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 second quarter and six months ended June
30, 2011. For comparative purposes, selected pro forma results are
also presented, as if MSCI had acquired RiskMetrics Group, Inc.
(“RiskMetrics”) on December 1, 2009. In December 2010, MSCI changed
its fiscal year end from November 30 to December 31,
effective with the calendar year reporting cycle beginning
January 1, 2011.
(Note: Percentage changes are referenced to the comparable
fiscal period in fiscal year 2010, unless otherwise noted.)
- Operating revenues increased 80.9% to
$226.5 million in second quarter 2011 and 82.2% to $449.8 million
for six months 2011. Compared to pro forma 2010, second quarter
2011 revenues grew by 12.0% and six months 2011 revenues rose
12.3%.
- Net income increased 89.7% to $45.7
million in second quarter 2011 and 53.5% to $79.2 million for first
six months 2011. Pro forma net income increased 48.2% to $45.7
million in second quarter 2011 and 33.4% to $79.2 million for first
six months 2011.
- Adjusted EBITDA (defined below) grew by
73.0% to $107.0 million in second quarter 2011 and 74.6% to $211.5
million in six months 2011. Compared to pro forma 2010, second
quarter 2011 Adjusted EBITDA grew by 25.1% and six months 2011
Adjusted EBITDA grew by 24.4%. The Adjusted EBITDA margin was 47.2%
in second quarter 2011 and 47.0% for six months 2011.
- Diluted EPS for second quarter 2011
rose 68.2% to $0.37 and 33.3% to $0.64 for six months 2011.
- Second quarter 2011 Adjusted EPS
(defined below) rose 34.3% to $0.47 and 36.4% to $0.90 for six
months 2011.
Henry A. Fernandez, Chairman and CEO, said, “MSCI continued to
perform well in second quarter 2011. Compared to pro forma second
quarter 2010, MSCI reported 12% growth in revenues and 25% growth
in Adjusted EBITDA.
“Our run rate grew 3% sequentially and by 17% compared to pro
forma second quarter of 2011. Our index and ESG and our risk
management analytics businesses continued to drive our growth and
we recorded double digit annual run rate growth in both product
lines,” added Mr. Fernandez.
Table 1: MSCI Inc. Selected Financial
Information (unaudited)
Three Months Ended Change from Six
Months Ended Change from June 30, May 31, May 31,
June 30, May 31, May 31, In thousands, except per share data
2011 2010 2010 2011 2010 2010 Operating revenues $ 226,483 $
125,170 80.9 % $ 449,781 $ 246,850 82.2 % Operating expenses
143,792 78,473 83.2 % 291,661 152,896 90.8 % Net income 45,660
24,067 89.7 % 79,181 51,585 53.5 % % Margin 20.2 % 19.2 % 17.6 %
20.9 % Diluted EPS $ 0.37 $ 0.22 68.2 % $ 0.64 $ 0.48 33.3 %
Adjusted EPS1 $ 0.47 $ 0.35 34.3 % 0.90 0.66 36.4 % Adjusted
EBITDA2 $ 106,995 $ 61,834 73.0 % $ 211,469 $ 121,083 74.6 % %
Margin 47.2 % 49.4 % 47.0 % 49.1 % 1 Per share net income before
after-tax impact of amortization of intangibles, non-recurring
stock-based compensation, restructuring costs, 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 Net Income before interest income,
interest expense, other expense (income), provision for income
taxes, depreciation, amortization, non-recurring stock-based
compensation, restructuring costs, 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 Second Quarter 2011 compared to Second
Quarter 2010
Operating Revenues – See Table 4
Total operating revenues for the three months ended June 30,
2011 (second quarter 2011) increased $101.3 million, or 80.9%, to
$226.5 million compared to $125.2 million for the three months
ended May 31, 2010 (second quarter 2010). The biggest driver of
revenue growth was the acquisition of RiskMetrics, which closed on
June 1, 2010 and contributed revenues of $80.3 million in second
quarter 2011. Total subscription revenues rose $86.9 million, or
91.2%, to $182.3 million while asset-based fees increased $10.6
million, or 41.3%, to $36.3 million. Non-recurring revenues
increased $3.8 million to $7.9 million.
Excluding the impact of the acquisitions of RiskMetrics and
Measurisk LLC (“Measurisk”, an acquisition completed on July 30,
2010), total operating revenues grew by $17.0 million, or 13.6%, to
$142.2 million. Subscription revenues grew $9.2 million, or 9.6%,
to $104.5 million in second quarter 2011. Non-recurring revenues
declined $1.9 million to $2.3 million.
By segment, Performance and Risk revenues rose $70.3 million, or
56.2%, to $195.5 million. The Performance and Risk segment is
comprised of index and ESG (defined below) products, risk
management analytics, portfolio management analytics, and energy
and commodity analytics. Revenues for the Governance segment were
$31.0 million.
Index and ESG products: Our index and ESG products
primarily consist of index subscriptions, equity index asset-based
fee products and environmental, social and governance (“ESG”)
products. Revenues related to index and ESG products increased
$22.6 million, or 28.3%, to $102.6 million. Index and ESG
subscription revenue grew by $12.0 million, or 22.2%, to $66.3
million, with $5.1 million of that coming from the addition of ESG
products resulting from the acquisition of RiskMetrics. Also
included in the index and ESG revenues were $2.0 million of
non-recurring revenues, which fell $2.0 million from second quarter
2010.
Revenues attributable to equity index asset-based fees rose
$10.6 million, or 41.3%, to $36.3 million. The increase in
asset-based fees was driven primarily by an increase in assets
under management in exchange traded funds (“ETFs”) linked to MSCI
indices.
The quarterly average value of assets in ETFs linked to MSCI
equity indices increased 41.4% to $356.8 billion for second quarter
2011 compared to $252.3 billion for the three months ended May 31,
2010. As of June 30, 2011, the value of assets in ETFs linked to
MSCI equity indices was $360.5 billion, representing an increase of
51.4% from $238.1 billion as of May 31, 2010 and $10.4 billion, or
3.0%, from $350.1 billion as of March 31, 2010. We estimate that
the $10.4 billion sequential increase in second quarter 2011 was
attributable to $3.8 billion of net asset depreciation and cash
inflows of $14.2 billion.
The three MSCI indices with the largest amount of ETF assets
linked to them as of June 30, 2011 were the MSCI Emerging Markets,
EAFE (an index of stocks in developed markets outside North
America) and US Broad Market indices. The assets linked to these
indices were $106.2 billion, $46.7 billion, and $20.1 billion,
respectively, at the end of the quarter.
Risk management analytics: Our risk management analytics
products offer a consistent risk and performance 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,
performance attribution, and asset valuation models. Revenues
related to risk management analytics increased $49.7 million, or
447.5%, to $60.8 million. The acquisitions of RiskMetrics and
Measurisk added $47.4 million, or 427.0%, to growth in the second
quarter. Excluding the impact of the acquisitions, risk management
analytics revenues grew by $2.3 million, or 20.5%.
