MSCI Inc. (NYSE: MSCI), a leading provider of critical decision
support tools and services for the global investment community,
announced today the results for the three months ended September
30, 2019 (“third quarter 2019”) and nine months ended September 30,
2019 (“nine months 2019”).
Financial and Operational Highlights for Third Quarter
2019 (Note: Percentage and other changes refer to third quarter
2018 unless otherwise noted.)
- Operating revenues up 10.1%, with recurring subscription
revenues up 7.8%, asset-based fees up 17.1% and non-recurring
revenues up 18.5%
- Organic operating revenue growth was 11.8%, with organic
recurring subscription revenue growth of 9.8%
- Diluted EPS of $1.60, up 17.6%; Adjusted EPS of $1.68, up
24.4%
- Organic subscription Run Rate growth of 10.0%, with Index up
11.1%, Analytics up 6.2% and All Other up 20.4%. ESG Run Rate at
September 30, 2019 almost doubled over the past 3 years
- Third quarter 2019 Retention Rate at 95.0%
- Extended our long-term relationship with BlackRock for
another 10 years beginning March 2020, as further described in
Index Segment section below
Three Months Ended
Nine Months Ended
In thousands,
Sep. 30,
Sep. 30,
June 30,
YoY %
Sep. 30,
Sep. 30,
YoY %
except per share data
(unaudited)
2019
2018
2019
Change
2019
2018
Change
Operating revenues
$
394,251
$
357,934
$
385,558
10.1
%
$
1,151,190
$
1,072,296
7.4
%
Operating income
$
201,219
$
176,403
$
192,378
14.1
%
$
556,272
$
517,080
7.6
%
Operating margin %
51.0
%
49.3
%
49.9
%
48.3
%
48.2
%
Net income
$
136,983
$
123,832
$
125,690
10.6
%
$
440,865
$
355,753
23.9
%
Diluted EPS
$
1.60
$
1.36
$
1.47
17.6
%
$
5.15
$
3.87
33.1
%
Adjusted EPS
$
1.68
$
1.35
$
1.54
24.4
%
$
4.77
$
3.96
20.5
%
Adjusted EBITDA
$
220,789
$
195,537
$
211,796
12.9
%
$
630,292
$
582,671
8.2
%
Adjusted EBITDA margin
%
56.0
%
54.6
%
54.9
%
54.8
%
54.3
%
“We are excited to deliver another quarter of strong results for
our shareholders driven by both our core subscription offerings and
asset-based fees. Additionally, our new long-term agreements with
BlackRock, the Intercontinental Exchange, Eurex and Charles River
Development, as well as our acquisition of Carbon Delta, align us
well with key, strategic partners and provide us with important
capabilities that will continue to enhance our growth and
competitive differentiation,” commented Henry A. Fernandez,
Chairman and CEO of MSCI.
Third Quarter 2019 and Nine Months 2019
Consolidated Results
Revenues: Operating revenues
for third quarter 2019 increased $36.3 million, or 10.1%, to $394.3
million, compared to the three months ended September 30, 2018
(“third quarter 2018”). The $36.3 million increase in operating
revenues was driven by a $20.7 million, or 7.8%, increase in
recurring subscriptions (driven primarily by a $12.1 million, or
10.0%, increase in Index, a $4.2 million, or 22.7%, increase in ESG
and a $3.3 million, or 2.7%, increase in Analytics), a $14.0
million, or 17.1%, increase in asset-based fees (which itself was
driven by growth across all types of index-linked investments
products) and a $1.6 million, or 18.5%, increase in non-recurring
revenues. Organic operating revenue growth was 11.8%, with organic
recurring subscription revenue growth of 9.8%, organic asset-based
fee growth of 17.1% and organic non-recurring revenue growth of
20.1%.
For nine months 2019, operating revenues increased $78.9
million, or 7.4%, to $1,151.2 million, compared to $1,072.3 million
for the nine months ended September 30, 2018 (“nine months 2018”).
The $78.9 million increase was driven by a $64.7 million, or 8.1%,
increase in recurring subscriptions, a $10.4 million, or 4.1%,
increase in asset-based fees and a $3.8 million, or 17.0%, increase
in non-recurring revenues. For nine months 2019, organic operating
revenue growth was 9.5%, with organic recurring subscriptions
revenue growth of 11.0%, organic asset-based fee growth of 4.2% and
organic non-recurring revenue growth of 20.7%.
Run Rate: Total Run Rate at
September 30, 2019 grew by $115.3 million, or 8.0%, to $1,550.6
million, compared to September 30, 2018. The $115.3 million
increase was driven by an $85.5 million, or 7.7%, increase in
recurring subscription Run Rate to $1,194.6 million and a $29.9
million, or 9.2%, increase in asset-based fees Run Rate to $356.0
million. Organic subscription Run Rate growth of 10.0% in third
quarter 2019 was driven by strong growth in the Index and All Other
segments and in the Analytics segment’s Multi-Asset Class and
Equity Analytics products. Retention Rate was 95.0% in third
quarter 2019, flat compared to third quarter 2018.
Non-Recurring Sales: Total
non-recurring sales for third quarter 2019 increased $3.5 million,
or 31.7%, to $14.4 million compared to third quarter 2018,
primarily driven by increased sales in BarraOne and RiskManager
product offerings and Index derivative product offerings.
Expenses: Total operating
expenses for third quarter 2019 increased $11.5 million, or 6.3%,
to $193.0 million compared to third quarter 2018, driven mainly by
a $5.7 million, or 4.9%, increase in compensation and benefits
costs and a $5.4 million, or 11.6%, increase in non-compensation
costs. The compensation and benefits costs increase is primarily
attributable to higher incentive compensation and wages and
salaries. The non-compensation costs increase is primarily
attributable to higher professional fees, marketing costs,
recruiting costs and occupancy costs.
Adjusted EBITDA expenses for third quarter 2019 increased $11.1
million, or 6.8%, to $173.5 million, compared to third quarter
2018. Total operating expenses excluding the impact of foreign
currency exchange rate fluctuations (“ex-FX”) and adjusted EBITDA
expenses ex-FX for third quarter 2019 increased 7.6% and 8.2%,
respectively, compared to third quarter 2018.
