Weighted Average Shares and Common Shares Outstanding
The following table shows our weighted average shares outstanding for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Weighted average shares outstanding: | | | | | | | | | | |
Basic | | 80,500 | | 82,470 | | (2.4 | %) | | 81,001 | | 82,521 | | (1.8 | %) |
Diluted | | 80,874 | | 83,554 | | (3.2 | %) | | 81,481 | | 83,446 | | (2.4 | %) |
The following table shows our common shares outstanding for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | As of | | % Change |
(in thousands) | | September 30, 2022 | | December 31, 2021 | |
Common shares outstanding | | 80,121 | | | 82,439 | | | (2.8 | %) |
The decrease in weighted average shares and common shares outstanding primarily reflects the impact of share repurchases made pursuant to the stock repurchase program.
Adjusted EBITDA
“Adjusted EBITDA,” a non-GAAP measure used by management to assess operating performance, 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, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs.
“Adjusted EBITDA expenses,” a non-GAAP measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments, including, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs.
Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures for management to assess the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be the Company’s ongoing operating performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on, 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 the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.
The following table presents the calculation of the non-GAAP Adjusted EBITDA measure for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Operating revenues | | $ | 560,639 | | | $ | 517,099 | | | 8.4 | % | | $ | 1,672,390 | | | $ | 1,493,702 | | | 12.0 | % |
Adjusted EBITDA expenses | | 219,678 | | | 210,504 | | | 4.4 | % | | 681,741 | | | 615,572 | | | 10.7 | % |
Adjusted EBITDA | | $ | 340,961 | | | $ | 306,595 | | | 11.2 | % | | $ | 990,649 | | | $ | 878,130 | | | 12.8 | % |
| | | | | | | | | | | | |
Adjusted EBITDA margin % | | 60.8 | % | | 59.3 | % | | | | 59.2 | % | | 58.8 | % | | |
Operating margin % | | 55.2 | % | | 54.2 | % | | | | 53.7 | % | | 53.0 | % | | |
The change in Adjusted EBITDA margin reflects changes in the rate of growth of Adjusted EBITDA expenses as compared to the rate of growth of operating revenues, driven by the factors previously described.
Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses
The following table presents the reconciliation of Adjusted EBITDA to net income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Index Adjusted EBITDA | | $ | 245,967 | | | $ | 245,587 | | | 0.2 | % | | $ | 737,012 | | | $ | 698,934 | | | 5.4 | % |
Analytics Adjusted EBITDA | | 67,634 | | | 50,291 | | | 34.5 | % | | 181,484 | | | 145,836 | | | 24.4 | % |
ESG and Climate Adjusted EBITDA | | 15,910 | | | 9,820 | | | 62.0 | % | | 42,334 | | | 20,585 | | | 105.7 | % |
All Other - Private Assets Adjusted EBITDA | | 11,450 | | | 897 | | | 1176.5 | % | | 29,819 | | | 12,775 | | | 133.4 | % |
Consolidated Adjusted EBITDA | | 340,961 | | | 306,595 | | | 11.2 | % | | 990,649 | | | 878,130 | | | 12.8 | % |
| | | | | | | | | | | | |
Amortization of intangible assets | | 23,375 | | | 14,105 | | | 65.7 | % | | 67,274 | | | 59,569 | | | 12.9 | % |
Depreciation and amortization of property, equipment and leasehold improvements | | 7,127 | | | 6,809 | | | 4.7 | % | | 20,426 | | | 20,972 | | | (2.6 | %) |
Acquisition-related integration and transaction costs (1) | | 928 | | | 5,451 | | | (83.0 | %) | | 4,059 | | | 5,451 | | | (25.5 | %) |
Operating income | | 309,531 | | | 280,230 | | | 10.5 | % | | 898,890 | | | 792,138 | | | 13.5 | % |