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 by $1.1 million, or 3.5%, to $29.2
million.
Energy and commodity analytics: Our energy and commodity
analytics products consist of software applications that help users
value and model physical assets and derivatives across a number of
market segments that include energy and commodity assets. Revenues
from energy and commodity analytics products declined by $0.9
million, or 23.9%, to $2.9 million. The decrease is driven in part
by the timing of new and recurring sales.
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 $31.0 million in second
quarter 2011, including $4.2 million of non-recurring revenues.
Operating Expenses – See Table 6
Total operating expense increased $65.3 million, or 83.2%, to
$143.8 million in second quarter 2011 compared to second quarter
2010. The increase is due mainly to the acquisition of
RiskMetrics.
Compensation costs: Total compensation costs rose $40.4
million, or 90.2%, to $85.2 million in second quarter 2011.
Excluding non-recurring stock-based compensation expense, total
compensation costs rose $39.8 million, or 93.1%, to $82.5
million.
Non-recurring stock-based compensation expense rose $0.6
million, or 31.0% to $2.7 million, primarily as a result of the
addition of the performance awards in the fiscal third quarter of
2010. Non-recurring stock-based compensation expenses for second
quarter 2011 consisted of $0.7 million related to the founders
grants awarded to certain employees at the time of MSCI’s initial
public offering (“IPO”) and $2.0 million related to the performance
awards granted to certain employees in connection with the
acquisition of RiskMetrics. The aggregate value of the performance
awards is being amortized through the end of 2012 and the aggregate
value of the founders grant is being amortized through November
2011.
Non-compensation costs excluding depreciation and
amortization: Total non-compensation operating expenses
excluding depreciation and amortization, transaction costs
associated with the acquisition of RiskMetrics and restructuring
costs rose $16.4 million, or 79.5%, to $37.0 million in second
quarter 2011. The acquisition of RiskMetrics was the biggest driver
behind the increase.
Cost of services: Total cost of services expenses rose by
$38.4 million, or 126.0%, to $68.8 million. Within costs of
services, compensation expenses increased by $26.9 million, or
120.2%, and non-compensation expenses increased by $11.5 million,
or 141.9%. 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 $13.1 million, or 32.7%, to $53.3
million. Within SG&A, compensation expenses increased by $13.5
million, or 60.4%, and non-compensation expenses excluding
transaction costs increased by $4.9 million, or 39.1%. In both
cases, the biggest driver behind the increase was the acquisition
of RiskMetrics.
Amortization of intangibles: Amortization of intangibles
expense totaled $16.4 million compared to $4.3 million in second
quarter 2010. The $12.1 million increase is associated intangible
assets acquired in connection with the acquisitions of RiskMetrics
and Measurisk.
Other Expense (Income), Net
Other expense (income), net for second quarter 2011 was $13.1
million, an increase of $4.3 million from second quarter 2010. An
increase in interest expense resulted from the increased levels of
indebtedness incurred in connection with the acquisition of
RiskMetrics. In second quarter 2010, MSCI incurred $6.3 million of
debt repayment expenses resulting from its decision to repay $297
million of its then-outstanding term loans.
Provision for Income Taxes
The provision for income tax expense was $24.0 million for
second quarter 2011, an increase of $10.1 million, or 72.7%,
compared to $13.9 million for the same period in 2010, driven
primarily by higher income resulting from the acquisition of
RiskMetrics. The effective tax rate was 34.4% for second quarter
2011. The effective tax rate benefited from several discrete items
that lowered the rate. The effective tax rate for second quarter
2010 was 36.6%.
Net Income and Earnings per Share – See Table 17
Net income increased $21.6 million, or 89.7%, to $45.7 million
for second quarter 2011. The net income margin increased to 20.2%
versus 19.2% in second quarter 2010. Diluted EPS increased 68.2% to
$0.37.
Adjusted net income, which excludes $12.5 million of after-tax
impact of amortization of intangibles, non-recurring stock-based
compensation expense, transaction expenses, restructuring costs and
debt repayment and refinancing expenses, rose $20.6 million, or
54.7%, to $58.2 million. Adjusted EPS, which excludes the
after-tax, per share impact of amortization of intangibles,
non-recurring stock-based compensation expense, transaction
expenses, restructuring costs and debt repayment and refinancing
expenses totaling $0.10, rose 34.3% to $0.47.
See table 17 titled “Reconciliation of Adjusted Net Income and
Adjusted EPS to Net Income and EPS.”
Adjusted EBITDA – See Table 15
Adjusted EBITDA, which excludes, among other things, the impact
of non-recurring stock-based compensation and restructuring costs,
was $107.0 million, an increase of $45.2 million, or 73.0%, from
second quarter 2010. Adjusted EBITDA margin declined to 47.2% from
49.4% as a result of the dilutive impact of the acquisition of the
lower margin RiskMetrics business.
By segment, Adjusted EBITDA for the Performance and Risk segment
increased $37.7 million, or 61.0%, to $99.5 million from second
quarter 2010. Adjusted EBITDA margin for this segment rose to 50.9%
from 49.4% from second quarter 2010. Adjusted EBITDA for the
Governance segment was $7.4 million and the Adjusted EBITDA margin
was 24.0%.
See Table 15 titled “Reconciliation of Adjusted EBITDA to Net
Income” and “Notes Regarding the Use of Non-GAAP Financial
Measures” below.
Summary of Results for Six Months Ended June 30, 2011
compared to Six Months Ended May 31, 2010
Operating Revenues – See Table 5
Total operating revenues for the six months ended June 30, 2011
(six months 2011) increased $202.9 million, or 82.2%, to $449.8
million compared to $246.9 million for the six months ended May 31,
2010 (six months 2010). The acquisitions of RiskMetrics and
Measurisk added revenues of $165.4 million in six months 2011.
Total subscription revenue rose $169.4 million, or 89.3%, to $359.0
million, while asset-based fees rose $19.3 million, or 38.1%, to
$69.9 million. Total non-recurring revenues increased $14.3
million, or 215.1%, to $20.9 million.
Excluding the impact of the acquisitions, total operating
revenues grew by $37.5 million, or 15.2%, to $284.3 million.
Subscription revenues grew by $17.0 million, or 9.0%, and
asset-based fee revenues grew by $18.4 million, or 36.4%, to $69.1
million. Non-recurring revenues grew by $2.1 million, or 31.0%,
from six months 2010. Excluding the impact of the acquisitions,
index and ESG products and risk management analytics revenues grew
24.0% and 21.8%, respectively, in six months 2011. Portfolio
management analytics revenues declined 5.3%. Energy and other
commodity analytics revenues fell 15.5%, as a result of seasonal
differences and a decline in non-recurring sales.
By segment, Performance and Risk revenues rose $140.7 million,
or 57.0%, to $387.6 million for six months 2011. Governance
revenues were $62.2 million.
Operating Expenses – See Table 7
Total operating expenses increased $138.8 million, or 90.8%, to
$291.7 million in six months 2011 compared to six months 2010.
