Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the
condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the Form 10-K). This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified
below and those discussed in Item 1A.Risk Factors, in our Form 10-K.
Except as the context otherwise
indicates, the terms MSCI, the Company, we, our and us refer to MSCI Inc. together with its subsidiaries.
Overview
MSCI offers content,
applications and services to support the needs of institutional investors throughout their investment processes. MSCI clients include asset owners, such as pension funds, endowments, foundations, central banks, family offices and insurance
companies; asset management firms, such as mutual funds, hedge funds, providers of exchange-traded funds (ETFs); private wealth managers; and financial intermediaries, such as banks, broker-dealers, exchanges, custodians, trust companies
and investment consultants.
Our products and services include indexes and analytical models; ratings and analysis that enable
institutional investors to integrate environmental, social and governance (ESG) factors into their investment strategies; and analysis of real estate in both privately and publicly owned portfolios. Clients use our content and
applications to help construct portfolios and allocate assets. Our analytical tools help them measure and manage risk across all major asset classes. MSCI products and services can also be customized to meet the specific needs of our clients. As of
March 31, 2016, we had approximately 6,400 clients across 83 countries. To calculate the number of clients, we may count certain affiliates, user locations, or business units within a single organization as separate clients. If we aggregate all
related clients under their respective parent entity, the number of clients would be approximately 3,850, as of March 31, 2016. We had offices in 35 cities in 22 countries to help serve our diverse client base, with 53.2% of our revenues coming
from clients in the Americas, 34.4% in Europe, the Middle East and Africa (EMEA) and 12.4% in Asia and Australia.
Our
principal business model is to license annual, recurring subscriptions to our products and services for use at specified locations, often by a given number of users or for a certain volume of services, for an annual fee paid up-front. Additionally,
our recurring subscriptions include our managed services offering, whereby we oversee the production of risk and performance reports on behalf of our clients. Fees attributable to annual, recurring subscriptions are recorded as deferred revenues on
our Unaudited Condensed Consolidated Statement of Financial Condition and are recognized on our Unaudited Condensed Consolidated Statement of Income as the service is rendered. Furthermore, a portion of our revenues comes from clients who use our
indexes as the basis for index-linked investment products such as ETFs or as the basis for passively managed funds and separate accounts. These clients commonly pay us a license fee for the use of our intellectual property based on the investment
products assets. We also generate revenues from certain exchanges that use our indexes as the basis for futures and options contracts and pay us a license fee for the use of our intellectual property based on their volume of trades. In
addition, we generate revenues from subscription agreements for the receipt of periodic benchmark reports, digests and other publications, which are most often associated with our real estate products that are recognized upon delivery of such
reports or data updates. We also receive revenues from one-time fees related to certain implementation services, historical or customized reports, advisory and consulting services and from certain products and services that are designed for one-time
usage.
In evaluating our financial performance, we focus on revenue and profit growth, including GAAP and non-GAAP measures, for the
Company as a whole and by operating segment. In addition, we focus on operating metrics, including Run Rate, subscription sales and Aggregate Retention Rate to manage the business. Our business is not highly capital intensive and, as such, we expect
to continue to convert a high percentage of our profits into excess cash in the future. Our growth strategy includes: (a) expanding and deepening our relationships with investment institutions worldwide; (b) developing new and enhancing
existing product offerings, including combining existing product features or data derived from our products to create new products; and (c) seeking to acquire products, technologies and companies that will enhance, complement or expand our
client base and product offerings.
In the discussion that follows, we provide certain variances excluding the impact of foreign currency
exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for
the comparable prior period.
20
Factors Affecting the Comparability of Results
Share Repurchases
On February 4,
2014, our Board of Directors approved a stock repurchase program authorizing the purchase of up to $300.0 million worth of shares of our common stock, which was subsequently increased to $850.0 million (the 2014 Repurchase Program). On
October 14, 2015, we exhausted the $850.0 million share repurchase authorization under the 2014 Repurchase Program.
On
October 28, 2015, our Board of Directors approved a new stock repurchase program authorizing the purchase of up to $1.0 billion worth of shares of our common stock (the 2015 Repurchase Program). Share repurchases made pursuant to
the 2015 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by our Board of Directors at
any time without prior notice.
On September 18, 2014, as part of the 2014 Repurchase Program, we entered into an ASR agreement to
initiate share repurchases aggregating $300.0 million (the September 2014 ASR Agreement). As a result of the September 2014 ASR Agreement, we received approximately 4.5 million shares of our common stock on September 19, 2014
and approximately 1.2 million shares of our common stock on May 21, 2015 for a combined average price of $52.79 per share.
On
June 2, 2015, we began purchasing shares of our common stock in the open market in accordance with SEC Rule 10b5-1. Through December 31, 2015, we paid $670.8 million to receive approximately 10.7 million shares of our common stock
pursuant to open market repurchases under the 2014 Repurchase Program and the 2015 Repurchase Program.
For the three months ended
March 31, 2016, we paid $333.3 million to receive approximately 4.9 million shares as part of the 2015 Repurchase Program at an average purchase price of $68.45 per share.
Since 2012 and through March 31, 2016, approximately $1.7 billion has been returned through share repurchases and the payment of cash
dividends.
The weighted average shares outstanding used in calculating our basic and diluted earnings per share decreased by 11.9% for
the three months ended March 31, 2016, reflecting the impact of the share repurchase programs, partially offset by the impact of restricted stock units and stock options converting to shares.
Senior Notes
On August 13, 2015,
we completed a private offering of $800.0 million aggregate principal amount of 5.75% Senior Notes due 2025 (the 2025 Senior Notes) and received $789.5 million, net of $10.5 million of debt issuance costs. As a result of this offering,
our interest expense for the current period has increased, with the annual interest expense expected to be approximately $91.5 million.
The discussion of our results of operations for the three months ended March 31, 2016 and 2015 are presented below. The results of
operations for interim periods may not be indicative of future results.