For nine months 2019, total operating expenses increased $39.7
million, or 7.2%, to $594.9 million. Adjusted EBITDA expenses
increased $31.3 million, or 6.4%, to $520.9 million compared to
nine months 2018. Total operating expenses ex-FX and adjusted
EBITDA expenses ex-FX for nine months 2019 increased 9.2% and 8.7%,
respectively, compared to nine months 2018.
Headcount: As of September
30, 2019, there were 3,358 employees, up 7.6% from 3,121 as of
September 30, 2018 and up 2.8% from 3,266 as of June 30, 2019. The
7.6% 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 in the client coverage
organization. As of September 30, 2019, a total of 36.7% and 63.3%
of employees were located in developed market and emerging market
centers, respectively, compared to 39.9% in developed market
centers and 60.1% in emerging market centers as of September 30,
2018.
Amortization and Depreciation
Expenses: Amortization and depreciation expenses
increased $0.4 million, or 2.3%, to $19.6 million, compared to
third quarter 2018, primarily as a result of higher amortization of
internally developed capitalized software, partially offset by
lower amortization due to the impact of the divestiture of Investor
Force Holdings, Inc. (“InvestorForce”) in October 2018 and lower
software depreciation costs. For nine months 2019, amortization and
depreciation expenses of $58.6 million decreased by $7.0 million,
or 10.6%, compared to nine months 2018.
Other Expense (Income), Net:
Other expense (income), net increased $2.9 million, or 9.9%, to
$32.5 million, compared to third quarter 2018, primarily due to
lower interest income driven by lower yields on lower cash balances
in third quarter 2019, compared to third quarter 2018. For nine
months 2019, other expense (income), net increased $25.0 million,
or 33.6%, to $99.5 million, compared to nine months 2018.
Income Taxes: Income tax
expense was $31.8 million for third quarter 2019, compared to $23.0
million for third quarter 2018. The effective tax rates were 18.8%
and 15.7% for third quarter 2019 and third quarter 2018,
respectively. The increase was primarily due to the release of a
valuation allowance previously recorded on capital loss carry
forwards in third quarter 2018. The release of the valuation
allowance was triggered by the execution of the agreement to sell
InvestorForce in July 2018. The loss was utilized in the three
months ended December 31, 2018 to partially 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
for third quarter 2018.
For nine months 2019, the income tax expense was $15.9 million
compared to $86.9 million for nine months 2018. The effective tax
rates were 3.5% and 19.6% for nine months 2019 and nine months
2018, respectively. The lower effective tax rate compared to nine
months 2018 was driven by the income tax benefit (the “PSU windfall
benefit”) related to the vesting of multi-year restricted stock
units granted in 2016 to certain senior executives that are subject
to the achievement of multi-year total shareholder return targets,
which are performance targets with a market condition (the
“Multi-Year PSUs”), other discrete items and a beneficial
geographic mix of earnings, partially offset by the release of the
valuation allowance relating to the October 2018 divestiture of
InvestorForce. The PSU windfall benefit total of $66.6 million was
recorded in the three months ended March 31, 2019 (“first quarter
2019”) and is excluded from both the adjusted net income and
adjusted EPS measures for nine months 2019. Excluding the PSU
windfall benefit, nine months 2019 adjusted tax rate was 18.1%.
Net Income: Net income
increased 10.6% to $137.0 million in third quarter 2019, compared
to $123.8 million in third quarter 2018. For nine months 2019, net
income increased 23.9% to $440.9 million, compared to $355.8
million for nine months 2018.
Adjusted EBITDA: Adjusted
EBITDA was $220.8 million in third quarter 2019, up $25.3 million,
or 12.9%, from third quarter 2018. Adjusted EBITDA margin in third
quarter 2019 was 56.0%, compared to 54.6% in third quarter 2018.
For nine months 2019, adjusted EBITDA was $630.3 million, up 8.2%
from nine months 2018, and adjusted EBITDA margin was 54.8% for
nine months 2019, compared to 54.3% for nine months 2018.
Cash Balances and Outstanding
Debt: Total cash and cash equivalents as of September
30, 2019 was $881.2 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, 2019 was $2,600.0
million, which excludes deferred financing fees of $21.8 million.
The total debt to adjusted EBITDA ratio (based on trailing twelve
months adjusted EBITDA) was 3.2x, which is within the stated gross
leverage to adjusted EBITDA target range of 3.0x to 3.5x.
Cash Flow and Capex: Net
cash provided by operating activities was $188.5 million in third
quarter 2019, compared to $143.8 million in third quarter 2018 and
$189.5 million in second quarter 2019. Capex for third quarter 2019
was $14.8 million, compared to $13.1 million in third quarter 2018
and $12.4 million in second quarter 2019. Free cash flow was $173.8
million in third quarter 2019, compared to $130.7 million in third
quarter 2018 and $177.1 million in second quarter 2019. The slight
decrease in net cash provided by operating activities compared to
second quarter 2019 was driven primarily by lower cash collections
from customers, higher payments of cash expenses and higher
interest payments, partially offset by lower income tax payments.
The decrease in free cash flow, compared to second quarter 2019,
was driven by the slightly lower net cash provided by operating
activities described in the preceding sentence coupled with higher
Capex. The increase in net cash provided by operating activities,
compared to third quarter 2018, was driven primarily by higher cash
collections from customers and lower income tax payments, partially
offset by higher payments of cash expenses. The increase in free
cash flow, compared to third quarter 2018, was driven by the higher
net cash provided by operating activities described in the
preceding sentence, partially offset by higher Capex.
Net cash provided by operating activities was $465.9 million for
nine months 2019, compared to $439.6 million for nine months 2018.
Capex for nine months 2019 was $35.3 million, compared to $26.2
million for nine months 2018. Free cash flow was $430.6 million for
nine months 2019, compared to $413.4 million for nine months
2018.
Share Count and Capital
Return: The weighted average diluted shares outstanding
in third quarter 2019 declined 6.4% to 85.6 million, compared to
91.4 million in third quarter 2018. In nine months 2019, a total of
0.7 million shares were repurchased at an average price of $147.97
per share for a total value of $102.1 million, with no repurchases
in third quarter 2019. On October 29, 2019, the Board of Directors
authorized a stock repurchase program for the purchase of up to
$750.0 million worth of shares of MSCI’s common stock which will be
aggregated with the $706.1 million of authorization remaining under
the existing share repurchase program as of September 30, 2019.
