MSCI Inc. (NYSE:MSCI), a leading provider of portfolio
construction and risk management tools and services for global
investors, today announced results for the three months ended March
31, 2017 (“first quarter 2017”).
Financial and Operational Highlights for First Quarter
2017 (Note: Percentage and other changes refer to first quarter
2016 unless otherwise noted.)
- 8.0% increase in operating revenues
to $301.2 million, up 8.9% to $303.7 million, adjusting for the
impact of foreign currency exchange rate fluctuations.
- Strong revenue generation and a 3.0%
increase in operating expenses (up 4.8% adjusting for the impact of
foreign currency exchange rate fluctuations), drove a 15.4%
increase in operating income, which accompanied by the impact of
share repurchases and a lower effective tax rate, resulted in a
33.3% and 29.4% increase in diluted EPS and adjusted EPS,
respectively.
- 13.0% increase in Index revenue
driven by a 9.1% increase in recurring subscription revenues and
growth of 18.1% in asset-based fees, on a 28.5% increase in average
AUM in ETFs linked to MSCI indexes.
- Record quarter-end AUM of $555.7
billion in ETFs linked to MSCI indexes; increase of 26.8% and 15.4%
compared to first quarter and fourth quarter 2016,
respectively.
- Operating margin increased 280 basis
points to 43.4%; adjusted EBITDA margin increased 220 basis points
to 50.0%.
- Total Aggregate Retention Rate at
94.7%; Index Aggregate Retention Rate at 96.9%.
- 8.6% increase in total Run Rate to
$1,207.1 million; asset-based fee Run Rate up 20.8%; subscription
Run Rate up 5.9%, up 7.0% on organic basis and excluding the impact
of foreign currency exchange rate fluctuations.
- In first quarter 2017 and through
April 28, 2017, a total of 1.1 million shares were repurchased at
an average price of $82.25 per share for a total value of $88.7
million. A total of $0.8 billion remains on the outstanding share
repurchase authorization.
Three Months Ended
Mar. 31, Mar. 31, Dec. 31,
YoY % In thousands, except per share data 2017
2016 2016 Change Operating revenues $ 301,207
$ 278,828 $ 292,812 8.0 % Operating income $ 130,602 $ 113,141 $
126,012 15.4 % Operating margin % 43.4 % 40.6 % 43.0 % Net
income $ 72,951 $ 60,367 $ 68,250 20.8 % Diluted EPS $ 0.80
$ 0.60 $ 0.73 33.3 % Adjusted EPS $ 0.88 $ 0.68 $ 0.81 29.4 %
Adjusted EBITDA $ 150,691 $ 133,149 $ 146,957 13.2 %
Adjusted EBITDA margin % 50.0 % 47.8 % 50.2 %
“In the first quarter, we continued to make great strides in
further integrating the powerful franchise that we have created and
remained focused on providing our clients with mission critical
investment decision support tools,” commented Henry A. Fernandez,
Chairman and CEO of MSCI.
“While we are still in the early stages of this integration
within our client activities, content, and applications and
services, our efforts are beginning to show results, as reflected
in the strong financial performance we reported this quarter across
most metrics. We delivered increases of 33% and 29% in diluted EPS
and adjusted EPS, respectively, driven by an 8% increase in
revenues, a 3% increase in operating expenses, an 8% decrease in
our share count driven by repurchases and a 530 basis point
reduction in our effective tax rate, reflecting in part, accounting
rule changes,” added Mr. Fernandez.
“We believe that further integration of our client activities,
content, and applications and services represent significant
opportunities for growth in the quarters and years ahead,”
concluded Mr. Fernandez.
First Quarter 2017 Consolidated
Results
Revenues: Operating revenues
for first quarter 2017 increased $22.4 million, or 8.0%, to $301.2
million, compared to $278.8 million for the three months ended
March 31, 2016 (“first quarter 2016”). The $22.4 million increase
in revenues was driven by a $12.8 million, or 5.7%, increase in
recurring subscriptions (principally as a result of an $8.5
million, or 9.1%, increase in Index recurring subscriptions), an
$8.8 million, or 18.1%, increase in asset-based fees (driven
primarily by higher revenue from ETFs linked to MSCI indexes), and
a $0.8 million, or 16.9%, increase in non-recurring revenues.
Adjusting for the impact of foreign currency exchange rate
fluctuations, operating revenues (excluding the impact on
asset-based fees) would have increased 8.9% in first quarter
2017.
Run Rate: Total Run
Rate at March 31, 2017 grew by $95.1 million, or 8.6%, to $1,207.1
million, compared to March 31, 2016. The $95.1 million increase was
driven by a $53.6 million, or 5.9%, increase in subscription Run
Rate to $966.3 million, and a $41.5 million, or 20.8%, increase in
asset-based fee Run Rate to $240.8 million. Adjusting for the
impact of foreign currency exchange rate fluctuations and the
divestiture of MSCI’s Real Estate occupiers business, which closed
on August 1, 2016, subscription Run Rate would have increased 7.0%
in first quarter 2017. Recurring subscriptions and asset-based fees
at March 31, 2017 represented 80.0% and 20.0% of total Run Rate,
respectively. Aggregate Retention Rate of 94.7% was down slightly
from 95.1% in the first quarter 2016.