Results of Operations
Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015
The following table presents the results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands, except per share data)
|
|
Operating revenues
|
|
$
|
278,828
|
|
|
$
|
262,769
|
|
|
$
|
16,059
|
|
|
|
6.1
|
%
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
63,172
|
|
|
|
69,904
|
|
|
|
(6,732
|
)
|
|
|
(9.6
|
%)
|
Selling and marketing
|
|
|
41,689
|
|
|
|
41,648
|
|
|
|
41
|
|
|
|
0.1
|
%
|
Research and development
|
|
|
18,928
|
|
|
|
23,189
|
|
|
|
(4,261
|
)
|
|
|
(18.4
|
%)
|
General and administrative
|
|
|
21,890
|
|
|
|
20,377
|
|
|
|
1,513
|
|
|
|
7.4
|
%
|
Amortization of intangible assets
|
|
|
11,840
|
|
|
|
11,702
|
|
|
|
138
|
|
|
|
1.2
|
%
|
Depreciation and amortization of property, equipment and leasehold improvements
|
|
|
8,168
|
|
|
|
7,207
|
|
|
|
961
|
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
165,687
|
|
|
|
174,027
|
|
|
|
(8,340
|
)
|
|
|
(4.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
113,141
|
|
|
|
88,742
|
|
|
|
24,399
|
|
|
|
27.5
|
%
|
Other expense (income), net
|
|
|
22,364
|
|
|
|
11,082
|
|
|
|
11,282
|
|
|
|
101.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes
|
|
|
90,777
|
|
|
|
77,660
|
|
|
|
13,117
|
|
|
|
16.9
|
%
|
Provision for income taxes
|
|
|
30,410
|
|
|
|
28,036
|
|
|
|
2,374
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
60,367
|
|
|
|
49,624
|
|
|
|
10,743
|
|
|
|
21.6
|
%
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(5,797
|
)
|
|
|
5,797
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
60,367
|
|
|
$
|
43,827
|
|
|
$
|
16,540
|
|
|
|
37.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.61
|
|
|
$
|
0.44
|
|
|
$
|
0.17
|
|
|
|
38.6
|
%
|
From discontinued operations
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
0.05
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
|
$
|
0.61
|
|
|
$
|
0.39
|
|
|
$
|
0.22
|
|
|
|
56.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.60
|
|
|
$
|
0.44
|
|
|
$
|
0.16
|
|
|
|
36.4
|
%
|
From discontinued operations
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
0.05
|
|
|
|
(100.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share
|
|
$
|
0.60
|
|
|
$
|
0.39
|
|
|
$
|
0.21
|
|
|
|
53.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
40.6%
|
|
|
|
33.8%
|
|
|
|
|
|
|
|
|
|
Operating Revenues
Our revenues are grouped by the following types: recurring subscription, asset-based fees and non-recurring revenues. We also group revenues
by major product or reportable segment as follows: Index, Analytics and All Other, which includes ESG and Real Estate products.
The
following table presents operating revenues by type for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Recurring subscription
|
|
$
|
225,338
|
|
|
$
|
212,286
|
|
|
$
|
13,052
|
|
|
|
6.1
|
%
|
Asset-based fees
|
|
|
48,699
|
|
|
|
45,880
|
|
|
|
2,819
|
|
|
|
6.1
|
%
|
Non-recurring revenue
|
|
|
4,791
|
|
|
|
4,603
|
|
|
|
188
|
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
278,828
|
|
|
$
|
262,769
|
|
|
$
|
16,059
|
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues grew 6.1% to $278.8 million for the three months ended March 31, 2016 compared
to $262.8 million for the three months ended March 31, 2015.
Revenues from recurring subscription increased 6.1% to $225.3 million
for the three months ended March 31, 2016 compared to $212.3 million for the three months ended March 31, 2015. Overall, year-over-year revenue growth was negatively impacted by several factors, including market volatility in the quarter,
which reduced growth in average assets under management (AUM) linked to MSCI indexes, and the timing of revenue recognition on deals in Analytics, which drove Run Rate higher by 7.0% but did not yet have a significant impact on revenues.
Revenues from asset-based fees increased 6.1% to $48.7 million for the three months ended March 31, 2016 compared to $45.9 million
for the three months ended March 31, 2015. The 6.1% increase in asset-based fees was primarily driven by higher revenues from non-ETF institutional passive funds, strong increases in futures and options contracts linked to MSCI indexes and a
slight increase in revenue from ETFs linked to MSCI indexes. The 3.9% increase in average AUM in ETFs linked to MSCI indexes was mostly offset by lower average basis point fees, primarily due to changes in the product mix. Approximately two-thirds
of the underlying securities included in the AUM of our index-linked investment products are denominated in currencies other than the U.S. dollar.
22
The following table presents the value of AUM in ETFs linked to MSCI indexes and the sequential
change of such assets as of the end of each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
(1)
|
|
(in billions)
|
|
March 31,
2015
|
|
|
June 30,
2015
|
|
|
September 30,
2015
|
|
|
December 31,
2015
|
|
|
March 31,
2016
|
|
AUM in ETFs linked to MSCI Indexes
(2)
|
|
$
|
418.0
|
|
|
$
|
435.4
|
|
|
$
|
390.2
|
|
|
$
|
433.4
|
|
|
$
|
438.3
|
|
|
|
|
|
|
|
Sequential Change in Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Appreciation/(Depreciation)
|
|
$
|
13.0
|
|
|
$
|
(6.9
|
)
|
|
$
|
(48.2
|
)
|
|
$
|
14.5
|
|
|
$
|
(1.7
|
)
|
|
|
|
|
|
|
Cash Inflows
|
|
|
31.7
|
|
|
|
24.3
|
|
|
|
3.0
|
|
|
|
28.7
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Change
|
|
$
|
44.7
|
|
|
$
|
17.4
|
|
|
$
|
(45.2
|
)
|
|
$
|
43.2
|
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Bloomberg and MSCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The historical values of the AUM in ETFs linked to our indexes as of the last day of the month and the monthly average balance can be found under the link AUM in ETFs Linked to MSCI Indexes on our Investor
Relations homepage at
http://ir.msci.com
. This information is updated on or about the second U.S. business day of each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any
other report filed with the SEC.
|
(2)
|
The value of AUM in ETFs linked to MSCI Indexes is calculated by multiplying the ETF net asset value by the number of shares outstanding.
|
As of March 31, 2016, the value of AUM in ETFs linked to MSCI equity indexes was $438.3 billion, up $20.3 billion, or 4.9%, from $418.0
billion as of March 31, 2015. Of the $438.3 billion of AUM in ETFs linked to MSCI equity indexes as of March 31, 2016, 54.6% were linked to developed markets outside of the U.S., 21.5% were linked to U.S. market indexes, 19.2% were linked
to emerging market indexes and 4.7% were linked to other global indexes.
