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 first quarter ended March 31, 2013.
(Note: Percentage changes are referenced to the comparable
period in 2012, unless otherwise noted.)
- Operating revenues increased 10.0%
to $251.9 million in first quarter 2013 and 5.8% on an organic
basis.1
- Net income increased 34.1% to $58.9
million in first quarter 2013.
- Adjusted EBITDA2 grew
by 8.0% to $110.1 million in first quarter 2013 and first quarter
2013 Adjusted EBITDA margin decreased to 43.7% from 44.5%.
- Diluted EPS for first quarter 2013
rose 37.1% to $0.48 and first quarter 2013 Adjusted EPS3
rose 29.5% to $0.57.
- MSCI’s run rate grew by 6.9% to
$982.3 million in first quarter 2013, including organic
subscription growth of 3.3%.1
“MSCI reported 10% revenue growth in first quarter 2013, driven
by a 7% increase in organic subscription revenue and aided by
contributions from IPD and InvestorForce. Our Adjusted EBITDA grew
by 8% and our decisions in 2012 to repay and refinance our debt and
repurchase our shares helped lift Adjusted EPS by 30%,” Henry A.
Fernandez, Chairman and CEO, said.
“MSCI is focused on innovation as a means of driving growth and
I am excited by the breadth of new products that we are launching
across our business. We are also focused on deepening the links
between our product lines and mobilizing our product development
and sales efforts to deliver the full value of MSCI’s unique data,
analytics and research to our worldwide client base,” added Mr.
Fernandez.
Table 1: MSCI Inc. Selected Financial
Information (unaudited)
Three Months Ended Change from March 31, March 31, March 31,
In thousands, except per share data 2013 2012 2012 Operating
revenues $ 251,909 $ 229,052 10.0 % Operating expenses $ 161,382 $
148,073 9.0 % Net income $ 58,937 $ 43,966 34.1 %
% Margin
23.4 % 19.2 % Diluted EPS $ 0.48 $ 0.35 37.1 % Adjusted EPS3
$ 0.57 $ 0.44 29.5 % Adjusted EBITDA2 $ 110,093 $ 101,907 8.0 %
% Margin
43.7 % 44.5 % 1 For the purposes of calculating organic
revenue growth, comparisons exclude revenues from the acquisitions
of IPD and InvestorForce. For the purposes of calculating organic
run rate growth, comparisons exclude the run rate from the
acquisitions of IPD and InvestorForce as well as the run rate of
the CFRA product line which was sold.
2 Net Income before income taxes, other
net expense and income, depreciation, amortization, non-recurring
stock-based compensation and restructuring costs. See Table 10
titled "Reconciliation of Adjusted EBITDA to Net Income
(unaudited)" and information about the use of non-GAAP financial
information provided under "Notes Regarding the Use of Non-GAAP
Financial Measures.”
3 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 11 titled "Reconciliation of
Adjusted Net Income and Adjusted EPS to Net Income and EPS
(unaudited)" and information about the use of non-GAAP financial
information provided under "Notes Regarding the Use of Non-GAAP
Financial Measures.”
Summary of Results for First Quarter 2013 compared to First
Quarter 2012
Operating Revenues – See Table 4
Total operating revenues for the three months ended March 31,
2013 (“first quarter 2013”) increased $22.9 million, or 10.0%, to
$251.9 million compared to $229.1 million for the three months
ended March 31, 2012 (“first quarter 2012”). For the purposes of
analyzing revenue trends, organic growth comparisons exclude the
impact of the acquisitions of IPD Group Limited (“IPD”) and
Investor Force Holdings, Inc. (“InvestorForce”), acquired on
November 30, 2012 and January 29, 2013, respectively. On an organic
basis, operating revenues grew by 5.8%.
Total first quarter 2013 recurring subscription revenues rose
$22.0 million, or 11.8%, to $208.6 million and 6.9% on an organic
basis. Asset-based fees increased $1.9 million, or 5.5%, to $36.5
million and non-recurring revenues fell $1.0 million to $6.8
million.
Performance and Risk segment revenues rose $21.4 million
to $219.5 million, an increase of 10.8% and 6.0% on an organic
basis. The increase was primarily driven by increases in index and
environmental, social and governance (“ESG”) products.