Expenses: Total
operating expenses for first quarter 2017 increased $4.9 million,
or 3.0%, from first quarter 2016 to $170.6 million, driven by a
$2.3 million, or 2.2%, increase in compensation and benefits
expenses (primarily higher wages and salaries) and a $2.5 million,
or 6.4%, increase in non-compensation expenses (higher information
technology, professional fees and marketing costs). From an
activities perspective, higher operating expenses were primarily
driven by an increase in cost of revenues, as well as an increase
in selling and marketing, partially offset by lower general and
administrative expenses. Adjusted EBITDA expenses, defined as
operating expenses less depreciation and amortization, increased
$4.8 million, or 3.3%, from first quarter 2016 to $150.5 million.
Adjusting for the impact of foreign currency exchange rate
fluctuations, total operating expenses and adjusted EBITDA expenses
for first quarter 2017 would have increased 4.8% and 5.3%,
respectively, compared to first quarter 2016. Operating margin for
first quarter 2017 was 43.4%, compared to 40.6% for first quarter
2016.
Headcount: As of
March 31, 2017, there were 2,897 employees, up 5.5% from 2,746 as
of March 31, 2016, and up 1.2% from 2,862 at the end of fourth
quarter 2016. As of March 31, 2017, a total of 44% and 56% of
employees were located in developed market and emerging market
centers, respectively, compared to 47% in developed market centers
and 53% in emerging market centers as of March 31, 2016.
Amortization and Depreciation
Expenses: Amortization and depreciation expenses
increased $0.1 million, or 0.4%, for first quarter 2017, compared
to the same period of the prior year, driven by a $0.7 million, or
8.2%, increase in depreciation expense, partially offset by lower
amortization expense which declined $0.6 million, or 5.0%.
Other Expense (Income),
Net: Other expense (income), net increased $6.6
million, or 29.6%, for first quarter 2017, compared to first
quarter 2016. The increase was driven by higher interest expense
resulting from the August 2016 private offering of $500.0 million
aggregate principal amount of 4.75% senior notes due 2026 (the
“4.75% senior notes”).
Tax Rate: The
effective tax rate was 28.2% for first quarter 2017, compared to
33.5% for first quarter 2016. The lower effective tax rate compared
to first quarter 2016 was driven by the positive impact of
stock-based compensation excess tax benefits (the “windfall
benefit”), the ongoing efforts to better align our tax profile with
our global operating footprint and other discrete items. The
positive impact of the windfall benefit totaled $3.1 million in the
quarter and reflects a required accounting change to income tax
expense, effective in first quarter 2017 on a prospective basis.
Previously, such discrete tax benefits were recorded directly to
the Company’s Consolidated Statement of Financial Condition and did
not impact the “provision for income taxes” on the Company’s
Consolidated Statement of Income. The impact of this accounting
change will be most significant in the first quarter of each year
when most stock-based compensation awards traditionally vest.
Net Income: Net
income increased 20.8% to $73.0 million, from $60.4 million in
first quarter 2016.
Adjusted EBITDA:
Adjusted EBITDA, defined as net income before provision for income
taxes, other expense (income), net, depreciation and amortization,
was $150.7 million in first quarter 2017, up $17.5 million, or
13.2%, from first quarter 2016. Adjusted EBITDA margin in first
quarter 2017 was 50.0%, compared to 47.8% in first quarter
2016.
Cash Balances & Outstanding
Debt: Total cash and cash equivalents as of March
31, 2017 was $697.0 million, of which $249.5 million was held
outside of the United States. MSCI seeks to maintain minimum cash
balances in the United States of approximately $125.0 million to
$150.0 million for general operating purposes. Total outstanding
debt as of March 31, 2017 was $2,100.0 million, which excludes
deferred financing fees of $24.1 million. Net debt, defined as
total outstanding debt less cash and cash equivalents, was $1,403.0
million at March 31, 2017. The total debt to operating income ratio
(based on trailing twelve months operating income) was 4.2x. The
total debt to adjusted EBITDA ratio (based on trailing twelve
months adjusted EBITDA) was 3.6x, which is higher than the stated
MSCI financial policy of maintaining gross leverage within the
range of 3.0x to 3.5x. The increase in gross leverage above the
stated range was due to the August 2016 private offering of the
4.75% senior notes. MSCI’s intention is to return to within the
stated range.
Cash Flow &
Capex: Net cash provided by operating activities
was $37.0 million in first quarter 2017, compared to $36.9 million
in first quarter 2016 and $138.9 million in fourth quarter 2016.