The following table presents the average value of AUM in ETFs
linked to MSCI indexes for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Average
|
|
|
|
|
|
|
2015
|
|
|
2016
|
|
|
|
|
|
|
|
(in billions)
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
March
|
|
AUM in ETFs linked to MSCI Indexes
|
|
$
|
392.5
|
|
|
$
|
441.4
|
|
|
$
|
418.2
|
|
|
$
|
423.3
|
|
|
$
|
407.9
|
|
|
|
|
|
|
|
Source: Bloomberg and MSCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring revenues increased 4.1% to $4.8 million for the three months ended March 31, 2016, compared
to $4.6 million for the three months ended March 31, 2015, primarily resulting from higher one-time sales of Analytics products and Real Estate products within our All Other segment, offset, in part, by lower one-time Index sales.
The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
$
|
93,645
|
|
|
$
|
85,060
|
|
|
$
|
8,585
|
|
|
|
10.1
|
%
|
Asset-based fees
|
|
|
48,699
|
|
|
|
45,880
|
|
|
|
2,819
|
|
|
|
6.1
|
%
|
Non-recurring
|
|
|
2,269
|
|
|
|
2,614
|
|
|
|
(345
|
)
|
|
|
(13.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index total
|
|
|
144,613
|
|
|
|
133,554
|
|
|
|
11,059
|
|
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analytics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
|
108,630
|
|
|
|
105,434
|
|
|
|
3,196
|
|
|
|
3.0
|
%
|
Non-recurring
|
|
|
1,633
|
|
|
|
1,411
|
|
|
|
222
|
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analytics total
|
|
|
110,263
|
|
|
|
106,845
|
|
|
|
3,418
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
|
23,063
|
|
|
|
21,792
|
|
|
|
1,271
|
|
|
|
5.8
|
%
|
Non-recurring
|
|
|
889
|
|
|
|
578
|
|
|
|
311
|
|
|
|
53.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other total
|
|
|
23,952
|
|
|
|
22,370
|
|
|
|
1,582
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
278,828
|
|
|
$
|
262,769
|
|
|
$
|
16,059
|
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to the section that follows titled, Segment Results for further discussion of segment
revenues.
Operating Expenses
We group our operating expenses into the following activity categories:
|
|
|
Research and development (R&D);
|
|
|
|
General and administrative (G&A);
|
|
|
|
Amortization of intangible assets; and
|
|
|
|
Depreciation and amortization of property, equipment and leasehold improvements.
|
Costs are
assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.
The following table presents operating expenses by activity category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
63,172
|
|
|
$
|
69,904
|
|
|
$
|
(6,732
|
)
|
|
|
(9.6
|
%)
|
Selling and marketing
|
|
|
41,689
|
|
|
|
41,648
|
|
|
|
41
|
|
|
|
0.1
|
%
|
Research and development
|
|
|
18,928
|
|
|
|
23,189
|
|
|
|
(4,261
|
)
|
|
|
(18.4
|
%)
|
General and administrative
|
|
|
21,890
|
|
|
|
20,377
|
|
|
|
1,513
|
|
|
|
7.4
|
%
|
Amortization of intangible assets
|
|
|
11,840
|
|
|
|
11,702
|
|
|
|
138
|
|
|
|
1.2
|
%
|
Depreciation and amortization of property, equipment and leasehold improvements
|
|
|
8,168
|
|
|
|
7,207
|
|
|
|
961
|
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
165,687
|
|
|
$
|
174,027
|
|
|
$
|
(8,340
|
)
|
|
|
(4.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses decreased 4.8% to $165.7 million for the three months ended March 31, 2016 compared to
$174.0 million for the three months ended March 31, 2015, reflecting strong overall expense management and the ongoing improvement of our Analytics segment. In addition, the three months ended March 31, 2015 was higher by $3.4 million due
to a non-cash charge recorded within R&D. Adjusting for the impact of foreign currency exchange rate fluctuations, operating expenses would have decreased 2.6% for the three months ended March 31, 2016 compared to the three months ended
March 31, 2015.
Cost of Revenues
Cost of revenues consists of costs related to the production and servicing of our products and services and primarily includes related
information technology costs, including data center, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support, maintain and rebalance existing products; costs of product
management teams;
24
costs of client service and consultant teams to support customer needs; and other support costs directly attributable to the cost of revenues, including certain human resources, finance and legal
costs. Cost of revenues decreased 9.6% to $63.2 million for the three months ended March 31, 2016 compared to $69.9 million for the three months ended March 31, 2015, primarily driven by strong expense management, particularly in our
Analytics segment, as reflected by lower compensation and benefits costs associated with lower staffing levels and severance as well as a decrease primarily in non-compensation occupancy costs.
Selling and Marketing
Selling
and marketing consists of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales force and marketing teams, as well as costs incurred in other groups
associated with acquiring new business, including product management, research, technology and sales operations. Selling and marketing expenses were $41.7 million and $41.6 million for the three months ended March 31, 2016 and 2015,
respectively.
Research and Development
R&D consists of the costs to develop new, or to enhance existing, products and the costs to develop new or improved technology and service
platforms for the delivery of our products and services and primarily includes the costs of application development, research, product management, project management and the technology support associated with these efforts. R&D expenses
decreased 18.4% to $18.9 million for the three months ended March 31, 2016 compared to $23.2 million for the three months ended March 31, 2015, primarily due to a non-cash charge of $3.4 million related to the termination of a technology
project in the Analytics segment recognized during the three months ended March 31, 2015. While R&D costs were down, we continue to invest in the key areas driving our growth strategy.
General and Administrative
G&A consists of costs primarily related to finance operations, human resources, the office of the CEO, legal, corporate technology,
corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service. G&A expenses increased 7.4% to $21.9 million for the three months ended March 31, 2016
compared to $20.4 million for the three months ended March 31, 2015, primarily driven by higher compensation and benefits costs, mainly related to severance, and an increase in non-compensation costs, primarily related to recruiting and other
expenses.