- Index and ESG products: Index
and ESG products revenues increased $15.2 million, or 14.3%, to
$121.4 million. Subscription revenues grew by $13.2 million, or
18.5%, to $84.9 million, driven by growth in revenues of index
benchmark products and the acquisition of IPD. On an organic basis,
index and ESG subscription revenue growth was 7.4%.IPD contributed
$8.0 million of revenues to first quarter 2013 index and ESG
subscription revenues. IPD recognizes revenue based on the delivery
of its products to clients. While the first quarter is expected to
be the lowest quarter for revenues, the second quarter is expected
to be the highest, reflecting when a substantial portion of its
annual report product is delivered to clients.Revenues attributable
to equity index asset-based fees rose $1.9 million, or 5.5%, to
$36.5 million, largely as a result of higher assets under
management in both ETFs and passive funds. Included in first
quarter 2013 were revenues of $2.5 million related to the 22
Vanguard ETFs that have switched or will switch away from MSCI
indices in 2013 (“the Vanguard ETFs”). The average assets under
management (“AUM”) in ETFs linked to MSCI indices increased 8.2% to
$369.0 billion from $341.0 billion in first quarter 2012.
- Risk management analytics:
Revenues related to risk management analytics products increased
$3.2 million, or 5.0%, to $67.3 million. On an organic basis,
revenues grew by 2.6%. The increase in organic risk management
analytics revenues was driven primarily by higher revenues from our
BarraOne and RiskManager products.
- Portfolio management analytics:
Revenues related to portfolio management analytics products
declined $1.4 million, or 4.9%, to $27.6 million as a result of
lower sales of equity analytics products.
- Energy and commodity analytics:
Revenues from energy and commodity analytics products were $3.1
million, up $4.4 million from first quarter 2012. First quarter
2012 revenues were negatively impacted by a $5.2 million correction
resulting from an error in our revenue recognition for this product
category. Excluding the impact of the correction, energy and
commodity analytics revenues would have declined $0.8 million.
Governance segment revenues rose $1.5 million, or 4.8%,
to $32.4 million in first quarter 2013, driven by higher revenues
from advisory compensation data and analytics products and higher
revenues from proxy research and distribution services.
Non-recurring governance revenues declined by $0.3 million to $3.5
million.
Operating Expenses – See Table 5
Total operating expenses rose $13.3 million, or 9.0%, to $161.4
million, substantially driven by higher costs from recent
acquisitions.
- Compensation costs: Total
compensation costs rose $14.2 million, or 15.3%, to $106.8 million
in first quarter 2013. Excluding non-recurring stock-based
compensation expense, total compensation costs rose $14.8 million,
or 16.0%. Compensation costs were impacted by the additions of IPD
and InvestorForce and to a lesser extent an overall increase in
compensation and benefits expense.
- Non-compensation costs excluding
depreciation and amortization and restructuring costs were
essentially flat at $35.0 million in first quarter 2013. Higher
non-compensation costs associated with IPD and InvestorForce were
offset by lower expenses across many areas including professional
fees, technology, market data and other expenses.
- Depreciation and amortization:
Amortization of intangibles expense totaled $14.5 million compared
to $16.0 million in first quarter 2012, a decline of 9.2%,
primarily due to certain intangibles becoming fully amortized since
the prior period, partially offset by additional amortization
related to the IPD and InvestorForce acquisitions. Depreciation and
amortization of property, plant and equipment rose $0.7 million, or
15.0%, to $5.1 million.
Other Expense (Income), Net
Other expense (income), net for first quarter 2013 was $7.0
million, a decline of $5.8 million from first quarter 2012.
Interest expense fell by $5.3 million to $7.0 million as a result
of lower levels of indebtedness and lower interest rates following
our second quarter 2012 refinancing. A modest gain from the sale of
CFRA was offset by the impact of foreign currency translation
expense.
Provision for Income Taxes
Income tax expense was $24.6 million in first quarter 2013, up
1.4% from first quarter 2012. First quarter 2013 income tax expense
benefited from discrete items of $3.8 million primarily related to
a reduction in state taxes and the reinstatement of the 2012
research and development credit. The effective tax rate was 29.5%
in first quarter 2013, down from 35.6% in first quarter 2012.
