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, 2012.
(Note: Percentage changes are referenced to the comparable
period in fiscal year 2011, unless otherwise noted.)
- Operating revenues increased 5.3% to
$238.6 million in second quarter 2012 and 4.0% to $467.6 million
for six months 2012.
- Net income declined by 17.8% to
$37.5 million in second quarter 2012, driven by costs associated
with debt repayment and refinancing. Net income grew 2.9% to $81.5
million for six months 2012.
- Adjusted EBITDA (defined below) grew
by 0.9% to $107.9 million in second quarter 2012 but fell 0.8% to
$209.8 million in six months 2012. Second quarter 2012 Adjusted
EBITDA margin fell to 45.2% from 47.2% and six months 2012 Adjusted
EBITDA margin fell to 44.9% from 47.0%.
- Diluted EPS for second quarter 2012
fell 18.9% to $0.30 but rose 3.1% to $0.66 for six months
2012.
- Second quarter 2012 Adjusted EPS
(defined below) rose 6.4% to $0.50 and 4.4% to $0.94 for six months
2012.
Henry A. Fernandez, Chairman and CEO, said, “MSCI had a solid
second quarter. Despite a challenging operating environment, we
grew our revenues, Adjusted EBITDA and Adjusted EPS. Our
subscription run rate also continued to grow, aided by continued
high levels of retention, which helped offset a decline in
asset-based fees.”
Table 1:
MSCI Inc. Selected Financial Information (unaudited)
Three Months Ended
Change from Six Months Ended Change From In thousands, except per
share data
June 30,2012
June 30,2011
June 30,2011
June 30,2012
June 30,2011
June 30,2011
Operating revenues $ 238,565 $ 226,483 5.3% $
467,617 $ 449,781 4.0% Operating expenses 151,444 143,792
5.3% 299,517 291,661 2.7% Net income 37,546 45,660 (17.8%) 81,512
79,181 2.9% % Margin 15.7% 20.2% 17.4% 17.6% Diluted EPS $ 0.30 $
0.37 (18.9%) $ 0.66 $ 0.64
3.1%
Adjusted EPS1 $ 0.50 $ 0.47 6.4% $ 0.94 $ 0.90 4.4% Adjusted
EBITDA2 $ 107,912 $ 106,995 0.9% $ 209,819 $ 211,469 (0.8%) %
Margin 45.2% 47.2% 44.9% 47.0%
1 Per share net income before after-tax
impact of amortization of intangibles, non-recurring stock-based
compensation, restructuring costs and debt repayment and
refinancing expenses. See Table 14 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 income taxes, other
net expense and income, depreciation, amortization, non-recurring
stock-based compensation and restructuring costs. See Table 13
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 2012 compared to Second
Quarter 2011
Operating Revenues – See Table 4
Total operating revenues for the three months ended June 30,
2012 (second quarter 2012) increased $12.1 million, or 5.3%, to
$238.6 million compared to $226.5 million for the three months
ended June 30, 2011 (second quarter 2011). Total second quarter
2012 subscription revenues rose $15.9 million, or 8.7%, to $198.1
million while asset-based fees declined $2.2 million, or 6.0%, to
$34.1 million. Non-recurring revenues fell $1.6 million to $6.4
million.
By segment, Performance and Risk revenues rose $12.1 million, or
6.2%, to $207.6 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
flat at $31.0 million.
Index and ESG products: Our index and ESG products
primarily consist of equity index subscriptions, equity index
asset-based fee products and environmental, social and governance
(“ESG”) products. Index and ESG products revenues increased $7.4
million, or 7.2%, to $109.9 million. Subscription revenues grew by
$9.6 million, or 14.4%, to $75.8 million, driven by strong growth
in revenues from MSCI’s ACWI (All Country World Index) core and
other index modules as well as higher usage fees. Non-recurring
revenues were $2.2 million, up from $2.0 million in second quarter
2011.
Revenues attributable to equity index asset-based fees declined
$2.2 million, or 6.0%, to $34.1 million. The average assets under
management in ETFs linked to MSCI indices fell 7.1% to $331.6
billion from $356.8 billion in second quarter 2011.
Risk management analytics: Our risk management analytics
products offer consistent risk and performance assessment
frameworks 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 frameworks and asset valuation models.
Revenues related to risk management analytics increased $3.7
million, or 6.2%, to $64.5 million. The increase in risk management
analytics revenues was driven by higher revenues from our primary
risk management platforms, RiskManager and BarraOne, as well as our
wealth management risk systems.
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 were flat at $29.3 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. Revenues from energy and commodity analytics
products were $3.8 million, up $0.8 million, or 28.2%, from second
quarter 2011. At the beginning of 2012, we corrected an error
in our revenue recognition policy for our energy and commodity
analytics products. The correction resulted in a greater proportion
of annual revenue being recognized in second quarter 2012 than in
second quarter 2011.
