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 September 30, 2018 (“third quarter 2018”) and nine months
ended September 30, 2018 (“nine months 2018”).
Financial and Operational Highlights for Third Quarter
2018(Notes: Percentage and other changes refer to third quarter
2017 unless otherwise noted.)
- Operating revenues up 11.1%;
recurring subscription revenues up 9.9%; asset-based fees up
12.6%.
- Diluted EPS of $1.36, up 46.2%;
Adjusted EPS of $1.35, up 35.0%.
- Quarter‐end AUM of $765.5 billion in
ETFs linked to MSCI indexes; up 13.5% compared to prior
year.
- Total Run Rate up 10.0% to $1,435.3
million, driven by asset-based fees Run Rate, up 12.5%, and
subscription Run Rate, up 9.3%. Organic subscription Run Rate
growth of 10.5%.
- Segment organic subscription Run
Rate growth: Index up 11.4%, Analytics up 7.4%, All Other up
20.7%.
- Operating income growth of 18.6%,
with operating margin of 49.3%.
- Adjusted EBITDA growth of 15.9%,
with Adjusted EBITDA margin of 54.6%.
- Continued strong retention with
total Retention Rate at 95.0%.
- During third quarter 2018 and
through October 31, 2018, a total of 1.0 million shares were
repurchased at an average price of $159.40 per share for a total
value of $165.2 million.
Three Months Ended Nine
Months Ended Sep. 30, Sep. 30,
June 30, YoY % Sep. 30, Sep.
30, YoY % In thousands, except per share
data 2018 2017 2018 Change
2018 2017 Change Operating revenues $ 357,934
$ 322,097 $ 363,046 11.1 % $ 1,072,296 $ 939,393 14.1
% Operating income $ 176,403 $ 148,799 $ 173,511 18.6 % $ 517,080 $
425,631 21.5 % Operating margin % 49.3 % 46.2 % 47.8 % 48.2 % 45.3
% Net income $ 123,832 $ 85,153 $ 116,829 45.4 % $ 355,753 $
239,370 48.6 % Diluted EPS $ 1.36 $ 0.93 $ 1.28 46.2 % $
3.87 $ 2.61 48.3 % Adjusted EPS $ 1.35 $ 1.00 $ 1.30 35.0 % $ 3.96
$ 2.83 39.9 % Adjusted EBITDA $ 195,537 $ 168,738 $ 200,425
15.9 % $ 582,671 $ 485,940 19.9 % Adjusted EBITDA margin % 54.6 %
52.4 % 55.2 % 54.3 % 51.7 %
“We are excited to deliver another quarter of exceptional
results for our shareholders driven by strength in our core
subscription offerings. Our recurring subscription revenue grew 10%
in a highly dynamic and shifting investment landscape, reflecting
our increasing ability to provide tools that help clients adapt for
the future,” commented Henry A. Fernandez, Chairman and CEO of
MSCI.
“The strength we have seen in our net new recurring subscription
sales and subscription Run Rate growth bolsters our confidence in
the bets we have made to produce innovative research-driven
content, develop flexible, cutting edge technology and enhance our
client go-to-market approach. We continue to see a wide range of
attractive investment opportunities to help fuel top-line growth,”
added Mr. Fernandez.
Third Quarter 2018 Consolidated
Results
Revenues: Operating
revenues for third quarter 2018 increased $35.8 million, or 11.1%,
to $357.9 million, compared to $322.1 million for the three months
ended September 30, 2017 (“third quarter 2017”). The $35.8 million
increase in operating revenues was driven by a $24.0 million, or
9.9%, increase in recurring subscriptions (driven primarily by a
$13.3 million, or 12.3%, increase in Index products and a $5.3
million, or 4.7%, increase in Analytics products), and a $9.1
million, or 12.6%, increase in asset-based fees, which was driven
by growth in revenue from exchange traded funds (“ETFs”) and
non-ETF passive funds linked to MSCI indexes. Adjusting for the
impact from foreign currency exchange rate fluctuations (“ex-FX”)
in third quarter 2018, operating revenues increased 11.2%, while
foreign currency exchange rate fluctuations had a negligible impact
on recurring subscription revenues and asset-based fees.
Asset-based fees ex-FX does not adjust for the impact from foreign
currency exchange rate fluctuations on the underlying assets under
management (“AUM”).
For nine months 2018, operating revenues increased $132.9
million, or 14.1%, to $1,072.3 million, compared to $939.4 million
for the nine months ended September 30, 2017 (“nine months 2017”).
The increase was driven by a $71.0 million, or 9.8%, increase in
recurring subscriptions, and by a $57.5 million, or 29.1% increase
in asset-based fees. For nine months 2018, operating revenues ex-FX
increased 13.9%, and recurring subscription revenues ex-FX
increased 9.5%. There was a negligible impact on asset-based fees
ex-FX.
Run Rate: Total Run
Rate at September 30, 2018 grew by $130.3 million, or 10.0%, to
$1,435.3 million, compared to September 30, 2017. The $130.3
million increase was driven by a $93.9 million, or 9.3%, increase
in subscription Run Rate to $1,109.2 million, and a $36.3 million,
or 12.5%, increase in asset-based fees Run Rate to $326.1 million.
Organic subscription Run Rate growth was 10.5% in third 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. Retention Rate was 95.0% in third quarter 2018, compared
to 94.0% in third quarter 2017.