Net Income and Earnings per Share – See Table 11
Net income rose $15.0 million, or 34.1%, to $58.9 million for
first quarter 2013. The net income margin increased to 23.4% from
19.2% as a result of the higher operating profit margin, lower
interest costs and a lower effective tax rate. Diluted EPS rose by
$0.13, or 37.1%, to $0.48, driven by higher net income and a 1.1%
decline in the number of diluted shares.
Adjusted net income, which excludes the after-tax impact of
amortization of intangibles, non-recurring stock-based compensation
expense and restructuring costs, rose $14.6 million, or 26.6%, to
$69.2 million. Adjusted EPS, which excludes the after-tax, per
share impact of amortization of intangibles, non-recurring
stock-based compensation expense and restructuring costs totaling
$0.09, rose $0.13, or 29.5%, to $0.57.
See Table 11 titled “Reconciliation of Adjusted Net Income and
Adjusted EPS to Net Income and EPS (unaudited)” and “Notes
Regarding the Use of Non-GAAP Financial Measures” below.
Adjusted EBITDA – See Table 10
Adjusted EBITDA, which excludes income taxes, other net expense
and income, depreciation, amortization, non-recurring stock-based
compensation and restructuring costs, was $110.1 million, up $8.2
million, or 8.0%, from first quarter 2012. The Adjusted EBITDA
margin declined to 43.7% from 44.5%.
By segment, Adjusted EBITDA for the Performance and Risk segment
increased $7.8 million, or 8.3%, to $102.0 million in first quarter
2013. The Adjusted EBITDA margin for this segment fell to 46.5%
from 47.5%. Adjusted EBITDA for the Governance segment increased
$0.4 million, or 5.4%, to $8.1 million and the Adjusted EBITDA
margin for this segment remained flat at 25.1%.
See Table 10 titled “Reconciliation of Adjusted EBITDA to Net
Income (unaudited)” and “Notes Regarding the Use of Non-GAAP
Financial Measures” below.
Key Operating Metrics – See Tables 7, 8, 9
Total run rate grew by $63.1 million, or 6.9%, to $982.3 million
as of March 31, 2013 compared to March 31, 2012. For the purposes
of analyzing changes in run rate, organic growth comparisons
exclude the impact of the acquisitions of IPD and InvestorForce as
well as the disposition of CFRA, which was sold on March 31, 2013.
On an organic basis, total subscription run rate grew by 3.3%.
Changes in foreign currency rates negatively impacted run rate by
$7.5 million relative to first quarter 2012 and by $6.2 million
relative to fourth quarter 2012.
Performance and Risk segment run rate grew by $65.9
million, or 8.2%, to $872.1 million. On an organic basis,
Performance and Risk run rate grew by 2.1%.
- Index and ESG products: Index
and ESG subscription run rate grew by $65.7 million, or 23.6%, to
$344.3 million. On an organic basis, run rate grew by 9.5%, driven
by growth in equity index benchmark products and ESG products.Run
rate attributable to asset-based fees declined by $2.8 million, or
2.0%, to $134.2 million. The decline was primarily driven by the
impact of the Vanguard ETFs, partially offset by higher overall
levels of AUM in ETFs linked to MSCI indices. Excluding the run
rate attributable to the Vanguard ETFs at March 31, 2012,
asset-based fee run rate grew by $19.9 million, or 17.4%.As of
March 31, 2013, AUM in ETFs linked to MSCI indices were $357.3
billion, up $2.6 billion, or 0.7%, from March 31, 2012 and down
$45.0 billion, or 11.2%, from December 31, 2012. Excluding the
Vanguard ETFs, AUM in MSCI-linked ETFs was $285.4 billion, up $52.4
billion, or 22.5%, from March 31, 2012 and up $21.6 billion, or
8.2%, from December 31, 2012.During first quarter 2013, MSCI-linked
ETFs attracted a total of $21.8 billion of net inflows, including
$13.8 billion in those ETFs that are expected to continue to be
linked to MSCI indices, and benefited from $16.0 billion of
positive market performance, offset by the loss of $82.8 billion in
AUM associated with those Vanguard ETFs that transitioned away from
MSCI indices during the quarter. For the past twelve months, total
inflows to MSCI-linked ETFs were $63.2 billion, of which $22.8
billion were into the Vanguard ETFs and $40.4 billion into all
other ETFs, offset by the loss of $82.8 billion in AUM discussed
above. As of March 31, 2013, $71.9 billion of AUM in 13 Vanguard
ETFs remained to be transitioned.