Total shares outstanding as of September 30, 2019 was 84.7
million.
On October 29, 2019, the Board of Directors (“Board”) declared a
cash dividend of $0.68 per share for fourth quarter 2019. The
fourth quarter 2019 dividend is payable on November 27, 2019 to
shareholders of record as of the close of trading on November 15,
2019.
Table 1: 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
3Q'19
$
237,427
$
177,680
74.8
%
$
123,603
$
37,797
30.6
%
$
33,221
$
5,312
16.0
%
3Q'18
$
210,194
$
154,477
73.5
%
$
119,898
$
37,046
30.9
%
$
27,842
$
4,014
14.4
%
2Q'19
$
225,550
$
163,915
72.7
%
$
123,681
$
39,071
31.6
%
$
36,327
$
8,810
24.3
%
YoY % change
13.0
%
15.0
%
3.1
%
2.0
%
19.3
%
32.3
%
YTD 2019
$
677,750
$
493,806
72.9
%
$
368,719
$
113,266
30.7
%
$
104,721
$
23,220
22.2
%
YTD 2018
$
625,042
$
457,923
73.3
%
$
358,004
$
106,966
29.9
%
$
89,250
$
17,782
19.9
%
% change
8.4
%
7.8
%
3.0
%
5.9
%
17.3
%
30.6
%
Index Segment: Operating
revenues for third quarter 2019 increased $27.2 million, compared
to third quarter 2018. The increase was driven by a $14.0 million
increase in asset-based fees, a $12.1 million increase in recurring
subscriptions and a $1.1 million increase in non-recurring
revenues. The increase in recurring subscriptions was driven by
strong growth in factor and ESG index products and growth in core
developed market modules and index level products.
Growth in revenues from asset-based fees included $8.6 million
from exchange traded futures and options contracts based on MSCI
indexes, $2.7 million from exchange traded funds (“ETFs”) linked to
MSCI indexes and $2.7 million from non-ETF passive funds linked to
MSCI indexes. The increase in revenues from futures and options was
primarily driven by approximately $5.0 million in additional fees
associated with prior periods attributed to a retrospective price
increase from a renegotiated contract. The increase in revenues
from ETFs linked to MSCI indexes was driven by a 7.3% increase in
average assets under management (“AUM”), partially offset by a
decline in average basis point fees resulting primarily from a
change in product mix. The increase in non-ETF passive funds linked
to MSCI indexes was primarily driven by an increased contribution
from higher-fee products.
The adjusted EBITDA margin for Index was 74.8% for third quarter
2019, compared to 73.5% for third quarter 2018.
Operating revenues for nine months 2019 increased $52.7 million
compared to nine months 2018, driven by a $39.1 million increase in
recurring subscriptions, a $10.4 million increase in asset-based
fees and a $3.2 million increase in non-recurring revenues. The
adjusted EBITDA margin for Index was 72.9% for nine months 2019,
compared to 73.3% for nine months 2018.
Index Run Rate at September 30, 2019 grew by $84.4 million, or
10.3%, compared to September 30, 2018. The increase was driven by a
$54.5 million increase in recurring subscription Run Rate and a
$29.9 million increase in asset-based fees Run Rate. The 11.1%
increase in Index recurring subscription Run Rate was driven by
strong growth in core developed and emerging market modules and
factor, ESG and custom index products with strong growth across all
our client segments. The increase in asset-based fees Run Rate was
primarily driven by higher volumes in futures and options and an
increase in non-ETF passive funds linked to MSCI indexes, as well
as higher AUM in ETFs linked to MSCI indexes.
On October 30, 2019, MSCI and BlackRock executed an amendment to
the two license agreements that cover all existing BlackRock ETFs
based on MSCI equity indexes (the “Amendment1”), extending the
terms of such agreements by 10 years through March 17, 2030. The
Amendment secures a long-term framework to expand our successful
relationship and is intended to further align the interests of our
organizations. BlackRock will continue to pay MSCI periodic license
fees calculated based on the AUM and the total expense ratios
(“TERs”) of licensed BlackRock ETFs. Pursuant to the Amendment,
current license fee rates paid to MSCI will be reduced for ETFs
with TERs below certain levels according to a phased implementation
period with the first adjustment taking place on March 18, 2020.
Based on the AUM as of September 30, 2019 and the most recently
confirmed TERs of the ETFs that as of today will become subject to
this adjustment during the implementation period, the aggregate
reduction to asset-based fees Run Rate as of September 30, 2019
associated with these adjustments is not material. Any potential
future reductions by BlackRock in the TERs of licensed BlackRock
ETFs may reduce the license fee rates payable to MSCI for those
ETFs. This is balanced by the potential for incremental assets to
flow into licensed BlackRock ETFs and is intended to maximize the
long-term revenue growth opportunity.
In addition to the above, the combined impact on asset-based
fees Run Rate from certain renegotiated agreements, based on third
quarter 2019 trading volumes, will add approximately $15.0 million,
a portion of which is already included in the asset-based fees Run
Rate for third quarter 2019 and the remainder of which is expected
to be added over the course of the next six months.
1 The description of the Amendment does not purport to be
complete and is qualified in its entirety by reference to the
Amendment, which will be filed with the Securities and Exchange
Commission on the Company’s Quarterly Report on Form 10-Q for third
quarter 2019.
Analytics Segment: Operating
revenues for third quarter 2019 increased $3.7 million, compared to
third quarter 2018, primarily driven by strong growth in
Multi-Asset Class Analytics products and the timing of client
implementations, partially offset by the divestiture of
InvestorForce. Organic operating revenue growth was 6.9%. The
adjusted EBITDA margin for Analytics was 30.6% for third quarter
2019, compared to 30.9% for third quarter 2018.
Operating revenues for nine months 2019 increased $10.7 million
compared to nine months 2018. Organic operating revenue growth was
8.2%. The adjusted EBITDA margin for Analytics was 30.7% for nine
months 2019, compared to 29.9% for nine months 2018.