Capex for first quarter 2017 was $9.6 million, compared to $5.5
million in first quarter 2016 and $10.5 million in fourth quarter
2016. Free cash flow was $27.4 million in first quarter 2017,
compared to $31.4 million in first quarter 2016 and $128.3 million
in fourth quarter 2016. The decline in net cash provided by
operating activities and free cash flow, compared to fourth quarter
2016 was driven by higher cash expenses (primarily the impact of
the annual cash incentive paid in the first quarter) and higher
scheduled interest payments, partially offset by lower income tax
payments and higher collections. Both the year-over-year and
quarter-over-quarter comparisons for both net cash provided by
operating activities and free cash flow were impacted by
approximately $20 million in customer collections in fourth quarter
2016 that would normally have been collected in first quarter
2017.
Share Count & Capital
Return: The weighted average diluted shares
outstanding in first quarter 2017 declined 8.4% to 91.6 million,
compared to 100.0 million in first quarter 2016. The lower share
count, driven by buybacks under the share repurchase program,
increased diluted and adjusted earnings per share by $0.07 each, in
first quarter 2017, compared to first quarter 2016. In first
quarter 2017 and through April 28, 2017, MSCI repurchased 1.1
million shares at an average price of $82.25 per share for a total
value of $88.7 million. A total of $0.8 billion remains on the
outstanding share repurchase authorization as of April 28, 2017.
Total shares outstanding as of March 31, 2017 was 90.5 million.
On May 2, 2017, the Board of Directors of MSCI declared a cash
dividend of $0.28 per share for second quarter 2017. The second
quarter 2017 dividend is payable on May 31, 2017 to shareholders of
record as of the close of trading on May 19, 2017.
Table 1: First Quarter 2017 Results by Segment
(unaudited)
Index Analytics All
Other Adjusted
Adjusted Adjusted Operating
Adjusted EBITDA Operating Adjusted
EBITDA Operating Adjusted EBITDA In
thousands Revenues EBITDA Margin
Revenues EBITDA Margin Revenues
EBITDA Margin Q1'17 $ 163,435 $ 115,637 70.8 % $
112,420 $ 29,536 26.3 % $ 25,352 $ 5,518 21.8 % Q1'16 $ 144,613 $
100,049 69.2 % $ 110,263 $ 30,360 27.5 % $ 23,952 $ 2,740 11.4 % %
change
13.0
%
15.6 % 2.0
%
(2.7 %) 5.8 % 101.4 % Q4'16 $ 159,070 $ 113,161 71.1 % $
114,406 $ 33,344 29.1 % $ 19,336 $ 452 2.3 % % change 2.7 %
2.2 % (1.7 %)
(11.4 %) 31.1 % n/m
n/m: not meaningful.
Index Segment:
Operating revenues for first quarter 2017 increased $18.8 million,
or 13.0%, to $163.4 million, compared to $144.6 million for first
quarter 2016. The $18.8 million increase was driven by an $8.8
million, or 18.1%, increase in asset-based fees, an $8.5 million,
or 9.1%, increase in recurring subscriptions, and a $1.5 million,
or 65.2%, increase in non-recurring revenues. The $8.5 million
increase in recurring subscriptions was driven by strong growth in
core products, growth in newer products, including factor, thematic
and custom index products, as well as higher usage fees. The impact
from foreign currency exchange rate fluctuations on Index revenues
(excluding the impact on asset-based fees) in first quarter 2017
was not significant.
The $8.8 million increase in asset-based fees was driven by
several items, including a $6.8 million, or 20.5%, increase in
revenue from ETFs linked to MSCI indexes, resulting from a 28.5%
increase in average AUM, partially offset by the impact of a change
in the product mix as a result of our differentiated licensing
strategy, as well as a $1.7 million, or 12.9%, increase in revenue
from non-ETF passive funds. In addition, revenues from futures and
options contracts based on MSCI indexes grew $0.3 million, or
12.4%, driven by a 22.8% increase in total trading volumes. The
adjusted EBITDA margin for Index was 70.8% for first quarter 2017,
compared to 69.2% for first quarter 2016.
Index Run Rate at March 31, 2017 grew by $80.6 million, or
14.0%, to $658.6 million, compared to March 31, 2016. The $80.6
million increase was driven by a $41.5 million, or 20.8%, increase
in asset-based fee Run Rate, and a $39.1 million, or 10.3%,
increase in subscription Run Rate. The 10.3% increase in Index
subscription Run Rate was driven by an increase in core products,
growth in newer products, including factor, thematic and custom
index products, and higher usage fees. There was a negligible
impact from foreign currency exchange rate fluctuations on Index
recurring subscription Run Rate in first quarter 2017.
Analytics Segment:
Operating revenues for first quarter 2017 increased $2.2 million,
or 2.0%, to $112.4 million, compared to $110.3 million in first
quarter 2016. The increase was primarily driven by higher revenues
from equity models, which was the result of the increasing use of
factors by clients to explain performance. Adjusting for the impact
of foreign currency exchange rate fluctuations, Analytics operating
revenues would have increased 3.3%. The adjusted EBITDA margin for
Analytics was 26.3% for first quarter 2017, compared to 27.5% for
first quarter 2016.