Expenses: Total
operating expenses for third quarter 2018 increased $8.2 million,
or 4.8%, to $181.5 million compared to third quarter 2017, driven
mainly by a $7.1 million, or 6.5%, increase in compensation and
benefit costs. The higher compensation and benefit costs were
attributable to an increase in wages and salaries, benefits and
incentive compensation. Non-compensation costs increased $1.9
million, or 4.4%, primarily driven by higher costs relating to
professional fees, IT costs and market data costs. Adjusted EBITDA
expenses for third quarter 2018 increased $9.0 million, or 5.9%, to
$162.4 million compared to third quarter 2017. Total operating
expenses ex-FX and adjusted EBITDA expenses ex-FX for third quarter
2018 increased 6.2% and 7.5%, respectively, compared to third
quarter 2017.
For nine months 2018, total operating expenses increased $41.5
million, or 8.1%, to $555.2 million. Adjusted EBITDA expenses
increased $36.2 million, or 8.0%, to $489.6 million compared to
nine months 2017. Total operating expenses ex-FX and adjusted
EBITDA expenses ex-FX for nine months 2018 increased 7.0% and 6.9%,
respectively, compared to nine months 2017.
Headcount: As of
September 30, 2018, there were 3,121 employees, up 2.4% from 3,047
as of September 30, 2017, and up 1.9% compared to 3,062 employees
as of June 30, 2018. The 2.4% year-over-year increase in employees
was primarily driven by increased headcount in emerging market
centers and in areas related to technology, data and content
services and research. As of September 30, 2018, a total of 40% and
60% of employees were located in developed market and emerging
market centers, respectively, compared to 42% in developed market
centers and 58% in emerging market centers as of September 30,
2017.
Amortization and Depreciation
Expenses: Amortization and depreciation expenses
of $19.1 million decreased by $0.8 million, or 4.0%, for third
quarter 2018, compared to third quarter 2017, primarily as a result
of a decrease in depreciation expense, reflecting storage and
certain data center assets becoming fully depreciated, partially
offset by higher amortization expense driven by internally
capitalized software development costs.
For nine months 2018, amortization and depreciation expenses of
$65.6 million increased by $5.3 million, or 8.8%, compared to nine
months 2017. This increase was primarily attributable to an
increase in amortization expense reflecting a $7.9 million non-cash
charge in the three months ended June 30, 2018 (“second quarter
2018”) related to the write-off of the IPD tradename used by the
Real Estate segment as well as higher amortization of internally
capitalized software development costs.
Other Expense (Income),
Net: Other expense (income), net was $29.6
million which increased $1.6 million, or 5.6%, for third quarter
2018, compared to third quarter 2017, mainly due to higher interest
expense associated with higher outstanding debt, partially offset
by an increase in interest income driven by higher yields on higher
cash balances.
For nine months 2018, other expense (income), net was $74.5
million which decreased $11.2 million, or 13.1%, compared to nine
months 2017, primarily as a result of the gain realized from the
divestiture of Financial Engineering Associates, Inc. (“FEA”)
recognized in second quarter 2018, partially offset by higher
interest expense attributable to the financing transaction in May
2018.
Tax Rate: Income tax
expense was $23.0 million for third quarter 2018, compared to $35.7
million for third quarter 2017. The effective tax rates were 15.7%
and 29.5% for third quarter 2018 and third 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”) and the release of a valuation allowance previously
recorded on capital loss carry forwards. The release of the
valuation allowance was triggered by the execution of the agreement
to sell Investor Force Holdings, Inc. (“InvestorForce”) in July
2018 as the loss will be utilized in the three months ending
December 31, 2018 (“fourth quarter 2018”) to offset the capital
gain realized upon the completion of the divestiture of
InvestorForce that occurred on October 12, 2018. This release of
the valuation allowance was excluded from adjusted net income and
adjusted EPS. Correspondingly, the gain on and the resulting taxes
from the completion of the divestiture of InvestorForce will be
excluded from adjusted net income and adjusted EPS in the fourth
quarter 2018 results.
Income tax expense was $86.9 million for nine months 2018,
compared to $100.6 million for nine months 2017. The effective tax
rates were 19.6% and 29.6% for nine months 2018 and nine months
2017, respectively. Nine months 2018 included a benefit of $1.6
million relating to a revision of the three months ended December
31, 2017 (“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 nine months 2018 adjusted tax rate was
20.0%.
The recorded cumulative accrual of $32.9 million for Tax Reform
as of September 30, 2018 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
nine months 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 45.4% to $123.8 million in third quarter 2018,
from $85.2 million in third quarter 2017. For nine months 2018, net
income increased 48.6% to $355.8 million, compared to $239.4
million for nine months 2017.
Adjusted EBITDA:
Adjusted EBITDA was $195.5 million in third quarter 2018, up $26.8
million, or 15.9%, from third quarter 2017. Adjusted EBITDA margin
in third quarter 2018 was 54.6%, compared to 52.4% in third quarter
2017. For nine months 2018, adjusted EBITDA was $582.7 million, up
19.9% from nine months 2017, and adjusted EBITDA margin was 54.3%
for nine months 2018, compared to 51.7% for nine months 2017.
Cash Balances & Outstanding
Debt: Total cash and cash equivalents as of
September 30, 2018 was $1,398.4 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 September 30, 2018 was $2,600.0
million, which excludes deferred financing fees of $25.4 million.
Net debt, defined as total outstanding debt less cash and cash
equivalents, was $1,201.6 million at September 30, 2018. The total
debt to operating income ratio (based on trailing twelve months
operating income) was 3.9x. The total debt to adjusted EBITDA ratio
(based on trailing twelve months adjusted EBITDA) was 3.4x, which
is within the stated gross leverage to adjusted EBITDA target range
of 3.0x to 3.5x.