- Risk management analytics: Run
rate related to risk management analytics products increased $16.6
million, or 6.4%, to $274.5 million. On an organic basis, risk
management analytics run rate grew by 2.7%. MSCI continued to
benefit from strong growth in run rate associated with its
HedgePlatform products and from growth in its BarraOne and
RiskManager risk management and reporting systems.
- Portfolio management analytics:
Run rate related to portfolio management analytics products
declined $11.7 million, or 9.9%, to $106.1 million. Year-over-year
run rate was negatively impacted by product swaps totaling $3.3
million and by changes in foreign currency rates which lowered run
rate by an additional $2.3 million. The impact of product swaps and
foreign currency changes reduced first quarter 2013 run rate
sequentially by $1.8 million.
- Energy and commodity analytics:
Run rate from energy and commodity analytics products declined to
$13.0 million, down $1.9 million, or 12.7%, from first quarter
2012. The decline was driven, in part, by weakness in demand for
natural gas option pricing models.
Governance run rate declined by $2.9 million, or 2.5%, to
$110.2 million. On an organic basis, which excludes CFRA in both
periods, run rate grew by 5.3%, reflecting strong growth in the
revenues from our advisory compensation data and analytics
products, as well as gains in our proxy research and voting
products.
Acquisition of Investor Force Holdings, Inc.
On January 29, 2013, MSCI completed the previously announced
acquisition of InvestorForce for a purchase price of approximately
$23.5 million, funded through existing cash. InvestorForce is a
leading provider of performance reporting solutions to the
institutional investment community in the United States, providing
investment consultants with an integrated solution for daily
monitoring, analysis and reporting on institutional assets. The
acquisition is not expected to have a material impact on MSCI’s
results of operations in fiscal year 2013.
Sale of CFRA
On March 31, 2013, MSCI completed the previously announced sale
of its CFRA product line, a leading provider of forensic accounting
research, to a private investor for an undisclosed purchase price.
The sale is not expected to have a material impact on MSCI’s
results of operations.
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s
senior management review first quarter 2013 results on Wednesday,
May 1, 2013 at 11:00 am Eastern Time. To listen to the live event,
visit the investor relations section of MSCI's website,
http://ir.msci.com/events.cfm, or dial 1-877-312-9206 within the
United States. International callers dial 1-408-774-4001.
An audio recording of the conference call will be available on
our website approximately two hours after the conclusion of the
live event and will be accessible through May 3, 2013. To listen to
the recording, visit http://ir.msci.com/events.cfm, or dial
1-855-859-2056 (passcode: 36281274) within the United States.
International callers dial 1-404-537-3406 (passcode: 36281274).
About MSCI
MSCI Inc. is a leading provider of investment decision support
tools to investors globally, including asset managers, banks, hedge
funds and pension funds. MSCI products and services include
indices, portfolio risk and performance analytics, and governance
tools.
The company's flagship product offerings are: the MSCI indices
with approximately 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; IPD real estate
information, indices and analytics; MSCI ESG (environmental, social
and governance) Research screening, analysis and ratings; ISS
governance research and outsourced proxy voting and reporting
services; and FEA valuation models and risk management software for
the energy and commodities markets. MSCI is headquartered in New
York, with research and commercial offices around the world.
MSCI#IR
1As of September 30, 2012, as published by eVestment, Lipper and
Bloomberg in December 2012
For further information on MSCI, please visit our web site
at www.msci.com
Forward-Looking Statements
This earnings 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, 2012 filed with the Securities and Exchange Commission
(SEC) on March 1, 2013, and in quarterly reports on Form 10-Q and
current reports on Form 8-K filed with the SEC. 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 the 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 depreciation and
amortization may help investors compare our performance to that of
other companies in our industry as we do not believe that other
companies in our industry have as significant a portion of their
operating expenses represented by these items. We believe that the
non-GAAP financial measures presented in this earnings release
facilitate meaningful period-to-period comparisons and provide a
baseline for the evaluation of future results.