Analytics Run Rate at March 31, 2017 grew by $10.2 million, or
2.3%, to $457.2 million, compared to March 31, 2016, primarily
driven by growth in sales of equity models. Adjusting for the
impact of foreign currency exchange rate fluctuations, Analytics
Run Rate at March 31, 2017 would have increased 3.1% compared to
March 31, 2016.
All Other Segment:
Operating revenues for first quarter 2017 increased $1.4 million,
or 5.8%, to $25.4 million, compared to $24.0 million in first
quarter 2016. The increase in All Other revenues compared to the
prior year quarter was driven by a $1.8 million, or 17.0%, increase
in ESG revenues to $12.6 million, partially offset by a $0.4
million, or 3.2%, decrease in Real Estate revenues to $12.8
million. The increase in ESG revenues was driven by higher ESG
Ratings product revenues and the decrease in Real Estate revenues
was driven by the inclusion of the Real Estate occupiers business
in the prior period and the negative impact of foreign currency
exchange rate fluctuations which more than offset an increase in
Real Estate Market Information product revenues. Adjusting for the
impact of foreign currency exchange rate fluctuations and the
divestiture of the Real Estate occupiers business, first quarter
2017 Real Estate revenues would have increased 7.6% and All Other
operating revenues would have increased 11.9%. The adjusted EBITDA
margin for All Other was 21.8% for first quarter 2017, compared to
11.4% in first quarter 2016. The significant increase in All Other
adjusted EBITDA margin was driven by higher ESG revenue and lower
Real Estate costs as a result of the ongoing reorganization of the
Real Estate product line.
All Other Run Rate at March 31, 2017 grew by $4.2 million, or
4.9%, to $91.2 million, compared to March 31, 2016. The $4.2
million increase was primarily driven by an $8.6 million, or 20.1%,
increase in ESG Run Rate to $51.6 million, partially offset by a
$4.4 million, or 9.9%, decrease in Real Estate Run Rate to $39.7
million. The increase in ESG Run Rate was primarily driven by
higher sales of the ESG Ratings product. Adjusting for the impact
of foreign currency exchange rate fluctuations and the divestiture
of the Real Estate occupiers business, Real Estate and All Other
Run Rate at March 31, 2017 would have increased 2.8% and 12.8%,
respectively, compared to March 31, 2016.
Full-Year 2017 Guidance
MSCI’s guidance for full-year 2017 remains as follows:
- Total operating expenses are expected
to be in the range of $690 million to $705 million and adjusted
EBITDA expenses are expected to be in the range of $605 million to
$620 million.
- Interest expense, including the
amortization of financing fees, is expected to be approximately
$116 million, assuming no additional financings.
- Capex is expected to be in the range of
$40 million to $50 million.
- Net cash provided by operating
activities and free cash flow is expected to be in the range of
$360 million to $410 million and $310 million to $370 million,
respectively.
- The effective tax rate is expected to
be in the range of 31.5% to 32.5%, inclusive of the accounting
change related to the windfall benefit described above.
Conference Call Information
MSCI's senior management will review first quarter 2017 results
on Thursday, May 4, 2017 at 11:00 AM Eastern Time. To listen to the
live event, visit the events and presentations section of MSCI's
investor relations homepage, http://ir.msci.com/events.cfm, or dial
1-877-312-9206 within the United States. International callers dial
1-408-774-4001. This earnings release and the related investor
presentation used during the conference call will be made available
on MSCI's investor relations homepage.
An audio recording of the conference call will be available on
our investor relations website, http://ir.msci.com/events.cfm,
beginning approximately two hours after the conclusion of the live
event. Through May 6, 2017, the recording will also be
available by dialing 1-800-585-8367 passcode: 99719972
within the United States or 1-404-537-3406 passcode:
99719972 for international callers. A replay of the conference call
will be archived in the events and presentations section of MSCI's
investor relations website for 12 months after the call.
-Ends-
About MSCI
For more than 45 years, MSCI's research-based indexes and
analytics have helped the world’s leading investors build and
manage better portfolios. Clients rely on our offerings for deeper
insights into the drivers of performance and risk in their
portfolios, broad asset class coverage and innovative research.
Our line of products and services includes indexes, analytical
models, data, real estate benchmarks and ESG research.
MSCI serves 97 of the top 100 largest money managers, according
to the most recent P&I ranking.
For more information, visit us at www.msci.com. MSCI#IR
Forward-Looking Statements
This earnings release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including without limitation, our full-year 2017 guidance.
These forward-looking 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 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 our 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, 2016 filed with the Securities and Exchange Commission
(“SEC”) on February 24, 2017 and in quarterly reports on Form 10-Q
and current reports on Form 8-K filed or furnished 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 MSCI projected. Any forward-looking
statement in this earnings release reflects MSCI’s current views
with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to MSCI’s operations,
results of operations, growth strategy and liquidity. MSCI assumes
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, except as required by law.