Cash Flow &
Capex: Net cash provided by operating activities
was $143.8 million in third quarter 2018, compared to $101.8
million in third quarter 2017 and $207.2 million in second quarter
2018. Capex for third quarter 2018 was $13.1 million, compared to
$11.6 million in third quarter 2017 and $7.2 million in second
quarter 2018. Free cash flow was $130.7 million in third quarter
2018, compared to $90.2 million in third quarter 2017 and $200.0
million in second quarter 2018. The decrease in net cash provided
by operating activities and free cash flow, compared to second
quarter 2018, was driven by lower cash collections, higher
scheduled interest payments and higher payments of cash expenses,
partially offset by lower income tax payments. The increase in net
cash provided by operating activities and free cash flow, compared
to third quarter 2017, was primarily driven by increased cash
collections, partially offset by higher income tax payments.
Net cash provided by operating activities was $439.6 million for
nine months 2018, compared to $261.0 million for nine months 2017.
Capex for nine months 2018 was $26.2 million, compared to $28.2
million for nine months 2017. Free cash flow was $413.4 million for
nine months 2018, compared to $232.8 million for nine months 2017.
The increase in both net cash provided by operating activities and
free cash flow for nine months 2018 compared to the same period of
the prior year was primarily driven by higher cash collections,
partially offset by higher payments of cash expenses and higher
income tax payments.
Share Count & Capital
Return: The weighted average diluted shares
outstanding in third quarter 2018 declined 0.5% to 91.4 million,
compared to 91.9 million in third quarter 2017. In third quarter
2018 and through October 31, 2018, MSCI repurchased 1.0 million
shares at an average price of $159.40 per share for a total value
of $165.2 million. A total of $1.3 billion remains on the
outstanding share repurchase authorization as of October 31, 2018.
Total shares outstanding as of September 30, 2018 was 88.6
million.
On October 30, 2018, the Board declared a cash dividend of $0.58
per share for fourth quarter 2018. The fourth quarter 2018 dividend
is payable on November 30, 2018 to shareholders of record as of the
close of trading on November 16, 2018.
Table 1: Third Quarter 2018 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 Q3'18 $ 210,194 $
154,477 73.5 % $ 119,898 $ 37,046 30.9 % $ 27,842 $
4,014 14.4 % Q3'17 $ 184,594 $ 134,342 72.8 % $ 114,972 $
33,078 28.8 % $ 22,531 $ 1,318 5.8 % Q2'18 $ 212,934 $ 157,516 74.0
% $ 119,119 $ 36,327 30.5 % $ 30,993 $ 6,582 21.2 % YoY % change
13.9 % 15.0 % 4.3 % 12.0 % 23.6 % 204.6 % YTD 2018 $ 625,042
$ 457,923 73.3 % $ 358,004 $ 106,966 29.9 % $ 89,250 $ 17,782 19.9
% YTD 2017 $ 525,185 $ 379,538 72.3 % $ 340,759 $ 94,483 27.7 % $
73,449 $ 11,919 16.2 % % change 19.0 % 20.7 %
5.1 % 13.2 % 21.5 %
49.2 %
Index Segment:
Operating revenues for third quarter 2018 increased $25.6 million,
or 13.9%, to $210.2 million, compared to $184.6 million for third
quarter 2017. The increase was driven by a $13.3 million, or 12.3%,
increase in recurring subscriptions, a $9.1 million, or 12.6%,
increase in asset-based fees and a $3.1 million, or 83.1%, increase
in non-recurring revenues.
The increase in recurring subscriptions was driven by strong
growth in core products and custom and specialized index products.
In asset-based fees, the increase was driven by growth in revenue
from ETFs and non-ETF passive funds linked to MSCI indexes. A $5.0
million, or 10.0%, increase in revenue from ETFs linked to MSCI
indexes was driven by a 15.5% increase in average AUM, partially
offset by the impact of a change in product mix. A $4.0 million, or
20.7%, 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 $0.2 million, or 5.2%,
driven, in part, by an increase in total trading volumes.
Operating revenues for nine months 2018 increased $99.9 million,
or 19.0%, to $625.0 million, compared to $525.2 million for nine
months 2017. The increase was driven by a $57.5 million, or 29.1%,
increase in asset-based fees, a $38.3 million, or 12.1%, increase
in recurring subscriptions, and a $4.0 million, or 33.9%, increase
in non-recurring revenues. The adjusted EBITDA margin for Index was
73.3% for nine months 2018, compared to 72.3% for nine months
2017.
Index Run Rate at September 30, 2018 grew by $86.6 million, or
11.9%, to $815.7 million, compared to September 30, 2017. The
increase was driven by a $50.3 million, or 11.4%, increase in
recurring subscriptions Run Rate, and a $36.3 million, or 12.5%,
increase in asset-based fees Run Rate, primarily driven by higher
AUM in ETFs linked to MSCI indexes, as well as increases in non-ETF
passive funds and futures and options contracts, also linked to
MSCI indexes. Partially offsetting the impact of the increase in
AUM in ETFs linked to MSCI indexes was a change in product mix
which was the primary driver of a decline in average basis point
fees to 2.90 at September 30, 2018 from 3.05 a year ago. The 11.4%
increase in Index recurring subscriptions Run Rate was driven by
strong growth in core products, factor and ESG indexes and custom
and specialized index products and growth in the wealth management,
asset owners, hedge fund and broker dealer client segments.