The following table presents operating expenses using compensation and non-compensation categories, rather than using activity
categories, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Compensation and benefits
|
|
$
|
106,765
|
|
|
$
|
115,471
|
|
|
$
|
(8,706
|
)
|
|
|
(7.5
|
%)
|
Non-compensation expenses
|
|
|
38,914
|
|
|
|
39,647
|
|
|
|
(733
|
)
|
|
|
(1.8
|
%)
|
Amortization of intangible assets
|
|
|
11,840
|
|
|
|
11,702
|
|
|
|
138
|
|
|
|
1.2
|
%
|
Depreciation and amortization of property, equipment and leasehold improvements
|
|
|
8,168
|
|
|
|
7,207
|
|
|
|
961
|
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
165,687
|
|
|
$
|
174,027
|
|
|
$
|
(8,340
|
)
|
|
|
(4.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits costs are our most significant expense and typically represent more than 60% of
operating expenses or more than 70% of Adjusted EBITDA expenses. We had 2,746 and 2,889 employees as of March 31, 2016 and 2015, respectively. Continued growth of our emerging market centers around the world is an important factor in our
ability to manage and control the growth of our compensation and benefit expenses. As of March 31, 2016, 53.5% of our employees were located in emerging market centers compared to 50.9% as of March 31, 2015.
Compensation and benefits expenses decreased 7.5% to $106.8 million for the three months ended March 31, 2016 compared to $115.5 million
for the three months ended March 31, 2015, driven by a decrease in headcount across several areas, primarily in technology and client coverage, as well as a non-cash charge of $2.9 million related to the termination of a technology project in
the Analytics segment recognized during the three months ended March 31, 2015.
Non-compensation expenses decreased 1.8% to $38.9
million for the three months ended March 31, 2016 compared to $39.6 million for the three months ended March 31, 2015, primarily driven by a decrease in occupancy and information technology costs as well as a non-cash charge of $0.5
million related to the termination of a technology project in the Analytics segment recognized during the three months ended March 31, 2015. The decrease in non-compensation expenses was partially offset by increases in costs primarily related
to recruiting, market data and other expense items.
25
Amortization of Intangible Assets
Amortization of intangible assets expense increased 1.2% to $11.8 million for the three months ended March 31, 2016 compared to $11.7
million for the three months ended March 31, 2015.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements increased 13.3% to $8.2 million for the three
months ended March 31, 2016 compared to $7.2 million for the three months ended March 31, 2015, primarily reflecting higher depreciation of investments made in our information technology infrastructure.
Other Expense (Income), Net
Other expense (income), net increased 101.8% to $22.4 million for the three months ended March 31, 2016 compared to $11.1 million for the
three months ended March 31, 2015, primarily driven by $11.8 million of higher interest expense resulting from the increased level of indebtedness.
Income Taxes
The provision for
income tax expense increased 8.5% to $30.4 million for the three months ended March 31, 2016 compared to $28.0 million for the three months ended March 31, 2015. These amounts reflect effective tax rates of 33.5% and 36.1% for the three
months ended March 31, 2016 and 2015, respectively. The decrease in the effective tax rate was primarily driven by efforts to better align our tax profile with our global operating footprint.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Loss from discontinued operations, net of income taxes, for the three months ended March 31, 2015 reflects the impact of a $5.8 million
out-of-period income tax charge associated with tax obligations triggered upon the sale of Institutional Shareholder Services Inc., which was completed on April 30, 2014.
Adjusted EBITDA
Adjusted
EBITDA, a measure used by management to assess operating performance, is defined as net income before income (loss) from discontinued operations, net of income taxes, plus provision for income taxes, other expense (income), net, depreciation
and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments.
Adjusted EBITDA expenses, another measure used by management to assess operating performance, is defined as operating expenses
less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets.
The Company
believes Adjusted EBTIDA and Adjusted EBTIDA expenses are important measures because they highlight operating trends from continuing operations while excluding costs that are more fixed or are one-time, unusual or non-recurring in nature. All
companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in
which companies operate and capital investments. Accordingly, the Companys computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.
The following table presents the calculation of Adjusted EBITDA for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Operating revenues
|
|
$
|
278,828
|
|
|
$
|
262,769
|
|
|
$
|
16,059
|
|
|
|
6.1
|
%
|
Adjusted EBITDA expenses
|
|
|
145,679
|
|
|
|
155,118
|
|
|
|
(9,439
|
)
|
|
|
(6.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
133,149
|
|
|
$
|
107,651
|
|
|
$
|
25,498
|
|
|
|
23.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin %
|
|
|
47.8
|
%
|
|
|
41.0
|
%
|
|
|
|
|
|
|
|
|
Operating margin %
|
|
|
40.6
|
%
|
|
|
33.8
|
%
|
|
|
|
|
|
|
|
|
26
Adjusted EBITDA increased 23.7% to $133.1 million for the three months ended March 31, 2016
compared to $107.7 million for the three months ended March 31, 2015. Adjusted EBITDA margin increased to 47.8% for the three months ended March 31, 2016 compared to 41.0% for the three months ended March 31, 2015. The improvement in
margin reflects solid growth in operating revenues, primarily attributable to growth in Index recurring subscription revenues, combined with lower Adjusted EBITDA expenses, reflecting strong expense management.
Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses
The following table presents the reconciliation of Adjusted EBITDA to net income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Index Adjusted EBITDA
|
|
$
|
100,049
|
|
|
$
|
93,053
|
|
Analytics Adjusted EBITDA
|
|
|
30,360
|
|
|
|
14,080
|
|
All Other Adjusted EBITDA
|
|
|
2,740
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA
|
|
|
133,149
|
|
|
|
107,651
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
11,840
|
|
|
|
11,702
|
|
Depreciation and amortization of property, equipment and leasehold improvements
|
|
|
8,168
|
|
|
|
7,207
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
113,141
|
|
|
|
88,742
|
|
Other expense (income), net
|
|
|
22,364
|
|
|
|
11,082
|
|
Provision for income taxes
|
|
|
30,410
|
|
|
|
28,036
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
60,367
|
|
|
|
49,624
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
|
|
|
|
(5,797
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
60,367
|
|
|
$
|
43,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Index Adjusted EBITDA expenses
|
|
$
|
44,564
|
|
|
$
|
40,501
|
|
Analytics Adjusted EBITDA expenses
|
|
|
79,903
|
|
|
|
92,765
|
|
All Other Adjusted EBITDA expenses
|
|
|
21,212
|
|
|
|
21,852
|
|
|
|
|
|
|
|
|
|
|
Consolidated Adjusted EBITDA expenses
|
|
|
145,679
|
|
|
|
155,118
|
|
Amortization of intangible assets
|
|
|
11,840
|
|
|
|
11,702
|
|
Depreciation and amortization of property, equipment and leasehold improvements
|
|
|
8,168
|
|
|
|
7,207
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
165,687
|
|
|
$
|
174,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The discussion of our segment results for the three months ended March 31, 2016 and 2015 is presented
below.
27
Segment Results
Index Segment
The following
table presents the results for the Index segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
$
|
93,645
|
|
|
$
|
85,060
|
|
|
$
|
8,585
|
|
|
|
10.1
|
%
|
Asset-based fees
|
|
|
48,699
|
|
|
|
45,880
|
|
|
|
2,819
|
|
|
|
6.1
|
%
|
Non-recurring
|
|
|
2,269
|
|
|
|
2,614
|
|
|
|
(345
|
)
|
|
|
(13.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues total
|
|
|
144,613
|
|
|
|
133,554
|
|
|
|
11,059
|
|
|
|
8.3
|
%
|
Adjusted EBITDA expenses
|
|
|
44,564
|
|
|
|
40,501
|
|
|
|
4,063
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
100,049
|
|
|
$
|
93,053
|
|
|
$
|
6,996
|
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin %
|
|
|
69.2%
|
|
|
|
69.7%
|
|
|
|
|
|
|
|
|
|
Revenues related to Index products increased 8.3% to $144.6 million for the three months ended March 31,
2016 compared to $133.6 million for the three months ended March 31, 2015.
Recurring subscription revenues were up 10.1% to $93.6
million for the three months ended March 31, 2016 compared to $85.1 million for the three months ended March 31, 2015. The increase was primarily driven by growth in benchmark and data products, including strong growth in revenue from
Developed Market and Emerging Market small cap modules and custom, factor, thematic and ESG-based products.
Revenues from asset-based
fees increased 6.1% to $48.7 million for the three months ended March 31, 2016 compared to $45.9 million for the three months ended March 31, 2015. The increase was primarily driven by higher revenues from non-ETF institutional
passive funds, strong increases in futures and options contracts linked to MSCI indexes and a slight increase in revenue from ETFs linked to MSCI indexes.
Index segment Adjusted EBITDA expenses increased 10.0% to $44.6 million for the three months ended March 31, 2016 compared to $40.5
million for the three months ended March 31, 2015, primarily reflecting higher compensation and benefits costs mainly within the selling and marketing, R&D and G&A areas. Adjusting for the impact of foreign currency exchange rate
fluctuations, Adjusted EBITDA expenses would have increased 13.1% for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.
Analytics Segment
The following
table presents the results for the Analytics segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
$
|
108,630
|
|
|
$
|
105,434
|
|
|
$
|
3,196
|
|
|
|
3.0
|
%
|
Non-recurring
|
|
|
1,633
|
|
|
|
1,411
|
|
|
|
222
|
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues total
|
|
|
110,263
|
|
|
|
106,845
|
|
|
|
3,418
|
|
|
|
3.2
|
%
|
Adjusted EBITDA expenses
|
|
|
79,903
|
|
|
|
92,765
|
|
|
|
(12,862
|
)
|
|
|
(13.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
30,360
|
|
|
$
|
14,080
|
|
|
$
|
16,280
|
|
|
|
115.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin %
|
|
|
27.5%
|
|
|
|
13.2%
|
|
|
|
|
|
|
|
|
|
Our Analytics segment revenues increased 3.2% to $110.3 million for the three months ended March 31, 2016
compared to $106.8 million for the three months ended March 31, 2015, primarily driven by higher recurring subscription revenues from our RiskManager, equity models, WealthBench and InvestorForce products, partially offset by lower recurring
subscription revenues from our BarraOne products.
28
Analytics segment Adjusted EBITDA expenses decreased 13.9% to $79.9 million for the three months
ended March 31, 2016 compared to $92.8 million for the three months ended March 31, 2015, primarily driven by lower compensation and benefits costs, reflecting lower staffing levels, a non-cash charge of $3.4 million related to the
termination of a technology project recognized during the three months ended March 31, 2015, as well as lower non-compensation costs. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have
decreased 12.1% for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.
All Other Segment
The following table presents the results for the All Other segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
$
|
23,063
|
|
|
$
|
21,792
|
|
|
$
|
1,271
|
|
|
|
5.8
|
%
|
Non-recurring
|
|
|
889
|
|
|
|
578
|
|
|
|
311
|
|
|
|
53.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues total
|
|
|
23,952
|
|
|
|
22,370
|
|
|
|
1,582
|
|
|
|
7.1
|
%
|
Adjusted EBITDA expenses
|
|
|
21,212
|
|
|
|
21,852
|
|
|
|
(640
|
)
|
|
|
(2.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
2,740
|
|
|
$
|
518
|
|
|
$
|
2,222
|
|
|
|
n/m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin %
|
|
|
11.4%
|
|
|
|
2.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/m: not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other segment revenues increased 7.1% to $24.0 million for the three months ended March 31, 2016
compared to $22.4 million for the three months ended March 31, 2015, primarily driven by higher recurring subscription revenues from ESG products, which grew 20.5%, partially offset by lower recurring subscription revenues from Real Estate
products, which declined 4.1%. Adjusting for the impact of foreign currency exchange rate fluctuations, Real Estate products would have increased 0.9% and the All Other segment would have increased 9.0% for the three months ended March 31, 2016
compared to the three months ended March 31, 2015.