Website and Social Media Disclosure
MSCI uses its website and corporate Twitter account (@MSCI_Inc)
as channels of distribution of company information. The information
we post through these channels may be deemed material. Accordingly,
investors should monitor these channels, in addition to following
our press releases, SEC filings and public conference calls and
webcasts. In addition, you may automatically receive email alerts
and other information about MSCI when you enroll your email address
by visiting the “Email Alerts Subscription” section of MSCI’s
Investor Relations homepage at http://ir.msci.com/alerts.cfm. The
contents of MSCI’s website and social media channels are not,
however, incorporated by reference into this earnings release.
Notes Regarding the Use of Operating Metrics
MSCI has presented supplemental key operating metrics as part of
this earnings release, including Run Rate, subscription sales and
cancellations, non-recurring sales and Aggregate Retention
Rate.
The Aggregate Retention Rate for a period is calculated by
annualizing the cancellations for which we have received a notice
of termination or for which we believe there is an intention not to
renew during the period, and we believe that such notice or
intention evidences the client’s 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.
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 product’s 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 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.
Organic subscription Run Rate or revenue growth ex FX is defined
as the period over period Run Rate or revenue growth, excluding the
impact of changes in foreign currency and the first year impact of
any acquisitions. It is also adjusted for divestitures. Changes in
foreign currency are calculated by applying the end of period
currency exchange rate from the comparable prior period to current
period foreign currency denominated Run Rate or revenue. This
metric also excludes the impact on the growth in subscription Run
Rate or revenue of the acquisitions of IPD, InvestorForce, and GMI
for their respective first year of operations as part of MSCI, as
well as the divestiture of MSCI’s Real Estate occupiers
benchmarking business which closed on August 1, 2016.
Notes Regarding the Use of Non-GAAP Financial
Measures
MSCI has presented supplemental non-GAAP financial measures as
part of this earnings release. Reconciliations are provided in
Tables 9 – 12 below that reconcile each non-GAAP financial measure
with the most comparable GAAP measure. The non-GAAP financial
measures presented in this earnings release should not be
considered as alternative measures for the most directly comparable
GAAP financial measures. The non-GAAP financial measures presented
in this earnings release 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 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” is defined as operating expenses less
depreciation and amortization of property, equipment and leasehold
improvements and amortization of intangible assets.
“Adjusted net income” and “adjusted EPS” are defined as net
income and diluted EPS, respectively, before the after-tax impact
of the amortization of acquired intangible assets and, at times,
certain other transactions or adjustments. For periods prior to
first quarter 2017, the amortization associated with capitalized
software development costs was included as an adjustment to
adjusted net income and adjusted EPS as it was not material.
“Capex” is defined as capital expenditures plus capitalized
software development costs.
“Free cash flow” is defined as net cash provided by operating
activities, less Capex.
We believe adjusted EBITDA and adjusted EBITDA expenses are
meaningful measures of the operating performance of MSCI because
they adjust for significant one-time, unusual or non-recurring
items as well as eliminate the accounting effects of capital
spending and acquisitions that do not directly affect what
management considers to be our core operating performance in the
period.
We believe adjusted net income and adjusted EPS are meaningful
measures of the performance of MSCI because they adjust for the
after-tax impact of significant one-time, unusual or non-recurring
items as well as eliminate the accounting effects of acquisitions
that do not directly affect what management considers to be our
core performance in the period.
We believe that free cash flow is useful to investors because it
relates the operating cash flow of MSCI to the capital that is
spent to continue and improve business operations, such as
investment in MSCI’s existing products. Further, free cash flow
indicates our ability to strengthen MSCI’s balance sheet, repay our
debt obligations, pay cash dividends and repurchase shares of our
common stock.
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 expenses, adjusted EBITDA, adjusted net income,
adjusted EPS and free cash flow are not defined in the same manner
by all companies and may not be comparable to similarly-titled
non-GAAP financial measures of other companies.
Notes Regarding Adjusting for the Impact of Foreign Currency
Exchange Rate Fluctuations
Foreign currency exchange rate fluctuations are calculated to be
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.
Table 2: Condensed Consolidated Statements of Income
(unaudited)
Three Months Ended
Mar. 31, Mar. 31, Dec. 31,
YoY % In thousands, except per share data 2017
2016 2016 Change Operating revenues $ 301,207
$ 278,828 $ 292,812 8.0 % Operating expenses: Cost of revenues
67,521 63,172 63,819 6.9 % Selling and marketing 43,014 41,689
41,609 3.2 % Research and development 18,977 18,928 18,960 0.3 %
General and administrative 21,004 21,890 21,467 (4.0 %)
Amortization of intangible assets 11,251 11,840 11,498 (5.0 %)
Depreciation and amortization of property, equipment and leasehold
improvements 8,838 8,168 9,447 8.2 % Total
operating expenses(1) 170,605 165,687 166,800
3.0 % Operating income 130,602 113,141 126,012 15.4 %
Interest income
(932
)
(621 ) (901 ) 50.1 % Interest expense 29,024 22,904 29,039 26.7 %
Other expense (income) 885 81 779 992.6 %
Other expenses (income), net 28,977 22,364
28,917 29.6 %
Income before provision for income
taxes
101,625 90,777 97,095 12.0 % Provision for income taxes
28,674 30,410 28,845 (5.7 %) Net income $
72,951 $ 60,367 $ 68,250 20.8 %
Earnings per basic common share $ 0.80 $ 0.61 $ 0.73
31.1 % Earnings
per diluted common share $ 0.80 $ 0.60 $ 0.73 33.3 %
Weighted average shares outstanding used in computing earnings per
share: Basic 90,708 99,425 93,327 (8.8
%) Diluted 91,624 99,998 93,845 (8.4 %)
(1)
Includes stock-based compensation expense
of $9.6 million, $7.2 million and $8.5 million for the three months
ended Mar. 31, 2017, Mar. 31, 2016 and Dec. 31, 2016,
respectively.