Analytics Run Rate at September 30, 2019 grew by $10.0 million
compared to September 30, 2018, primarily driven by strong growth
in both Multi-Asset Class and Equity Analytics products, partially
offset by the removal of Run Rate associated with InvestorForce,
which was divested in October 2018. Analytics organic subscription
Run Rate growth was 6.2% compared to September 30, 2018.
All Other Segment: Operating
revenues for third quarter 2019 increased $5.4 million, compared to
third quarter 2018. The increase in All Other operating revenues
was driven by a $4.2 million increase in ESG operating revenues,
coupled with a $1.2 million increase in Real Estate operating
revenues. The increase in ESG operating revenues was driven by
strong growth in ESG Ratings products and ESG Screening product
revenues, as we continue to see strong demand across all client
segments and new use cases. The increase in Real Estate operating
revenues was primarily driven by strong growth in our Enterprise
Analytics products. Third quarter 2019 All Other organic operating
revenue growth was 23.3%, with ESG organic operating revenue growth
of 26.1% and Real Estate organic operating revenue growth of 17.8%.
The adjusted EBITDA margin for All Other was 16.0% for third
quarter 2019, compared to 14.4% for third quarter 2018.
Operating revenues for nine months 2019 increased $15.5 million,
compared to nine months 2018. The increase in All Other revenues
was driven by a $13.4 million increase in ESG revenues, coupled
with a $2.0 million increase in Real Estate revenues. All Other
organic operating revenue growth for nine months 2019 was 22.0%,
with ESG organic operating revenue growth of 29.1% and Real Estate
organic operating revenue growth of 12.0%. The adjusted EBITDA
margin for All Other was 22.2% for nine months 2019, compared to
19.9% for nine months 2018.
All Other Run Rate at September 30, 2019 grew by $20.9 million,
compared to September 30, 2018. The increase was driven by a $17.9
million increase in ESG Run Rate, coupled with a $3.0 million
increase in Real Estate Run Rate. The increase in ESG Run Rate was
primarily driven by strong growth in ESG Ratings products and ESG
Screening products. The increase in Real Estate Run Rate was
primarily driven by growth in Global Intel products. All Other
organic subscription Run Rate increased 20.4%, with ESG Run Rate
increasing 25.8% and Real Estate Run Rate up 11.4%, each compared
to September 30, 2018.
Full-Year 2019 Guidance
MSCI’s guidance for full-year 2019 is as follows:
- Total operating expenses are expected to be toward the high end
of the guidance range of $775 million to $800 million.
- Adjusted EBITDA expenses1 are expected to be toward the high
end of the guidance range of $685 million to $705 million.
- Interest expense, including the amortization of financing fees,
is expected to be approximately $144 million, assuming no
additional financings.
- Capex is expected to be toward the high end of the guidance
range of $45 million to $55 million.
- Net cash provided by operating activities and free cash flow
are expected to be at, or slightly above, the high end of the
guidance ranges of $600 million to $630 million and $545 million to
$585 million, respectively.
- The effective tax rate2 is now expected to be in the range of
6.0% to 9.0%.
1 Excludes the payroll tax impact from the vesting in first
quarter 2019 of the Multi-Year PSUs. 2 Includes the PSU windfall
benefit which is expected to reduce the 2019 effective tax rate by
~11 percentage points.
The guidance provided above assumes, among other things, that
MSCI maintains its current debt levels. On October 25, 2019, the
Strategy and Finance Committee of the Board, acting upon prior
delegation from 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.
Conference Call Information
MSCI's senior management will review third quarter 2019 results
on Thursday, October 31, 2019 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 1-877-376-9931 conference ID: 2558434 within the United
States. International callers dial 1-720-405-2251 conference ID:
2558434. The earnings release, third quarter update and 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 November 3, 2019, the recording will also be
available by dialing 1-855-859-2056 conference ID: 2558434 within
the United States or 1-404-537-3406 conference ID: 2558434 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 Inc.
MSCI is a leading provider of critical decision support tools
and services for the global investment community. With over 45
years of expertise in research, data and technology, we power
better investment decisions by enabling clients to understand and
analyze key drivers of risk and return and confidently build more
effective portfolios. We create industry-leading, research-enhanced
solutions that clients use to gain insight into and improve
transparency across the investment process.
To learn more, please visit 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, MSCI’s full-year 2019 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
MSCI’s control and that could materially affect actual results,
levels of activity, performance or achievements.
Other factors that could materially affect actual results,
levels of activity, performance or achievements can be found in
MSCI’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2018 filed with the Securities and Exchange Commission
(“SEC”) on February 22, 2019 and in quarterly reports on Form 10-Q
and current reports on Form 8-K filed or furnished with the SEC. If
any of these risks or uncertainties materialize, or if MSCI’s
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, including its quarterly updates, blog,
podcasts and social media channels, including its corporate Twitter
account (@MSCI_Inc), as channels of distribution of company
information. The information MSCI posts through these channels may
be deemed material. Accordingly, investors should monitor these
channels, in addition to following MSCI's 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/email-alerts. The contents of MSCI’s website,
including its quarterly updates, blog, podcasts 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 is an important metric because subscription
cancellations decrease our Run Rate and ultimately our operating
revenues over time. The annual Retention Rate represents the
retained subscription Run Rate (subscription Run Rate at the
beginning of the fiscal year less actual cancels during the year)
as a percentage of the subscription Run Rate at the beginning of
the fiscal year.
The Retention Rate for a non-annual 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 non-annual 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 fiscal 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 operating 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 purposes of calculating
our Retention Rate 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. We do not
calculate Retention Rate for that portion of our Run Rate
attributable to assets in index-linked investment products or
futures and options contracts, in each case, linked to our
indexes.
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 below. 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 through 15 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, including the impact related to
the vesting of the Multi-Year PSUs.
“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, including the impact
related to the vesting of the Multi-Year PSUs.
“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 adjustments for the Tax Cuts and Jobs
Act that was enacted on December 22, 2017 (“Tax Reform”), except
for amounts associated with active tax planning implemented as a
result of Tax Reform, and, at times, certain other transactions or
adjustments, including the impact related to the vesting of the
Multi-Year PSUs.