Operating expenses in the six months 2011 included restructuring
costs of $4.5 million and, in six months 2010, transaction expenses
of $7.5 million. Excluding these expenses, total operating expenses
would have risen by $141.8 million, or 97.5%. The increase reflects
increases of $79.3 million, or 132.7%, in cost of services, $34.6
million, or 49.4%, in SG&A expense and $3.3 million, or 47.9%
in depreciation and amortization expense.
Other Expense (Income), Net
Other expense (income), net for six months 2011 was $35.1
million, an increase of $23.0 million from six months 2010. The
increase was driven by increased indebtedness resulting from our
acquisition of RiskMetrics. Other expense (income), net includes
debt repayment expenses of $6.4 million in six months 2011 and $6.3
million in six months 2010.
Provision for Income Taxes
The provision for income tax expense was $43.8 million for six
months 2011, an increase of $13.6 million, or 45.0%, compared to
$30.2 million for six months 2010. Our effective tax rate for six
months 2011 was 35.6% compared to 36.9% for six months 2010.
Net Income and Earnings per Share – See Table 17
Net income increased $27.6 million, or 53.5%, to $79.2 million
and the net income margin decreased to 17.6% from 20.9%. Diluted
EPS rose by 33.3% to $0.64 from $0.48.
Adjusted net income, which excludes the after-tax impact of
amortization of intangibles, non-recurring stock-based compensation
expense, transaction expenses, debt repayment expenses, and
restructuring costs totaling $31.9 million, rose $40.0 million, or
56.3%, to $111.0 million. Adjusted EPS, which excludes the
after-tax, per share impact of amortization of intangibles,
non-recurring stock-based compensation expense, transaction
expenses, debt repayment expenses, and restructuring costs totaling
$0.26, rose 36.4% to $0.90 in six months 2011.
See table 17 titled “Reconciliation of Adjusted Net Income and
Adjusted EPS to Net Income and EPS.”
Adjusted EBITDA – See Table 15
Adjusted EBITDA was $211.5 million, an increase of $90.4
million, or 74.6%, from six months 2010. Adjusted EBITDA margin
fell to 47.0% from 49.1%.
By segment, Adjusted EBITDA for the Performance and Risk segment
increased $73.4 million, or 60.6%, to $194.5 million from six
months 2010. Adjusted EBITDA margin rose to 50.2% from 49.1% in six
months 2010. Adjusted EBITDA for the Governance segment was $17.0
million and the Adjusted EBITDA Margin was 27.3%.
See Table 15 titled “Reconciliation of Adjusted EBITDA to Net
Income” and “Notes Regarding the Use of Non-GAAP Financial
Measures” below.
Summary of Results for Second Quarter 2011 compared to Pro
Forma Second Quarter 2010
Operating Revenues – See Table 9
Compared to pro forma second quarter 2010, total operating
revenues increased $24.3 million, or 12.0%, to $226.5 million.
Subscription revenues rose by $16.6 million, or 10.0%, to $182.3
million. Asset-based fees increased $10.6 million, or 41.3%, to
$36.3 million. Non-recurring revenues declined $2.9 million to $7.9
million. By segment, Performance and Risk revenues rose $25.6
million, or 15.0%, to $195.5 million. Governance revenues declined
$1.3 million, or 4.0%, to $31.0 million.
Index and ESG products: Compared to pro forma second
quarter 2010, total index and ESG revenues rose $18.1 million, or
21.4%, to $102.6 million. Index and ESG subscription revenues rose
by $7.5 million, or 12.7%, to $66.3 million from $58.8 million. The
strong growth was driven by higher revenues from MSCI’s core
benchmark indices and higher usage fees offset by a decline of $2.4
million of non-recurring revenues to $2.0 million. Revenues from
asset-based fees increased $10.6 million, or 41.3%, to $36.3
million, compared to pro forma second quarter 2010, driven by
higher levels of assets under management in ETFs linked to MSCI
indices.
Risk management analytics: Compared to pro forma second
quarter 2010, risk management analytics revenues rose $9.5 million,
or 18.5%, to $60.8 million, driven by growth in revenues from both
BarraOne and RiskManager products. The acquisition of Measurisk
contributed $4.0 million.
Governance: Compared to pro forma second quarter 2010,
governance revenues declined $1.3 million, or 4.0%, to $31.0
million. Non-recurring governance revenues were $4.2 million in
second quarter 2011 versus $5.8 million in the pro forma second
quarter 2010.
The acquisition of RiskMetrics did not impact the revenues
attributable to the asset-based fees sub-category of index and ESG
products, portfolio management analytics and energy and commodity
analytics and comparisons for these products are not presented.
Comparisons to second quarter 2010 revenues are discussed in the
Summary of Results for Second Quarter 2011 compared to Second
Quarter 2010 above.
Operating Expenses – See Table 10
Compared to pro forma second quarter 2010, total operating
expenses excluding restructuring costs rose $3.1 million to $143.8
million.
Compensation costs: Compared to pro forma second quarter
2010, compensation costs excluding non-recurring stock-based
compensation expense rose $0.9 million, or 1.1%, to $82.5 million.
Second quarter 2010 compensation costs includes $1.9 million of
employer payroll taxes related to stock options exercised by
RiskMetrics employees subsequent to the announced merger with MSCI.
Second quarter 2011 non-recurring stock-based compensation expense
rose by $0.6 million, or 31.0%, to $2.7 million.
Non-compensation costs excluding depreciation and
amortization: Compared to pro forma second quarter 2010, total
non-compensation costs excluding depreciation and amortization and
restructuring costs increased $1.9 million, or 5.3%, to $37.0
million, led by an increase in professional fees partially offset
by declines in tax and license fees, occupancy expenses and
information technology costs.
Cost of services: Compared to pro forma second quarter
2010, total cost of services rose $0.4 million, or 0.6%, to $68.8
million. Compensation expenses excluding non-recurring stock-based
compensation expense fell $2.0 million, or 3.9%, to $48.1 million.
Non-compensation expenses rose by $2.0 million, or 11.3%, to $19.6
million, driven by seasonally higher costs of temporary
contractors.
Selling, general and administrative expense (SG&A):
Compared to pro forma second quarter 2010, total SG&A expense
rose $3.0 million, or 6.0%, to $53.3 million. Within SG&A,
compensation expenses excluding non-recurring stock-based
compensation rose $2.9 million, or 9.3%, to $34.4 million.
Non-compensation expenses fell $0.1 million, or 0.7%, to $17.4
million. The decrease in non-compensation expenses was driven by
lower information technology expenses and lower taxes and license
fees.
Net Income and Adjusted EBITDA – See Table 16
Compared to pro forma second quarter 2010, net income increased
$14.8 million, or 48.2%, to $45.7 million from $30.8 million.