Governance: Our governance products consist of corporate
governance products and services, including proxy research,
recommendation and voting services for institutional investors as
well as governance advisory services and compensation data and
analytics for corporations. They also include equity research based
on forensic accounting as well as class action monitoring and
claims filing services to aid institutional investors in the
recovery of funds from class action securities litigation.
Governance revenues were $31.0 million in second quarter 2012,
unchanged from second quarter 2011.
Operating Expenses – See Table 6
Total operating expenses rose $7.7 million, or 5.3%, to $151.4
million. An increase in compensation expenses was partially offset
by declines in non-recurring stock-based compensation expense,
restructuring costs and depreciation and amortization expenses.
Compensation costs: Total compensation costs rose $8.5
million, or 10.0%, to $93.7 million in second quarter 2012.
Excluding non-recurring stock-based compensation expense, total
compensation costs rose $11.0 million, or 13.4%, to $93.5 million.
Compensation costs were impacted by an increase in overall
headcount and by higher severance costs. Non-recurring stock-based
compensation declined $2.5 million, or 92.8%, to $0.2 million,
primarily reflecting the amortization of certain stock awards.
Non-recurring stock-based compensation expenses for second quarter
2012 consisted of performance awards granted to certain employees
in connection with the acquisition of RiskMetrics which will be
fully amortized at the end of 2012.
Non-compensation costs excluding depreciation and
amortization and restructuring costs: Total non-compensation
operating expenses excluding depreciation and amortization and
restructuring costs rose slightly to $37.1 million in second
quarter 2012. The biggest drivers of the increase were higher
occupancy and information technology expenses. Offsetting these
increases were declines in professional fees, market data costs and
other non-compensation expenses.
Cost of services: Total cost of services expenses rose by
$4.4 million, or 6.4%, to $73.2 million. Within costs of services,
compensation expenses increased by $6.4 million, or 12.9%, and
non-compensation expenses fell by $2.0 million, or 10.0%.
Selling, general and administrative expense (SG&A):
Total SG&A expense rose $4.3 million, or 8.0%, to $57.6
million. Within SG&A, compensation expenses increased by $2.2
million, or 6.1%, and non-compensation expenses increased by $2.1
million, or 12.0%.
Depreciation and amortization: Amortization of
intangibles expense totaled $16.0 million compared to $16.4 million
in second quarter 2011, a decline of 2.8%. Depreciation and
amortization of property plant and equipment fell $0.5 million, or
9.8%, to $4.7 million as capital investments made in prior periods
became fully depreciated.
Other Expense (Income), Net
Other expense (income), net for second quarter 2012 was $29.9
million, an increase of $16.8 million from second quarter 2011.
Interest expense increased $16.7 million as a result of $20.6
million of expenses incurred when MSCI obtained an $880 million
five year Term Loan A facility, the proceeds of which, together
with cash on hand, were used to repay its $1,079 million
pre-existing Senior Secured Term Loan B facility. Excluding the
impact of that refinancing and debt repayment expense, interest
expense declined by $3.9 million as a result of lower levels of
indebtedness and lower interest rates.
Provision for Income Taxes
Income tax expense was $19.7 million in second quarter 2012, a
decrease of $4.3 million, or 17.8%, from second quarter 2011. At
34.4%, the effective tax rate was unchanged from a year ago.
Net Income and Earnings per Share – See Table 14
Net income declined $8.1 million, or 17.8%, to $37.5 million for
second quarter 2012. The net income margin fell to 15.7% from 20.2%
as a result of the lower operating profit margin and the debt
repayment and refinancing expenses. Diluted EPS declined 18.9% to
$0.30.
Adjusted net income, which excludes the after-tax impact of
amortization of intangibles, non-recurring stock-based compensation
expense, restructuring costs and debt repayment and refinancing
expenses totaling $24.0 million, rose $3.3 million, or 5.7%, to
$61.5 million. Adjusted EPS, which excludes the after-tax, per
share impact of amortization of intangibles, non-recurring
stock-based compensation expense, restructuring costs and debt
repayment and refinancing expenses totaling $0.20, rose 6.4% to
$0.50.
See Table 14 titled “Reconciliation of Adjusted Net Income and
Adjusted EPS to Net Income and EPS” and “Notes Regarding the Use of
Non-GAAP Financial Measures” below.
Adjusted EBITDA – See Table 13
Adjusted EBITDA, which excludes, among other things, the impact
of non-recurring stock-based compensation and restructuring costs,
was $107.9 million, up $0.9 million, or 0.9%, from second quarter
2011. The Adjusted EBITDA margin declined to 45.2% from 47.2%.
By segment, Adjusted EBITDA for the Performance and Risk segment
increased $3.0 million, or 3.1%, to $102.6 million in second
quarter 2012.The Adjusted EBITDA margin for this segment fell to
49.4% from 50.9% in 2011. Adjusted EBITDA for the Governance
segment declined $2.1 million, or 28.6%, to $5.3 million and the
Adjusted EBITDA margin for this segment fell to 17.2% from 24.0%.