“Adjusted tax rate” is defined as the effective tax rate
excluding the impact of Tax Reform adjustments (except for amounts
associated with active tax planning implemented as a result of Tax
Reform) and the impact related to the vesting of the Multi-Year
PSUs.
“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.
“Organic operating revenue growth” is defined as operating
revenue growth compared to the prior year period excluding the
impact of acquired businesses, divested businesses and foreign
currency exchange rate fluctuations.
Asset-based fees ex-FX does not adjust for the impact from
foreign currency exchange rate fluctuations on the underlying
AUM.
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 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 and the impact
related to the vesting of the Multi-Year PSUs.
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 organic operating revenue growth is a meaningful
measure of the operating performance of MSCI because it adjusts for
the impact of foreign currency exchange rate fluctuations and
excludes the impact of operating revenues attributable to acquired
and divested businesses for the comparable prior year period,
providing insight into our core operating performance for the
period(s) presented.
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, free cash flow and organic
operating revenue growth 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. These measures can differ
significantly from company to company depending on, among other
things, long-term strategic decisions regarding capital structure,
the tax jurisdictions in which companies operate and capital
investments. Accordingly, the Company’s computation of these
measures may not be comparable to similarly titled measures
computed by 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
2019
2018
2019
Change
2019
2018
Change
Operating revenues
$
394,251
$
357,934
$
385,558
10.1
%
$
1,151,190
$
1,072,296
7.4
%
Operating expenses:
Cost of revenues
70,486
70,906
71,975
(0.6
%)
224,807
213,578
5.3
%
Selling and marketing
52,107
46,149
51,657
12.9
%
159,812
139,974
14.2
%
Research and development
24,310
20,591
23,752
18.1
%
71,234
61,099
16.6
%
General and administrative
26,559
24,751
26,378
7.3
%
80,434
74,974
7.3
%
Amortization of intangible assets
12,361
11,681
12,013
5.8
%
36,167
42,556
(15.0
%)
Depreciation and amortization of
property,
equipment and leasehold improvements
7,209
7,453
7,405
(3.3
%)
22,464
23,035
(2.5
%)
Total operating expenses(1)
193,032
181,531
193,180
6.3
%
594,918
555,216
7.2
%
Operating income
201,219
176,403
192,378
14.1
%
556,272
517,080
7.6
%
Interest income
(3,673
)
(6,522
)
(3,345
)
(43.7
%)
(11,104
)
(13,573
)
(18.2
%)
Interest expense
35,922
35,902
35,915
0.1
%
107,752
97,223
10.8
%
Other expense (income)
222
177
63
25.4
%
2,839
(9,177
)
(130.9
%)
Other expense (income), net
32,471
29,557
32,633
9.9
%
99,487
74,473
33.6
%
Income before provision for income
taxes
168,748
146,846
159,745
14.9
%
456,785
442,607
3.2
%
Provision for income taxes
31,765
23,014
34,055
38.0
%
15,920
86,854
(81.7
%)
Net income
$
136,983
$
123,832
$
125,690
10.6
%
$
440,865
$
355,753
23.9
%
Earnings per basic common share
$
1.62
$
1.39
$
1.48
16.5
%
$
5.21
$
3.98
30.9
%
Earnings per diluted common share
$
1.60
$
1.36
$
1.47
17.6
%
$
5.15
$
3.87
33.1
%
Weighted average shares outstanding
used
in computing earnings per share:
Basic
84,765
88,796
84,750
(4.5
%)
84,591
89,323
(5.3
%)
Diluted
85,550
91,372
85,393
(6.4
%)
85,533
91,843
(6.9
%)
(1) Includes stock-based compensation expense of $10.6 million,
$10.6 million and $11.5 million for the three months ended Sep. 30,
2019, Sep. 30, 2018 and Jun. 30, 2019, respectively. Includes
stock-based compensation expense of $32.6 million and $30.1 million
for the nine months ended Sep. 30, 2019 and Sep. 30, 2018,
respectively.
Table 3: Selected Balance Sheet Items
(unaudited)
As of
Sep. 30,
Sep. 30,
Dec. 31,
In thousands
2019
2018
2018
Cash and cash equivalents
$881,150
$1,398,398
$904,176
Accounts receivable, net of allowances
$409,519
$378,705
$473,433
Deferred revenue
$479,371
$441,884
$537,977
Long-term debt(1)
$2,578,159
$2,574,616
$2,575,502
(1) Consists of gross long-term debt, net of deferred financing
fees. Gross long-term debt at Sep. 30, 2019, Sep. 30, 2018 and Dec.
31, 2018 was $2.6 billion.
Table 4: Selected Cash Flow Items
(unaudited)
Three Months Ended
Nine Months Ended
Sep. 30,
Sep. 30,
June 30,
YoY %
Sep. 30,
Sep. 30,
YoY %
In thousands
2019
2018
2019
Change
2019
2018
Change
Net cash provided by operating
activities
$
188,535
$
143,825
$
189,470
31.1
%
$
465,880
$
439,587
6.0
%
Net cash used in investing activities
(14,765
)
(13,097
)
(12,391
)
12.7
%
(35,292
)
(5,164
)
n/m
Net cash (used in) provided by financing
activities
(58,766
)
(97,758
)
(49,914
)
(39.9
%)
(450,315
)
80,600
n/m
Effect of exchange rate changes
(4,971
)
(2,168
)
1,171
129.3
%
(3,299
)
(6,127
)
(46.2
%)
Net increase (decrease) in cash and
cash equivalents
$
110,033
$
30,802
$
128,336
257.2
%
$
(23,026
)
$
508,896
(104.5
%)
n/m: not meaningful.