All Other segment Adjusted EBITDA expenses decreased 2.9% to $21.2 million for
the three months ended March 31, 2016 compared to $21.9 million for the three months ended March 31, 2015, primarily driven by lower compensation and benefits costs attributable to Real Estate operations. Adjusting for the impact of
foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 0.6% for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.
Run Rate
At the end of any
period, we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months. We measure the fees related to these agreements and refer to this as Run Rate.
The Run Rate at a particular point in time primarily represents the forward-looking revenues for the next 12 months from then-current subscriptions and investment product licenses we provide to our clients under renewable contracts or agreements
assuming all contracts or agreements that come up for renewal are renewed and assuming then-current currency exchange rates. For any license where fees are linked to an investment products assets or trading volume, the Run Rate calculation
reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and for non-ETF funds, the most recent client reported assets 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 determined that such notice evidences the clients final decision to terminate or not renew the applicable subscription or agreement, even though such notice is not effective
until a later date.
29
Because the Run Rate represents potential future revenues, there is typically a delayed impact on
our operating revenues from changes in our Run Rate. In addition, the actual amount of revenues we will realize over the following 12 months will differ from the Run Rate because of:
|
|
|
fluctuations in revenues associated with new subscriptions and non-recurring sales;
|
|
|
|
modifications, cancellations and non-renewals of existing agreements, subject to specified notice requirements;
|
|
|
|
fluctuations in asset-based fees, which may result from changes in certain investment products total expense ratios, market movements, including foreign currency exchange rates, or from investment inflows into and
outflows from investment products linked to our indexes;
|
|
|
|
fluctuations in fees based on trading volumes of futures and options contracts linked to our indexes;
|
|
|
|
fluctuations in the number of hedge funds for which we provide investment information and risk analysis to hedge fund investors;
|
|
|
|
revenue recognition differences under U.S. GAAP, including those related to the timing of implementation and report deliveries for certain of our products and services;
|
|
|
|
fluctuations in foreign exchange rates; and
|
|
|
|
the impact of acquisitions and dispositions.
|
The following table presents the Run Rates as of
the dates indicated and the growth percentages over the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
December 31,
2015
|
|
|
Year-Over-Year
Comparison
|
|
|
Sequential
Comparison
|
|
|
|
(in thousands)
|
|
|
|
|
Index:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription
|
|
$
|
378,622
|
|
|
$
|
344,452
|
|
|
$
|
368,855
|
|
|
|
9.9
|
%
|
|
|
2.6
|
%
|
Asset-based fees
|
|
|
199,330
|
|
|
|
190,581
|
|
|
|
201,047
|
|
|
|
4.6
|
%
|
|
|
(0.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index total
|
|
|
577,952
|
|
|
|
535,033
|
|
|
|
569,902
|
|
|
|
8.0
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analytics
|
|
|
447,024
|
|
|
|
417,648
|
|
|
|
436,671
|
|
|
|
7.0
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
86,990
|
|
|
|
78,129
|
|
|
|
82,677
|
|
|
|
11.3
|
%
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Run Rate
|
|
$
|
1,111,966
|
|
|
$
|
1,030,810
|
|
|
$
|
1,089,250
|
|
|
|
7.9
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscription total
|
|
$
|
912,636
|
|
|
$
|
840,229
|
|
|
$
|
888,203
|
|
|
|
8.6
|
%
|
|
|
2.8
|
%
|
Asset-based fees total
|
|
|
199,330
|
|
|
|
190,581
|
|
|
|
201,047
|
|
|
|
4.6
|
%
|
|
|
(0.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Run Rate
|
|
$
|
1,111,966
|
|
|
$
|
1,030,810
|
|
|
$
|
1,089,250
|
|
|
|
7.9
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Run Rate grew 7.9% to $1,112.0 million at March 31, 2016 compared to $1,030.8 million at
March 31, 2015. Recurring subscription Run Rate grew 8.6% to $912.6 million at March 31, 2016 compared to $840.2 million at March 31, 2015.
Run Rate from asset-based fees increased 4.6% to $199.3 million at March 31, 2016 from $190.6 million at March 31, 2015, primarily
driven by higher non-ETF passive funds and futures and options contracts, all linked to MSCI indexes. As of March 31, 2016, the value of AUM in ETFs linked to MSCI indexes was $438.3 billion, up $20.3 billion, or 4.9%, from $418.0 billion as of
March 31, 2015. The increase of $20.3 billion consisted of net inflows of $62.6 billion, partially offset by market depreciation of $42.3 billion.
30
Index recurring subscription Run Rate grew 9.9% to $378.6 million at March 31, 2016 compared
to $344.5 million at March 31, 2015 on growth in benchmark and data products.
Run Rate from Analytics products increased 7.0% to
$447.0 million at March 31, 2016 compared to $417.6 million at March 31, 2015, primarily driven by growth in RiskManager, equity models and InvestorForce products. Adjusting for the impact of foreign currency exchange rate fluctuations,
Run Rate for Analytics would have increased 6.2% at March 31, 2016 compared to March 31, 2015.
Run Rate from All Other products
increased 11.3% to $87.0 million at March 31, 2016 compared to $78.1 million at March 31, 2015. The increase was driven by a $7.6 million, or 21.6%, increase in ESG Run Rate and a $1.3 million, or 2.9%, increase in Real Estate Run Rate.
Adjusting for the impact of foreign currency exchange rate fluctuations, at March 31, 2016 Real Estate Run Rate would have increased 3.0% and All Other Run Rate would have increased 11.0% compared to March 31, 2015.