Adjusted EBITDA, Adjusted net income and Adjusted EPS are not
defined in the same manner by all companies and may not be
comparable to other similarly titled measures of other
companies.
Table 2: MSCI Inc. Consolidated
Statement of Income (unaudited) Three Months Ended March
31, March 31, December 31, In thousands, except per share data
2013 2012 2012 Operating revenues $
251,909 $ 229,052 $ 247,080 Operating expenses
Cost of services
80,185 72,291 74,191
Selling, general and administrative
61,631 55,436 57,172
Restructuring costs
- (29 ) -
Amortization of intangible assets
14,486 15,959 15,421
Depreciation and amortization of
property,
equipment and leasehold improvements
5,080 4,416 4,989 Total
operating expenses $ 161,382 $ 148,073 $ 151,773
Operating income $ 90,527 $ 80,979 $ 95,307 Operating
margin 35.9 % 35.4 % 38.6 % Interest income (268 ) (223 )
(242 ) Interest expense 7,020 12,355 7,178 Other expense (income)
224 608 56 Other expenses
(income), net $ 6,976 $ 12,740 $ 6,992
Income before taxes 83,551 68,239 88,315 Provision for
income taxes 24,614 24,273
33,863 Net income $ 58,937 $ 43,966 $ 54,452
Net income margin 23.4 % 19.2 % 22.0 % Earnings per
basic common share $ 0.49 $ 0.36 $ 0.44
Earnings per diluted common share $ 0.48 $ 0.35 $
0.44
Weighted average shares outstanding used
in computing earnings per share
Basic 120,746 121,754
122,082 Diluted 121,702 123,113
122,995
Table 3: MSCI Inc. Selected Balance
Sheet Items (unaudited)
As of March 31, December 31, In thousands
2013
2012 Cash and cash equivalents $ 263,029 $ 183,309
Short-term investments - 70,898 Trade receivables, net of
allowances 166,915 153,557 Deferred revenue $ 350,470 $
308,022 Current maturities of long-term debt 43,106 43,093
Long-term debt, net of current maturities 785,856 811,623
Table 4: Quarterly Operating Revenues
by Product Category and Revenue Type (unaudited)
Three Months Ended
% Change from
March 31,
March 31, December 31,
March 31,
December 31,
In thousands 2013 2012
2012
2012
2012
Index and ESG products
Subscriptions
$ 84,888 $ 71,639 $ 79,268 18.5 % 7.1 %
Asset-based fees
36,515 34,609 38,138 5.5 % (4.3 %)
Index and ESG products total 121,403 106,248 117,406 14.3 % 3.4 %
Risk management analytics 67,274 64,077 66,654 5.0 % 0.9 %
Portfolio management analytics 27,646 29,063 28,606 (4.9 %) (3.4 %)
Energy and commodity analytics
Recurring Energy and commodity
analytics
3,146 3,904 3,270 (19.4 %) (3.8 %)
Correction1
- (5,203 ) - n/m n/m Energy and commodity
analytics 3,146 (1,299 ) 3,270 n/m (3.8 %)
Total Performance and Risk revenues
$ 219,469 $ 198,089 $ 215,936 10.8 % 1.6 %
Total Governance revenues
32,440 30,963 31,144 4.8 % 4.2 %
Total operating revenues $ 251,909 $ 229,052 $ 247,080 10.0
% 2.0 %
Recurring subscriptions
$ 208,625 $ 186,636 $ 202,001 11.8 % 3.3 %
Asset-based fees
36,515 34,609 38,138 5.5 % (4.3 %)
Non-recurring revenue
6,769 7,807 6,941 (13.3 %) (2.5 %)
Total operating revenues $ 251,909 $ 229,052 $ 247,080 10.0
% 2.0 % 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 previously
reported prior to January 1, 2012. MSCI’s previous policy had
resulted in the immediate recognition of a substantial portion of
the revenue related to a majority of its contracts rather than
amortizing that revenue over the life of that contract, which is
now the method of recognition.