| | | | | | | | | | | | |
Other expense (income), net | | 40,327 | | | 79,580 | | | (49.3 | %) | | 120,711 | | | 179,765 | | | (32.9 | %) |
Provision for income taxes | | 52,612 | | | 30,774 | | | 71.0 | % | | 122,577 | | | 80,255 | | | 52.7 | % |
Net income | | $ | 216,592 | | | $ | 169,876 | | | 27.5 | % | | $ | 655,602 | | | $ | 532,118 | | | 23.2 | % |
| | | | | | | | | | | | |
___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Index Adjusted EBITDA expenses | | $ | 76,273 | | | $ | 75,916 | | | 0.5 | % | | $ | 236,936 | | | $ | 221,023 | | | 7.2 | % |
Analytics Adjusted EBITDA expenses | | 77,281 | | | 86,007 | | | (10.1 | %) | | 244,912 | | | 260,381 | | | (5.9 | %) |
ESG and Climate Adjusted EBITDA expenses | | 41,685 | | | 33,871 | | | 23.1 | % | | 122,418 | | | 97,164 | | | 26.0 | % |
All Other - Private Assets Adjusted EBITDA expenses | | 24,439 | | | 14,710 | | | 66.1 | % | | 77,475 | | | 37,004 | | | 109.4 | % |
Consolidated Adjusted EBITDA expenses | | 219,678 | | | 210,504 | | | 4.4 | % | | 681,741 | | | 615,572 | | | 10.7 | % |
| | | | | | | | | | | | |
Amortization of intangible assets | | 23,375 | | | 14,105 | | | 65.7 | % | | 67,274 | | | 59,569 | | | 12.9 | % |
Depreciation and amortization of property, equipment and leasehold improvements | | 7,127 | | | 6,809 | | | 4.7 | % | | 20,426 | | | 20,972 | | | (2.6 | %) |
Acquisition-related integration and transaction costs (1) | | 928 | | | 5,451 | | | (83.0 | %) | | 4,059 | | | 5,451 | | | (25.5 | %) |
Total operating expenses | | $ | 251,108 | | | $ | 236,869 | | | 6.0 | % | | $ | 773,500 | | | $ | 701,564 | | | 10.3 | % |
| | | | | | | | | | | | |
___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
The discussion of the segment results is presented below.
Segment Results
Index Segment
The following table presents the results for the Index segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Operating revenues: | | | | | | | | | | | | |
Recurring subscriptions | | $ | 185,531 | | | $ | 165,310 | | | 12.2 | % | | $ | 539,740 | | | $ | 480,488 | | | 12.3 | % |
Asset-based fees | | 125,620 | | | 141,745 | | | (11.4 | %) | | 402,889 | | | 404,593 | | | (0.4 | %) |
Non-recurring | | 11,089 | | | 14,448 | | | (23.2 | %) | | 31,319 | | | 34,876 | | | (10.2 | %) |
Operating revenues total | | 322,240 | | | 321,503 | | | 0.2 | % | | 973,948 | | | 919,957 | | | 5.9 | % |
| | | | | | | | | | | | |
Adjusted EBITDA expenses | | 76,273 | | | 75,916 | | | 0.5 | % | | 236,936 | | | 221,023 | | | 7.2 | % |
Adjusted EBITDA | | $ | 245,967 | | | $ | 245,587 | | | 0.2 | % | | $ | 737,012 | | | $ | 698,934 | | | 5.4 | % |
| | | | | | | | | | | | |
Adjusted EBITDA margin % | | 76.3 | % | | 76.4 | % | | | | 75.7 | % | | 76.0 | % | | |
Index operating revenues increased 0.2% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by growth from recurring subscriptions, partially offset by a decline in asset-based fees and non-recurring revenues. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 0.7%.
Operating revenues from recurring subscriptions increased 12.2% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products.
Operating revenues from asset-based fees decreased 11.4% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes decreased by 14.3% and 14.9%, respectively, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased 15.6%, driven by volume increases.
Index segment Adjusted EBITDA expenses increased 0.5% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by higher non-compensation expenses across the cost of revenues, selling and marketing and R&D expense categories, partially offset by lower non-compensation expenses in the G&A expense category. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 6.1%.
