MSCI Inc. (NYSE:MSCI), a leading provider of indexes and
portfolio construction and risk management tools and services for
global investors, today announced results for the three months
ended March 31, 2018 (“first quarter 2018”).
Financial and Operational Highlights for First Quarter
2018(Notes: Percentage and other changes refer to first quarter
2017 unless otherwise noted. References to “ex-FX” reflect amounts
that have been adjusted for the impact from foreign currency
exchange rate fluctuations.)
- 16.6% increase in operating revenues
to $351.3 million.
- 23.5% increase in Index revenues
driven by a 48.6% increase in asset-based fees and a 10.8% increase
in recurring subscription revenues.
- Record increases in diluted EPS and
adjusted EPS, up 55.0% and 48.9%, respectively, on strong operating
results.
- Record quarter-end AUM of $764.9
billion in ETFs linked to MSCI indexes, driven by $32.3 billion of
cash inflows into investment products linked to MSCI indexes, or
nearly 30.0% of total global cash inflows into equity ETFs. AUM of
$777.3 billion in ETFs linked to MSCI indexes as of May 1,
2018.
- 16.2% increase in total Run Rate to
$1,403.1 million, driven by a 38.0% increase in asset-based fees
Run Rate and a 10.8% increase in subscription Run Rate. Index Run
Rate growth of 20.6% and Analytics Run Rate growth of
8.2%.
- Continued strong retention –
Aggregate Retention Rate of approximately 94.6%.
- Successfully executed the
divestiture of Financial Engineering Associates, Inc. (“FEA”) on
April 9, 2018, which provided a non-core product serving energy and
commodity companies.
- During first quarter 2018 and
through May 2, 2018, a total of 1.4 million shares were repurchased
at an average price of $145.27 per share for a total value of
$210.0 million.
- On May 1, 2018, the Board of
Directors of MSCI (the “Board”) authorized an additional $1.0
billion repurchase of shares.
Three Months Ended Mar. 31,
Mar. 31, Dec. 31,
YoY % In thousands, except per share data 2018
2017 2017 Change Operating revenues $ 351,316
$ 301,207 $ 334,779 16.6 % Operating income $ 167,166 $
130,732 $ 154,139 27.9 % Operating margin % 47.6 % 43.4 % 46.0 %
Net income $ 115,092 $ 72,951 $ 64,602 57.8 % Diluted
EPS $ 1.24 $ 0.80 $ 0.70 55.0 % Adjusted EPS $ 1.31 $ 0.88 $ 1.15
48.9 % Adjusted EBITDA $ 186,708 $ 150,821 $ 173,817 23.8 %
Adjusted EBITDA margin % 53.1 % 50.1 % 51.9 %
“We delivered another quarter of strong results, including
record growth in diluted and adjusted EPS, reflecting the
significant momentum that we have built and consistent execution
that we have demonstrated over the last several years,” commented
Henry A. Fernandez, Chairman and CEO of MSCI.
“We have developed this momentum by effectively executing
against our One MSCI growth strategy with rigorous financial and
operational processes and strong discipline, which has allowed us
to prioritize and execute on our highest-returning and most
strategic opportunities. We continue to see areas of attractive
growth within our core markets, and we are increasingly confident
that we have the right systems, processes and talent to identify,
evaluate, prioritize, execute and monitor these opportunities,”
added Mr. Fernandez.
First Quarter 2018 Consolidated
Results
Revenues: Operating
revenues for first quarter 2018 increased $50.1 million, or 16.6%,
to $351.3 million, compared to $301.2 million for the three months
ended March 31, 2017 (“first quarter 2017”). The $50.1 million
increase in revenues was driven by a $28.0 million, or 48.6%,
increase in asset-based fees (driven primarily by higher revenue
from exchange traded funds (“ETFs”) linked to MSCI indexes, and a
$22.7 million, or 9.5%, increase in recurring subscriptions (driven
primarily by an $11.0 million, or 10.8%, increase in Index products
and a $7.0 million, or 6.3%, increase in Analytics products).
Operating revenues ex-FX (excluding the impact on asset-based fees)
increased 16.0% in first quarter 2018.
Run Rate: Total Run
Rate at March 31, 2018 grew by 16.2% to $1,403.1 million, compared
to March 31, 2017. The $196.0 million increase was driven by a
$104.6 million, or 10.8%, increase in subscription Run Rate to
$1,070.9 million, and a $91.4 million, or 38.0%, increase in
asset-based fees Run Rate to $332.2 million. Subscription Run Rate
ex-FX increased 9.3% in first quarter 2018 driven by strong growth
in the Index and ESG segments and in the Analytics segment’s
Multi-Asset Class and Equity Analytics products. Aggregate
Retention Rate of 94.6% in first quarter 2018 was roughly in line
with the rate of 94.7% in first quarter 2017.