Governance costs were impacted by year-over-year increases in
severance expense, occupancy costs and legal fees.
See Table 13 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, 2012
compared to Six Months Ended June 30, 2011
Operating Revenues – See Table 5
Total operating revenues for the six months ended June 30, 2012
(six months 2012) increased $17.8 million, or 4.0%, to $467.6
million compared to $449.8 million for the six months ended June
30, 2011 (six months 2011). Total subscription revenues rose $25.8
million, or 7.2%, to $384.7 million, while asset-based fees
declined $1.2 million, or 1.7%, to $68.7 million. Total
non-recurring revenues fell $6.7 million, or 32.2%, to $14.2
million.
Index and ESG products and risk management analytics revenues
grew 6.7% and 7.5%, respectively, in six months 2012. Portfolio
management analytics and governance revenues were essentially
unchanged. Energy and other commodity analytics revenues fell $4.3
million, or 63.6%, primarily as a result of a $5.2 million non-cash
cumulative revenue reduction to correct an error that was recorded
in first quarter 2012.
By segment, Performance and Risk revenues rose $18.1 million, or
4.7%, to $405.7 million for six months 2012. Governance revenues
were $62.0 million, essentially flat versus six months 2011.
Operating Expenses – See Table 7
Total operating expenses increased $7.9 million, or 2.7%, to
$299.5 million in six months 2012 compared to six months 2011.
Operating expenses in the six months 2012 included a benefit of
$0.1 million related to the reversal of previously booked
restructuring costs and, in six months 2011, restructuring costs of
$4.5 million. Excluding these expenses, total operating expenses
would have risen by $12.4 million, or 4.3%. The increase reflects
increases of $12.5 million, or 7.2%, in total compensation expenses
and $2.3 million, or 3.3%, in non-compensation expenses offset by a
decline of $2.4 million, or 5.5%, in depreciation and amortization
expenses.
Other Expense (Income), Net
Other expense (income), net for six months 2012 was $42.6
million, an increase of $7.5 million from six months 2011. Other
expense (income), net includes debt repayment and refinancing
expenses of $20.6 million in six months 2012 and $6.4 million in
six months 2011. Excluding the change in debt repayment and
refinancing expenses, other expense declined by $6.8 million in six
months 2012 as a result of a combination of lower levels of
indebtedness and a lower cost of debt.
Provision for Income Taxes
The provision for income tax expense was $44.0 million in six
months 2012, essentially flat from six months 2011. The effective
tax rate was 35.1%, down from 35.6% a year ago.
Net Income and Earnings per Share – See Table 14
Net income increased $2.3 million, or 2.9%, to $81.5 million and
the net income margin decreased slightly to 17.4% from 17.6%.
Diluted EPS rose slightly to $0.66 from $0.64.
Adjusted net income, which excludes the after-tax impact of
amortization of intangibles, non-recurring stock-based compensation
expense, debt repayment expenses, and restructuring costs totaling
$34.6 million, rose $5.1 million, or 4.6%, to $116.1 million.
Adjusted EPS, which excludes the after-tax, per share impact of
amortization of intangibles, non-recurring stock-based compensation
expense, debt repayment expenses, and restructuring costs totaling
$0.28, rose 4.4% to $0.94 in six months 2012.
See table 14 titled “Reconciliation of Adjusted Net Income and
Adjusted EPS to Net Income and EPS.”
Adjusted EBITDA – See Table 13
Adjusted EBITDA was $209.8 million, a decrease of $1.7 million,
or 0.8%, from six months 2011. Adjusted EBITDA margin fell to 44.9%
from 47.0%.
By segment, Adjusted EBITDA for the Performance and Risk segment
increased $2.3 million, or 1.2%, to $196.8 million from six months
2011. Adjusted EBITDA margin declined to 48.5% from 50.2% in six
months 2011. Adjusted EBITDA for the Governance segment declined
$3.9 million, or 23.1%, to $13.0 million in six months 2012. The
Adjusted EBITDA Margin for the Governance segment was 21.0%, down
from 27.3% in six months 2011.
See Table 13 titled “Reconciliation of Adjusted EBITDA to Net
Income” and “Notes Regarding the Use of Non-GAAP Financial
Measures” below.
Key Operating Metrics – See Tables 10, 11, 12
Total run rate grew by $31.7 million, or 3.6%, to $919.6 million
as of June 30, 2012 versus June 30, 2011. Subscription run rate,
which excludes the impact of asset-based fees, grew by $42.8
million, or 5.7%, to $790.6 million. Asset-based fee run rate
declined by $11.1 million, or 7.9%, to $129.0 million.
Run rate was unchanged versus March 31, 2012. Subscription run
rate grew by $8.3 million, or 1.1%, from $782.2 million, driven by
recurring subscription sales of $28.5 million offset, in part, by
subscription cancellations of $17.2 million. Changes in foreign
currency exchange rates reduced subscription run rate by $2.8
million during second quarter 2012. The aggregate retention rate in
second quarter 2012 declined to 91.0% from 91.9% in second quarter
2011. Asset-based fee run rate declined by $7.9 million
sequentially, or 5.8%, driven by a decline in assets under
management in ETFs linked to MSCI indices.