n/m = not meaningful
Table 5: Quarterly Operating Expense
Detail (unaudited)
Three Months Ended % Change from March 31, March 31, December 31,
March 31, December 31, In thousands 2013 2012 2012 2012 2012 Cost
of services
Compensation
$ 61,149 $ 53,549 $ 55,982 14.2 % 9.2 %
Non-recurring stock based compensation
- 268 255 (100.0 %) (100.0 %)
Total compensation
$ 61,149 $ 53,817 $ 56,237 13.6 % 8.7 %
Non-compensation
19,036 18,474 17,735 3.0 % 7.3 %
Lease exit charge1
- - 219 n/m (100.0 %)
Total non-compensation
19,036 18,474 17,954 3.0 % 6.0 % Total
cost of services $ 80,185 $ 72,291 $ 74,191 10.9 % 8.1 %
Selling, general and administrative
Compensation
$ 45,656 $ 38,492 $ 37,475 18.6 % 21.8 %
Non-recurring stock based compensation
- 314 126 (100.0 %) (100.0 %)
Total compensation
$ 45,656 $ 38,806 $ 37,601 17.7 % 21.4 %
Non-compensation
15,975 16,630 19,321 (3.9 %) (17.3 %)
Lease exit charge1
- - 250 n/m (100.0 %)
Total non-compensation
15,975 16,630 19,571 (3.9 %) (18.4 %)
Total selling, general and administrative $ 61,631 $ 55,436 $
57,172 11.2 % 7.8 % Restructuring costs - (29 ) - (100.0 %)
n/m Amortization of intangible assets 14,486 15,959 15,421 (9.2 %)
(6.1 %) Depreciation and amortization of property, equipment and
leasehold improvements 5,080 4,416
4,989 15.0 % 1.8 % Total operating expenses $ 161,382 $ 148,073
$ 151,773 9.0 % 6.3 %
Compensation $ 106,805 $ 92,041 $ 93,457 16.0 % 14.3
% Non-recurring stock-based compensation - 582 381 (100.0 %) (100.0
%) Non-compensation expenses 35,011 35,104 37,056 (0.3 %) (5.5 %)
Lease exit charge1 - - 469 n/m (100.0 %) Restructuring costs - (29
) - (100.0 %) n/m Amortization of intangible assets 14,486 15,959
15,421 (9.2 %) (6.1 %) Depreciation and amortization of property,
equipment and leasehold improvements 5,080 4,416
4,989 15.0 % 1.8 %
Total operating expenses
$ 161,382 $ 148,073 $ 151,773 9.0 % 6.3 %
1Fourth quarter 2012 included a charge of
$0.5 million associated with an occupancy lease exit resulting from
the consolidation of our New York offices.
n/m = not meaningful
Table 6: Summary Quarterly Segment
Information (unaudited)
Three Months Ended % Change from March 31, March 31,
December 31, March 31, December 31, In thousands 2013 2012 2012
2012 2012
Revenues: Performance and Risk $ 219,469 $ 198,089
$ 215,936 10.8 % 1.6 % Governance 32,440
30,963 31,144 4.8 % 4.2 %
Total Operating revenues
$ 251,909 $ 229,052 $
247,080 10.0 % 2.0 %
Operating Income: Performance and Risk 86,699 77,475 90,620
11.9 % (4.3 %)
Margin
39.5 % 39.1 % 42.0 % Governance 3,828 3,504 4,687 9.2 % (18.3 %)
Margin
11.8 % 11.3 % 15.0 %
Total Operating Income
$ 90,527 $ 80,979 $
95,307 11.8 % (5.0 %)
Margin
35.9 % 35.4 % 38.6 %
Adjusted EBITDA: Performance and Risk 101,954 94,182
107,502 8.3 % (5.2 %)
Margin
46.5 % 47.5 % 49.8 % Governance 8,139 7,725 9,065 5.4 % (10.2 %)
Margin
25.1 % 24.9 % 29.1 %
Total Adjusted EBITDA
$ 110,093 $ 101,907 $
116,567 8.0 % (5.6 %)
Margin
43.7 % 44.5 % 47.2 %
Table 7: Key Operating
Metrics1 (unaudited)
As of % Change from March 31, March 31, December 31, March
31, December 31, Dollars in thousands 2013 2012 2012 2012 2012