Expenses: Total
operating expenses for first quarter 2018 increased $13.7 million,
or 8.0%, to $184.2 million, compared to first quarter 2017, driven
by a $9.5 million, or 8.7%, increase in compensation and benefits
expenses, primarily related to higher salaries, incentive
compensation and benefits, as well as a $4.7 million, or 11.3%,
increase in non-compensation expenses, primarily reflecting
increases across various areas including $1.9 million related to
other taxes and miscellaneous fees. Adjusted EBITDA expenses for
first quarter 2018 increased $14.2 million, or 9.5%, to $164.6
million compared to first quarter 2017. Foreign exchange rate
fluctuations impacted expense growth in the quarter, mainly related
to expenses denominated in the British Pound, the Hungarian forint
and the Euro, each of which strengthened versus the U.S. dollar
compared to the prior year period. Total operating expenses ex-FX
and adjusted EBITDA expenses ex-FX for first quarter 2018 increased
4.7% and 5.8%, respectively, compared to first quarter 2017.
Headcount: As of
March 31, 2018, there were 3,059 employees, up 5.6% from 2,897 as
of March 31, 2017, and up from 3,038 as of December 31, 2017. The
5.6% year-over-year increase in employees was primarily driven by
increased headcount in emerging market centers and in areas related
to data and content services, technology and research. As of March
31, 2018, a total of 40% and 60% of employees were located in
developed market and emerging market centers, respectively,
compared to 44% in developed market centers and 56% in emerging
market centers as of March 31, 2017.
Amortization and Depreciation
Expenses: Amortization and depreciation expenses
of $19.5 million decreased by $0.5 million, or 2.7%, for first
quarter 2018, compared to first quarter 2017, primarily as a result
of a $0.6 million, or 7.2%, decrease in depreciation expense
reflecting certain data center assets becoming fully depreciated.
Amortization expense was essentially flat in the quarter,
reflecting higher amortization of internal capitalized software
projects of $1.4 million, largely offset by $1.3 million
of lower amortization of acquired intangibles as a result of
certain assets becoming fully amortized.
Other Expense (Income),
Net: Other expense (income), net decreased $1.4
million, or 4.7%, for first quarter 2018, compared to first quarter
2017, as a result of higher interest income associated with higher
yields on higher cash balances.
Tax Rate: Income tax
expense was $24.3 million for first quarter 2018, compared to $28.7
million for first quarter 2017, and included the positive impact of
stock-based compensation tax benefits (the “windfall benefit”) of
$7.5 million, which was $3.1 million for first quarter 2017. The
effective tax rate was 17.5% and 28.2% for first quarter 2018 and
first quarter 2017, respectively. The decline largely reflected the
impact of the Tax Cuts and Jobs Act that was enacted on December
22, 2017 (“Tax Reform”). First quarter 2018 also included a benefit
of $1.6 million relating to a revision of the fourth quarter 2017
net charge of $34.5 million associated with taxes on the amount of
historical profits that were permanently reinvested overseas.
Excluding the $1.6 million benefit related to Tax Reform, the first
quarter 2018 adjusted tax rate was 18.6%.
The recorded cumulative net charge of $32.9 million for Tax
Reform is a provisional amount that reflects our reasonable
estimate at this time, and is subject to adjustment during a
measurement period not to exceed one year from enactment in
accordance with guidance from the Securities and Exchange
Commission. The net tax benefit of $1.6 million for Tax Reform in
first quarter 2018 was excluded from adjusted net income and
adjusted EPS consistent with the classification of the fourth
quarter 2017 charge of $34.5 million. We expect that any future
charges related to Tax Reform resulting from interpretations
related thereto, and further guidance from regulatory agencies will
continue to be excluded from adjusted net income and adjusted
EPS.
Net Income: Net
income increased 57.8% to $115.1 million in first quarter 2018,
from $73.0 million in first quarter 2017.
Adjusted EBITDA:
Adjusted EBITDA was $186.7 million in first quarter 2018, up $35.9
million, or 23.8%, from first quarter 2017. Adjusted EBITDA margin
in first quarter 2018 was 53.1%, compared to 50.1% in first quarter
2017.
Cash Balances & Outstanding
Debt: Total cash and cash equivalents as of March
31, 2018 was $849.8 million. MSCI seeks to maintain minimum cash
balances globally of approximately $200.0 million to $250.0 million
for general operating purposes.
Total outstanding debt as of March 31, 2018 was $2,100.0
million, which excludes deferred financing fees of $21.2 million.