At the end of second quarter 2012, assets under management in
ETFs linked to MSCI indices were $327.4 billion, down $33.1
billion, or 9.2%, from the end of second quarter 2011 and down
$27.3 billion, or 7.7%, from the end of first quarter 2012. ETFs
linked to MSCI indices attracted net inflows of $0.3 billion in
second quarter 2012.
As of June 30, 2012, 39.0% of assets under management in ETFs
linked to MSCI indices were linked to emerging markets indices,
32.4% were linked to other developed markets outside the U.S.,
25.6% were linked to U.S. market indices and 3.0% were linked to
other global indices.
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s
senior management review second quarter 2012 results on Thursday,
August 2, 2012 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 8, 2012. To listen
to the recording, visit http://ir.msci.com/events.cfm, or dial
1-855-859-2056 (passcode: 10573550) within the United States.
International callers dial 1-404-537-3406 (passcode: 10573550).
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
with approximately USD 7 trillion estimated to be benchmarked to
them on a worldwide basis1; Barra multi-asset class factor models,
portfolio risk and performance analytics; RiskMetrics multi-asset
class market and credit risk analytics; ISS governance research and
outsourced proxy voting and reporting services; and FEA valuation
models and risk management software for the energy and commodities
markets. MSCI is headquartered in New York, with research and
commercial offices around the world. MSCI#IR
1As of June 30, 2011, based on eVestment, Lipper and Bloomberg
data.
For further information on MSCI Inc. or our products please
visit www.msci.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to future events or to future
financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance,
or achievements expressed or implied by these forward-looking
statements. In some cases, you can identify forward-looking
statements by the use of words such as "may," "could," "expect,"
"intend," "plan," "seek," "anticipate," "believe," "estimate,"
"predict," "potential," or "continue", or the negative of these
terms or other comparable terminology. You should not place undue
reliance on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors that are, in
some cases, beyond our control and that could materially affect
actual results, levels of activity, performance, or
achievements.
Other factors that could materially affect actual results,
levels of activity, performance or achievements can be found in
MSCI's Annual Report on Form 10-K for the fiscal year ended
December 31, 2011 and filed with the Securities and Exchange
Commission (SEC) on February 29, 2012, 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 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 and
restructuring costs.
Adjusted net income and Adjusted EPS are defined as net income
and EPS, respectively, before provision for non-recurring
stock-based compensation expenses, amortization of intangible
assets, restructuring costs and the accelerated amortization or
write off of deferred financing and debt discount costs as a result
of debt repayment (debt repayment and refinancing expenses), as
well as for any related tax effects.
We believe that adjustments related to restructuring costs and
debt repayment and refinancing expenses are useful to management
and investors because it allows for an evaluation of MSCI’s
underlying operating performance. Additionally, we believe that
adjusting for non-recurring stock-based compensation expenses, debt
repayment and refinancing expenses and 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 these items. We believe
that the non-GAAP financial measures presented in this earnings
release facilitate meaningful period-to-period comparisons and
provide a baseline for the evaluation of future results.
Adjusted EBITDA, Adjusted net income and Adjusted EPS are not
defined in the same manner by all companies and may not be
comparable to other similarly titled measures of other
companies.
Table 2: MSCI Inc. Consolidated
Statement of Income (unaudited)
Three Months Ended Six Months Ended
In thousands, except per share data
June 30,2012
June 30,2011
March 31,2012
June 30,2012
June 30,2011
Operating revenues $ 238,565 $ 226,483 $
229,052 $ 467,617 $ 449,781 Operating expenses
Cost of services 73,243 68,840 72,291 145,534 139,058 Selling,
general and administrative 57,602 53,321 55,436 113,038 104,739