Table 3: Selected Balance Sheet Items (unaudited)
As of Mar. 31, Dec.
31, In thousands 2017 2016 Cash and cash
equivalents $696,972 $791,834 Accounts receivable, net of
allowances $262,289 $221,504 Deferred revenue $378,422
$334,358 Long-term debt(1) $2,075,924 $2,075,201
(1)
Consists of gross long-term debt, net of
deferred financing fees. Gross long-term debt at both Mar. 31, 2017
and Dec. 31, 2016 was $2.1 billion.
Table 4: Selected Cash Flow Items (unaudited)
Three Months Ended
Mar. 31, Mar. 31, Dec. 31,
YoY % In thousands 2017 2016(1)
2016(1) Change Cash provided by operating activities
$ 37,015 $ 36,887 $ 138,853 0.3 % Cash used in investing activities
(9,629 ) (5,520 ) (10,535 ) 74.4 % Cash used in financing
activities (125,226 ) (366,166 ) (301,141 ) (65.8 %) Effect of
exchange rate changes 2,978 2,107 (9,405 )
41.3 %
Net increase (decrease) in cash and cash equivalents
$ (94,862 ) $ (332,692 )
$ (182,228 ) (71.5 %)
(1) Excess tax benefits related to share-based
compensation are now included in operating cash flows rather than
financing cash flows in accordance with the adoption of recent
accounting guidance. This change has been applied retrospectively
and resulted in increases of $3.9 million and $1.1 million in net
cash provided by operating activities for first quarter 2016 and
fourth quarter 2016, respectively, with a matching decrease in net
cash used in financing activities in those same periods.
Table 5: Operating Results by Segment and Revenue Type
(unaudited)
Index Three Months
Ended Mar. 31, Mar. 31, Dec.
31, YoY % In thousands 2017 2016
2016 Change Operating revenues: Recurring
subscriptions $ 102,178 $ 93,645 $ 99,939 9.1 % Asset-based fees
57,508 48,699 55,774 18.1 % Non-recurring 3,749 2,269
3,357 65.2 % Total operating revenues 163,435 144,613
159,070 13.0 % Adjusted EBITDA expenses 47,798 44,564
45,909 7.3 % Adjusted EBITDA $ 115,637 $ 100,049 $ 113,161
15.6 % Adjusted EBITDA margin % 70.8 % 69.2 % 71.1 %
Analytics Three Months Ended Mar. 31, Mar.
31, Dec. 31, YoY % In thousands
2017 2016 2016 Change Operating
revenues: Recurring subscriptions $ 111,269 $ 108,630 $ 111,228 2.4
% Non-recurring 1,151 1,633 3,178 (29.5 %)
Total operating revenues 112,420 110,263 114,406 2.0 % Adjusted
EBITDA expenses 82,884 79,903 81,062 3.7 %
Adjusted EBITDA $ 29,536 $ 30,360 $ 33,344 (2.7 %) Adjusted EBITDA
margin % 26.3 % 27.5 % 29.1 %
All Other Three
Months Ended Mar. 31, Mar. 31, Dec. 31,
YoY % In thousands 2017 2016
2016 Change Operating revenues: Recurring
subscriptions $ 24,652 $ 23,063 $ 17,924 6.9 % Non-recurring
700 889 1,412 (21.3 %) Total operating revenues
25,352 23,952 19,336 5.8 % Adjusted EBITDA expenses 19,834
21,212 18,884 (6.5 %) Adjusted EBITDA $ 5,518 $ 2,740
$ 452 101.4 % Adjusted EBITDA margin % 21.8 % 11.4 % 2.3 %
Consolidated Three Months Ended Mar. 31,
Mar. 31, Dec. 31, YoY % In thousands
2017 2016 2016 Change Operating
revenues: Recurring subscriptions $ 238,099 $ 225,338 $ 229,091 5.7
% Asset-based fees 57,508 48,699 55,774 18.1 % Non-recurring
5,600 4,791 7,947 16.9 % Operating revenues total
301,207 278,828 292,812 8.0 % Adjusted EBITDA expenses
150,516 145,679 145,855 3.3 % Adjusted EBITDA $
150,691 $ 133,149 $ 146,957 13.2 % Adjusted EBITDA margin % 50.0 %
47.8 % 50.2 % Operating margin % 43.4 % 40.6 % 43.0 %
Table 6: Sales and Aggregate Retention Rate by Segment
(unaudited)
Three Months Ended Mar. 31,
Dec. 31, Sep. 30, Jun.