Net debt, defined as total outstanding debt less cash and cash
equivalents, was $1,250.2 million at March 31, 2018. The total debt
to operating income ratio (based on trailing twelve months
operating income) was 3.4x. The total debt to adjusted EBITDA ratio
(based on trailing twelve months adjusted EBITDA) was 3.0x, which
is within the stated gross leverage to adjusted EBITDA targeted
range of 3.0x to 3.5x.
Cash Flow &
Capex: Net cash provided by operating activities
was $88.6 million in first quarter 2018, compared to $37.0 million
in first quarter 2017 and $143.2 million in fourth quarter 2017.
Capex for first quarter 2018 was $5.9 million, compared to $9.6
million in first quarter 2017 and $20.6 million in fourth quarter
2017. Free cash flow was $82.7 million in first quarter 2018,
compared to $27.4 million in first quarter 2017 and $122.6 million
in fourth quarter 2017. The decline in net cash provided by
operating activities and free cash flow, compared to fourth quarter
2017, was driven by higher cash expenses (primarily related to the
impact of the annual cash incentives paid in the first quarter) and
higher scheduled interest payments, partially offset by higher cash
collections and lower income tax payments. The increase in net cash
provided by operating activities and free cash flows, compared to
first quarter 2017, was primarily driven by increased cash
collections, partially offset by higher cash expenses.
Share Count & Capital
Return: The weighted average diluted shares
outstanding in first quarter 2018 increased 1.1% to 92.6 million,
compared to 91.6 million in first quarter 2017. The higher share
count decreased diluted and adjusted EPS by 2 cents and 1 cent,
respectively, in first quarter 2018, compared to first quarter
2017. The higher count was primarily driven by increased dilution
from restricted stock unit awards for which the ultimate payout is
tied to a total shareholder return measure, partially offset by
buybacks under the share repurchase program.
In first quarter 2018 and through May 2, 2018, MSCI repurchased
1.4 million shares at an average price of $145.27 per share for a
total value of $210.0 million. Total shares outstanding as of March
31, 2018 was 89.0 million. On May 1, 2018, the Board authorized an
additional $1.0 billion repurchase of shares of MSCI’s common
stock, which will be aggregated with the $523.1 million of
authorization remaining under the previously existing share
repurchase program.
On May 1, 2018, the Board declared a cash dividend of $0.38 per
share for second quarter 2018. The second quarter 2018 dividend is
payable on May 31, 2018 to shareholders of record as of the close
of trading on May 18, 2018.
Table 1: Fourth 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 Q1'18 $ 201,913 $
145,929 72.3 % $ 118,987 $ 33,593 28.2 % $ 30,415 $
7,187 23.6 % Q1'17 $ 163,435 $ 115,677 70.8 % $ 112,420 $
29,600 26.3 % $ 25,352 $ 5,544 21.9 % % change 23.5 % 26.2 % 5.8 %
13.5 % 20.0 % 29.6 % Q4'17 $ 193,774 $ 142,702 73.6 % $
117,510 $ 31,141 26.5 % $ 23,495 $ (26 ) (0.1 %) % change
4.2 % 2.3 % 1.3 % 7.9 %
29.5 % n/m n/m: not meaningful.
Index Segment:
Operating revenues for first quarter 2018 increased $38.5 million,
or 23.5%, to $201.9 million, compared to $163.4 million for first
quarter 2017. The $38.5 million increase was primarily driven by a
$28.0 million, or 48.6%, increase in asset-based fees, and an $11.0
million, or 10.8%, increase in recurring subscriptions.
The $28.0 million increase in asset-based fees was driven by
strong growth across all types of index-linked investment products.
A $18.9 million, or 47.0%, increase in revenue from ETFs linked to
MSCI indexes was driven by a 48.7% increase in average assets under
management (“AUM”), partially offset by the impact of a change in
product mix. A $7.4 million, or 50.1%, increase in revenue from
non-ETF passive products was driven by higher AUM and an increased
contribution from higher-fee products. In addition, revenues from
exchange traded futures and options contracts based on MSCI indexes
grew $1.7 million, or 66.5%, driven by a strong increase in total
trading volumes and a more favorable product mix.
The $11.0 million increase in recurring subscriptions was driven
by growth in core products and strong growth in factor and ESG
indexes and custom and specialized index products. The adjusted
EBITDA margin for Index was 72.3% for first quarter 2018, compared
to 70.8% for first quarter 2017.
Index Run Rate at March 31, 2018 grew by $135.7 million, or
20.6%, to $794.3 million, compared to March 31, 2017. The $135.7
million increase was driven by a $91.4 million, or 38.0%, increase
in asset-based fees Run Rate, primarily driven by higher AUM in
ETFs as well as increases in non-ETF passive funds and futures and
options contracts, all linked to MSCI indexes, and a $44.3 million,
or 10.6%, increase in recurring subscriptions Run Rate. The 10.6%
increase in Index recurring subscriptions Run Rate was driven by
growth in core products, factor and ESG indexes and custom and
specialized index products and strong growth in the wealth
management, hedge fund and banking and trading client segments.