Compared to pro forma second quarter 2010, Adjusted EBITDA
increased $21.5 million, or 25.1%, to $107.0 million and the margin
expanded to 47.2% from 42.3%. Performance and Risk segment Adjusted
EBITDA grew by $22.1 million, or 28.5%, to $99.5 million and the
margin increased to 50.9% from 45.6%. Governance Adjusted EBITDA
fell by $0.6 million, or 7.7%, to $7.4 million and the margin
decreased to 24.0% from 25.0%.
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 Six Months Ended June 30, 2011
compared to Pro Forma Six Months Ended May 31, 2010
Operating Revenues – See Table 9
Total operating revenues for the pro forma six months 2011
compared to pro forma six months 2010 rose $49.4 million, or 12.3%,
to $449.8 million. Subscription revenue rose $28.2 million, or
8.5%, to $359.0 million, driven by growth in index and ESG
subscriptions and risk management analytics, which more than offset
declines from portfolio management analytics and governance.
Asset-based fees rose $19.3 million, or 38.1%, to $69.9 million.
Non-recurring revenues increased by $2.0 million, or 10.3%, to
$20.9 million, as higher risk management analytics and index and
ESG products revenues offset a declines in non-recurring governance
revenues. The acquisition of Measurisk contributed $7.1 million, or
1.8%, to growth for six months 2011.
The acquisition of RiskMetrics did not impact the revenues
attributable to the asset-based fees sub-category of index and ESG
products, portfolio management analytics and energy and commodity
analytics and comparisons for these products are not presented.
Comparisons to six months 2010 revenues are discussed in the
Summary of Results for six months 2011 compared to six months 2010
above.
By segment, Performance and Risk revenues rose $51.8 million, or
15.4%, to $387.6 million. Governance revenues declined $2.4
million, or 3.7%, to $62.2 million.
Operating Expenses – See Table 10
Compared to pro forma six months 2010, total operating expense
for pro forma six months 2011 increased $13.7 million, or 4.9%, to
$291.7 million.
Total compensation expense excluding non-recurring stock-based
compensation increased $8.2 million, or 5.1%, to $168.4 million.
Non-compensation costs excluding depreciation and amortization and
restructuring costs fell $0.2 million, or 0.3%, to $69.9
million.
Compared to pro forma six months 2010, total cost of services
for pro forma six months 2011 rose $5.0 million, or 3.7%, to $139.1
million. The growth was driven by an increase of $0.9 million, or
1.0%, in compensation excluding non-recurring stock-based
compensation expense and a $3.2 million, or 9.3%, increase in
non-compensation expenses.
Total SG&A increased $4.4 million, or 4.3%, to $104.7
million in pro forma six months 2011. The increase was driven by
growth of $7.2 million, or 11.7%, in compensation excluding
non-recurring stock-based compensation partially offset by a
decrease of $3.4 million, or 9.6%, in non-compensation
expenses.
Net Income and Adjusted EBITDA – See Table 16
Compared to pro forma six months 2010, net income increased
$19.8 million, or 33.4%, to $79.2 million from $59.3 million.
Compared to pro forma six months 2010, pro forma six months 2011
Adjusted EBITDA increased $41.4 million, or 24.4%, to $211.5
million and the margin expanded to 47.0% from 42.5%. By segment,
Performance and Risk Adjusted EBITDA rose $41.1 million, or 26.8%,
to $194.5 million. The margin expanded to 50.2% from 45.7%.
Governance Adjusted EBITDA increased $0.3 million, or 1.8%, to
$17.0 million and the margin rose to 27.3% from 25.8%.
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.
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s
senior management review second quarter 2011 results on Thursday,
August 4, 2011 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 August 10, 2011. To
listen to the recording, visit http://ir.msci.com/events.cfm, or
dial 1-855-859-2056 (passcode: 84048648) within the United States.
International callers dial 1-404-537-3406 (passcode: 84048648).
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 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 more than 145,000 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; MSCI environmental, social and
governance research; 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 press 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, 2010 and filed with the Securities and Exchange
Commission (SEC) on January 31, 2011, 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, other net expense and income, depreciation and
amortization, non-recurring stock-based compensation expense,
restructuring costs, 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 non-recurring
stock-based compensation expenses, amortization of intangible
assets, third party transaction costs related to the acquisition of
RiskMetrics, restructuring costs, and the accelerated interest
expense resulting from the termination of an interest rate swap and
the accelerated amortization 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 MSCI’s underlying operating
performance by excluding the costs incurred in connection with the
acquisition of RiskMetrics. Additionally, we believe that adjusting
for non-recurring stock-based compensation 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
non-recurring stock-based compensation 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
Six Months Ended June 30, May 31,
March 31, June 30, May 31, In
thousands, except per share data 2011 2010
2011 2011 2010
Operating revenues $ 226,483 $ 125,170 $ 223,298 $ 449,781 $
246,850 Operating expenses Cost of services 68,840 30,463
70,218 139,058 59,754 Selling, general and administrative 53,321
40,177 51,418 104,739 77,638 Restructuring costs 40 - 4,431 4,471 -
Amortization of intangible assets 16,423 4,277 16,692 33,115 8,555
Depreciation and amortization of property, equipment, and leasehold
improvements 5,168 3,556 5,110
10,278 6,949 Total operating
expenses $ 143,792 $ 78,473 $ 147,869 $
291,661 $ 152,896 Operating income 82,691