Index operating revenues increased 5.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by growth from recurring subscriptions. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 6.2%.
Operating revenues from recurring subscriptions increased 12.3% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products.
Operating revenues from asset-based fees decreased 0.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes, partially offset by an increase in revenues from exchange traded futures and options contracts. Operating revenues from ETFs linked to MSCI equity indexes decreased by 3.6%, primarily driven by a decrease in average basis point fees, partially offset by an increase in average AUM. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased by 17.3%, driven by volume increases.
Index segment Adjusted EBITDA expenses increased 7.2% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting higher compensation and non-compensation expenses to support growth across all
expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 11.1%.
Analytics Segment
The following table presents the results for the Analytics segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Operating revenues: | | | | | | | | | | | | |
Recurring subscriptions | | $ | 142,751 | | | $ | 134,320 | | | 6.3 | % | | $ | 420,047 | | | $ | 399,360 | | | 5.2 | % |
Non-recurring | | 2,164 | | | 1,978 | | | 9.4 | % | | 6,349 | | | 6,857 | | | (7.4 | %) |
Operating revenues total | | 144,915 | | | 136,298 | | | 6.3 | % | | 426,396 | | | 406,217 | | | 5.0 | % |
| | | | | | | | | | | | |
Adjusted EBITDA expenses | | 77,281 | | | 86,007 | | | (10.1 | %) | | 244,912 | | | 260,381 | | | (5.9 | %) |
Adjusted EBITDA | | $ | 67,634 | | | $ | 50,291 | | | 34.5 | % | | $ | 181,484 | | | $ | 145,836 | | | 24.4 | % |
| | | | | | | | | | | | |
Adjusted EBITDA margin % | | 46.7 | % | | 36.9 | % | | | | 42.6 | % | | 35.9 | % | | |
Analytics operating revenues increased 6.3% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 7.5%.
Analytics segment Adjusted EBITDA expenses decreased 10.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by lower compensation expenses across all expense activity categories, as a result of lower incentive compensation and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 5.7%.
Analytics operating revenues increased 5.0% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 5.8%.
Analytics segment Adjusted EBITDA expenses decreased 5.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by lower compensation expenses across all expense activity categories, as a result of lower incentive compensation and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 2.9%.
ESG and Climate Segment
The following table presents the results for the ESG and Climate segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Operating revenues: | | | | | | | | | | | | |
Recurring subscriptions | | $ | 56,353 | | | $ | 42,592 | | | 32.3 | % | | $ | 160,962 | | | $ | 115,299 | | | 39.6 | % |
Non-recurring | | 1,242 | | | 1,099 | | | 13.0 | % | | 3,790 | | | 2,450 | | | 54.7 | % |
Operating revenues total | | 57,595 | | | 43,691 | | | 31.8 | % | | 164,752 | | | 117,749 | | | 39.9 | % |
| | | | | | | | | | | | |
Adjusted EBITDA expenses | | 41,685 | | | 33,871 | | | 23.1 | % | | 122,418 | | | 97,164 | | | 26.0 | % |
Adjusted EBITDA | | $ | 15,910 | | | $ | 9,820 | | | 62.0 | % | | $ | 42,334 | | | $ | 20,585 | | | 105.7 | % |
| | | | | | | | | | | | |
Adjusted EBITDA margin % | | 27.6 | % | | 22.5 | % | | | | 25.7 | % | | 17.5 | % | | |
ESG and Climate operating revenues increased 31.8% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by strong growth from recurring subscriptions related to Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 46.2%.
ESG and Climate segment Adjusted EBITDA expenses increased 23.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by higher compensation expenses across all spending categories, as a result of increased wages and salaries and benefits costs, due to higher headcount, partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 30.4%.
ESG and Climate operating revenues increased 39.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 49.4%.