Restructuring costs (22) 40 (29) (51) 4,471 Amortization of
Intangibles 15,959 16,423 15,959 31,918 33,115
Depreciation and amortization of
property,equipment and leasehood improvements
4,662 5,168 4,416
9,078 10,278 Total operating expenses $
151,444 $ 143,792 $ 148,073 $ 299,517 $
291,661 Operating income $ 87,121 $ 82,691 $ 80,979 $
168,100 $ 158,120 Operating margin 36.5% 36.5% 35.4% 35.9% 35.2%
Interest income (237) (186) (223) (460) (329) Interest
expense 29,581 12,852 12,355 41,936 29,439 Other expense (income)
516 383 608 1,124
6,024 Other expenses (income), net $ 29,860 $
13,049 $ 12,740 $ 42,600 $ 35,134
Income before taxes 57,261 69,642 68,239 125,500 122,986
Provision for income taxes 19,715
23,982 24,273 43,988 43,805 Net
income $ 37,546 $ 45,660 $ 43,966 $ 81,512 $
79,181 Net income margin 15.7% 20.2% 19.2% 17.4% 17.6%
Earnings per basic common share $ 0.31 $ 0.38
$ 0.36 $ 0.66 $ 0.65 Earnings per diluted common
share $ 0.30 $ 0.37 $ 0.35 $ 0.66 $
0.64 Weighted average shares outstanding used in computing
earnings per share Basic 122,030
120,592 121,754 121,892 120,438
Diluted 123,295 122,235 123,113
123,204 122,125
Table
3: MSCI Inc. Selected Balance Sheet Items (Unaudited)
As of In thousands
June 30,2012
December 31,2011
Cash and cash equivalents $ 273,307 $ 252,211
Short-term investments 86,460 140,490 Trade receivables, net of
allowances 136,074 180,566 Deferred revenue $ 333,890 $
289,217 Current maturites of long-term debt 43,070 10,339 Long-term
debt, net of current maturities 833,175 1,066,548
Table 4: Second Quarter 2012 Operating
Revenues by Product Category and Revenue Type (unaudited)
Three Months Ended
% Change from
In thousands
June 30,2012
June 30,2011
March 31,2012
June 30,2011
March 31,2012
Index and ESG products Subscriptions $ 75,829 $ 66,275 $ 71,639
14.4% 5.8% Asset-based fees 34,094 36,287
34,609 (6.0%) (1.5%) Index and ESG products total 109,923 102,562
106,248 7.2% 3.5% Risk management analytics 64,547 60,806 64,077
6.2% 0.7% Portfolio management analytics 29,326 29,193 29,063 0.5%
0.9% Energy and commodity analytics Recurring Energy and commodity
analytics 3,780 2,949 3,904 28.2% (3.2%) Correction1 -
- (5,203) n/m n/m Net energy and commodity analytics
3,780 2,949 (1,299) 28.2% n/m Total
Performance and Risk revenues $ 207,576 $ 195,510 $ 198,089 6.2%
4.8% Total Governance revenues 30,989 30,973
30,963 0.1% 0.1% Total operating revenues $ 238,565 $
226,483 $ 229,052 5.3% 4.2% Subscriptions $ 198,104 $
182,251 $ 186,636 8.7% 6.1% Asset-based fees 34,094 36,287 34,609
(6.0%) (1.5%) Non-recurring revenue 6,367 7,945
7,807 (19.9%) (18.4%) Total operating revenues $ 238,565 $
226,483 $ 229,052 5.3% 4.2%
(1) In first quarter 2012, MSCI recorded a
non-cash $5.2 million cumulative revenue reduction to correct an
error related to energy and commodity analytics revenues reported
prior to January 1, 2011. MSCI’s previous policy had resulted in
the immediate recognition of a substantial portion of the revenue
related to a majority of its contracts rather than amortizing that
revenue over the life of that contract, which is now the method of
recognition.
Table 5: Six Months 2012 Operating
Revenues by Product Category and Revenue Type (unaudited)
Six Months Ended % Change In thousands
June 30,2012
June 30,2011
June 30,2011
Index and ESG products Subscriptions $ 147,468 $ 128,434 14.8%
Asset-based fees 68,703 74,156 (7.4%) Index and ESG
products total 216,171 202,590 6.7% Risk management analytics
128,624 119,672 7.5% Portfolio management analytics 58,389 58,477
(0.2%) Energy and commodity analytics Recurring Energy and
commodity analytics 7,684 6,819 12.7% Correction1 (5,203)
- n/a Net energy and commodity analytics 2,481
6,819 (63.6%) Total Performance and Risk revenues $ 405,665
$ 387,558 4.7% Total Governance revenues 61,952
62,223 (0.4%) Total operating revenues $ 467,617 $
449,781 4.0% Subscriptions $ 384,739 $ 358,976 7.2%
Asset-based fees 68,703 69,894 (1.7%) Non-recurring revenue
14,175 20,911 (32.2%) Total operating revenues $ 467,617 $
449,781 4.0%
(1) In first quarter 2012, MSCI recorded a
non-cash $5.2 million cumulative revenue reduction to correct an
error related to energy and commodity analytics revenues reported
prior to January 1, 2012. MSCI’s previous policy had resulted in
the immediate recognition of a substantial portion of the revenue
related to a majority of its contracts rather than amortizing that
revenue over the life of that contract, which is now the method of
recognition.