46,697 75,429 158,120 93,954 Operating Margin 36.5 % 37.3 % 33.8 %
35.2 % 38.1 % Interest income (186 ) (343 ) (143 ) (329 )
(751 ) Interest expense 12,852 8,991 16,587 29,439 13,427 Other
expense (income) 383 98 5,641
6,024 (510 ) Other expense, net $
13,049 $ 8,746 $ 22,085 $ 35,134 $
12,166 Income before income taxes 69,642 37,951
53,344 122,986 81,788 Provision for income taxes 23,982
13,884 19,823 43,805 30,203 Net
income $ 45,660 $ 24,067 $ 33,521 $ 79,181
$ 51,585 Net Income Margin 20.2 % 19.2 % 15.0 % 17.6
% 20.9 % Earnings per basic common share $ 0.38 $
0.23 $ 0.28 $ 0.65 $ 0.48 Earnings per
diluted common share $ 0.37 $ 0.22 $ 0.27 $
0.64 $ 0.48 Weighted average shares
outstanding used in computing earnings per share Basic
120,592 105,345 120,282
120,438 105,290 Diluted 122,235
106,003 122,013 122,125
105,923
Table 3: MSCI Inc. Selected Balance
Sheet Items (unaudited)
As of June 30, November
30, In thousands 2011 2010 Cash
and cash equivalents $ 175,895 $ 226,575 Short-term investments
111,167 73,891 Trade receivables, net of allowances 177,189 147,662
Deferred revenue $ 296,793 $ 271,300 Current maturities of
long-term debt 10,331 54,916 Long-term debt, net of current
maturities 1,106,700 1,207,881
Table 4: Second Quarter 2011 Operating
Revenues by Product Category and Revenue Type
Three Months Ended
% Change from June 30,
May 31, March 31, May 31,
March 31, In thousands 2011
2010 2011 2010
2011 Index and ESG products
Subscriptions $ 66,275 $
54,250 $ 62,159 22.2 % 6.6 % Asset-based fees 36,287
25,674 37,869 41.3 % (4.2 %) Index and ESG products total
102,562 79,924 100,028 28.3 % 2.5 % Risk management analytics
60,806 11,105 58,866 447.5 % 3.3 % Portfolio management analytics
29,193 30,266 29,284 (3.5 %) (0.3 %) Energy and commodity analytics
2,949 3,875 3,870 (23.9 %) (23.8 %)
Total Performance and Risk revenues $ 195,510 $ 125,170 $ 192,048
56.2 % 1.8 % Total Governance revenues 30,973 - 31,250 n/m
(0.9 %) Total operating revenues $ 226,483 $ 125,170 $
223,298 80.9 % 1.4 % Subscriptions $ 182,251 $ 95,317 $
176,724 91.2 % 3.1 % Asset-based fees 36,287 25,674 33,607 41.3 %
8.0 % Non-recurring revenues 7,945 4,179
12,967 90.1 % (38.7 %) Total operating revenues $ 226,483 $ 125,170
$ 223,298 80.9 % 1.4 %
Table 5: Six Months 2011 Operating
Revenues by Product Category and Revenue Type
Six Months Ended
% Change from June 30, May 31,
May 31, In thousands 2011
2010 2010 Index and ESG products
Subscriptions $ 128,434 $ 104,474 22.9 % Asset-based
fees 74,156 50,620 46.5 % Index and ESG products
total 202,590 155,094 30.6 % Risk management analytics 119,672
21,964 444.9 % Portfolio management analytics 58,477 61,725 (5.3 %)
Energy and commodity analytics 6,819 8,067 (15.5 %)
Total Performance and Risk revenues $ 387,558 $ 246,850 57.0
% Total Governance revenues 62,223 - n/m Total
operating revenues $ 449,781 $ 246,850 82.2 % Subscriptions
$ 358,976 $ 189,593 89.3 % Asset-based fees 69,894 50,620 38.1 %
Non-recurring revenues 20,911 6,637 215.1 % Total
operating revenues $ 449,781 $ 246,850 82.2 %
Table 6: Additional Second Quarter 2011
Operating Expense Detail
Three Months Ended
% Change from June 30,
May 31, March 31, May 31,
March 31, In thousands 2011
2010 2011 2010
2011 Cost of services
Compensation $ 48,118 $ 21,639 $ 51,082
122.4 % (5.8 %) Non-Recurring Stock Based Comp 1,108
715 1,130 54.8 %
(2.0 %) Total Compensation $ 49,226 $ 22,354 $ 52,212 120.2 % (5.7
%) Non-Compensation 19,614 8,109
18,006 141.9 % 8.9 % Total cost of
services $ 68,840 $ 30,463 $ 70,218 126.0 % (2.0 %) Selling,
general and administrative Compensation 34,370 21,085 34,805 63.0 %
(1.2 %) Non-Recurring Stock Based Comp 1,565
1,325 1,683 18.1 % (7.0
%) Total Compensation $ 35,935 $ 22,410 $ 36,488 60.4 % (1.5 %)
Transaction expenses - 5,264 - (100.0 %) n/m Non-compensation excl.
transaction expenses 17,386
12,503 14,930 39.1 % 16.5 % Total selling,
general and administrative $ 53,321 $ 40,177 $ 51,418 32.7 % 3.7 %
Restructuring costs 40 - 4,431 n/m (99.1 %) Amortization of
intangible assets 16,423 4,277 16,692 284.0 % (1.6 %) Depreciation
and amortization 5,168 3,556
5,110 45.4 % 1.1 % Total operating
expenses $ 143,792 $ 78,473 $
147,869 83.2 % (2.8 %) In thousands
Total non-recurring stock based comp
2,673 $ 2,040 $ 2,813 31.0 % (5.0 %) Compensation excluding
non-recurring comp 82,488 42,724 85,887 93.1 % (4.0 %) Transaction
expenses - 5,264 - (100.0 %) n/m Non-compensation excluding
transaction expenses 37,000 20,612 32,936 79.5 % 12.3 %
Restructuring charges 40 - 4,431 n/m (99.1 %) Amortization of
intangible assets 16,423 4,277 16,692 284.0 % (1.6 %) Depreciation
and amortization 5,168 3,556
5,110 45.4 % 1.1 % Total
operating expenses $ 143,792 $ 78,473
$ 147,869 83.2 % (2.8 %)
Table 7: Additional Six Months 2011
Operating Expense Detail
Six Months
Ended June
30, May 31, In thousands
2011 2010
$ Change
% Change Cost of services
Compensation $ 99,201 $ 43,324 55,878
129.0 % Non-Recurring Stock Based Comp 2,238
1,397 841 60.2 % Total Compensation $ 101,439
$ 44,721 56,718 126.8 % Non-compensation 37,619
15,033 22,586 150.2 % Total cost of
services $ 139,058 $ 59,754 79,304 132.7 % Selling, general and
administrative Compensation 69,175 42,355 26,820 63.3 %
Non-Recurring Stock Based Comp 3,247
2,714 533 19.7 % Total Compensation $ 72,422 $ 45,069
27,354 60.7 % Transaction expenses - 7,514 (7,514 ) n/m
Non-compensation excl. transaction expenses 32,317
25,055 7,262 29.0 % Total selling,
general and administrative $ 104,739 $ 77,638 27,101 34.9 %
Restructuring costs 4,471 - 4,471 n/m Amortization of intangible
assets 33,115 8,555 24,559 287.1 % Depreciation and amortization
10,278 6,949 3,329 47.9 %
Total operating expenses $ 291,661 $ 152,896
138,765 90.8 % In thousands
$ Change
% Change Total non-recurring stock based comp
$ 5,485 $ 4,111 1,374 33.4 % Compensation excluding non-recurring
comp 168,376 85,679 82,697 96.5 % Transaction expenses - 7,514
(7,514 ) n/m Non-compensation excluding transaction expenses 69,936