30, Mar. 31, In thousands 2017
2016 2016 2016 2016 Index New
recurring subscription sales $ 14,193 $ 17,220 $ 11,758 $ 13,139 $
13,162 Subscription cancellations (3,165 ) (6,071 )
(3,840 ) (4,096 ) (3,410 ) Net new recurring
subscription sales $ 11,028 $ 11,149 $ 7,918 $ 9,043 $ 9,752
Non-recurring sales $ 4,374 $ 3,461 $ 5,468 $ 5,379 $ 3,542 Total
gross sales(1) $ 18,567 $ 20,681 $ 17,226 $ 18,518 $ 16,704 Total
Index net sales $ 15,402 $ 14,610 $ 13,386 $ 14,422 $ 13,294
Index Aggregate Retention Rate(2) 96.9 % 93.4 % 95.8 % 95.6 % 96.3
%
Analytics New recurring subscription sales $ 11,874
$ 18,617 $ 13,131 $ 11,149 $ 12,358 Subscription cancellations
(7,611 ) (13,749 ) (10,530 ) (9,015 )
(5,911 ) Net new recurring subscription sales $ 4,263 $
4,868 $ 2,601 $ 2,134 $ 6,447 Non-recurring sales $ 2,163 $ 3,215 $
2,330 $ 1,429 $ 1,856 Total gross sales(1) $ 14,037 $ 21,832 $
15,461 $ 12,578 $ 14,214 Total Analytics net sales $ 6,426 $ 8,083
$ 4,931 $ 3,563 $ 8,303 Analytics Aggregate Retention
Rate(2) 93.3 % 87.4 % 90.4 % 91.7 % 94.6 %
All Other
New recurring subscription sales $ 4,121 $ 6,364 $ 3,877 $ 4,481 $
5,256 Subscription cancellations (1,683 ) (2,526 )
(1,903 ) (2,243 ) (1,616 ) Net new recurring
subscription sales $ 2,438 $ 3,838 $ 1,974 $ 2,238 $ 3,640
Non-recurring sales $ 609 $ 1,139 $ 774 $ 1,132 $ 1,202 Total gross
sales(1) $ 4,730 $ 7,503 $ 4,651 $ 5,613 $ 6,458 Total All Other
net sales $ 3,047 $ 4,977 $ 2,748 $ 3,370 $ 4,842 All Other
Aggregate Retention Rate(2) 92.4 % 87.8 % 90.8 % 89.2 % 92.2 %
Consolidated New recurring subscription sales $
30,188 $ 42,201 $ 28,766 $ 28,769 $ 30,776 Subscription
cancellations (12,459 ) (22,346 ) (16,273 )
(15,354 ) (10,937 ) Net new recurring subscription
sales $ 17,729 $ 19,855 $ 12,493 $ 13,415 $ 19,839 Non-recurring
sales $ 7,146 $ 7,815 $ 8,572 $ 7,940 $ 6,600 Total gross sales(1)
$ 37,334 $ 50,016 $ 37,338 $ 36,709 $ 37,376 Total net sales $
24,875 $ 27,670 $ 21,065 $ 21,355 $ 26,439 Total Aggregate
Retention Rate(2) 94.7 % 89.9 % 92.7 % 93.1 % 95.1 %
(1)
Total gross sales equal recurring subscription sales plus
non-recurring sales. (2) See "Notes Regarding the Use of Operating
Metrics" for details regarding the definition of Aggregate
Retention Rate.
Table 7: ETF Assets Linked to MSCI Indexes
(unaudited)(1)
Three Months Ended Mar. 31,
Dec. 31, Sep. 30,
Jun. 30, Mar. 31, In billions
2017 2016 2016 2016 2016
Beginning Period AUM in ETFs linked to MSCI indexes $ 481.4 $ 474.9
$ 439.7 $ 438.3 $ 433.4 Market Appreciation/(Depreciation) 35.8
(8.7 ) 23.7 (2.5 ) (1.7 ) Cash Inflows 38.5 15.2 11.5 3.9 6.6
Period-End AUM in ETFs linked to
MSCI indexes $ 555.7 $ 481.4 $
474.9 $ 439.7 $ 438.3 Period Average AUM in ETFs linked to
MSCI indexes $ 524.1 $ 471.1 $ 467.3 $ 438.8 $ 407.9 Avg.
Basis Point Fee(2) 3.08 3.10 3.11 3.12 3.24
Source: Bloomberg and MSCI
(1)
ETF assets under management calculation
methodology is ETF net asset value multiplied by shares
outstanding.