Run Rates1 Index and ESG products
Subscription
$ 344,267 $ 278,541 $ 338,006 23.6 % 1.9 %
Asset-based fees2
134,186 136,962 127,072
(2.0 %) 5.6 % Index and ESG products total 478,453 415,503 465,078
15.2 % 2.9 % Risk management analytics 274,524 257,973 262,108 6.4
% 4.7 % Portfolio management analytics 106,091 117,751 109,836 (9.9
%) (3.4 %) Energy and commodity analytics 13,030
14,926 13,128 (12.7 %) (0.7 %)
Total Performance and Risk
872,098 806,153 850,150 8.2 % 2.6 %
Governance
110,174 113,054 117,261
(2.5 %) (6.0 %) Total Run Rate $ 982,272 $ 919,207 $
967,411 6.9 % 1.5 % Subscription total $ 848,086 $
782,245 $ 840,339 8.4 % 0.9 % Asset-based fees total2
134,186 136,962 127,072 (2.0 %)
5.6 % Total Run Rate $ 982,272 $ 919,207 $ 967,411
6.9 % 1.5 % New Recurring Subscription Sales $ 30,928
$ 33,506 $ 29,742 (7.7 %) 4.0 % Subscription Cancellations
(16,691 ) (13,498 ) (28,725 ) 23.7 % (41.9 %)
Net New Recurring Subscription Sales
$ 14,237 $ 20,008 $ 1,017 (28.8 %) 1,299.9 %
Non-recurring sales $ 8,935 $ 9,338 $ 7,443
(4.3 %) 20.0 % Employees 2,844 2,465 2,759 15.4 % 3.1 % %
Employees by location Developed Market Centers 59 % 60 % 59 %
Emerging Market Centers 41 % 40 % 41 % 1 The Run Rate at a
particular point in time represents the forward-looking revenues
for the next 12 months from all subscriptions and investment
product licenses we currently provide to our clients under
renewable contracts assuming all contracts that come up for renewal
are renewed and assuming then-current currency exchange rates. For
any license where fees are linked to an investment product’s assets
or trading volume, the Run Rate calculation reflects an
annualization of the most recent periodic fee earned under such
license or subscription. The Run Rate 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. The Run Rate for IPD Group Limited
was approximated using the trailing 12 months of revenues primarily
adjusted for estimates for non-recurring sales, new sales and
cancellations.
2 The asset-based fee Run Rate as of
December 2012 and March 2013 excludes all Run Rate associated with
the 22 Vanguard ETFs which have been switched or will be switched
in 2013 from MSCI indices.
Table 8: ETF Assets Linked to MSCI
Indices1 (unaudited)
Three Months Ended 2012 Year Ended Three Months Ended
In
Billions March June September
December December 2012 March 2013 Beginning
Period AUM in ETFs linked to MSCI Indices $ 301.6 $ 354.7 $ 327.4 $
363.7 $ 301.6 $ 402.3 Cash Inflow/Outflow2 15.2 0.3 15.2 25.9 56.6
(61.0 ) Appreciation/Depreciation 37.9
(27.6 ) 21.1 12.7
44.1 16.0
Period End AUM in ETFs linked to MSCI
Indices
$ 354.7 $ 327.4 $ 363.7 $ 402.3 $ 402.3 $ 357.3
Period Average AUM in ETFs linked to MSCI
Indices
$ 341.0 $ 331.6 $ 344.7 $ 376.6 $ 349.1 $ 369.0 1 ETF assets under
management calculation methodology is ETF net asset value
multiplied by shares outstanding. Source: Bloomberg and MSCI 2 Cash
Inflow/Outflow for the first quarter of 2013 includes the migration
of $82.8 billion of AUM in 9 Vanguard ETFs that transitioned to
other indices during the quarter.