Analytics Segment:
Operating revenues for first quarter 2018 increased $6.6 million,
or 5.8%, to $119.0 million, compared to $112.4 million for first
quarter 2017, primarily driven by growth in both Equity and
Multi-Asset Class Analytics products.
The adjusted EBITDA margin for Analytics was 28.2% for first
quarter 2018, compared to 26.3% for first quarter 2017.
Analytics Run Rate at March 31, 2018 grew by $37.5 million, or
8.2%, to $494.8 million, compared to March 31, 2017, primarily
driven by growth in both Multi-Asset Class and Equity Analytics
products. Analytics Run Rate ex-FX increased 6.4% compared to March
31, 2017.
We completed the divestiture of FEA on April 9, 2018, and, as a
result, the operating results of FEA will no longer be included in
the Analytics financial results after that date. The Run Rate
associated with FEA was approximately $8.0 million as of March 31,
2018.
All Other Segment:
Operating revenues for first quarter 2018 increased $5.1 million,
or 20.0%, to $30.4 million, compared to $25.4 million for first
quarter 2017. The increase in All Other revenues was driven by a
$3.9 million, or 31.0%, increase in ESG revenues to $16.5 million,
and a $1.2 million, or 9.1%, increase in Real Estate revenues to
$14.0 million. The increase in ESG revenues was driven by strong
growth in ESG Ratings product revenues, which benefited from
increased investments. First quarter 2018 Real Estate revenues
ex-FX decreased 0.9% and All Other operating revenues ex-FX
increased 14.8%. The adjusted EBITDA margin for All Other was 23.6%
for first quarter 2018, compared to 21.9% for first quarter
2017.
All Other Run Rate at March 31, 2018 grew by $22.8 million, or
25.0%, to $114.0 million, compared to March 31, 2017. The $22.8
million increase was primarily driven by a $17.3 million, or 33.6%,
increase in ESG Run Rate to $68.9 million, and a $5.4 million, or
13.7%, increase in Real Estate Run Rate to $45.1 million. The
increase in ESG Run Rate was primarily driven by strong growth in
ESG Ratings products. The increase in Real Estate Run Rate was
primarily driven by growth in market information products, which
also benefited from the appreciation in foreign currencies. ESG Run
Rate ex-FX increased 29.0%, Real Estate Run Rate ex-FX increased
4.2% and All Other Run Rate ex-FX increased 18.2%, each compared to
March 31, 2017.
Full-Year 2018 Guidance
MSCI’s guidance for full-year 2018 remains as follows:
- Total operating expenses are expected
to be in the range of $725 million to $750 million.
- Adjusted EBITDA expenses are expected
to be in the range of $645 million to $665 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
$490 million to $540 million and $440 million to $500 million,
respectively.
- The effective tax rate is expected to
be in the range of 21% to 24%. This full-year effective tax rate
range includes an expected windfall tax benefit related to
stock-based compensation of approximately $8.0 million, of which
$7.5 million was realized in first quarter 2018. Further
information is expected to be released that may impact the
Company’s current interpretation and application of Tax Reform,
which may result in a change to our full-year guidance in
subsequent periods.
The guidance provided above assumes, among other things, that
MSCI maintains its current debt levels. On May 1, 2018, the Board
authorized the Company to opportunistically explore financing
options that would increase the Company's leverage ratio and
interest expense. Any potential financing is subject to market and
other conditions, and there can be no assurance as to the timing or
certainty of a transaction.
New Revenue Standard Effective January 1, 2018
Effective January 1, 2018, MSCI adopted the new revenue standard
using the modified retrospective transition method. This resulted
in a cumulative adjustment to increase retained earnings on January
1, 2018 by $16.1 million, net of tax, reflecting future period
revenue from existing contracts under the old revenue standard that
would have been recognized in prior periods under the new revenue
standard, and the application of the provisions of the new standard
prospectively.
Compared to the revenue recognition method used prior to 2018,
the new revenue standard will result in more revenue being
recognized up-front or earlier in the life of new contracts for
certain products and services, including fees related to the
licensing of desktop applications, implementation and set-up
services and multi-year deals. The lost future period revenue from
existing contracts as a result of the cumulative adjustment to
retained earnings is expected to be largely offset by the
acceleration of revenue from certain new contracts. As a result,
the overall impact of adopting the new revenue standard is not
expected to have a material impact on MSCI’s consolidated financial
statements or the annual trend of revenue. It is possible that some
increased quarterly revenue variability may exist by segment
depending on the timing of deal closings and renewals.