ESG and Climate segment Adjusted EBITDA expenses increased 26.0% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting higher compensation and non-compensation expenses to support growth across all expense categories. The increase was primarily driven by increased wages and salaries, incentive compensation and benefits costs, as a result of increased headcount, as well as increased professional fees and information technology costs. The increase was partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 31.2%.
All Other – Private Assets Segment
The following table presents the results for the All Other – Private Assets segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
(in thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | |
Operating revenues: | | | | | | | | | | | | |
Recurring subscriptions | | $ | 35,581 | | | $ | 15,418 | | | 130.8 | % | | $ | 106,276 | | | $ | 48,355 | | | 119.8 | % |
Non-recurring | | 308 | | | 189 | | | 63.0 | % | | 1,018 | | | 1,424 | | | (28.5 | %) |
Operating revenues total | | 35,889 | | | 15,607 | | | 130.0 | % | | 107,294 | | | 49,779 | | | 115.5 | % |
| | | | | | | | | | | | |
Adjusted EBITDA expenses | | 24,439 | | | 14,710 | | | 66.1 | % | | 77,475 | | | 37,004 | | | 109.4 | % |
Adjusted EBITDA | | $ | 11,450 | | | $ | 897 | | | 1176.5 | % | | $ | 29,819 | | | $ | 12,775 | | | 133.4 | % |
| | | | | | | | | | | | |
Adjusted EBITDA margin % | | 31.9 | % | | 5.7 | % | | | | 27.8 | % | | 25.7 | % | | |
All Other – Private Assets operating revenues increased 130.0% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by revenues attributable to the acquisition of RCA as well as growth in Enterprise Analytics, Global Intel and Climate Value-at-Risk products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 30.6%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other – Private Assets operating revenues would have increased 13.9% and 146.7%, respectively.
All Other – Private Assets segment Adjusted EBITDA expenses increased 66.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, reflecting higher compensation and non-compensation across all spending categories, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have decreased 1.6% when excluding the impact of acquisitions and increased 79.3% when excluding the impact of foreign currency exchange rate fluctuations.
All Other – Private Assets operating revenues increased 115.5% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by revenues attributable to the acquisition of RCA as well as growth in Global Intel, Climate Value-at-Risk and Enterprise Analytics products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 11.7%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other – Private Assets operating revenues would have decreased 0.3% and increased 127.5%, respectively.
All Other – Private Assets segment Adjusted EBITDA expenses increased 109.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting higher compensation and non-compensation across all spending categories, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have increased 3.4% when excluding the impact of acquisitions and increased 120.9% when excluding the impact of foreign currency exchange rate fluctuations.
Run 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, or reach the end of the committed subscription period, 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, non-renewal or an indication the client does not intend to continue their subscription 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.
Changes in our recurring revenues typically lag changes in Run Rate. The actual amount of recurring revenues we will realize over the following 12 months will differ from Run Rate for numerous reasons, including:
•fluctuations in revenues associated with new recurring sales;
•modifications, cancellations and non-renewals of existing Client Contracts, subject to specified notice requirements;
•differences between the recurring license start date and the date the Client Contract is executed due to, for example, contracts with onboarding periods or fee waiver periods;
•fluctuations in asset-based fees, which may result from changes in certain investment products’ total expense ratios, market movements, including foreign currency exchange rates, or from investment inflows into and outflows from investment products linked to our indexes;
•fluctuations in fees based on trading volumes of futures and options contracts linked to our indexes;
•fluctuations in the number of hedge funds for which we provide investment information and risk analysis to hedge fund investors;
•price changes or discounts;
•revenue recognition differences under U.S. GAAP, including those related to the timing of implementation and report deliveries for certain of our products and services;
•fluctuations in foreign currency exchange rates; and
•the impact of acquisitions and divestitures.