Table 9: Supplemental Operating Metrics
(unaudited)
Sales & Cancellations Three Months Ended 2012
Year Ended Three Months Ended In thousands March June
September December December 2012 March
2013 New Recurring Subscription Sales $ 33,506 $ 28,453 $ 27,164 $
29,742 $ 118,865 $ 30,928 Subscription Cancellations (13,498
) (17,229 ) (19,134 )
(28,725 ) (78,586 ) (16,691 )
Net New Recurring Subscription Sales $ 20,008
$ 11,224
$ 8,030 $ 1,017
$ 40,279 $ 14,237
Non-recurring sales 9,338
5,099 3,878
7,443 25,758 8,935
Total
Sales $ 42,844 $
33,552 $ 31,042
$ 37,185 $ 144,623
$ 39,863 Aggregate
& Core Retention Rates Three Months Ended 2012 Year Ended
Three Months Ended March June
September December December 2012 March 2013
Aggregate Retention Rate 1
Index and ESG products
94.5 % 94.9 % 94.0 % 90.4 % 93.4 % 95.0 %
Risk management analytics
93.9 % 90.0 % 88.5 % 84.4 % 89.0 % 93.5 %
Portfolio management analytics
91.9 % 84.2 % 84.9 % 78.0 % 84.7 % 81.7 %
Energy & commodity analytics
90.2 % 85.5 % 76.6 % 60.4 % 78.1 % 90.1 %
Total
Performance and Risk 93.7 % 90.9 %
89.8 % 85.2 % 89.8 %
92.4 % Total Governance
88.7 % 92.1 %
91.1 %
83.6 % 88.9 %
90.0 %
Total Aggregate Retention Rate
93.0 % 91.0
% 90.0 %
84.9 % 89.7 %
92.1 % Core Retention Rate 1
Index and ESG products
94.6 % 95.0 % 94.0 % 90.5 % 93.5 % 95.0 %
Risk management analytics
94.0 % 92.0 % 89.3 % 84.4 % 89.8 % 93.9 %
Portfolio management analytics
92.2 % 87.0 % 86.5 % 83.6 % 87.3 % 82.8 %
Energy & commodity analytics
90.7 % 85.5 % 77.1 % 60.4 % 78.4 % 90.1 %
Total
Performance and Risk 93.8 % 92.2 %
90.5 % 86.2 % 90.6 %
92.7 % Total Governance
88.7 % 92.2 %
91.2 %
83.8 % 89.0 % 90.2
%
Total Core Retention Rate
93.1 % 92.2
% 90.6 %
85.9 % 90.4 %
92.4 % 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 10: Reconciliation of Adjusted
EBITDA to Net Income (unaudited)
Three Months Ended March 31, 2013 Three Months
Ended March 31, 2012
Performance
Performance
In thousands
and Risk
Governance Total
and Risk
Governance Total
Net Income $
58,937 $ 43,966 Plus: Provision for income taxes 24,614 24,273
Plus: Other expense (income), net
6,976
12,740
Operating income $
86,699 $ 3,828
$ 90,527 $ 77,475
$ 3,504 $ 80,979
Plus: Non-recurring stock-based compensation - - - 522 60
582 Plus: Depreciation and amortization of property, equipment and
leasehold improvements 4,089 991 5,080 3,565 851 4,416 Plus:
Amortization of intangible assets 11,166 3,320 14,486 12,639 3,320
15,959 Plus: Restructuring costs - -
- (19 ) (10 )
(29 )
Adjusted EBITDA $
101,954 $ 8,139
$ 110,093 $ 94,182
$ 7,725 $ 101,907
Table 11: Reconciliation of Adjusted
Net Income and Adjusted EPS to Net Income and EPS
(unaudited)
Three Months Ended March 31, March 31,
December 31, In thousands, except per share data
2013
2012 2012 Net Income $ 58,937 $ 43,966 $
54,452
Plus:
Non-recurring stock-based compensation - 582 381 Plus: Amortization
of intangible assets 14,486 15,959 15,421 Plus: Lease exit charge -
- 469 Plus: Restructuring costs - (29 ) - Less: Income tax effect
(4,268 ) (5,873 ) (6,556 )
Adjusted net
income $ 69,155 $ 54,605
$ 64,167 Diluted EPS
$ 0.48 $ 0.35 $ 0.44
Plus: Non-recurring stock-based compensation $ - $ 0.01 $ - Plus:
Amortization of intangible assets $ 0.12 $ 0.13 $ 0.12 Plus: Lease
exit charge $ - $ - $ - Plus: Restructuring costs $ - $ - $ - Less:
Income tax effect $ (0.03 ) $ (0.05 ) $ (0.04 )
Adjusted EPS
$ 0.57 $ 0.44 $
0.52
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