Subscription Sales
The following
table presents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year-Over-
|
|
|
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
December 31,
2015
|
|
|
Year
Comparison
|
|
|
Sequential
Comparison
|
|
|
|
(in thousands)
|
|
|
|
|
New recurring subscription sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
$
|
13,162
|
|
|
$
|
11,550
|
|
|
$
|
13,702
|
|
|
|
14.0
|
%
|
|
|
(3.9
|
%)
|
Analytics
|
|
|
12,358
|
|
|
|
13,510
|
|
|
|
16,481
|
|
|
|
(8.5
|
%)
|
|
|
(25.0
|
%)
|
All Other
|
|
|
5,256
|
|
|
|
4,465
|
|
|
|
4,206
|
|
|
|
17.7
|
%
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New recurring subscription sales total
|
|
|
30,776
|
|
|
|
29,525
|
|
|
|
34,389
|
|
|
|
4.2
|
%
|
|
|
(10.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription cancellations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
(3,410
|
)
|
|
|
(2,384
|
)
|
|
|
(6,147
|
)
|
|
|
43.0
|
%
|
|
|
(44.5
|
%)
|
Analytics
|
|
|
(5,911
|
)
|
|
|
(7,424
|
)
|
|
|
(10,593
|
)
|
|
|
(20.4
|
%)
|
|
|
(44.2
|
%)
|
All Other
|
|
|
(1,616
|
)
|
|
|
(1,842
|
)
|
|
|
(3,183
|
)
|
|
|
(12.3
|
%)
|
|
|
(49.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription cancellations total
|
|
|
(10,937
|
)
|
|
|
(11,650
|
)
|
|
|
(19,923
|
)
|
|
|
(6.1
|
%)
|
|
|
(45.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new recurring subscription sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
9,752
|
|
|
|
9,166
|
|
|
|
7,555
|
|
|
|
6.4
|
%
|
|
|
29.1
|
%
|
Analytics
|
|
|
6,447
|
|
|
|
6,086
|
|
|
|
5,888
|
|
|
|
5.9
|
%
|
|
|
9.5
|
%
|
All Other
|
|
|
3,640
|
|
|
|
2,623
|
|
|
|
1,023
|
|
|
|
38.8
|
%
|
|
|
255.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new recurring subscription sales total
|
|
|
19,839
|
|
|
|
17,875
|
|
|
|
14,466
|
|
|
|
11.0
|
%
|
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
3,542
|
|
|
|
2,329
|
|
|
|
2,779
|
|
|
|
52.1
|
%
|
|
|
27.5
|
%
|
Analytics
|
|
|
1,856
|
|
|
|
1,176
|
|
|
|
2,490
|
|
|
|
57.8
|
%
|
|
|
(25.5
|
%)
|
All Other
|
|
|
1,202
|
|
|
|
910
|
|
|
|
1,592
|
|
|
|
32.1
|
%
|
|
|
(24.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring sales total
|
|
|
6,600
|
|
|
|
4,415
|
|
|
|
6,861
|
|
|
|
49.5
|
%
|
|
|
(3.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Index
|
|
$
|
13,294
|
|
|
$
|
11,495
|
|
|
$
|
10,334
|
|
|
|
15.7
|
%
|
|
|
28.6
|
%
|
Total Analytics
|
|
|
8,303
|
|
|
|
7,262
|
|
|
|
8,378
|
|
|
|
14.3
|
%
|
|
|
(0.9
|
%)
|
Total All Other
|
|
|
4,842
|
|
|
|
3,533
|
|
|
|
2,615
|
|
|
|
37.1
|
%
|
|
|
85.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
26,439
|
|
|
$
|
22,290
|
|
|
$
|
21,327
|
|
|
|
18.6
|
%
|
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Aggregate Retention Rate
The following table presents our Aggregate Retention Rate by reportable segment for the periods indicated:
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2016
|
|
|
|
2015
|
Index
|
|
96.3 %
|
|
|
|
97.2 %
|
Analytics
|
|
94.6 %
|
|
|
|
92.9 %
|
All Other
|
|
92.2 %
|
|
|
|
90.7 %
|
|
|
|
|
Total
|
|
95.1 %
|
|
|
|
94.4 %
|
The Aggregate Retention Rate for a period is calculated by annualizing the cancellations for which we have
received a notice of termination or we believe there is an intention to not renew during the period and we believe that such notice or intention evidences the clients final decision to terminate or not renew the applicable 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 Aggregate Retention Rate for the period. 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.
In our businesses, the Aggregate Retention Rate is generally higher during the first three fiscal quarters and lower in the fourth fiscal
quarter.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Introduction and Basis of Presentation, of the Notes to Consolidated
Financial Statements included in our Form 10-K and also in Note 2, Recent Accounting Standards Updates, in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. There have been no significant changes in
our accounting policies or critical accounting estimates since the end of the fiscal year ended December 31, 2015.
Liquidity and Capital
Resources
We require capital to fund ongoing operations, internal growth initiatives and acquisitions. Our primary sources of
liquidity are cash flows generated from our operations, existing cash and cash equivalents and credit capacity under our existing credit facilities. In addition, we believe we have access to additional funding in the public and private markets. We
intend to use these sources of liquidity to, among other things, service our existing and future debt obligations and fund our working capital requirements, capital expenditures, investments, acquisitions, dividend payments and repurchases of our
common stock. In connection with our business strategy, we regularly evaluate acquisition opportunities. We believe our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our
planned growth.
Senior Notes and Credit Agreement
We have issued an aggregate of $1.6 billion in senior unsecured notes in two discrete private offerings of $800.0 million each. On
November 20, 2014, we completed our first private offering of $800.0 million aggregate principal amount of 5.25% senior unsecured notes due 2024 (the 2024 Senior Notes) and also entered into a $200.0 million senior unsecured
revolving credit agreement (the 2014 Revolving Credit Agreement) by and among the Company, as borrower, certain of MSCIs subsidiaries, as guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
We used the net proceeds from the offering of the 2024 Senior Notes, together with cash on hand, to repay in full our outstanding term loan indebtedness of $794.8 million.
On August 13, 2015, we completed the 2025 Senior Notes offering of $800.0 million aggregate principal amount of 5.75% senior unsecured
notes due 2025 (together with the 2024 Senior Notes, the Senior Notes). The net proceeds from the offering of the 2025 Senior Notes were allocated for general corporate purposes.
The 2024 Senior Notes are scheduled to mature and be paid in full on November 20, 2024. At any time prior to November 15, 2019, we
may redeem all or part of the 2024 Senior Notes upon not less than 30 nor more than 60 days prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the
date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, we may redeem all or part of the 2024 Senior Notes, together with accrued and unpaid interest, on or
after November 15, 2019, at redemption prices set forth in the indenture governing our 2024 Senior Notes. At any time prior to November 15, 2017, we may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate
principal amount of the 2024 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.25% of the principal amount.