Table 6: Additional Second Quarter 2012
Operating Expense Detail (unaudited)
Three Months Ended % Change from In thousands
June 30,2012
June 30,2011
March 31,2012
June 30,2011
March 31,2012
Cost of services Compensation $ 55,492 $ 48,118 $
53,549 15.3% 3.6% Non-recurring stock based comp
94 1,108 268 (91.5%) (64.9%)
Total compensation $ 55,586 $ 49,226 $ 53,817 12.9% 3.3%
Non-compensation 17,657 19,614
18,474 (10.0%) (4.4%) Total cost of services $ 73,243 $
68,840 $ 72,291 6.4% 1.3% Selling, general and
administrative Compensation $ 38,025 $ 34,370 $ 38,492 10.6% (1.2%)
Non-recurring stock based comp 98 1,565
314 (93.7%) (68.8%) Total compensation $ 38,123 $
35,935 $ 38,806 6.1% (1.8%) Non-compensation 19,479
17,386 16,630 12.0% 17.1% Total
selling, general and administrative $ 57,602 $ 53,321 $ 55,436 8.0%
3.9% Restructuring costs (22) 40 (29) (155.0%) (24.1%)
Amortization of intangibles 15,959 16,423 15,959 (2.8%) 0.0%
Depreciation and amortization 4,662
5,168 4,416 (9.8%) 5.6% Total operating expenses $
151,444 $ 143,792 $ 148,073 5.3% 2.3%
In thousands Non-recurring
stock-based compensation $ 192 $ 2,673 $ 582 (92.8%) (67.0%)
Compensation excluding non-recurring comp 93,517 82,488 92,041
13.4% 1.6% Non-compensation expenses 37,136 37,000 35,104 0.4% 5.8%
Restructuring costs (22) 40 (29) (155.0%) (24.1%) Amortization of
intangibles 15,959 16,423 15,959 (2.8%) 0.0% Depreciation and
amortization 4,662 5,168
4,416 (9.8%) 5.6%
Total operating expenses
$ 151,444 $ 143,792 $ 148,073 5.3% 2.3%
Table 7: Additional Six Months 2012
Operating Expense Detail (unaudited)
Six Months Ended % Change from In thousands
June 30,2012
June 30,2011
June 30,2011
Cost of services Compensation $ 109,041 $ 99,201 9.9%
Non-recurring stock based comp 362
2,238 (83.8%) Total compensation $ 109,403 $ 101,439 7.9%
Non-compensation 36,131 37,619 (4.0%)
Total cost of services $ 145,534 $ 139,058 4.7% Selling,
general and administrative Compensation $ 76,517 $ 69,175 10.6%
Non-recurring stock based comp 412
3,247 (87.3%) Total compensation $ 76,929 $ 72,422 6.2%
Non-compensation 36,109 32,317 11.7%
Total selling, general and administrative $ 113,038 $ 104,739 7.9%
Restructuring costs (51) 4,471 (101.1%) Amortization of
intangibles 31,918 33,115 (3.6%) Depreciation and amortization
9,078 10,278 (11.7%) Total operating
expenses $ 299,517 $ 291,661 2.7% In thousands
Non-recurring stock-based compensation $ 774 $ 5,485 (85.9%)
Compensation excluding non-recurring comp 185,558 168,376 10.2%
Non-compensation expenses 72,240 69,936 3.3% Restructuring costs
(51) 4,471 (101.1%) Amortization of intangibles 31,918 33,115
(3.6%) Depreciation and amortization 9,078
10,278 (11.7%)
Total operating expenses
$ 299,517 $ 291,661 2.7%
Table 8: Summary Quarterly Segment
Information (unaudited)
Three Months Ended
% Change from
In thousands
June 30,2012
June 30,2011
March 31,2012
June 30,2011
March 31,2011
Revenues: Performance and Risk $ 207,576 $
195,510 $ 198,089 6.2% 4.8% Governance
30,989 30,973 30,963 0.1% 0.1%
Total
Operating revenues $ 238,565 $
226,483 $ 229,052 5.3% 4.2%
Operating Income: Performance and Risk 85,980 79,855
77,475 7.7% 11.0% Margin 41.4% 40.8% 39.1% Governance 1,141 2,836
3,504 (59.8%) (67.4%) Margin 3.7% 9.2% 11.3%
Total Operating
Income $ 87,121 $ 82,691 $
80,979 5.4% 7.6% Margin 36.5%
36.5% 35.4% Adjusted EBITDA:
Performance and Risk 102,595 99,549 94,182 3.1% 8.9% Margin 49.4%
50.9% 47.5% Governance 5,317 7,446 7,725 (28.6%) (31.2%) Margin
17.2% 24.0% 24.9%
Total Adjusted EBITDA $
107,912 $ 106,995 $ 101,907
0.9% 5.9% Margin 45.2% 47.2%
44.5%
Table 9: Summary Six Months Segment
Information (unaudited)
Six Months Ended % Change from In
thousands
June 30,2012
June 30,2011
June 30,2011
Revenues: Performance and Risk $
405,665 $ 387,558 4.7% Governance