Analytics
Segment: Operating revenues for third quarter
2018 increased $4.9 million, or 4.3%, to $119.9 million, compared
to $115.0 million for third quarter 2017, primarily driven by
growth in both Multi-Asset Class and Equity Analytics products and
the timing of client implementations, partially offset by the
divestiture of FEA. Operating revenues ex-FX and excluding the
impact of the divestiture of FEA increased 6.4%.
Operating revenues for nine months 2018 increased $17.2 million,
or 5.1%, to $358.0 million, compared to $340.8 million for nine
months 2017. Operating revenues ex-FX increased 4.9%. Operating
revenues ex-FX and excluding the impact of the divestiture of FEA
increased 5.9%. The adjusted EBITDA margin for Analytics was 29.9%
for nine months 2018, compared to 27.7% for nine months 2017.
Analytics Run Rate at September 30, 2018 grew by $24.5 million,
or 5.2%, to $499.2 million, compared to September 30, 2017,
primarily driven by growth in both Multi-Asset Class and Equity
Analytics products, as well as strong growth in our Wealth Bench
product offering, partially offset by the removal of Run Rate
associated with FEA, which was divested in April 2018. Analytics
organic Run Rate growth was 7.4% compared to September 30,
2017.
All Other Segment:
Operating revenues for third quarter 2018 increased $5.3 million,
or 23.6%, to $27.8 million, compared to $22.5 million for third
quarter 2017. The increase in All Other revenues was driven by a
$4.7 million, or 33.6%, increase in ESG revenues to $18.5 million,
and a $0.6 million, or 7.5%, increase in Real Estate revenues to
$9.3 million. The increase in ESG revenues was driven by strong
growth in ESG Ratings product revenues, which benefited from
increased investments. The increase in Real Estate revenues was
primarily driven by growth in Market Information products. Third
quarter 2018 Real Estate revenues ex-FX increased 8.9% and All
Other operating revenues ex-FX increased 24.2%.
Operating revenues for nine months 2018 increased $15.8 million,
or 21.5%, to $89.3 million, compared to $73.4 million for nine
months 2017. The increase in All Other revenues was driven by a
$12.1 million, or 30.3%, increase in ESG revenues to $52.3 million,
and a $3.7 million, or 11.0%, increase in Real Estate revenues to
$37.0 million. Operating revenues ex-FX for nine months 2018 for
All Other increased 18.9%.
All Other Run Rate at September 30, 2018 grew by $19.2 million,
or 18.9%, to $120.4 million, compared to September 30, 2017. The
increase was primarily driven by a $16.3 million, or 27.7%,
increase in ESG Run Rate to $75.3 million, and a $2.8 million, or
6.7%, 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 and an increase in ESG Screening products. The
increase in Real Estate Run Rate was primarily driven by growth in
Market Information products and Portfolio Analysis Service
products. ESG Run Rate ex-FX increased 28.8%, Real Estate Run Rate
ex-FX increased 9.3% and All Other Run Rate ex-FX increased 20.7%,
each compared to September 30, 2017.
Full-Year 2018 Guidance
MSCI’s guidance for full-year 2018 remains as follows:
- Total operating expenses are now
expected to be in the range of $743 million to $750 million.
- Adjusted EBITDA expenses are now
expected to be in the range of $658 million to $665 million.
- Interest expense, including the
amortization of financing fees, is expected to be approximately
$133 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 now expected to be in the ranges
of $520 million to $550 million and $470 million to $510 million,
respectively.
- The effective tax rate is now expected
to be in the range of 19% to 21%.
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 has resulted 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 the execution of new license contracts
and renewals.
As a result of the adoption of the new revenue standard, MSCI
recorded $1.1 million of higher revenue in third quarter 2018 and
$5.5 million in nine months 2018.
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 $378.7
million at September 30, 2018 and $327.6 million at December 31,
2017. Deferred revenue was $441.9 million at September 30, 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 the third quarter 2018
results on Thursday, November 1, 2018 at 11:00 AM Eastern Time. To
listen to the live event, visit the events and presentations
section of MSCI's Investor Relations website,
http://ir.msci.com/events.cfm, or dial 1-877-376-9931 conference
ID: 9068146 within the United States. International callers dial
1-720-405-2251 conference ID: 9068146. The earnings release and
related investor presentation used during the conference call will
be made available on MSCI's Investor Relations website.
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 November 4, 2018, the recording will also be
available by dialing 1-855-859-2056 passcode: 9068146
within the United States or 1-404-537-3406 passcode:
9068146 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 99 of the top 100 largest money managers, according
to the most recent P&I ranking.
As of June 30, 2018, there were over $14.8 trillion in total
assets benchmarked to MSCI equity indexes globally (as reported on
September 30, 2018 by eVestment, Morningstar and Bloomberg).
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 Retention Rate.
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 Retention Rate for the period.
Retention Rate is computed by segment on a
product/service-by-product/service basis. In general, if a client
reduces the number of products or services to which it subscribes
within a segment, or switches between products or services within a
segment, we treat it as a cancellation for reporting purposes,
except in the case of a product or service switch that management
considers to be a replacement product or service. In those
replacement cases, only the net change to the client subscription,
if a decrease, is reported as a cancel. In the Analytics and the
ESG segments, substantially all product or service switches are
treated as replacement products or services and netted in this
manner, while in our Index and Real Estate segments, product or
service switches that are treated as replacement products or
services and receive netting treatment occur only in certain
limited instances. In addition, we treat any reduction in fees
resulting from a down-sale of the same product or service as a
cancellation to the extent of the reduction.