The following table presents Run Rates by reportable segment as of the dates indicated and the growth percentages over the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | As of | | % Change |
(in thousands) | | September 30, 2022 | | September 30, 2021 | |
Index: | | | | | | |
Recurring subscriptions | | $ | 750,818 | | | $ | 667,023 | | | 12.6 | % |
Asset-based fees | | 479,399 | | | 550,230 | | | (12.9 | %) |
Index total | | 1,230,217 | | | 1,217,253 | | | 1.1 | % |
| | | | | | |
| | | | | | |
Analytics | | 597,752 | | | 568,932 | | | 5.1 | % |
| | | | | | |
ESG and Climate | | 237,930 | | | 178,398 | | | 33.4 | % |
| | | | | | |
All Other - Private Assets | | 137,401 | | | 131,678 | | | 4.3 | % |
| | | | | | |
Total Run Rate | | $ | 2,203,300 | | | $ | 2,096,261 | | | 5.1 | % |
| | | | | | |
| | | | | | |
Recurring subscriptions total | | $ | 1,723,901 | | | $ | 1,546,031 | | | 11.5 | % |
Asset-based fees | | 479,399 | | | 550,230 | | | (12.9 | %) |
Total Run Rate | | $ | 2,203,300 | | | $ | 2,096,261 | | | 5.1 | % |
| | | | | | |
Total Run Rate increased 5.1%, driven by an 11.5% increase from recurring subscriptions, partially offset by a 12.9% decrease from asset-based fees. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions Run Rate would have increased 14.2%.
Run Rate from Index recurring subscriptions increased 12.6%, primarily driven by strong growth from market cap-weighted, factor, ESG and climate, and custom and specialized Index products. The increase reflected growth across all regions and client segments.
Run Rate from Index asset-based fees decreased 12.9%, primarily driven by lower AUM in ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by higher exchange traded futures and options volume.
Run Rate from Analytics products increased 5.1%, primarily driven by growth in both Equity Analytics and Multi-Asset Class products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 8.1%.
Run Rate from ESG and Climate products increased 33.4%, driven by strong growth in Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate Run Rate would have increased 41.7%.
Run Rate from All Other - Private Assets increased 4.3%, primarily driven by growth in the RCA business as well as growth in Global Intel, Enterprise Analytics and Climate Value-at-Risk products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other - Private Assets Run Rate would have increased 11.9%.
Sales
Sales represents the annualized value of products and services clients commit to purchase from MSCI and will result in additional operating revenues. Non-recurring sales represent the actual value of the customer agreements entered into during the period and are not a component of Run Rate. New recurring subscription sales represent additional selling activities, such as new customer agreements, additions to existing agreements or increases in price that occurred during the period and are additions to Run Rate. Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or
reductions in price, resulting in reductions to Run Rate. Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact to Run Rate during the period.
Total gross sales represent the sum of new recurring subscription sales and non-recurring sales. Total net sales represent the total gross sales net of the impact from subscription cancellations.
The following table presents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | % Change | | Nine Months Ended | | % Change |
(in thousands) | | September 30, 2022 | | September 30, 2021 | | | September 30, 2022 | | September 30, 2021 | |
New recurring subscription sales | | | | | | | | | | | | |
Index | | $ | 24,130 | | | $ | 19,546 | | | 23.5 | % | | $ | 74,493 | | | $ | 66,037 | | | 12.8 | % |
Analytics | | 17,568 | | | 15,889 | | | 10.6 | % | | 50,391 | | | 44,381 | | | 13.5 | % |
ESG and Climate | | 14,270 | | | 17,310 | | | (17.6 | %) | | 55,617 | | | 46,706 | | | 19.1 | % |