61,952 62,223 (0.4%)
Total Operating
revenues $ 467,617 $ 449,781
4.0% Operating Income: Performance and Risk
163,455 152,501 7.2% Margin 40.3% 39.3% Governance 4,645 5,619
(17.3%) Margin 7.5% 9.0%
Total Operating Income $
168,100 $ 158,120 6.3% Margin
35.9% 35.2% Adjusted EBITDA:
Performance and Risk 196,779 194,510 1.2% Margin 48.5% 50.2%
Governance 13,040 16,959 (23.1%) Margin 21.0% 27.3%
Total
Adjusted EBITDA $ 209,819 $ 211,469
(0.8%) Margin 44.9% 47.0%
Table 10: Key Operating
Metrics1 (unaudited)
As of % Change from
Dollars in thousands
June 30,2012
June 30,2011
March 31,2012
June 30,2011
March 31,2012
Run Rates1 Index and ESG products Subscription $
285,604 $ 257,470 $ 278,541 10.9% 2.5% Asset based
fees 129,045 140,144
136,962 (7.9%) (5.8%) Index and ESG products total 414,649 397,614
415,503 4.3% (0.2%) Risk management analytics 258,995 249,048
257,973 4.0% 0.4% Portfolio management analytics 117,153 118,452
117,751 (1.1%) (0.5%) Energy and commodity analytics
14,839 15,074 14,926 (1.6%) (0.6%)
Total Performance and Risk 805,636 780,188 806,153 3.3% (0.1%)
Governance 113,976 107,755
113,054 5.8% 0.8% Total Run Rate $ 919,612 $
887,943 $ 919,207 3.6% 0.0% Subscription total
$ 790,567 $ 747,799 $ 782,245 5.7% 1.1% Asset-based fees total
129,045 140,144 136,962
(7.9%) (5.8%) Total Run Rate $ 919,612 $ 887,943 $
919,207 3.6% 0.0% Subscription Run Rate by region %
Americas 53% 52% 53% % non-Americas 47% 48% 47% New
Recurring Subscription Sales $ 28,453 $ 30,298 $ 33,506 (6.1%)
(15.1%) Subscription Cancellations (17,229)
(14,965) (13,498) 15.1% 27.6% Net New
Recurring Subscription Sales $ 11,224 $ 15,333 $ 20,008 (26.8%)
(43.9%) Non-recurring sales $ 5,099 $ 8,415 $ 9,339 (39.4%) (45.4%)
Employees 2,384 2,133 2,465 11.8% (3.3%) % Employees by
location Developed Market Centers 58% 65% 60% Emerging Market
Centers 42% 35% 40%
1 The run rate at a particular point in
time represents the forward-looking fees for the next 12 months
from all subscriptions and investment product licenses we currently
provide to our clients under renewable contracts assuming all
contracts that come up for renewal are renewed and assuming
then-current exchange rates. For any 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 11: ETF Assets Linked to MSCI
Indices1 (unaudited)
Three Months Ended 2011 Three Mths Ended 2012 Six
Months
In Billions March June September December March June
June 2011 June 2012 Beginning Period AUM in ETFs linked to MSCI
Indices $ 333.3 $ 350.1 $ 360.5 $ 290.1 $ 301.6 $ 354.7 $ 333.3 $
301.6 Cash Inflow/ Outflow 6.7 14.2 (0.0) 1.0 15.2 0.3 20.9 15.5
Appreciation/Depreciation 10.1 (3.8) (70.4)
10.5 37.9 (27.6) 6.3 10.3 Period
End AUM in ETFs linked to MSCI Indices $ 350.1 $ 360.5 $ 290.1 $
301.6 $ 354.7 $ 327.4 $ 360.5 $ 327.4 Period Average AUM in
ETFs linked to MSCI Indices $ 337.6 $ 356.8 $ 329.1 $ 305.0 $ 341.0
$ 331.6 $ 348.1 $ 336.4
1 ETF assets under management calculation
methodology is ETF net asset value multiplied by shares
outstanding. Source: Bloomberg and MSCI
Table 12: Supplemental Operating
Metrics (unaudited)
Recurring Subscription Sales &
Subscription Cancellations
Three Months Ended 2011 Three Mths Ended 2012 Six Months Ended
March June September December
March June June 2011 June 2012 New Recurring
Subscription Sales $34,612 $30,298 $31,661 $35,444 $33,506 $28,453
$64,910 $61,959 Subscription Cancellations (14,402) (14,965)
(15,364) (27,245) (13,498) (17,229) (29,367)
(30,727) Net New Recurring Subscription Sales $20,210
$15,333 $16,297 $8,199 $20,008 $11,224 $35,543
$31,232 Non-recurring sales 13,647 8,415
6,560 7,460 9,338 5,099 22,062 14,437
Total Sales $48,259 $38,713 $38,221 $42,904
$42,844 $33,552 $86,972 $76,396
Aggregate & Core Retention Rates
Three Months Ended 2011 Three Mths Ended 2012 Six Months