This definition of Retention Rate was revised and was previously
provided beginning with our earnings release, dated August 2, 2018,
to describe our methodology for calculating cancellations. We
believe this methodology has been applied in all material respects
in calculating cancellation rates reported in the prior periods
covered in our Form 10-K for the year ended December 31, 2017 and
in our Form 10-Q for the quarter ended March 31, 2018 and quarter
ended June 30, 2018, and accordingly, we do not believe changes to
those previously reported cancellation rates are required.
Beginning in second quarter 2018, “Aggregate Retention Rate” is
referred to as “Retention Rate.”
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/fees, 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/or
reported exchange fees, 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, and
associated revenue recognition, 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 have 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 growth” is defined as the period
over period Run Rate 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.
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 (1) provision
for income taxes, (2) other expense (income), net, (3) depreciation
and amortization of property, equipment and leasehold improvements,
(4) amortization of intangible assets and, at times, (5) 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 and, at times,
certain other transactions or adjustments.
“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
divestitures, 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 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.
While operating revenues adjusted for the impact of foreign
currency fluctuations includes asset-based fees that have been
adjusted for the impact of foreign currency fluctuations, the
underlying AUM, which is the primary component of asset-based fees,
is not adjusted for foreign currency fluctuations. Approximately
two-thirds of the AUM are invested in securities denominated in
currencies other than the U.S. dollar, and accordingly, any such
impact is excluded from the disclosed foreign currency adjusted
variances.
Table 2: Condensed Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months
Ended Sep. 30, Sep. 30, June
30, YoY % Sep. 30, Sep. 30, YoY
% In thousands, except per share data 2018
2017(2) 2018 Change 2018 2017(2)
Change Operating revenues $ 357,934 $ 322,097 $ 363,046
11.1 % $ 1,072,296 $ 939,393 14.1 % Operating
expenses: Cost of revenues 70,906 68,433 71,368 3.6 % 213,578
204,434 4.5 % Selling and marketing 46,149 44,873 47,416 2.8 %
139,974 129,395 8.2 % Research and development 20,591 17,974 19,801
14.6 % 61,099 55,140 10.8 % General and administrative 24,751
22,079 24,036 12.1 % 74,974 64,484 16.3 % Amortization of
intangible assets 11,681 10,614 19,537 10.1 % 42,556 32,987 29.0 %
Depreciation and amortization of property, equipment and leasehold
improvements 7,453 9,325 7,377 (20.1 %)
23,035 27,322 (15.7 %) Total operating expenses(1)
181,531 173,298 189,535 4.8 % 555,216
513,762 8.1 % Operating income 176,403 148,799 173,511 18.6
% 517,080 425,631 21.5 % Interest income (6,522 ) (1,835 )
(4,281 ) 255.4 % (13,573 ) (4,077 ) 232.9 % Interest expense 35,902
29,020 31,761 23.7 % 97,223 87,071 11.7 % Other expense (income)
177 811 (10,292 ) (78.2 %) (9,177 )
2,698 n/m Other expense (income), net 29,557
27,996 17,188 5.6 % 74,473 85,692 (13.1 %)
Income before provision for income taxes 146,846 120,803
156,323 21.6 % 442,607 339,939 30.2 % Provision for income
taxes 23,014 35,650 39,494 (35.4 %)
86,854 100,569 (13.6 %) Net income $ 123,832 $ 85,153 $
116,829 45.4 % $ 355,753 $ 239,370 48.6 %
Earnings
per basic common share $ 1.39 $ 0.94 $ 1.31 47.9 % $ 3.98 $ 2.65
50.2 %
Earnings per diluted common share $ 1.36 $
0.93 $ 1.28 46.2 % $ 3.87 $ 2.61 48.3 % Weighted average
shares outstanding used in computing earnings per share:
Basic 88,796 90,112 89,112 (1.5 %)
89,323 90,406 (1.2 %) Diluted 91,372 91,868
91,585 (0.5 %) 91,843 91,731 0.1 %
(1) Includes stock-based compensation expense of $10.6 million,
$9.4 million and $9.7 million for the three months ended Sep. 30,
2018, Sep. 30, 2017 and Jun. 30, 2018, respectively. Includes
stock-based compensation expense of $30.1 million and $28.6 million
for the nine months ended Sep. 30, 2018 and Sep. 30, 2017,
respectively.(2) As a result of the adoption of recent accounting
guidance, the Company has restated its Condensed Consolidated
Statements of Income by reclassifying $0.1 million and $0.4 million
of non-service related pension costs from Operating Expenses to
Other expense (income) for the three and nine months ended Sep.30,
2017, respectively.
Table 3: Selected Balance Sheet Items (unaudited)
As of
Sep. 30, Dec. 31,
In thousands 2018 2017 Cash and cash
equivalents $1,398,398 $889,502 Accounts receivable, net of
allowances(1) $378,705 $327,597 Deferred revenue(2) $441,884
$374,365 Long-term debt(3) $2,574,616 $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 Sep.
30, 2018 and Dec. 31, 2017 was $2.6 billion and $2.1 billion,
respectively.