All Other - Private Assets | | 5,218 | | | 2,479 | | | 110.5 | % | | 16,490 | | | 6,023 | | | 173.8 | % |
New recurring subscription sales total | | 61,186 | | | 55,224 | | | 10.8 | % | | 196,991 | | | 163,147 | | | 20.7 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Subscription cancellations | | | | | | | | | | | | |
Index | | (5,388) | | | (6,203) | | | (13.1 | %) | | (18,468) | | | (18,192) | | | 1.5 | % |
Analytics | | (6,029) | | | (9,213) | | | (34.6 | %) | | (22,523) | | | (25,188) | | | (10.6 | %) |
ESG and Climate | | (1,303) | | | (1,338) | | | (2.6 | %) | | (3,315) | | | (3,636) | | | (8.8 | %) |
All Other - Private Assets | | (1,744) | | | (1,296) | | | 34.6 | % | | (5,080) | | | (2,881) | | | 76.3 | % |
Subscription cancellations total | | (14,464) | | | (18,050) | | | (19.9 | %) | | (49,386) | | | (49,897) | | | (1.0 | %) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net new recurring subscription sales | | | | | | | | | | | | |
Index | | 18,742 | | | 13,343 | | | 40.5 | % | | 56,025 | | | 47,845 | | | 17.1 | % |
| | | | | | | | | | | | |
Analytics | | 11,539 | | | 6,676 | | | 72.8 | % | | 27,868 | | | 19,193 | | | 45.2 | % |
| | | | | | | | | | | | |
ESG and Climate | | 12,967 | | | 15,972 | | | (18.8 | %) | | 52,302 | | | 43,070 | | | 21.4 | % |
| | | | | | | | | | | | |
All Other - Private Assets | | 3,474 | | | 1,183 | | | 193.7 | % | | 11,410 | | | 3,142 | | | 263.1 | % |
| | | | | | | | | | | | |
Net new recurring subscription sales total | | 46,722 | | | 37,174 | | | 25.7 | % | | 147,605 | | | 113,250 | | | 30.3 | % |
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Non-recurring sales | | | | | | | | | | | | |
Index | | 13,375 | | | 17,366 | | | (23.0 | %) | | 41,357 | | | 39,340 | | | 5.1 | % |
Analytics | | 2,505 | | | 2,377 | | | 5.4 | % | | 8,412 | | | 8,123 | | | 3.6 | % |
ESG and Climate | | 1,375 | | | 1,090 | | | 26.1 | % | | 3,553 | | | 2,927 | | | 21.4 | % |
All Other - Private Assets | | 83 | | | 130 | | | (36.2 | %) | | 690 | | | 1,201 | | | (42.5 | %) |
Non-recurring sales total | | 17,338 | | | 20,963 | | | (17.3 | %) | | 54,012 | | | 51,591 | | | 4.7 | % |
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Gross sales | | | | | | | | | | | | |
Index | | $ | 37,505 | | | $ | 36,912 | | | 1.6 | % | | $ | 115,850 | | | $ | 105,377 | | | 9.9 | % |
| | | | | | | | | | | | |
Analytics | | 20,073 | | | 18,266 | | | 9.9 | % | | 58,803 | | | 52,504 | | | 12.0 | % |
| | | | | | | | | | | | |
ESG and Climate | | 15,645 | | | 18,400 | | | (15.0 | %) | | 59,170 | | | 49,633 | | | 19.2 | % |
| | | | | | | | | | | | |
All Other - Private Assets | | 5,301 | | | 2,609 | | | 103.2 | % | | 17,180 | | | 7,224 | | | 137.8 | % |
| | | | | | | | | | | | |
Total gross sales | | $ | 78,524 | | | $ | 76,187 | | | 3.1 | % | | $ | 251,003 | | | $ | 214,738 | | | 16.9 | % |
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Net sales | | | | | | | | | | | | |
Index | | $ | 32,117 | | | $ | 30,709 | | | 4.6 | % | | $ | 97,382 | | | $ | 87,185 | | | 11.7 | % |
| | | | | | | | | | | | |
Analytics | | 14,044 | | | 9,053 | | | 55.1 | % | | 36,280 | | | 27,316 | | | 32.8 | % |
| | | | | | | | | | | | |
ESG and Climate | | 14,342 | | | 17,062 | | | (15.9 | %) | | 55,855 | | | 45,997 | | | 21.4 | % |
| | | | | | | | | | | | |
All Other - Private Assets | | 3,557 | | | 1,313 | | | 170.9 | % | | 12,100 | | | 4,343 | | | 178.6 | % |
| | | | | | | | | | | | |
Total net sales | | $ | 64,060 | | | $ | 58,137 | | | 10.2 | % | | $ | 201,617 | | | $ | 164,841 | | | 22.3 | % |
| | | | | | | | | | | | |
A significant portion of MSCI's operating revenues are derived from subscriptions or licenses of products and services, which are provided over contractually-agreed periods of time that are subject to renewal or cancellation at the end of current contract terms.