32
The 2014 Revolving Credit Agreement replaced the prior senior secured revolving credit facility.
The 2014 Revolving Credit Agreement has an initial term of five years that may be extended twice, at our request, in each case by one additional year.
The 2025 Senior Notes are scheduled to mature and be paid in full on August 15, 2025. At any time prior to August 15, 2020, we may
redeem all or part of the 2025 Senior Notes upon not less than 30 nor more than 60 days prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of
redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, we may redeem all or part of the 2025 Senior Notes, together with accrued and unpaid interest, on or after
August 15, 2020, at redemption prices set forth in the indenture governing our 2025 Senior Notes. At any time prior to August 15, 2018, we may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal
amount of the 2025 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.75% of the principal amount.
Interest payments attributable to the 2024 Senior Notes are due on May 15 and November 15 of each year. The first interest payment
was made on May 15, 2015. Interest payments attributable to the 2025 Senior Notes are due on February 15 and August 15 of each year. The first interest payment was made on February 16, 2016. We paid $23.3 million of interest
attributable to the 2025 Senior Notes during the three months ended March 31, 2016.
The Senior Notes and the 2014 Revolving Credit
Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly-owned domestic subsidiaries that account for more than 5% of our and our subsidiaries consolidated assets, other than certain
excluded subsidiaries (the subsidiary guarantors). Amounts due under the 2014 Revolving Credit Agreement are our and the subsidiary guarantors senior unsecured obligations and rank equally with the Senior Notes and any of our other
unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.
The Indentures governing our Senior Notes (the Indentures) among us, each of the subsidiary guarantors, and Wells Fargo Bank,
National Association, as trustee, contain covenants that limit our and certain of our subsidiaries ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of
our assets. In addition, the Indentures restrict our non-guarantor subsidiaries ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a
pari passu
basis.
The 2014 Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and
the ability of our existing or future subsidiaries to:
|
|
|
incur liens and further negative pledges;
|
|
|
|
incur additional indebtedness or prepay, redeem or repurchase indebtedness;
|
|
|
|
make loans or hold investments;
|
|
|
|
merge, dissolve, liquidate, consolidate with or into another person;
|
|
|
|
enter into acquisition transactions;
|
|
|
|
enter into sale/leaseback transactions;
|
|
|
|
issue disqualified capital stock;
|
|
|
|
sell, transfer or dispose of assets;
|
|
|
|
pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;
|
|
|
|
create new subsidiaries;
|
|
|
|
permit certain restrictions affecting our subsidiaries;
|
|
|
|
change the nature of our business, accounting policies or fiscal periods;
|
|
|
|
enter into any transactions with affiliates other than on an arms-length basis; and
|
|
|
|
amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.
|
The 2014 Revolving Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment,
breach of representations, warranties or covenants, cross-default and cross-acceleration, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the
restrictions above are expected to impact our ability to effectively operate the business.
33
The 2014 Revolving Credit Agreement also requires us and our subsidiaries to achieve financial
and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the 2014 Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the
2014 Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 3.75:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the 2014 Revolving Credit Agreement) measured quarterly on a
rolling four-quarter basis shall be at least 4.00:1.00. As of March 31, 2016, our Consolidated Leverage Ratio was 2.97:1.00 and our Consolidated Interest Coverage Ratio was 7.50:1.00.
Our non-guarantor subsidiaries of the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of
consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of
1986, as amended. Our non-guarantor subsidiaries accounted for approximately $200.4 million, or 18.4%, of our total revenue for the trailing twelve months ended March 31, 2016, approximately $89.9 million, or 21.0%, of our consolidated
operating income for the trailing twelve months ended March 31, 2016, and approximately $406.1 million, or 14.3%, of our consolidated total assets (excluding intercompany assets) and $133.2 million, or 6.0%, of our consolidated total
liabilities, in each case as of March 31, 2016.
Share Repurchases
For the three months ended March 31, 2016, the Company paid $333.3 million to receive approximately 4.9 million shares at an average
purchase price of $68.45 per share under the 2015 Repurchase Program.
Cash Dividend
On April 27, 2016, the Board of Directors declared a cash dividend of $0.22 per share for second quarter 2016. The second quarter 2016
dividend is payable on May 27, 2016 to shareholders of record as of the close of trading on May 13, 2016.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
445,014
|
|
|
$
|
777,706
|
|
Cash and cash equivalents were $445.0 million and $777.7 million as of March 31, 2016 and
December 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, $126.4 million and $128.1 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries, which could be subject to U.S. federal
income taxation on repatriation to the U.S. and some of which could be subject to local country taxes if repatriated to the United States. In addition, repatriation of some foreign cash is further restricted by local laws.
We believe that domestic cash flows from operations, together with existing cash and cash equivalents and funds available under our existing
credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as material
capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect foreign cash flows from operations, together with existing cash and cash equivalents will continue to be
sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter.
Cash Provided by (Used In) Operating, Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Cash provided by operating activities
|
|
$
|
33,030
|
|
|
$
|
66,683
|
|
Cash used in investing activities
|
|
|
(5,520
|
)
|
|
|
(6,320
|
)
|
Cash used in financing activities
|
|
|
(362,309
|
)
|
|
|
(27,136
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
2,107
|
|
|
|
(4,275
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(332,692
|
)
|
|
$
|
28,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Cash Flows From Operating Activities
Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash
provided by operating activities was $33.0 million and $66.7 million for the three months ended March 31, 2016 and 2015, respectively. The year-over-year decrease was primarily driven by the impact of the timing of cash collections and higher
interest payments.
Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent,
technology costs, market data costs, interest expenses and income taxes. The payment of cash for compensation and benefits is historically at its highest level in the first quarter when we pay discretionary employee compensation related to the
previous fiscal year.
Cash Flows From Investing Activities
Cash used in investing activities was $5.5 million and $6.3 million for the three months ended March 31, 2016 and 2015, respectively. The
year-over-year decrease in cash used in investing activities primarily reflects a decrease in capital expenditures.
Cash Flows From
Financing Activities
Cash used in financing activities was $362.3 million and $27.1 million for the three months ended March 31,
2016 and 2015, respectively. The year-over-year increase was substantially driven by higher share repurchases.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.