As a result of the adoption of the new revenue standard, MSCI
recorded $2.3 million of higher revenue in first quarter 2018, as
compared to what would have been recorded if the old revenue
standard was still in effect, of which $2.1 million related to the
Analytics segment and primarily to FEA.
In addition, as a result of the adoption of the new revenue
standard, the amount of accounts receivable and deferred revenue
reported on the Company’s balance sheet as of December 31, 2017
would have increased, with no increase to net assets, by
approximately $135.5 million. Accounts receivable was $462.6
million at March 31, 2018 and $327.6 million at December 31, 2017.
Deferred revenue was $503.3 million at March 31, 2018 and $374.4
million at December 31, 2017. Under the old revenue standard, MSCI
only recorded the value of an invoice to accounts receivable and
deferred revenue once the service period began. Under the new
revenue standard, MSCI now records accounts receivable and a
corresponding offset to deferred revenue when an invoice is issued
for a non-cancellable, non-refundable contract, regardless of when
the service period begins.
There are no changes to how we calculate our operating
metrics.
Conference Call Information
MSCI's senior management will review first quarter 2018 results
on Thursday, May 3, 2018 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, 2018, the recording will also be
available by dialing 1-855-859-2056 passcode: 5898855
within the United States or 1-404-537-3406 passcode:
5898855 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.
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 99 of the top 100 largest money managers, according
to the most recent P&I ranking.
Total assets benchmarked to MSCI equity indexes is now over
$12.4 trillion globally as of September 30, 2017.
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 2018 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, 2017 filed with the Securities and Exchange Commission
(“SEC”) on February 26, 2018 and in quarterly reports on Form 10-Q
and current reports on Form 8-K filed or furnished with the SEC
(herein, referred to as “Public Filings”). 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.
Run Rate estimates at a particular point in time the annualized
value of the recurring revenues under our client license agreements
(“Client Contracts”) for the next 12 months, assuming all Client
Contracts that come up for renewal are renewed and assuming
then-current currency exchange rates, subject to the adjustments
and exclusions described elsewhere in our Public Filings. For any
Client Contract 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
other non-ETF products, the most recent client reported assets. Run
Rate does not include fees associated with “one-time” and other
non-recurring transactions. In addition, we add to Run Rate the
annualized fee value of recurring new sales, whether to existing or
new clients, when we execute Client Contracts, even though the
license start date may not be effective until a later date. We
remove from Run Rate the annualized fee value associated with
products or services under any Client Contract 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
products or services, even though such notice is not effective
until a later date.
Organic subscription Run Rate or revenue growth 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 currency exchange
rate from the comparable prior period to current period foreign
currency denominated Run Rate or revenue.
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 – 13 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, the impact of
Tax Reform adjustments and, at times, certain other transactions or
adjustments.
“Adjusted tax rate” is defined as the effective tax rate
excluding the impact of Tax Reform.
“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 adjusted tax rate is useful to investors because
it increases the comparability of period-to-period results by
adjusting for the estimated net impact of Tax Reform.
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, adjusted tax rate, Capex 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 2018
2017(2) 2017(2) Change Operating revenues $
351,316 $ 301,207 $ 334,779 16.6 % Operating expenses: Cost
of revenues 71,304 67,463 69,247 5.7 % Selling and marketing 46,409
42,972 47,726 8.0 % Research and development 20,707 18,970 20,709
9.2 % General and administrative 26,187 20,981 23,280 24.8 %
Amortization of intangible assets 11,338 11,251 11,560 0.8 %
Depreciation and amortization of property, equipment and leasehold
improvements 8,205 8,838 8,118 (7.2 %) Total
operating expenses(1) 184,150 170,475 180,640
8.0 % Operating income 167,166 130,732 154,139 27.9 %
Interest income (2,770 ) (932 ) (2,237
)
197.2 % Interest expense 29,560 29,024 29,027 1.8 % Other expense
(income) 938 1,015 389 (7.6 %) Other expense
(income), net 27,728 29,107 27,179 (4.7 %)
Income before provision for income taxes 139,438 101,625
126,960 37.2 % Provision for income taxes 24,346
28,674 62,358 (15.1 %) Net income $ 115,092 $ 72,951
$ 64,602 57.8 %
Earnings per basic common share $ 1.28 $ 0.80 $ 0.72 60.0 %
Earnings per diluted
common share $ 1.24 $ 0.80 $ 0.70 55.0 % Weighted average
shares outstanding used in computing earnings per share:
Basic 90,075 90,708 90,130 (0.7 %) Diluted
92,587 91,624 92,467 1.1 %
(1) Includes stock-based compensation expense of $9.8 million,
$9.6 million and $9.3 million for the three months ended Mar. 31,
2018, Mar. 31, 2017 and Dec. 31, 2017, respectively. (2) As a
result of the adoption of recent accounting guidance, the Company
has restated its Condensed Consolidated Statements of Income by
reclassing $0.1 million and $0.2 million of non-service related
pension costs out of Operating Expenses and into Other expense
(income) for the three months ended Mar. 31, 2017 and Dec. 31,
2017, respectively.