Retention Rate
The following table presents our Retention Rate by reportable segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Index | 96.9% | | 96.0% | | 96.5% | | 96.1% |
Analytics | 95.9% | | 93.4% | | 94.9% | | 94.0% |
ESG and Climate | 97.4% | | 96.1% | | 97.8% | | 96.5% |
All Other - Private Assets (1) | 94.8% | | 91.0% | | 95.0% | | 91.2% |
| | | | | | | |
Total | 96.4% | | 94.5% | | 95.9% | | 94.9% |
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(1)Retention rate for All Other – Private Assets excluding the impact of RCA was 95.7% and 95.8% for the three and nine months ended September 30, 2022, respectively. Retention rate for All Other – Private Assets excluding the impact of RCA was 93.7% and 94.2% for the three and nine months ended September 30, 2021, respectively.
Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our future 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 or discontinue the subscription 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 and Climate operating 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 Assets operating 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-sell 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.
Retention Rate is generally higher during the first three quarters and lower in the fourth quarter, as the fourth quarter is traditionally the largest renewal period in the year.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, “Introduction and Basis of Presentation,” of the Notes to Consolidated Financial Statements included in our Form 10-K. There have been no significant changes in our accounting policies since the end of the fiscal year ended December 31, 2021 or critical accounting estimates applied in the fiscal year ended December 31, 2021.
Liquidity and Capital Resources
We require capital to fund ongoing operations, internal growth initiatives and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, existing cash and cash equivalents and credit capacity under our existing credit facility. In addition, we believe we have access to additional funding in the public and private markets. We intend to use these sources of liquidity to, among other things, service our existing and future debt obligations, fund our working capital requirements for capital expenditures, investments, acquisitions and dividend payments, and make repurchases of our common stock. In connection with our
business strategy, we regularly evaluate acquisition and strategic partnership opportunities. We believe our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our planned growth.
Senior Notes and Credit Agreement
As of September 30, 2022, we had an aggregate of $4,200 million in Senior Notes outstanding. In addition, under the Credit Agreement, we had as of September 30, 2022: (i) an aggregate of $350 million in Tranche A Term Loans outstanding under the TLA Facility and (ii) $500 million of undrawn borrowing capacity under the revolving credit facility. See Note 8, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our outstanding indebtedness and revolving credit facility.
The Senior Notes and the Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly owned domestic subsidiaries that account for more than 5% of our and our subsidiaries’ consolidated assets, other than certain excluded subsidiaries (the “subsidiary guarantors”). Amounts due under the Credit Agreement are our and the subsidiary guarantors’ senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.
The indentures governing our Senior Notes (the “Indentures”) among us, each of the subsidiary guarantors, and Computershare, National Association, as trustee and successor to Wells Fargo Bank, National Association, contain covenants that limit our and certain of our subsidiaries’ ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries’ ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis.
The Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and/or the ability of our existing or future subsidiaries to:
•incur liens and further negative pledges;
•incur additional indebtedness or prepay, redeem or repurchase indebtedness;
•make loans or hold investments;
•merge, dissolve, liquidate, consolidate with or into another person;
•enter into acquisition transactions;
•enter into sale/leaseback transactions;
•issue disqualified capital stock;
•sell, transfer or dispose of assets;
•pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;
•create new subsidiaries;
•permit certain restrictions affecting our subsidiaries;
•change the nature of our business, accounting policies or fiscal periods;
•enter into any transactions with affiliates other than on an arm’s-length basis; and
•amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.
The Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, and bankruptcy and insolvency events, and, in the case of the Credit Agreement, invalidity or impairment of loan documentation, change of control and customary ERISA defaults in addition to the foregoing. None of the restrictions above are expected to impact our ability to effectively operate the business.
The Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis not to exceed 4.25:1.00 (or 4.50:1.00 for two fiscal quarters following a material acquisition) and (2) the minimum Consolidated Interest
Coverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis of at least 4.00:1.00. As of September 30, 2022, our Consolidated Leverage Ratio was 3.14:1.00 and our Consolidated Interest Coverage Ratio was 8.73:1.00.
Our non-guarantor subsidiaries under the Senior Notes and the Credit Agreement consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $1,342.4 million, or 60.4%, of our total revenue for the trailing 12 months ended September 30, 2022, approximately $526.1 million, or 44.6%, of our consolidated operating income for the trailing 12 months ended September 30, 2022, and approximately $932.0 million, or 19.5%, of our consolidated total assets (excluding intercompany assets) and $738.7 million, or 12.6%, of our consolidated total liabilities, in each case as of September 30, 2022.
Share Repurchases
The following table provides information with respect to repurchases of the Company’s common stock pursuant to open market repurchases:
| | | | | | | | | | | | | | | | | | | | |
Nine Months Ended (in thousands except per share data) | | Average Price Paid Per Share | | Total Number of Shares Repurchased | | Dollar Value of Shares Repurchased |
September 30, 2022 | | $ | 473.26 | | | 2,567 | | $ | 1,214,695 | |
September 30, 2021 | | $ | 407.70 | | | 330 | | $ | 134,340 | |
As of September 30, 2022, there was $1,374.5 million of available authorization remaining under the 2022 Repurchase Program.
Cash Dividend
On October 24, 2022, the Board of Directors declared a quarterly cash dividend of $1.25 per share for the three months ending December 31, 2022. The fourth quarter 2022 dividend is payable on November 30, 2022 to shareholders of record as of the close of trading on November 10, 2022.
Cash Flows
The following table presents the Company’s cash and cash equivalents as of the dates indicated:
| | | | | | | | | | | | | | |
| | As of |
(in thousands) | | September 30, 2022 | | December 31, 2021 |
Cash and cash equivalents | | $ | 867,112 | | | $ | 1,421,449 | |
We typically seek to maintain minimum cash balances globally of approximately $225.0 million to $275.0 million for general operating purposes. As of September 30, 2022 and December 31, 2021, $342.0 million and $542.2 million, respectively, of the Company’s cash and cash equivalents were held by foreign subsidiaries. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. We believe the global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes or other needs, including acquisitions or expansion of our products.
We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing revolving credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents, will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter.
Net Cash Provided by (Used In) Operating, Investing and Financing Activities
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(in thousands) | | 2022 | | 2021 |
Net cash provided by operating activities | | $ | 779,942 | | | $ | 656,405 | |
Net cash used in investing activities | | (52,413) | | | (985,879) | |
Net cash (used in) provided by financing activities | | (1,252,827) | | | 321,249 | |
Effect of exchange rate changes | | (29,039) | | | (7,632) | |
Net (decrease) increase in cash | | $ | (554,337) | | | $ | (15,857) | |
| | | | |
Cash Flows From Operating Activities
Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. The year-over-year change was primarily driven by higher cash collections from customers, partially offset by higher payments for cash expenses, mainly reflecting higher cash compensation expenses, information technology costs, professional fees and market data costs.
Our primary uses of cash from operating activities are for the payment of cash compensation expenses, interest expenses, income taxes, technology costs, professional fees, market data costs and office rent. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash Flows From Investing Activities
The year-over-year change was primarily driven by the absence of cash outflows associated with acquisitions, partially offset by higher capitalized software development costs.
Cash Flows From Financing Activities
The year-over-year change was primarily driven by the impact of lower proceeds from borrowings and higher share repurchases, partially offset by lower repayments on debt.