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
2019
2018
2019
Change
2019
2018
Change
Operating revenues:
Recurring subscriptions
$
133,403
$
121,285
$
132,145
10.0
%
$
393,222
$
354,116
11.0
%
Asset-based fees
96,013
82,007
87,733
17.1
%
265,554
255,126
4.1
%
Non-recurring
8,011
6,902
5,672
16.1
%
18,974
15,800
20.1
%
Total operating revenues
237,427
210,194
225,550
13.0
%
677,750
625,042
8.4
%
Adjusted EBITDA expenses
59,747
55,717
61,635
7.2
%
183,944
167,119
10.1
%
Adjusted EBITDA
$
177,680
$
154,477
$
163,915
15.0
%
$
493,806
$
457,923
7.8
%
Adjusted EBITDA margin %
74.8
%
73.5
%
72.7
%
72.9
%
73.3
%
Analytics
Three Months Ended
Nine Months Ended
Sep. 30,
Sep. 30,
June 30,
YoY %
Sep. 30,
Sep. 30,
YoY %
In thousands
2019
2018
2019
Change
2019
2018
Change
Operating revenues:
Recurring subscriptions
$
122,120
$
118,857
$
121,699
2.7
%
$
363,929
$
354,629
2.6
%
Non-recurring
1,483
1,041
1,982
42.5
%
4,790
3,375
41.9
%
Total operating revenues
123,603
119,898
123,681
3.1
%
368,719
358,004
3.0
%
Adjusted EBITDA expenses
85,806
82,852
84,610
3.6
%
255,453
251,038
1.8
%
Adjusted EBITDA
$
37,797
$
37,046
$
39,071
2.0
%
$
113,266
$
106,966
5.9
%
Adjusted EBITDA margin %
30.6
%
30.9
%
31.6
%
30.7
%
29.9
%
All Other
Three Months Ended
Nine Months Ended
Sep. 30,
Sep. 30,
June 30,
YoY %
Sep. 30,
Sep. 30,
YoY %
In thousands
2019
2018
2019
Change
2019
2018
Change
Operating revenues:
Recurring subscriptions
$
32,585
$
27,234
$
35,305
19.6
%
$
102,470
$
86,185
18.9
%
Non-recurring
636
608
1,022
4.6
%
2,251
3,065
(26.6
%)
Total operating revenues
33,221
27,842
36,327
19.3
%
104,721
89,250
17.3
%
Adjusted EBITDA expenses
27,909
23,828
27,517
17.1
%
81,501
71,468
14.0
%
Adjusted EBITDA
$
5,312
$
4,014
$
8,810
32.3
%
$
23,220
$
17,782
30.6
%
Adjusted EBITDA margin %
16.0
%
14.4
%
24.3
%
22.2
%
19.9
%
Consolidated
Three Months Ended
Nine Months Ended
Sep. 30,
Sep. 30,
June 30,
YoY %
Sep. 30,
Sep. 30,
YoY %
In thousands
2019
2018
2019
Change
2019
2018
Change
Operating revenues:
Recurring subscriptions
$
288,108
$
267,376
$
289,149
7.8
%
$
859,621
$
794,930
8.1
%
Asset-based fees
96,013
82,007
87,733
17.1
%
265,554
255,126
4.1
%
Non-recurring
10,130
8,551
8,676
18.5
%
26,015
22,240
17.0
%
Operating revenues total
394,251
357,934
385,558
10.1
%
1,151,190
1,072,296
7.4
%
Adjusted EBITDA expenses
173,462
162,397
173,762
6.8
%
520,898
489,625
6.4
%
Adjusted EBITDA
$
220,789
$
195,537
$
211,796
12.9
%
$
630,292
$
582,671
8.2
%
Adjusted EBITDA margin %
56.0
%
54.6
%
54.9
%
54.8
%
54.3
%
Operating margin %
51.0
%
49.3
%
49.9
%
48.3
%
48.2
%
Table 6: Sales and Retention Rate by
Segment (unaudited)
Three Months Ended
Nine Months Ended
Sep. 30, 2019
June 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
In thousands
Index
New recurring subscription sales
$
17,553
$
19,526
$
17,329
$
21,013
$
15,546
$
54,408
$
51,647
Subscription cancellations
(5,066
)
(3,601
)
(4,366
)
(7,699
)
(4,428
)
$
(13,033
)
(13,120
)
Net new recurring subscription sales
$
12,487
$
15,925
$
12,963
$
13,314
$
11,118
$
41,375
$
38,527
Non-recurring sales
$
9,029
$
5,982
$
5,081
$
6,845
$
7,097
$
20,092
$
15,885
Total gross sales(1)
$
26,582
$
25,508
$
22,410
$
27,858
$
22,643
$
74,500
$
67,532
Total Index net sales
$
21,516
$
21,907
$
18,044
$
20,159
$
18,215
$
61,467
$
54,412
Index Retention Rate(2)
96.0
%
97.1
%
96.5
%
93.2
%
96.1
%
96.5
%
96.1
%
Analytics
New recurring subscription sales
$
15,285
$
13,669
$
12,751
$
19,438
$
16,797
$
41,705
$
45,549
Subscription cancellations
(7,854
)
(7,102
)
(7,764
)
(8,524
)
(7,117
)
$
(22,720
)
(25,148
)
Net new recurring subscription sales
$
7,431
$
6,567
$
4,987
$
10,914
$
9,680
$
18,985
$
20,401
Non-recurring sales
$
4,876
$
2,631
$
2,577
$
3,249
$
3,189
$
10,084
$
6,959
Total gross sales(1)
$
20,161
$
16,300
$
15,328
$
22,687
$
19,986
$
51,789
$
52,508
Total Analytics net sales
$
12,307
$
9,198
$
7,564
$
14,163
$
12,869
$
29,069
$
27,360
Analytics Retention Rate(2)
93.6
%
94.2
%
93.7
%
92.7
%
94.1
%
93.8
%
93.1
%
All Other
New recurring subscription sales
$
7,495
$
8,014
$
7,215
$
7,596
$
6,459
$
22,724
$
18,605
Subscription cancellations
(1,002
)
(1,902
)
(1,275
)
(1,959
)
(1,547
)
$
(4,179
)
(4,463
)
Net new recurring subscription sales
$
6,493
$
6,112
$
5,940
$
5,637
$
4,912
$
18,545
$
14,142
Non-recurring sales
$
487
$
630
$
454
$
1,194
$
641
$
1,571
$
2,243
Total gross sales(1)
$
7,982
$
8,644
$
7,669
$
8,790
$
7,100
$
24,295
$
20,848
Total All Other net sales
$
6,980
$
6,742
$
6,394
$
6,831
$
5,553
$
20,116
$
16,385
All Other Retention Rate(2)
96.8
%
93.9
%
95.9
%
92.8
%
94.3
%
95.5
%
94.5
%
Consolidated
New recurring subscription sales
$
40,333
$
41,209
$
37,295
$
48,047
$
38,802
$
118,837
$
115,801
Subscription cancellations
(13,922
)
(12,605
)
(13,405
)
(18,182
)
(13,092
)
(39,932
)
(42,731
)
Net new recurring subscription sales
$
26,411
$
28,604
$
23,890
$
29,865
$
25,710
$
78,905
$
73,070
Non-recurring sales
$
14,392
$
9,243
$
8,112
$
11,288
$
10,927
$
31,747
$
25,087
Total gross sales(1)
$
54,725
$
50,452
$
45,407
$
59,335
$
49,729
$
150,584
$
140,888
Total net sales
$
40,803
$
37,847
$
32,002
$
41,153
$
36,637
$
110,652
$
98,157
Total Retention Rate(2)
95.0
%
95.5
%
95.2
%
92.9
%
95.0
%
95.2
%
94.5
%
(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)(3)
Three Months Ended
Nine Months Ended
Sep. 30,
June 30,
Mar. 31,
Dec. 31,
Sep. 30,
Sep. 30,
Sep. 30,
In billions
2019
2019
2019
2018