Table 4: Selected Cash Flow Items (unaudited)
Three Months Ended Nine
Months Ended Sep. 30, Sep. 30,
June 30, Sep. 30, Sep. 30, In
thousands 2018 2017 2018 2018
2017 Net cash provided by operating activities $ 143,825 $
101,773 $ 207,165 $ 439,587 $ 261,005 Net cash (used in) provided
by investing activities (13,097 ) (11,553 ) 13,805 (5,164 ) (27,446
) Net cash (used in) provided by financing activities (97,758 )
(43,251 ) 304,416 80,600 (233,875 ) Effect of exchange rate changes
(2,168 ) 1,465 (7,618 ) (6,127 )
7,497
Net increase (decrease) in cash and cash equivalents
$ 30,802 $ 48,434 $
517,768 $ 508,896 $ 7,181
Table 5: Operating Results by Segment and Revenue Type
(unaudited)
Index Three Months Ended Nine
Months Ended Sep. 30, Sep. 30,
June 30, YoY % Sep. 30, Sep.
30, YoY % In thousands 2018
2017 2018 Change 2018 2017
Change Operating revenues: Recurring
subscriptions $ 121,285 $ 107,963 $ 119,626 12.3 % $ 354,116 $
315,786 12.1 % Asset-based fees 82,007 72,861 87,636 12.6 % 255,126
197,599 29.1 % Non-recurring 6,902 3,770 5,672
83.1 % 15,800 11,800 33.9 % Total operating revenues
210,194 184,594 212,934 13.9 % 625,042 525,185 19.0 % Adjusted
EBITDA expenses 55,717 50,252 55,418 10.9 %
167,119 145,647 14.7 % Adjusted EBITDA $ 154,477 $
134,342 $ 157,516 15.0 % $ 457,923 $ 379,538 20.7 % Adjusted EBITDA
margin % 73.5 % 72.8 % 74.0 % 73.3 % 72.3 %
Analytics
Three Months Ended Nine Months Ended Sep. 30,
Sep. 30, June 30, YoY % Sep. 30,
Sep. 30, YoY % In thousands 2018
2017 2018 Change 2018 2017
Change Operating revenues: Recurring subscriptions $ 118,857
$ 113,574 $ 117,528 4.7 % $ 354,629 $ 336,904 5.3 % Non-recurring
1,041 1,398 1,591 (25.5 %) 3,375
3,855 (12.5 %) Total operating revenues 119,898 114,972 119,119 4.3
% 358,004 340,759 5.1 % Adjusted EBITDA expenses 82,852
81,894 82,792 1.2 % 251,038 246,276 1.9
% Adjusted EBITDA $ 37,046 $ 33,078 $ 36,327 12.0 % $ 106,966 $
94,483 13.2 % Adjusted EBITDA margin % 30.9 % 28.8 % 30.5 % 29.9 %
27.7 %
All Other Three Months Ended Nine
Months Ended Sep. 30, Sep. 30, June 30,
YoY % Sep. 30, Sep. 30, YoY % In
thousands 2018 2017 2018 Change
2018 2017 Change Operating revenues: Recurring
subscriptions $ 27,234 $ 21,865 $ 29,584 24.6 % $ 86,185 $ 71,256
21.0 % Non-recurring 608 666 1,409 (8.7 %)
3,065 2,193 39.8 % Total operating revenues 27,842
22,531 30,993 23.6 % 89,250 73,449 21.5 % Adjusted EBITDA expenses
23,828 21,213 24,411 12.3 % 71,468
61,530 16.2 % Adjusted EBITDA $ 4,014 $ 1,318 $ 6,582 204.6
% $ 17,782 $ 11,919 49.2 % Adjusted EBITDA margin % 14.4 % 5.8 %
21.2 % 19.9 % 16.2 %
Consolidated Three Months
Ended Nine Months Ended Sep. 30, Sep. 30,
June 30, YoY % Sep. 30, Sep. 30, YoY
% In thousands 2018 2017
2018 Change 2018 2017
Change Operating revenues: Recurring subscriptions $ 267,376
$ 243,402 $ 266,738 9.8 % $ 794,930 $ 723,946 9.8 % Asset-based
fees 82,007 72,861 87,636 12.6 % 255,126 197,599 29.1 %
Non-recurring 8,551 5,834 8,672 46.6 %
22,240 17,848 24.6 % Operating revenues total 357,934
322,097 363,046 11.1 % 1,072,296 939,393 14.1 % Adjusted EBITDA
expenses 162,397 153,359 162,621 5.9 %
489,625 453,453 8.0 % Adjusted EBITDA $ 195,537 $ 168,738 $
200,425 15.9 % $ 582,671 $ 485,940 19.9 % Adjusted EBITDA margin %
54.6 % 52.4 % 55.2 % 54.3 % 51.7 % Operating margin % 49.3 % 46.2 %
47.8 % 48.2 % 45.3 %
Table 6: Sales and Retention Rate by Segment
(unaudited)
Three Months Ended Nine Months
Ended Sep. 30, June 30, Mar.
31, Dec. 31, Sep. 30, Sep.