Table 3: Selected Balance Sheet Items
(unaudited)
As of Mar. 31, Dec.
31, In thousands 2018 2017 Cash and cash
equivalents $849,828 $889,502 Accounts receivable, net of
allowances(1) $462,577 $327,597 Deferred revenue(2) $503,298
$374,365 Long-term debt(3) $2,078,816 $2,078,093
(1) Accounts receivable, net of allowances would have been
$473.4 million at Dec. 31, 2017 under the new revenue standard. (2)
Deferred revenue would have been $494.6 million at Dec. 31, 2017
under the new revenue standard. (3) Consists of gross long-term
debt, net of deferred financing fees. Gross long-term debt at Mar.
31, 2018 and Dec. 31, 2017 was $2.1 billion
Table 4: Selected Cash Flow Items
(unaudited)
Three Months Ended Mar. 31,
Mar. 31, Dec. 31, YoY
% In thousands 2018 2017 2017
Change Cash provided by operating activities $ 88,597 $
37,015 $ 143,153 139.4 % Cash used in investing activities
(5,872 ) (9,629 ) (20,600 ) (39.0 %)
Cash used in financing activities
(126,058 ) (125,226 ) (33,668 ) 0.7 % Effect of exchange rate
changes 3,659 2,978 1,602 22.9 %
Net
increase (decrease) in cash and cash equivalents $
(39,674 ) $ (94,862 ) $
90,487 (58.2 %)
Table 5: Operating Results by Segment
and Revenue Type (unaudited)
Index Three Months Ended Mar. 31,
Mar. 31, Dec. 31,
YoY % In thousands 2018 2017(1)
2017(1) Change Operating revenues: Recurring
subscriptions $ 113,205 $ 102,178 $ 111,503 10.8 % Asset-based fees
85,483 57,508 78,493 48.6 % Non-recurring 3,226 3,749
3,778 (14.0 %) Total operating revenues 201,913 163,435
193,774 23.5 % Adjusted EBITDA expenses 55,984 47,758
51,072 17.2 % Adjusted EBITDA $ 145,929 $ 115,677 $ 142,702
26.2 % Adjusted EBITDA margin % 72.3 % 70.8 % 73.6 %
Analytics Three Months Ended Mar. 31, Mar.
31, Dec. 31, YoY % In thousands
2018 2017(1) 2017(1) Change Operating
revenues: Recurring subscriptions $ 118,244 $ 111,269 $ 115,349 6.3
% Non-recurring 744 1,151 2,161 (35.4 %) Total
operating revenues 118,987 112,420 117,510 5.8 % Adjusted EBITDA
expenses 85,395 82,820 86,369 3.1 % Adjusted
EBITDA $ 33,593 $ 29,600 $ 31,141 13.5 % Adjusted EBITDA margin %
28.2 % 26.3 % 26.5 %
All Other Three Months
Ended Mar. 31, Mar. 31, Dec. 31, YoY
% In thousands 2018 2017(1) 2017(1)
Change Operating revenues: Recurring subscriptions $ 29,367
$ 24,652 $ 22,225 19.1 % Non-recurring 1,048 700
1,270 49.7 % Total operating revenues 30,415 25,352 23,495
20.0 % Adjusted EBITDA expenses 23,228 19,808
23,521 17.3 % Adjusted EBITDA $ 7,187 $ 5,544 $ (26 ) 29.6 %
Adjusted EBITDA margin % 23.6 % 21.9 % (0.1 %)
Consolidated Three Months Ended Mar. 31,
Mar. 31, Dec. 31, YoY % In thousands
2018 2017(1) 2017(1) Change Operating
revenues: Recurring subscriptions $ 260,815 $ 238,099 $ 249,077 9.5
% Asset-based fees 85,483 57,508 78,493 48.6 % Non-recurring
5,018 5,600 7,209 (10.4 %) Operating revenues total
351,316 301,207 334,779 16.6 % Adjusted EBITDA expenses
164,607 150,386 160,962 9.5 % Adjusted EBITDA $
186,708 $ 150,821 $ 173,817 23.8 % Adjusted EBITDA margin %
53.1 % 50.1 % 51.9 % Operating margin % 47.6 %
43.4 % 46.0 %
(1) As a result of the adoption of recent accounting guidance,
the Company has restated its adjusted EBITDA by reclassing $0.1
million and $0.2 million of non-service related pension costs out
of adjusted EBITDA expenses for the three months ended Mar. 31,
2017 and Dec. 31, 2017, respectively.