Ended March June September
December March June June 2011 June 2012
Aggregate
Retention Rate 1 Index and ESG products 95.0% 92.8%
95.2% 89.3% 94.5% 94.9% 93.9% 94.7% Risk management analytics 94.2%
92.2% 92.1% 80.8% 93.9% 90.0% 93.0% 91.9% Portfolio management
analytics 88.6% 91.4% 86.6% 87.2% 91.9% 84.2% 90.0% 88.0% Energy
& commodity analytics 76.9% 88.8% 89.3% 75.0% 90.2% 85.5% 82.9%
87.8%
Total Performance and Risk 93.0%
92.2% 92.2% 85.2% 93.7% 90.9%
92.5% 92.2% Total Governance
85.0% 90.4% 86.2% 80.6% 88.7%
92.1% 87.7% 90.4%
Total Aggregate Retention Rate
91.8% 91.9%
91.3% 84.5% 93.0%
91.0% 91.8% 92.0% Core
Retention Rate 1 Index and ESG products 95.2% 92.8%
95.2% 89.3% 94.6% 95.0% 94.0% 94.8% Risk management analytics 94.2%
92.7% 92.1% 81.0% 94.0% 92.0% 93.5% 92.9% Portfolio management
analytics 89.9% 93.2% 88.3% 88.3% 92.2% 87.0% 91.5% 89.6% Energy
& commodity analytics 76.9% 88.8% 91.3% 75.0% 90.7% 85.5% 82.9%
88.1%
Total Performance and Risk 93.4%
92.7% 92.6% 85.5% 93.8% 92.2%
93.0% 93.0% Total Governance
85.0% 90.4% 86.3% 80.6% 88.7%
92.2% 87.7% 90.4%
Total Core Retention Rate
92.1% 92.4%
91.6% 84.8% 93.1% 92.2%
92.2% 92.6%
1The 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. 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 13: Reconciliation of Adjusted
EBITDA to Net Income (unaudited)
Three Months Ended June 30, 2012
Three Months Ended June 30, 2011
Performanceand Risk
Governance
Total
Performanceand Risk
Governance
Total Net income $ 37,546 $
45,660 Plus: Provision for income taxes 19,715 23,982 Plus: Other
expense (income), net 29,860
13,049
Operating income $
85,980 $ 1,141 $ 87,121
$ 79,855 $ 2,836 $
82,691 Plus: Non-recurring stock-based comp 172 20 192 2,508
165 2,673 Plus: Depreciation and amortization 3,817 845 4,662 4,041
1,127 5,168 Plus: Amortization of intangible assets 12,639 3,320
15,959 13,073 3,350 16,423 Plus: Restructuring costs (13)
(9) (22) 72 (32)
40
Adjusted EBITDA $ 102,595 $
5,317 $ 107,912 $ 99,549
$ 7,446 $ 106,995
Six Months Ended June 30, 2012 Six Months Ended
June 30, 2011
Performanceand Risk
Governance
Total
Performanceand Risk
Governance
Total Net income $ 81,512 $ 79,181 Plus:
Provision for income taxes 43,988 43,805 Plus: Other expense
(income), net 42,600
35,134
Operating income $
163,455 $ 4,645 $ 168,100
$ 152,501 $ 5,619 $
158,120 Plus: Non-recurring stock-based comp 696 78 774
5,186 299 5,485 Plus: Depreciation and amortization 7,382 1,696
9,078 8,020 2,258 10,278 Plus: Amortization of intangible assets
25,278 6,640 31,918 26,415 6,700 33,115 Plus: Restructuring costs
(32) (19) (51) 2,388
2,083 4,471
Adjusted EBITDA $
196,779 $ 13,040 $
209,819 $ 194,510 $ 16,959
$ 211,469
Table 14: Reconciliation of Adjusted
Net Income and Adjusted EPS to Net Income and EPS
(unaudited)
Three Months Ended Six
Months Ended
June 30,2012
June 30,2011
March 31,2012
June 30,2012
June 30,2011
GAAP - Net income $ 37,546 $ 45,660 $ 43,966 $ 81,512 $ 79,181
Plus: Non-recurring stock-based comp 192 2,673 582 774 5,485 Plus:
Amortization of intangible assets 15,959 16,423 15,959 31,918
33,115 Plus: Debt repayment and refinancing expenses 20,639 - -
20,639 6,404 Plus: Restructuring costs (22) 40 (29) (51) 4,471
Less: Income tax effect (12,775) (6,590) (5,873) (18,648) (17,622)
Adjusted net income
$ 61,539 $ 58,206 $
54,605 $ 116,144 $ 111,034
Diluted EPS $ 0.30 $ 0.37
$ 0.35 $ 0.66 $ 0.64
Plus: Non-recurring stock-based comp 0.00 0.02 0.01 0.01 0.04 Plus:
Amortization of intangible assets 0.13 0.13 0.13 0.26 0.27 Plus:
Debt repayment and refinancing expenses 0.17 - - 0.17 0.05 Plus:
Restructuring costs (0.00) 0.00 (0.00) (0.01) 0.04 Less: Income tax
effect (0.10) (0.05) (0.05) (0.15)
(0.14)
Adjusted EPS $ 0.50 $
0.47 $ 0.44 $ 0.94 $
0.90
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