2018
2019
2018
Beginning Period AUM in ETFs linked to
MSCI indexes
$
819.3
$
802.2
$
695.6
$
765.5
$
744.7
$
695.6
$
744.3
Market Appreciation/(Depreciation)
(9.2
)
14.9
78.3
(94.7
)
15.6
84.0
(15.6
)
Cash Inflows
4.9
2.2
28.3
24.8
5.2
35.4
36.8
Period-End AUM in ETFs linked to
MSCI indexes
$
815.0
$
819.3
$
802.2
$
695.6
$
765.5
$
815.0
$
765.5
Period Average AUM in ETFs linked to
MSCI indexes
$
810.9
$
811.4
$
766.0
$
717.1
$
755.8
$
796.1
$
770.6
Avg. Basis Point Fee(4)
2.81
2.85
2.88
2.92
2.90
2.81
2.90
(1) The historical values of the AUM in ETFs linked to our
indexes as of the last day of the month and the monthly average
balance can be found under the link “AUM in ETFs Linked to MSCI
Indexes” on our Investor Relations homepage at http://ir.msci.com.
Information contained on our website is not incorporated by
reference into this Earnings Release or any other report filed with
the SEC. 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.
(2) The values for periods prior to April 26, 2019 were based on
data from Bloomberg and MSCI, while the values for periods on or
after April 26, 2019 were based on data from Refinitiv and MSCI. De
minimis amounts of data are reported on a delayed basis.
(3) The value of AUM in ETFs linked to MSCI indexes is
calculated by multiplying the ETF net asset value by the number of
shares outstanding.
(4) Based on period-end Run Rate for ETFs linked to MSCI indexes
using period-end AUM.
Table 8: Run Rate by Segment and Type
(unaudited)(1)
As of
Sep. 30,
Sep. 30,
June 30,
YoY %
In thousands
2019
2018
2019
Change
Index
Recurring subscriptions
$
544,059
$
489,515
$
531,590
11.1
%
Asset-based fees
356,013
326,148
345,126
9.2
%
Index Run Rate
900,072
815,663
876,716
10.3
%
Analytics Run Rate
509,261
499,219
503,969
2.0
%
All Other Run Rate
141,283
120,419
137,045
17.3
%
Total Run Rate
$
1,550,616
$
1,435,301
$
1,517,730
8.0
%
Total recurring subscriptions
$
1,194,603
$
1,109,153
$
1,172,604
7.7
%
Total asset-based fees
356,013
326,148
345,126
9.2
%
Total Run Rate
$
1,550,616
$
1,435,301
$
1,517,730
8.0
%
(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
2019
2018
2019
2019
2018
Index adjusted EBITDA
$
177,680
$
154,477
$
163,915
$
493,806
$
457,923
Analytics adjusted EBITDA
37,797
37,046
39,071
113,266
106,966
All Other adjusted EBITDA
5,312
4,014
8,810
23,220
17,782
Consolidated adjusted EBITDA
220,789
195,537
211,796
630,292
582,671
Multi-Year PSU payroll tax expense
—
—
—
15,389
—
Amortization of intangible assets
12,361
11,681
12,013
36,167
42,556
Depreciation and amortization of
property,
equipment and leasehold improvements
7,209
7,453
7,405
22,464
23,035
Operating income
201,219
176,403
192,378
556,272
517,080
Other expense (income), net
32,471
29,557
32,633
99,487
74,473
Provision for income taxes
31,765
23,014
34,055
15,920
86,854
Net income
$
136,983
$
123,832
$
125,690
$
440,865
$
355,753
Table 10: Reconciliation of Net Income
and Diluted EPS to Adjusted Net Income and Adjusted EPS
(unaudited)
Three Months Ended
Nine Months Ended
Sep. 30, 2019
Sep. 30, 2018
June 30, 2019
Sep. 30, 2019
Sep. 30, 2018
In thousands, except per share
data
Net income
$
136,983
$
123,832
$
125,690
$
440,865
$
355,753
Plus: Amortization of acquired intangible
assets
8,616
8,999
8,663
25,995
35,235
Plus: Multi-Year PSU payroll tax
expense
—
—
—
15,389
—
Less: Discrete excess tax benefit
related
to Multi-Year PSU vesting
—
—
—
(66,581
)
—
Less: Gain on sale of FEA (not-tax
effected)
—
(10
)
—
—
(10,646
)
Less: Valuation allowance released in
connection
with InvestorForce divestiture
—
(7,758
)
—
—
(7,758
)
Less: Tax Reform adjustments
—
—
—
—
(1,601
)
Less: Income tax effect
(1,702
)
(1,884
)
(2,638
)
(7,474
)
(7,613
)
Adjusted net income
$
143,897
$
123,179
$
131,715
$
408,194
$
363,370
Diluted EPS
$
1.60
$
1.36
$
1.47
$
5.15
$
3.87
Plus: Amortization of acquired intangible
assets
0.10
0.10
0.10
0.30
0.38
Plus: Multi-Year PSU payroll tax
expense
—
—
—
0.18
—
Less: Discrete excess tax benefit
related
to Multi-Year PSU vesting
—
—
—
(0.78
)
—
Less: Gain on sale of FEA (not-tax
effected)
—
—
—
—
(0.12
)
Less: Valuation allowance released in
connection
with InvestorForce divestiture
—
(0.08
)
—
—
(0.08
)
Less: Tax Reform adjustments
—
—
—
—
(0.02
)
Less: Income tax effect
(0.02
)
(0.03
)
(0.03
)
(0.08
)
(0.07
)
Adjusted EPS
$
1.68
$
1.35
$
1.54
$
4.77
$
3.96
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,
2019
In thousands
2019
2018
2019
2019
2018
Outlook(1)
Index adjusted EBITDA expenses
$
59,747
$
55,717
$
61,635
$
183,944
$
167,119
Analytics adjusted EBITDA expenses
85,806
82,852
84,610
255,453
251,038
All Other adjusted EBITDA expenses
27,909
23,828
27,517
81,501
71,468
Consolidated adjusted EBITDA
expenses
173,462
162,397
173,762
520,898
489,625
$685,000 - $705,000
Multi-Year PSU payroll tax expense
—
—
—
15,389
—
15,389
Amortization of intangible assets
12,361
11,681
12,013
36,167
42,556
Depreciation and amortization of
property,
75,000 - 85,000
equipment and leasehold improvements
7,209
7,453
7,405
22,464
23,035
Total operating expenses
$
193,032
$
181,531
$
193,180
$
594,918
$
555,216
$775,389 - $800,389
(1) We have not provided a line-item reconciliation for adjusted
EBITDA expenses to total operating expenses for this future period
because we do not provide guidance on the individual reconciling
items between total operating expenses and adjusted EBITDA
expenses.