Table 6: Sales and Aggregate Retention
Rate by Segment (unaudited)
Three Months Ended Mar. 31,
Dec. 31, Sep. 30, June
30, Mar. 31, In thousands
2018 2017 2017 2017 2017
Index New recurring subscription sales $ 15,195 $ 17,980 $
15,499 $ 13,636 $ 14,193 Subscription cancellations (4,115 )
(6,180 ) (4,605 ) (3,045 ) (3,165 ) Net
new recurring subscription sales $ 11,080 $ 11,800 $ 10,894 $
10,591 $ 11,028 Non-recurring sales $ 3,459 $ 3,677 $ 3,704 $ 4,555
$ 4,374 Total gross sales(1) $ 18,654 $ 21,657 $ 19,203 $ 18,191 $
18,567 Total Index net sales $ 14,539 $ 15,477 $ 14,598 $ 15,146 $
15,402 Index Aggregate Retention Rate(2) 96.4 % 93.9 % 95.5
% 97.0 % 96.9 %
Analytics New recurring subscription
sales $ 11,356 $ 25,217 $ 15,036 $ 12,050 $ 11,874 Subscription
cancellations (8,578 ) (11,679 ) (7,444 )
(6,940 ) (7,611 ) Net new recurring subscription
sales $ 2,778 $ 13,538 $ 7,592 $ 5,110 $ 4,263 Non-recurring sales
$ 1,346 $ 3,742 $ 2,792 $ 1,609 $ 2,163 Total gross sales(1) $
12,702 $ 28,959 $ 17,828 $ 13,659 $ 14,037 Total Analytics net
sales $ 4,124 $ 17,280 $ 10,384 $ 6,719 $ 6,426 Analytics
Aggregate Retention Rate(2) 93.0 % 89.7 % 93.4 % 93.9 % 93.3 %
All Other New recurring subscription sales $ 5,468 $
8,391 $ 4,576 $ 5,456 $ 4,121 Subscription cancellations
(1,531 ) (1,954 ) (2,050 ) (2,030 )
(1,683 ) Net new recurring subscription sales $ 3,937 $ 6,437 $
2,526 $ 3,426 $ 2,438 Non-recurring sales $ 694 $ 1,479 $ 829 $ 958
$ 609 Total gross sales(1) $ 6,162 $ 9,870 $ 5,405 $ 6,414 $ 4,730
Total All Other net sales $ 4,631 $ 7,916 $ 3,355 $ 4,384 $ 3,047
All Other Aggregate Retention Rate(2) 94.4 % 91.1 % 90.7 %
90.8 % 92.4 %
Consolidated New recurring subscription
sales $ 32,019 $ 51,588 $ 35,111 $ 31,142 $ 30,188 Subscription
cancellations (14,224 ) (19,813 ) (14,099 )
(12,015 ) (12,459 ) Net new recurring subscription
sales $ 17,795 $ 31,775 $ 21,012 $ 19,127 $ 17,729 Non-recurring
sales $ 5,499 $ 8,898 $ 7,325 $ 7,122 $ 7,146 Total gross sales(1)
$ 37,518 $ 60,486 $ 42,436 $ 38,264 $ 37,334 Total net sales $
23,294 $ 40,673 $ 28,337 $ 26,249 $ 24,875 Total Aggregate
Retention Rate(2) 94.6 % 91.6 % 94.0 % 94.9 % 94.7 %
(1) Total gross sales equal new 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: AUM in ETFs Linked to MSCI
Indexes (unaudited)(1)(2)
Three Months Ended Mar. 31,
Dec. 31, Sep. 30,
June 30, Mar. 31, In
billions 2018 2017 2017 2017
2017 Beginning Period AUM in ETFs linked to MSCI indexes $
744.3 $ 674.3 $ 624.3 $ 555.7 $ 481.4 Market
Appreciation/(Depreciation) (11.7 ) 32.0 32.2 23.6 35.8 Cash
Inflows 32.3 38.0 17.8 45.0 38.5 Period-End AUM in ETFs linked to
MSCI indexes $ 764.9 $ 744.3 $ 674.3 $ 624.3 $ 555.7
Period Average AUM in ETFs linked to MSCI indexes $ 779.5 $ 712.3 $
654.4 $ 595.0 $ 524.1 Avg. Basis Point Fee(3) 3.02 3.04 3.05
3.07 3.08
Source: Bloomberg and MSCI
(1) ETF assets under management calculation methodology is ETF
net asset value multiplied by shares outstanding. (2) The AUM in
ETFs numbers also include AUM in Exchange Traded Notes, the value
of which is less than 1.0% of the AUM amounts presented. (3) Based
on period-end Run Rate for ETFs 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 2018 2017 2017 Change
Index Recurring subscriptions $ 462,097 $ 417,765 $ 451,048
10.6 % Asset-based fees 332,240 240,834
316,812 38.0 %
Index Run Rate 794,337 658,599
767,860 20.6 %
Analytics Run Rate
494,779 457,249 489,451 8.2 %
All Other Run
Rate 114,015 91,239 108,413 25.0 %
Total Run Rate $ 1,403,131 $
1,207,087 $ 1,365,724 16.2 %
Total recurring subscriptions $ 1,070,891 $ 966,253 $