30, Sep. 30, In thousands 2018
2018 2018 2017 2017 2018
2017 Index New recurring subscription sales $ 15,546
$ 20,906 $ 15,195 $ 17,980 $ 15,499 $ 51,647 $ 43,328 Subscription
cancellations (4,428 ) (4,577 ) (4,115 )
(6,180 ) (4,605 ) (13,120 ) (10,815 )
Net new recurring subscription sales $ 11,118 $ 16,329 $ 11,080 $
11,800 $ 10,894 $ 38,527 $ 32,513 Non-recurring sales $ 7,097 $
5,328 $ 3,459 $ 3,677 $ 3,704 $ 15,885 $ 12,633 Total gross
sales(1) $ 22,643 $ 26,234 $ 18,654 $ 21,657 $ 19,203 $ 67,532 $
55,961 Total Index net sales $ 18,215 $ 21,657 $ 14,539 $ 15,477 $
14,598 $ 54,412 $ 45,146 Index Retention Rate(2) 96.1 % 95.9
% 96.4 % 93.9 % 95.5 % 96.1 % 96.5 %
Analytics New
recurring subscription sales $ 16,797 $ 17,395 $ 11,356 $ 25,217 $
15,036 $ 45,549 $ 38,960 Subscription cancellations (7,117 )
(9,452 ) (8,578 ) (11,679 ) (7,444 )
(25,148 ) (21,995 ) Net new recurring subscription
sales $ 9,680 $ 7,943 $ 2,778 $ 13,538 $ 7,592 $ 20,401 $ 16,965
Non-recurring sales $ 3,189 $ 2,425 $ 1,346 $ 3,742 $ 2,792 $ 6,959
$ 6,564 Total gross sales(1) $ 19,986 $ 19,820 $ 12,702 $ 28,959 $
17,828 $ 52,508 $ 45,524 Total Analytics net sales $ 12,869 $
10,368 $ 4,124 $ 17,280 $ 10,384 $ 27,360 $ 23,529 Analytics
Retention Rate(2) 94.1 % 92.1 % 93.0 % 89.7 % 93.4 % 93.1 % 93.5 %
All Other New recurring subscription sales $ 6,459 $
6,678 $ 5,468 $ 8,391 $ 4,576 $ 18,605 $ 14,153 Subscription
cancellations (1,547 ) (1,384 ) (1,531 )
(1,954 ) (2,050 ) (4,463 ) (5,763 ) Net
new recurring subscription sales $ 4,912 $ 5,294 $ 3,937 $ 6,437 $
2,526 $ 14,142 $ 8,390 Non-recurring sales $ 641 $ 909 $ 694 $
1,479 $ 829 $ 2,243 $ 2,396 Total gross sales(1) $ 7,100 $ 7,587 $
6,162 $ 9,870 $ 5,405 $ 20,848 $ 16,549 Total All Other net sales $
5,553 $ 6,203 $ 4,631 $ 7,916 $ 3,355 $ 16,385 $ 10,786 All
Other Retention Rate(2) 94.3 % 94.9 % 94.4 % 91.1 % 90.7 % 94.5 %
91.3 %
Consolidated New recurring subscription sales
$ 38,802 $ 44,979 $ 32,019 $ 51,588 $ 35,111 $ 115,801 $ 96,441
Subscription cancellations (13,092 ) (15,413 )
(14,224 ) (19,813 ) (14,099 ) (42,731 )
(38,573 ) Net new recurring subscription sales $ 25,710 $ 29,566 $
17,795 $ 31,775 $ 21,012 $ 73,070 $ 57,868 Non-recurring sales $
10,927 $ 8,662 $ 5,499 $ 8,898 $ 7,325 $ 25,087 $ 21,593 Total
gross sales(1) $ 49,729 $ 53,641 $ 37,518 $ 60,486 $ 42,436 $
140,888 $ 118,034 Total net sales $ 36,637 $ 38,228 $ 23,294 $
40,673 $ 28,337 $ 98,157 $ 79,461 Total Retention Rate(2)
95.0 % 94.1 % 94.6 % 91.6 % 94.0 % 94.5 % 94.6 %
(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
Retention Rate.
Table 7: AUM in ETFs Linked to MSCI Indexes
(unaudited)(1)(2)
Three Months Ended Nine
Months Ended Sep. 30, June 30,
Mar. 31, Dec. 31, Sep.
30, Sep. 30, Sep. 30, In billions
2018 2018 2018 2017 2017
2018 2017 Beginning Period AUM in ETFs linked to MSCI
indexes $ 744.7 $ 764.9 $ 744.3 $ 674.3 $ 624.3 $ 744.3 $ 481.4
Market Appreciation/(Depreciation) 15.6 (19.4 ) (11.7 ) 32.0 32.2
(15.6 ) 91.6 Cash Inflows 5.2 (0.8 ) 32.3 38.0 17.8 36.8 101.3
Period-End AUM in ETFs linked to
MSCI
indexes $ 765.5 $ 744.7 $ 764.9 $ 744.3 $ 674.3 $ 765.5 $ 674.3
Period Average AUM in ETFs linked to MSCI indexes $ 755.8 $
776.5 $ 779.5 $ 712.3 $ 654.4 $ 770.6 $ 591.1 Avg. Basis
Point Fee(3) 2.90 2.96 3.02 3.04 3.05 2.90 3.05
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 Sep. 30,
Sep. 30, June 30, YoY %
In thousands 2018 2017 2018
Change Index Recurring subscriptions $ 489,515 $
439,251 $ 478,421 11.4 % Asset-based fees 326,148
289,812 327,299 12.5 %
Index Run Rate 815,663
729,063 805,720 11.9 %
Analytics Run
Rate 499,219 474,721 489,979 5.2 %
All Other Run Rate 120,419 101,253
116,021 18.9 %
Total Run Rate $
1,435,301 $ 1,305,037 $
1,411,720 10.0 % Total recurring
subscriptions $ 1,109,153 $ 1,015,225 $ 1,084,421 9.3 % Total
asset-based fees 326,148 289,812 327,299 12.5
%
Total Run Rate $ 1,435,301 $
1,305,037 $ 1,411,720 10.0 %
(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 Nine
Months Ended Sep. 30, Sep. 30,
June 30, Sep. 30, Sep.