(2)
Based on period-end Run Rate for ETF’s
linked to MSCI indexes using period-end AUM.
AUM: Assets under management.
Table 8: Run Rate by Segment and Type (unaudited)(1)
As of Mar.
31, Mar. 31, Dec. 31,
YoY % In thousands 2017 2016
2016 Change Index Recurring subscriptions $
417,765 $ 378,622 $ 406,729 10.3 % Asset-based fees 240,834
199,330 216,982 20.8 %
Index Run Rate
658,599 577,952 623,711 14.0 %
Analytics
Run Rate 457,249 447,024 451,533 2.3 %
All Other Run Rate 91,239 86,990
88,074 4.9 %
Total Run Rate $ 1,207,087
$ 1,111,966 $ 1,163,318 8.6
% Total recurring subscriptions $ 966,253 $ 912,636 $
946,336 5.9 % Total asset-based fees 240,834 199,330
216,982 20.8 %
Total Run Rate $
1,207,087 $ 1,111,966 $
1,163,318 8.6 % (1)
See "Notes Regarding the Use of Operating
Metrics" for details regarding the definition of Run Rate.
Table 9: Reconciliation of Adjusted EBITDA to Net Income
(unaudited)
Three Months Ended Mar. 31,
Mar. 31, Dec. 31, In
thousands 2017 2016 2016 Index adjusted
EBITDA $ 115,637 $ 100,049 $ 113,161 Analytics adjusted EBITDA
29,536 30,360 33,344 All Other adjusted EBITDA 5,518
2,740 452
Consolidated adjusted EBITDA
150,691 133,149 146,957
Amortization of intangible assets 11,251 11,840 11,498 Depreciation
and amortization of property, equipment and leasehold improvements
8,838 8,168 9,447
Operating income
130,602 113,141 126,012 Other expense
(income), net 28,977 22,364 28,917 Provision for income taxes
28,674 30,410 28,845
Net income
$ 72,951 $ 60,367 $
68,250
Table 10: Reconciliation of Adjusted Net Income and Adjusted
EPS to Net Income and EPS (unaudited)
Three Months Ended Mar. 31,
Mar. 31, Dec. 31, In thousands,
except per share data 2017 2016 2016 Net
income $ 72,951 $ 60,367 $ 68,250 Plus: Amortization of acquired
intangible assets 10,530 11,840 11,498 Less: Income tax effect
(2,972 ) (3,966 ) (3,403 )
Adjusted net
income $ 80,509 $ 68,241 $
76,345 Diluted EPS $ 0.80 $ 0.60 $ 0.73 Plus:
Amortization of acquired intangible assets 0.11 0.12 0.12 Less:
Income tax effect (0.03 ) (0.04 ) (0.04 )
Adjusted EPS $ 0.88 $ 0.68
$ 0.81
Table 11: Reconciliation of Adjusted EBITDA Expenses to
Operating Expenses (unaudited)
Three Months Ended
Full-Year Mar. 31, Mar. 31,
Dec. 31, 2017 In thousands
2017 2016 2016 Outlook(1) Index
adjusted EBITDA expenses $ 47,798 $ 44,564 $ 45,909 Analytics
adjusted EBITDA expenses 82,884 79,903 81,062 All Other adjusted
EBITDA expenses 19,834 21,212 18,884
Consolidated adjusted EBITDA expenses 150,516
145,679 145,855 $605,000 -
$620,000 Amortization of intangible assets 11,251 11,840 11,498
Depreciation and amortization of property, 85,000 equipment and
leasehold improvements 8,838 8,168 9,447
Total operating expenses $ 170,605
$ 165,687 $ 166,800 $690,000 -
$705,000
(1) We have not provided a line-item
reconciliation for adjusted EBITDA expenses to total operating
expenses for this future period because we do not provide guidance
on the individual reconciling items between total operating
expenses and adjusted EBITDA expenses.
Table 12: Reconciliation of Free Cash Flow to Net Cash
Provided by Operating Activities (unaudited)
Three Months Ended
Full-Year Mar. 31, Mar. 31,
Dec. 31, 2017 In thousands 2017
2016 2016 Outlook(1) Net cash provided by
operating activities $ 37,015 $ 36,887 $ 138,853 $360,000 -
$410,000 Capital expenditures (7,322 ) (3,135 ) (8,140 )
Capitalized software development costs (2,307 )
(2,325 ) (2,395 ) Capex (9,629 ) (5,460
) (10,535 ) (50,000 - 40,000)
Free cash flow $
27,386 $ 31,427 $ 128,318
$310,000 - $370,000 (1) We have not provided a
line-item reconciliation for free cash flow to net cash from
operating activities for this future period because we do not
provide guidance on the individual reconciling items between net
cash from operating activities and free cash flow.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170504005687/en/
MSCI Inc.InvestorsNew YorkStephen Davidson,
+ 1 212-981-1090stephen.davidson@msci.comorMediaKristin
Meza, + 1 212-804-5330kristin.meza@msci.com
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