $ 206,601
$ 155,812
Table 16: Reconciliation of Pro Forma Adjusted EBITDA to Pro
Forma Net Income
Three Months Ended August 31, 2010 Three Months Ended
August 31, 2009
Performanceand Risk
Governance Total
Performanceand Risk
Governance Total
Net Income $
20,865 $ 20,204 Plus: Other expense (income),
net 17,463 15,570 Plus: Provision for income taxes
17,276 9,907
Operating income
$ 52,827 $ 2,777 $ 55,604
$ 45,592 $ 89 $ 45,681
Plus: Founders grant expense 2,140 - 2,140 6,859 - 6,859 Plus:
Transaction costs - - - - - - Plus:: Depreciation and amortization
4,383 551 4,934 4,031 1,026 5,057 Plus:: Amortization of intangible
assets 12,537 3,350 15,887 12,541
5,790 18,331
Adjusted EBITDA $
71,887 $ 6,678 $ 78,565 $
69,023 $ 6,905 $ 75,928
Plus: Restructuring costs 6,032 921 6,953
- - -
Adjusted EBITDA excl. restructuring
costs $ 77,919 $ 7,599 $
85,518 $ 69,023 $ 6,905 $
75,928 Nine Months Ended August 31, 2010 Nine
Months Ended August 31, 2009
Performanceand Risk
Governance Total
Performanceand Risk
Governance Total
Net Income $ 80,172 $
56,149 Plus: Other expense (income), net 52,259 50,188 Plus:
Provision for income taxes 45,542
31,112
Operating income $
173,959 $ 4,014 $ 177,973
$ 132,862 $ 4,587 $
137,449 Plus: Founders grant expense 6,251 - 6,251 20,398 -
20,398 Plus: Transaction costs - - - - - - Plus:: Depreciation and
amortization 13,428 2,703 16,131 12,245 2,900 15,145 Plus::
Amortization of intangible assets 33,081 15,165
48,246 37,885 17,107 54,992
Adjusted
EBITDA $ 226,719 $ 21,882 $
248,601 $ 203,390 $ 24,594
$ 227,984 Plus: Restructuring costs
6,032 921 6,953 - - -
Adjusted EBITDA excl. restructuring costs $
232,751 $ 22,803 $ 255,554
$ 203,390 $ 24,594 $
227,984
Table 17: Reconciliation of Adjusted Net Income and Adjusted
EPS to Net Income and EPS
Three Months Ended Nine Months Ended
August 31, May 31, August 31, 2010 2009 2010 2010
2009 GAAP - Net income $ 10,319 $ 20,924 $ 24,067 $ 61,904 $ 57,266
Plus: Founders grant expense 2,140 6,859 2,040 6,251 20,398 Plus:
Amortization of intangible assets 16,350 6,429 4,277 24,905 19,286
Plus: Transaction costs1 14,526 - 5,264 22,040 - Plus: Debt
repayment expenses 1,994 - 6,280 8,274 - Less: Income tax effect2
(10,564 ) (5,036 ) (4,610 ) (17,498 )
(15,001 )
Adjusted net income $ 34,764
$ 29,176 $ 37,318
$ 105,875 $ 81,950
Plus: Restructuring costs $ 6,953 - - $ 6,953 - Less: Income tax
effect2 (2,573 ) - -
(2,573 ) -
Adjusted net income excl. restructuring
costs $ 39,145 $ 29,176
$ 37,318 $ 110,256
$ 81,950 GAAP - EPS $ 0.08 $ 0.20 $
0.22 $ 0.55 $ 0.55 Plus: Founders grant expense 0.02 0.07 0.02 0.06
0.20 Plus: Amortization of intangible assets 0.13 0.06 0.04 0.22
0.18 Plus: Transaction costs1 0.13 0.00 0.05 0.20 0.00 Plus: Debt
repayment expenses 0.02 0.00 0.06 0.07 0.00 Less: Income tax
effect2 (0.09 ) (0.05 ) (0.04 ) (0.16 )
(0.14 )
Adjusted EPS - diluted $
0.29 $ 0.28 $ 0.35 $
0.94 $ 0.79 Plus: Restructuring costs
0.05 0.00 0.00 0.06 0.00 Less: Income tax effect2 (0.02 )
0.00 0.00 (0.02 ) 0.00
Adjusted EPS excl. restructuring costs $
0.32 $ 0.28 $ 0.35 $
0.98 $ 0.79
1 For the third quarter of 2010, includes
$13.7 million in third party transaction expense included in
SG&A expense and $0.8 million of expense included in interest
expense. For the nine months 2010, includes $21.2 million in third
party transaction expense included in SG&A expense and $0.8
million of expense included in interest expense
2 For the purposes of calculating Adjusted
EPS, founders grant expense, amortization of intangible assets and
debt repayment expenses during the current fiscal year are assumed
to be taxed at the first nine months 2010 effective tax rate
excluding discrete items of 37% For the prior year, the effective
rate is assumed to be 37.6%, which was the 2009 effective tax rate,
excluding discrete items.
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