40,088 29,849 74.5 % Restructuring charges 4,471 - 4,471 n/m
Amortization of intangible assets 33,115 8,555 24,559 287.1 %
Depreciation and amortization 10,278
6,949 3,329 47.9 % Total operating expenses
$ 291,661 $ 152,896 138,765 90.8 %
Table 8: Summary Second Quarter 2011
Segment Information
Three Months Ended
Six Months Ended % Change from
June 30, May 31, March 31, June 30,
May 31, Second Quarter Six Months In
thousands 2011 2010
2011 2011 2010
2010 2010
Revenues: Performance and Risk $ 195,510 $ 125,170
$ 192,048 $ 387,558 $ 246,850 56.2 % 57.0 % Governance
30,973 - 31,250 62,223
- n/m n/m
Total Operating revenues
$ 226,483 $ 125,170 $
223,298 $ 449,781 $ 246,850
80.9 % 82.2 % Operating
Income Performance and Risk 79,855 46,697 72,646 152,501 93,954
71.0 % 62.3 % Margin 40.8 % 37.3 % 37.8 % 39.3 % 38.1 % Governance
2,836 - 2,783 5,619 - n/m n/m Margin 9.2 % 8.9 % 9.0 %
Total
Operating Income $ 82,691 $ 46,697
$ 75,429 $ 158,120 $
93,954 77.1 % 68.3 % Margin 36.5
% 37.3 % 33.8 % 35.2 % 38.1 %
Adjusted EBITDA
Performance and Risk 99,549 61,834 94,962 194,510 121,083 61.0 %
60.6 % Margin 50.9 % 49.4 % 49.4 % 50.2 % 49.1 % Governance 7,446 -
9,513 16,959 - n/m n/m Margin 24.0 % 30.4 % 27.3 %
Total
Adjusted EBITDA $ 106,995 $ 61,834
$ 104,475 $ 211,469 $
121,083 73.0 % 74.6 % Margin
47.2 % 49.4 % 46.8 % 47.0 % 49.1 %
Table 9: Pro Forma Operating Revenues
by Product Category and Revenue Type
%
Change from Second Quarter Six Months Second Quarter
Six Months In thousands 2011
20101
2011
20102
2010 2010 Index and ESG products Subscriptions
$ 66,275 $ 58,809 $ 128,434 $ 113,539 12.7 % 13.1 % Asset-based
fees 36,287 25,674 74,156 50,620
41.3 % 46.5 % Index and ESG products total 102,562 84,483
202,590 164,159 21.4 % 23.4 % Risk management analytics 60,806
51,321 119,672 101,770 18.5 % 17.6 % Portfolio management analytics
29,193 30,266 58,477 61,725 (3.5 %) (5.3 %) Energy and commodity
analytics 2,949 3,875 6,819
8,067 (23.9 %) (15.5 %) Total Performance and Risk
revenues $ 195,510 $ 169,945 $ 387,558 $ 335,721 15.0 % 15.4 %
Total Governance revenues 30,973 32,271 62,223 64,647 (4.0
%) (3.7 %) Total operating revenues $ 226,483 $ 202,216
$ 449,781 $ 400,368 12.0 % 12.3 %
Subscriptions $ 182,251 $ 165,662 $ 358,976 $ 330,794 10.0 % 8.5 %
Asset-based fees 36,287 25,674 69,894 50,620 41.3 % 38.1 %
Non-recurring revenues 7,945 10,880
20,911 18,954 (27.0 %) 10.3 % Total operating
revenues $ 226,483 $ 202,216 $ 449,781 $ 400,368 12.0
% 12.3 % 1Includes MSCI's results for the second quarter
ended May 31, 2010 and RiskMetrics' first quarter ended March 31,
2010 2Includes MSCI's results for the six months ended May 31, 2010
and RiskMetrics' fourth quarter ended December 31, 2009 and first
quarter ended March 31, 2010.
Table 10: Pro Forma Operating Expense
Detail
% Change from
Second Quarter Six Months Second Quarter Six Months In
thousands 2011
20101
2011
20102
2010 2010 Cost of services Compensation $ 48,118 $ 50,095 $ 99,201
$ 98,256 (3.9 %) 1.0 % Non-Recurring Stock Based Comp 1,108
715 2,238 1,397 54.8 % 60.2 %
Total Compensation $ 49,226 $ 50,810 $ 101,439 $ 99,653 (3.1 %) 1.8
% Non-compensation 19,614 17,619 37,619
34,414 11.3 % 9.3 % Total cost of services $ 68,840 $
68,429 $ 139,058 $ 134,067 0.6 % 3.7 % Selling, general and
administrative Compensation 34,370 31,460 69,175 61,932 9.3 % 11.7
% Non-Recurring Stock Based Comp 1,565 1,325
3,247 2,714 18.1 % 19.7 % Total Compensation $
35,935 $ 32,785 $ 72,422 $ 64,646 9.6 % 12.0 % Transaction expenses
- - - - - - Non-compensation excl. transaction expenses
17,386 17,506 32,317 35,730 (0.7
%) (9.6 %) Total selling, general and administrative $ 53,321 $
50,291 $ 104,739 $ 100,376 6.0 % 4.3 % Restructuring costs 40 -
4,471 - n/m n/m Amortization of intangible assets 16,423 16,180
33,115 32,360 1.5 % 2.3 % Depreciation and amortization
5,168 5,707 10,278 11,196 (9.4
%) (8.2 %) Total operating expenses $ 143,792 $ 140,607 $
291,661 $ 277,999 2.3 % 4.9 % In thousands
Total non-recurring stock
based comp $ 2,673 $ 2,040 $ 5,485 $ 4,111 31.0 % 33.4 %
Compensation excluding non-recurring comp 82,488 81,555 168,376
160,188 1.1 % 5.1 % Transaction expenses - - - - - -
Non-compensation excluding transaction expenses 37,000 35,125
69,936 70,144 5.3 % (0.3 %) Restructuring charges 40 - 4,471 - n/m
n/m Amortization of intangible assets 16,423 16,180 33,115 32,360
1.5 % 2.3 % Depreciation and amortization 5,168 5,707
10,278 11,196 (9.4 %) (8.2 %)
Total operating expenses $ 143,792 $ 140,607 $ 291,661 $
277,999 2.3 % 4.9 % 1Includes MSCI's results
for the second quarter ended May 31, 2010 and RiskMetrics' first
quarter ended March 31, 2010 2Includes MSCI's results for the six
months ended May 31, 2010 and RiskMetrics' fourth quarter ended
December 31, 2009 and first quarter ended March 31, 2010.
Table 11: Pro Forma Summary
Segment
% Change
from Second Quarter Six Months Second Quarter Six Months In
thousands 2011
20101
2011
20102
2010 2010
Revenues: Performance and Risk $ 195,510 $
169,945 $ 387,558 $ 335,721 15.0 % 15.4 % Governance 30,973
32,271 62,223 64,647
(4.0 %) (3.7 %)
Total Operating revenues $
226,483 $ 202,216 $ 449,781
$ 400,368 12.0 % 12.3 %
Operating Income Performance and Risk 79,855 58,027
152,501 114,560 37.6 % 33.1 % Margin 40.8 % 34.1 % 39.3 % 34.1 %
Governance 2,836 3,582 5,619 7,809 (20.8 %) (28.0 %) Margin 9.2 %
11.1 % 9.0 % 12.1 %
Total Operating Income $
82,691 $ 61,609 $ 158,120
$ 122,369 34.2 % 29.2 %
Margin 36.5 % 30.5 % 35.2 % 30.6 %
Adjusted EBITDA
Performance and Risk 99,549 77,465 194,510 153,375 28.5 % 26.8 %
Margin 50.9 % 45.6 % 50.2 % 45.7 % Governance 7,446 8,071 16,959
16,661 (7.7 %) 1.8 % Margin 24.0 % 25.0 % 27.3 % 25.8 %
Total
Adjusted EBITDA $ 106,995 $ 85,536
$ 211,469 $ 170,036 25.1
% 24.4 % Margin 47.2 % 42.3 % 47.0 % 42.5 %
1Includes MSCI's results for the second quarter ended May
31, 2010 and RiskMetrics' first quarter ended March 31, 2009
2Includes MSCI's results for the six months ended May 31, 2010 and
RiskMetrics' fourth quarter ended December 31, 2009 and first
quarter ended March 31, 2010.