1,048,912 10.8 % Total asset-based fees 332,240
240,834 316,812 38.0 %
Total Run Rate $
1,403,131 $ 1,207,087 $
1,365,724 16.2 %
(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 2018 2017(1) 2017(1) Index
adjusted EBITDA $ 145,929 $ 115,677 $ 142,702 Analytics adjusted
EBITDA 33,593 29,600 31,141 All Other adjusted EBITDA 7,187
5,544 (26 )
Consolidated adjusted EBITDA
186,708 150,821 173,817
Amortization of intangible assets 11,338 11,251 11,560 Depreciation
and amortization of property, equipment and leasehold improvements
8,205 8,838 8,118
Operating income
167,166 130,732 154,139 Other expense
(income), net 27,728 29,107 27,179 Provision for income taxes
24,346 28,674 62,358
Net income
$ 115,092 $ 72,951 $
64,602
(1) As a result of the adoption of recent accounting guidance,
the Company has restated its adjusted EBITDA by reclassing $0.1
million and $0.2 million of non-service related pension costs out
of adjusted EBITDA expenses for the three months ended Mar. 31,
2017 and Dec. 31, 2017, respectively.
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 2018 2017 2017 Net
income $ 115,092 $ 72,951 $ 64,602 Plus: Amortization of acquired
intangible assets 9,207 10,530 9,238 Plus: Tax Reform adjustments
(1,601 ) — 34,500 Less: Income tax effect (1,608 )
(2,972 ) (1,922 )
Adjusted net income $
121,090 $ 80,509 $ 106,418
Diluted EPS $ 1.24 $ 0.80 $ 0.70 Plus: Amortization of
acquired intangible assets 0.10 0.11 0.10 Plus: Tax Reform
adjustments (0.02 ) — 0.37 Less: Income tax effect (0.01 )
(0.03 ) (0.02 )
Adjusted EPS $
1.31 $ 0.88 $ 1.15
Table 11: Reconciliation of Adjusted
EBITDA Expenses to Operating Expenses (unaudited)
Three Months Ended Full-Year Mar. 31,
Mar. 31, Dec. 31,
2018 In thousands 2018 2017(2)
2017(2) Outlook(1) Index adjusted EBITDA expenses $
55,984 $ 47,758 $ 51,072 Analytics adjusted EBITDA expenses 85,395
82,820 86,369 All Other adjusted EBITDA expenses 23,228
19,808 23,521
Consolidated adjusted EBITDA
expenses 164,607 150,386
160,962 $645,000 - $665,000 Amortization of
intangible assets 11,338 11,251 11,560 Depreciation and
amortization of property, 82,000 equipment and leasehold
improvements 8,205 8,838 8,118
Total
operating expenses $ 184,150 $
170,475 $ 180,640 $725,000 - $750,000
(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. (2) As a result of the adoption of recent accounting
guidance, the Company has restated its adjusted EBITDA by
reclassing $0.1 million and $0.2 million of non-service related
pension costs out of adjusted EBITDA expenses for the three months
ended Mar. 31, 2017 and Dec. 31, 2017, respectively.
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,
2018 In thousands 2018 2017 2017
Outlook(1) Net cash provided by operating activities $
88,597 $ 37,015 $ 143,153 $490,000 - $540,000 Capital expenditures
(1,512 ) (7,322 ) (15,736 ) Capitalized software development costs
(4,360 ) (2,307 ) (4,863 ) Capex
(5,872 ) (9,629 ) (20,599 ) (50,000 - 40,000)
Free
cash flow $ 82,725 $ 27,386
$ 122,554 $440,000 - $500,000
(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.
Table 13: Reconciliation of Effective
Tax Rate to Adjusted Tax Rate (unaudited)
Three Months Ended Mar. 31,
Mar. 31, Dec. 31, 2018
2017 2017 Effective tax rate 17.46% 28.22% 49.12%
Less: Tax Reform impact on effective tax rate 1.15% —% (27.18%)
Adjusted tax rate 18.61% 28.22% 21.94%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180503005712/en/
MSCI Inc.InvestorsAndrew Wiechmann, + 1
212-804-3986andrew.wiechmann@msci.comorMediaSamuel Wang, + 1
212-804-5244samuel.wang@msci.com
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