Table 12: Reconciliation of Net Cash
Provided by Operating Activities to Free Cash Flow
(unaudited)
Three Months Ended
Nine Months Ended
Full-Year
Sep. 30, 2019
Sep. 30, 2018
June 30, 2019
Sep. 30, 2019
Sep. 30, 2018
2019 Outlook(1)
In thousands
Net cash provided by operating
activities
$
188,535
$
143,825
$
189,470
$
465,880
$
439,587
$600,000 - $630,000
Capital expenditures
(7,782
)
(8,590
)
(6,278
)
(17,216
)
(13,069
)
Capitalized software development costs
(6,983
)
(4,517
)
(6,113
)
(18,086
)
(13,115
)
Capex
(14,765
)
(13,107
)
(12,391
)
(35,302
)
(26,184
)
(55,000 - 45,000)
Free cash flow
$
173,770
$
130,718
$
177,079
$
430,578
$
413,403
$545,000 - $585,000
(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,
2019
2018
2019
2019
2018
Effective tax rate
18.82%
15.67%
21.32%
3.49%
19.62%
Tax Reform impact on effective tax
rate
—%
—%
—%
—%
0.36%
Multi-Year PSU impact on effective tax
rate
—%
—%
—%
14.57%
—%
Adjusted tax rate
18.82%
15.67%
21.32%
18.06%
19.98%
Table 14: Third Quarter 2019
Reconciliation of Operating Revenue Growth to Organic Operating
Revenue Growth (unaudited)
Comparison of the Three Months
Ended September 30, 2019 and 2018
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
Index
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
13.0%
10.0%
17.1%
16.1%
Impact of acquisitions and
divestitures
—%
—%
—%
—%
Impact of foreign currency exchange rate
fluctuations
(0.1%)
(0.1%)
—%
0.2%
Organic operating revenue growth
12.9%
9.9%
17.1%
16.3%
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
Analytics
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
3.1%
2.7%
—%
42.5%
Impact of acquisitions and
divestitures
4.0%
4.0%
—%
12.3%
Impact of foreign currency exchange rate
fluctuations
(0.2%)
(0.2%)
—%
0.8%
Organic operating revenue growth
6.9%
6.5%
—%
55.6%
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
All Other
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
19.3%
19.7%
—%
4.4%
Impact of acquisitions and
divestitures
—%
—%
—%
—%
Impact of foreign currency exchange rate
fluctuations
4.0%
4.0%
—%
2.8%
Organic operating revenue growth
23.3%
23.7%
—%
7.2%
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
Consolidated
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
10.1%
7.8%
17.1%
18.5%
Impact of acquisitions and
divestitures
1.4%
1.7%
—%
1.1%
Impact of foreign currency exchange rate
fluctuations
0.3%
0.3%
—%
0.5%
Organic operating revenue growth
11.8%
9.8%
17.1%
20.1%
Table 15: Nine Months 2019
Reconciliation of Operating Revenue Growth to Organic Operating
Revenue Growth (unaudited)
Comparison of the Nine Months
Ended September 30, 2019 and 2018
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
Index
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
8.4%
11.0%
4.1%
20.1%
Impact of acquisitions and
divestitures
—%
—%
—%
—%
Impact of foreign currency exchange rate
fluctuations
0.1%
—%
0.1%
0.1%
Organic operating revenue growth
8.5%
11.0%
4.2%
20.2%
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
Analytics
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
3.0%
2.6%
—%
41.9%
Impact of acquisitions and
divestitures
5.2%
5.1%
—%
27.9%
Impact of foreign currency exchange rate
fluctuations
—%
—%
—%
1.1%
Organic operating revenue growth
8.2%
7.7%
—%
70.9%
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
All Other
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
17.3%
18.9%
—%
(26.6%)
Impact of acquisitions and
divestitures
—%
—%
—%
—%
Impact of foreign currency exchange rate
fluctuations
4.7%
4.7%
—%
3.5%
Organic operating revenue growth
22.0%
23.6%
—%
(23.1%)
Total
Recurring Subscription
Asset-Based Fees
Non-Recurring Revenues
Consolidated
Change Percentage
Change Percentage
Change Percentage
Change Percentage
Operating revenue growth
7.4%
8.1%
4.1%
17.0%
Impact of acquisitions and
divestitures
1.7%
2.4%
—%
3.0%
Impact of foreign currency exchange rate
fluctuations
0.4%
0.5%
0.1%
0.7%
Organic operating revenue growth
9.5%
11.0%
4.2%
20.7%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191031005463/en/
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