Table 12: Key Operating
Metrics1
As of or For the Quarter
Ended % Change from June 30, March 31, June 30,
March 31, Dollars in thousands 2011
2010 2011 2010 2011 Run Rates 2 Index and ESG products
Subscriptions $ 257,470 $ 221,174 $ 247,870 16.4 % 3.9 %
Asset-based fees 140,144 94,496
134,257 48.3 % 4.4 % Index and ESG products total 397,614
315,670 382,127 26.0 % 4.1 % Risk management analytics 249,048
200,161 243,853 24.4 % 2.1 % Portfolio management analytics 118,452
121,525 116,839 (2.5 %) 1.4 % Energy and commodity analytics
15,074 15,344 15,047 (1.8 %) 0.2
% Total Performance and Risk Run Rate $ 780,188 $ 652,700 $
757,866 19.5 % 2.9 % Governance Run Rate 107,755
105,448 105,870 2.2 % 1.8 %
Total Run Rate $ 887,943 $ 758,148 $ 863,736
17.1 % 2.8 % Subscription total 747,799 663,652 729,479 12.7
% 2.5 % Asset-based fees total 140,144 94,496
134,257 48.3 % 4.4 % Total Run Rate $ 887,943
$ 758,148 $ 863,736 17.1 % 2.8 %
Subscription Run Rate by region % Americas 52 % 52 % 52 % %
non-Americas 48 % 48 % 48 % Subscription Run Rate by client
type % Asset Management 57 % 57 % 56 % % Banking & Trading 16 %
16 % 17 % % Alternative Invt Mgmt 11 % 10 % 11 % % Asset Owners
& Consultants 9 % 9 % 9 % % Corporate 2 % 2 % 2 % % Others 5 %
6 % 5 % New Recurring Subscription Sales $ 30,298 $ 33,847 $
34,612 (10.5 %) (12.5 %) Subscription Cancellations (14,965
) (18,222 ) (14,402 ) (17.9 %) 3.9 % Net New
Recurring Subscription Sales $ 15,333 $ 15,624 $ 20,210 (1.9 %)
(24.1 %) Non-recurring sales 8,415 6,292 13,648 33.7 % (38.3 %)
Employees 2,133 2,055 2,049 3.8 % 4.1 % % Employees
by location Developed Market Centers 65 % 73 % 68 % Emerging Market
Centers 35 % 27 % 32 % 1
Reflects combined legacy MSCI and RiskMetrics results in June 2010.
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 or subscription. 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.
Table 13: Supplemental Operating
Metrics
Recurring Subscription Sales & Subscription
Cancellations Three Months Ended 2010 Three Months Ended
2011 Six Months Ended March June September
December March June June 2010 June 2011 New Recurring
Subscription Sales $ 26,831 $ 33,847 $ 35,373 $ 33,742 $ 34,612 $
30,298 $ 60,678 $ 64,910 Subscription Cancellations (19,379
) (18,222 ) (19,654 ) (30,174 ) (14,402
) (14,965 ) (37,601 ) (29,367 ) Net New
Recurring Subscription Sales $ 7,452 $ 15,625 $
15,719 $ 3,568 $ 20,210 $ 15,333
$ 23,077 $ 35,543 Aggregate
& Core Retention Rates Three Months Ended 2010 Three Months
Ended 2011 Six Months Ended March June September
December March June June 2010 June 2011 Aggregate Retention Rate 1
Index and ESG products 94.4 % 90.2 % 92.4 % 89.8 % 95.0 % 92.8 %
92.3 % 93.9 % Risk management analytics 83.4 % 92.0 % 87.7 %
85.6 % 94.2 % 92.2 % 87.7 % 93.0 % Portfolio management
analytics 88.9 % 84.5 % 82.2 % 63.1 % 88.6 % 91.4 % 86.7 % 90.0 %
Energy & commodity analytics 80.7 % 86.8 % 90.3 % 81.7 %
76.9 % 88.8 % 83.7 % 82.9 %
Total Performance and
Risk 88.7 % 89.4 % 88.3
% 82.1 % 93.0 % 92.2
% 89.1 % 92.5 % Total
Governance 84.8 % 85.6 %
87.1 % 80.1 % 85.0 %
90.4 % 85.2 % 87.7 %
Total
Aggregate Retention Rate
88.1 %
88.8 % 88.1 % 81.8
% 91.8 % 91.9 %
88.4 % 91.8 % Core
Retention Rate 1 Index and ESG products 95.1 % 90.7 % 92.6 % 90.1 %
95.2 % 92.8 % 92.9 % 94.0 % Risk management analytics 85.2 %
92.5 % 90.0 % 85.6 % 94.2 % 92.7 % 88.8 % 93.5 % Portfolio
management analytics 90.9 % 86.7 % 86.0 % 64.1 % 89.9 % 93.2 % 88.8
% 91.5 % Energy & commodity analytics 80.7 % 86.8 % 90.3
% 81.2 % 76.9 % 88.8 % 83.7 % 82.9 %
Total Performance
and Risk 90.1 % 90.3 % 90.1
% 82.4 % 93.4 % 92.7
% 90.2 % 93.0 % Total
Governance 84.8 % 85.6 %
87.1 % 80.1 % 85.0 %
90.4 % 85.2 % 87.7 %
Total Core
Retention Rate
89.2 % 89.5
% 89.6 % 82.0 %
92.1 % 92.4 %
89.4 % 92.2 %
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 quarters and lower in the
fourth 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.