30, In thousands 2018 2017(1) 2018
2018 2017(1) Index adjusted EBITDA $ 154,477 $
134,342 $ 157,516 $ 457,923 $ 379,538 Analytics adjusted EBITDA
37,046 33,078 36,327 106,966 94,483 All Other adjusted EBITDA
4,014 1,318 6,582 17,782 11,919
Consolidated adjusted EBITDA 195,537
168,738 200,425 582,671
485,940 Amortization of intangible assets 11,681 10,614
19,537 42,556 32,987 Depreciation and amortization of property,
equipment and leasehold improvements 7,453 9,325
7,377 23,035 27,322
Operating income
176,403 148,799 173,511 517,080
425,631 Other expense (income), net 29,557 27,996 17,188
74,473 85,692 Provision for income taxes 23,014
35,650 39,494 86,854 100,569
Net income
$ 123,832 $ 85,153 $
116,829 $ 355,753 $ 239,370
(1) As a result of the adoption of recent accounting guidance,
the Company has restated its adjusted EBITDA by excluding $0.1
million and $0.4 million of non-service related pension costs from
adjusted EBITDA expenses for the three and nine months ended Sep.
30, 2017, respectively.
Table 10: Reconciliation of Adjusted Net Income and Adjusted
EPS to Net Income and EPS (unaudited)
Three Months Ended Nine Months
Ended Sep. 30, Sep. 30, June
30, Sep. 30, Sep. 30, In thousands,
except per share data 2018 2017 2018
2018 2017 Net income $ 123,832 $ 85,153 $ 116,829 $
355,753 $ 239,370 Plus: Amortization of acquired intangible assets
8,999 9,270 17,029 35,235 29,919 Less: Gain on divestiture (10 ) —
(10,636 ) (10,646 ) (771 ) Less: Tax item related to pending
transaction(1) (7,758 ) — — (7,758 ) — Less: Tax Reform adjustments
— — — (1,601 ) — Less: Income tax effect (1,884 )
(2,732 ) (4,121 ) (7,613 ) (8,850 )
Adjusted net income $ 123,179 $
91,691 $ 119,101 $ 363,370
$ 259,668 Diluted EPS $ 1.36 $ 0.93 $ 1.28 $
3.87 $ 2.61 Plus: Amortization of acquired intangible assets 0.10
0.10 0.19 0.38 0.33 Less: Gain on divestiture — — (0.12 ) (0.12 )
(0.01 ) Less: Tax item related to pending transaction(1) (0.08 ) —
— (0.08 ) — Less: Tax Reform adjustments — — — (0.02 ) — Less:
Income tax effect (0.03 ) (0.03 ) (0.05 )
(0.07 ) (0.10 )
Adjusted EPS $
1.35 $ 1.00 $ 1.30 $
3.96 $ 2.83
(1) Reflects the release of a valuation allowance on capital
loss carryforwards that was recognized in third quarter 2018 due to
the execution of the agreement to sell InvestorForce in July
2018.
Table 11: Reconciliation of Adjusted EBITDA Expenses to
Operating Expenses (unaudited)
Three Months Ended Nine
Months Ended Full-Year Sep. 30,
Sep. 30, June 30, Sep.
30, Sep. 30, 2018 In
thousands 2018 2017(1) 2018 2018
2017(1) Outlook(2) Index adjusted EBITDA expenses $
55,717 $ 50,252 $ 55,418 $ 167,119 $ 145,647 Analytics adjusted
EBITDA expenses 82,852 81,894 82,792 251,038 246,276 All Other
adjusted EBITDA expenses 23,828 21,213 24,411
71,468 61,530
Consolidated adjusted EBITDA
expenses 162,397 153,359
162,621 489,625 453,453
$658,000 - $665,000 Amortization of intangible assets 11,681
10,614 19,537 42,556 32,987 Depreciation and amortization of
property, 85,000 equipment and leasehold improvements 7,453
9,325 7,377 23,035 27,322
Total operating expenses $ 181,531 $
173,298 $ 189,535 $ 555,216
$ 513,762 $743,000 - $750,000
(1) As a result of the adoption of recent accounting guidance,
the Company has restated its adjusted EBITDA by excluding $0.1
million and $0.4 million of non-service related pension costs from
adjusted EBITDA expenses for the three and nine months ended Sep.
30, 2017, respectively.(2) 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 Nine Months
Ended Full-Year Sep. 30, Sep.
30, June 30, Sep. 30, Sep.
30, 2018 In thousands 2018 2017
2018 2018 2017 Outlook(1) Net cash
provided by operating activities $ 143,825 $ 101,773 $ 207,165 $
439,587 $ 261,005 $520,000 - $550,000 Capital expenditures (8,590 )
(6,390 ) (2,967 ) (13,069 ) (17,440 ) Capitalized software
development costs (4,517 ) (5,164 ) (4,238 )
(13,115 ) (10,777 ) Capex (13,107 )
(11,554 ) (7,205 ) (26,184 ) (28,217 )
(50,000 - 40,000)
Free cash flow $ 130,718
$ 90,219 $ 199,960 $
413,403 $ 232,788 $470,000 - $510,000
(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 Nine
Months Ended Sep. 30, Sep. 30,
June 30, Sep. 30, Sep. 30, 2018
2017 2018 2018 2017 Effective tax rate
15.67% 29.51% 25.26% 19.62% 29.58% Less: Tax Reform impact on
effective tax rate —% —% —% 0.36% —% Adjusted tax rate 15.67%
29.51% 25.26% 19.98% 29.58%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181101005521/en/
MSCI Inc.InvestorsAndrew Wiechmann, + 1
212-804-3986andrew.wiechmann@msci.comorMediaSamuel Wang, + 1
212-804-5244samuel.wang@msci.com
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