Table 14: ETF Assets Linked to MSCI
Indices1
Three Months Ended 2010 Three
Months Ended 2011 Six Months Ended
In Billions
March June September December March
June June 2010 June 2011 Beginning Period AUM in ETFs
linked to MSCI Indices $ 243.0 $ 255.4 $ 236.8
$ 290.7 $ 333.3 $ 350.1 $ 243.0 $ 333.3 Cash Inflow/ Outflow
4.9 11.8 14.9 21.9 6.7 14.2 16.7 20.9 Appreciation/Depreciation
7.5 (30.4 ) 39.0 20.7 10.1
(3.8 ) (22.9 ) 6.3 Period End AUM in ETFs
linked to MSCI Indices
$ 255.4 $ 236.8
$ 290.7 $ 333.3 $
350.1 $ 360.5 $ 236.8
$ 360.5 Period Average AUM in ETFs
linked to MSCI Indices $ 242.8 $ 249.6 $ 263.7 $ 317.0 $ 337.6 $
356.8 $ 246.9 $ 348.1 1Our ETF assets under management
calculation methodology is ETF net asset value (NAV) multiplied by
shares outstanding. Source: Bloomberg and MSCI
Table 15: Reconciliation of Adjusted
EBITDA to Net Income
Three Months Ended June 30, 2011
Three Months Ended May 31, 2010
Performance
and Risk
Governance Total
Performance
and Risk
Governance Total
Net Income
$ 45,660
$ 24,067 Plus: Provision for income
taxes 23,982 13,884 Plus: Other expense (income), net
13,049
8,746
Operating income $
79,855 $ 2,836
$ 82,691 $ 46,697
$ - $ 46,697 Plus:
Non-recurring stock based comp 2,508 165 2,673 2,040 - 2,040 Plus:
Transaction costs - - - 5,264 - 5,264 Plus: Depreciation and
amortization 4,041 1,127 5,168 3,556 - 3,556 Plus: Amortization of
intangible assets 13,073 3,350 16,423 4,277 - 4,277 Plus:
Restructuring costs 72 (32 )
40 - -
-
Adjusted EBITDA $ 99,549
$ 7,446 $
106,995 $ 61,834 $
- $ 61,834
Six Months Ended June 30, 2011 Six Months Ended May 31, 2010
Performance
and Risk
Governance Total
Performance
and Risk
Governance Total
Net Income
$ 79,181 $ 51,585 Plus: Provision for
income taxes 43,805 30,203 Plus: Other expense (income), net
35,134
12,166
Operating income
$ 152,501 $ 5,619
$ 158,120 $ 93,954
$ - $ 93,954 Plus:
Non-recurring stock based comp 5,186 299 5,485 4,111 - 4,111 Plus:
Transaction costs - - - 7,514 - 7,514 Plus: Depreciation and
amortization 8,020 2,258 10,278 6,949 - 6,949 Plus: Amortization of
intangible assets 26,415 6,700 33,115 8,555 - 8,555 Plus:
Restructuring costs 2,388 2,083
4,471 - -
-
Adjusted EBITDA $ 194,510
$ 16,959 $
211,469 $ 121,083 $
- $ 121,083
Table 16: Reconciliation of Pro Forma
Adjusted EBITDA to Pro Forma Net Income
Three Months Ended June 30, 2011 Second
Quarter 20101
Performance
and Risk
Governance Total
Performance
and Risk
Governance Total
Net Income $ 45,660 $
30,813 Plus: Provision for income taxes 23,982 12,915 Plus:
Other expense (income), net 13,049
17,881
Operating income $ 79,855
$ 2,836 $ 82,691 $
58,027 $ 3,582 $ 61,609 Plus:
Non-recurring stock based comp 2,508 165 2,673 2,040 - 2,040 Plus:
Transaction costs - - - - - - Plus: Depreciation and amortization
4,041 1,127 5,168 4,568 1,139 5,707 Plus: Amortization of
intangible assets 13,073 3,350 16,423 12,830 3,350 16,180 Plus:
Restructuring costs 72 (32 ) 40 -
- -
Adjusted EBITDA $ 99,549
$ 7,446 $ 106,995 $
77,465 $ 8,071 $ 85,536
Six Months Ended June 30, 2011 Six Months 20102
Performance
and Risk
Governance Total
Performance
and Risk
Governance Total
Net Income $ 79,181 $
59,347 Plus: Provision for income taxes 43,805 28,096 Plus:
Other expense (income), net 35,134
34,926
Operating income $
152,501 $ 5,619 $ 158,120
$ 114,560 $ 7,809 $
122,369 Plus: Non-recurring stock based comp 5,186 299 5,485
4,111 - 4,111 Plus: Transaction costs - - - - - - Plus:
Depreciation and amortization 8,020 2,258 10,278 9,044 2,152 11,196
Plus: Amortization of intangible assets 26,415 6,700 33,115 25,660
6,700 32,360 Plus: Restructuring costs 2,388 2,083
4,471 - - -
Adjusted
EBITDA $ 194,510 $ 16,959
$ 211,469 $ 153,375 $
16,661 $ 170,036 1Includes MSCI's
results for the second quarter ended May 31, 2010 and RiskMetrics'
first quarter ended March 31, 2010 2Includes MSCI's results for the
six months ended May 31, 2010 and RiskMetrics' fourth quarter ended
December 31, 2009 and first quarter ended March 31, 2010.
Table 17: Reconciliation of Adjusted
Net Income and Adjusted EPS to Net Income and EPS
Three Months Ended Six Months
Ended June 30, May 31, March 31, June 30, May
31, 2011 2010 2011
2011 2010 GAAP - Net income $ 45,660 $ 24,067
$ 33,521 $ 79,181 $ 51,585 Plus: Non-recurring stock based comp
2,673 2,040 2,813 5,485 4,111 Plus: Amortization of intangible
assets 16,423 4,277 16,692 33,115 8,555 Plus: Transaction costs1 -
5,264 - - 7,514 Plus: Debt repayment and refinancing expenses2 -
6,280 6,404 6,404 6,280 Plus: Restructuring costs $ 40 $ - $ 4,431
$ 4,471 $ - Less: Income tax effect3 (6,590 ) (4,315
) (11,275 ) (17,622 ) (6,997 )
Adjusted net
income $ 58,206 $ 37,613
$ 52,585 $ 111,034
$ 71,048 GAAP - EPS $ 0.37 $ 0.22 $
0.27 $ 0.64 $ 0.48 Plus: Non-recurring stock based comp 0.02 0.02
0.02 0.04 0.04 Plus: Amortization of intangible assets 0.13 0.04
0.14 0.27 0.08 Plus: Transaction costs1 0.00 0.05 0.00 0.00 0.07
Plus: Debt repayment and refinancing expenses2 0.00 0.06 0.05 0.05
0.06 Plus: Restructuring costs 0.00 0.00 0.04 0.04 0.00 Less:
Income tax effect3 (0.05 ) (0.04 ) (0.09 )
(0.14 ) (0.07 )
Adjusted EPS $
0.47 $ 0.35 $ 0.43
$ 0.90 $ 0.66
1Third party transaction expenses related to the acquisition
of RiskMetrics 2In the first quarter of 2011, MSCI repaid $88.0
million of its outstanding term loan. At the same time, MSCI
repriced the remaining $1.125 million loan. As a result, MSCI
recorded $6.1 million of underwriting fees in conjunction with the
repricing and $0.3 million of accelerated deferred financing
expense related to the $88 million repayment. MSCI also incurred
$6.3 million of expenses in second quarter 2010 resulting from its
decision to repay $297 million of its then outstanding term loans.
3For the purposes of calculating Adjusted EPS, non-recurring stock
based compensation, amortization of intangible assets, debt
repayment and refinancing expenses, and restructuring costs are
assumed to be taxed at the effective tax rate excluding transaction
costs. For the second quarter 2011, the rate is 34.4%. For the
second quarter 2010, the effective tax rate excluding transaction
costs was 36.6%. For the six months 2011, the rate is 35.6% and for
six months 2010, the rate was 36.9%.
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