MSCI Inc. (NYSE: MXB), a leading global provider of investment
decision support tools, including indices, portfolio risk and
performance analytics and corporate governance services, today
announced results for the second quarter and first half ended May
31, 2010.
(Note: Percentage changes are referenced to the comparable
period in fiscal year 2009, unless otherwise noted.)
- Operating revenues increased
14.4% to $125.2 million in second quarter 2010 and 14.7% to $246.9
million for first half 2010.
- Adjusted EBITDA2 increased 15.8%
to $61.8 million in second quarter 2010 for an Adjusted EBITDA
margin of 49.4%. First half 2010 Adjusted EBITDA grew by 18.9% to
$121.1 million. See Table 11 titled "Reconciliation of Adjusted
EBITDA to Net Income."
- Diluted EPS for the second
quarter 2010 increased 15.8% to $0.22. For the first six months of
2010, Diluted EPS rose 37.1% to $0.48.
- Second quarter 2010 Adjusted
EPS1 rose 29.6% to $0.35. First half 2010 Adjusted EPS rose 29.4%
to $0.66. See Table 12 titled "Reconciliation of Adjusted Net
Income and Adjusted EPS to Net Income and EPS."
Henry A. Fernandez, Chairman and CEO, said, “We delivered a
strong first half of fiscal 2010, with double digit revenue and
Adjusted EBITDA growth in both the first and second quarters. Our
second quarter revenues and Adjusted EBITDA grew 14.4% and 15.8%,
respectively, and our Adjusted EBITDA margin expanded to 49.4%.
Demand for our products has continued to strengthen, as evidenced
by our record level of quarterly new sales and the year-over-year
improvement in our retention rate.”
“At the beginning of June, we completed our acquisition of
RiskMetrics. We are excited to have begun the work of bringing
together two great companies to deliver a suite of products
unmatched in the risk management analytics marketplace. With
annualized revenues of more than $750 million and 2,000 employees
worldwide, our increased scale and scope will enable us to invest
more in developing new products and capabilities for our clients
which, in turn, should lead to additional revenue growth,” added
Mr. Fernandez.
Table 1: MSCI Inc. Selected Financial Information
(unaudited)
Three Months Ended Change from Six Months
Ended Change from May 31, May 31, May 31, May 31, In thousands,
except per share data 2010 2009 2009 2010 2009 2009 Operating
revenues $ 125,170 $ 109,375 14.4% $ 246,850 $
215,290 14.7% Operating expenses $ 78,473 $ 72,721 7.9% $
152,896 $ 145,852 4.8% Net income $ 24,067 $ 19,618 22.7% $ 51,585
$ 36,342 41.9% % Margin 19.2% 17.9% 20.9% 16.9% Diluted EPS $ 0.22
$ 0.19 15.8% $ 0.48 $ 0.35 37.1% Adjusted EPS1 $ 0.35 $ 0.27
29.6% $ 0.66 $ 0.51 29.4% Adjusted EBITDA2 $ 61,834 $ 53,392
15.8% $ 121,083 $ 101,857 18.9% % Margin 49.4% 48.8% 49.1% 47.3% 1
Per share net income before after-tax impact of amortization of
intangibles, founders grant, third party transaction expenses
associated with the acquisition of RiskMetrics and debt repayment
expenses. See Table 12 titled "Reconciliation of Adjusted Net
Income and Adjusted EPS to Net Income and EPS" and information
about the use of non-GAAP financial information provided under
"Notes Regarding the Use of Non-GAAP Financial Measures.”
2 Income before interest income,
interest expense, other expense (income), provision for taxes,
depreciation, amortization, founders grant and third party
transaction expenses associated with the acquisition of
RiskMetrics. See Table 11 titled "Reconciliation of Adjusted EBITDA
to Net Income" and information about the use of non-GAAP financial
information provided under "Notes Regarding the Use of Non-GAAP
Financial Measures.”
Summary of Results for Fiscal Second quarter 2010
Operating Revenues – See Table 4
Total operating revenues for the three months ended May 31, 2010
(second quarter 2010) increased $15.8 million, or 14.4%, to $125.2
million compared to $109.4 million for the three months ended May
31, 2009 (second quarter 2009). Subscription revenues increased by
5.6% to $99.5 million while equity index asset based fees rose
68.8% to $25.7 million. Subscription revenue growth resulted from
increases in revenues related to equity index subscriptions and
Multi-Asset Class Analytics, which were up 14.7% and 16.0%,
respectively, in second quarter 2010 offset, in part, by decreases
of 8.0% in Equity Portfolio Analytics and 10.8% in Other Products.
Non-recurring subscription revenues increased $1.6 million to $4.2
million in the quarter. The company recorded revenue growth in all
regions, most notably in EMEA and in Asia Pacific. Revenue growth
from asset managers, asset owners, and others helped offset
declines from broker dealers and hedge funds.
Equity Indices: Revenues related to Equity Indices
increased $17.4 million, or 27.9%, to $79.9 million in second
quarter 2010 compared to second quarter 2009. Total equity index
revenues grew in all regions and across all client types. Revenues
from equity index subscriptions were up 14.7% to $54.2 million in
second quarter 2010, with growth in all regions and all client
types except broker dealers. The increase reflects continued growth
in emerging markets, small cap, developed markets and custom equity
index revenues which more than offset a decline in revenues from
derivative structured products linked to our indices.
Revenues attributable to equity index asset based fees increased
68.8% to $25.7 million in second quarter 2010 compared to second
quarter 2009, reflecting increases of 77.5% to $20.7 million for
ETF asset based fees and 40.2% to $5.0 million for other asset
based fees. The average value of assets in ETFs linked to MSCI
equity indices increased 87.4% to $252.4 billion for second quarter
2010 compared to $134.7 billion for second quarter 2009. As of May
31, 2010, the value of assets in ETFs linked to MSCI equity indices
was $237.6 billion, representing an increase of $61.7 billion, or
35.1%, from $175.9 billion as of May 31, 2009. We estimate that the
$61.7 billion year-over-year increase in assets in ETFs linked to
MSCI equity indices was attributable to $29.2 billion of net asset
appreciation and $32.5 billion of cash inflows.
The value of assets in ETFs linked to MSCI equity indices at the
end of second quarter 2010 rose 0.8%, or $2.0 billion, from the end
of first quarter 2010. We estimate that the increase was
attributable to asset inflows of $7.9 billion offset, in part, by
asset depreciation of $5.9 billion. The $7.9 billion of asset
inflows was comprised of $7.0 billion of asset inflows into
established ETFs supplemented by $0.9 billion of asset inflows into
ETFs launched over the last twelve months.
The three MSCI indices with the largest amount of ETF assets
linked to them as of May 31, 2010 were the MSCI Emerging Markets,
EAFE (an index of stocks in developed markets outside North
America), and US Broad Market Indices. The assets linked to these
indices were $67.5 billion, $35.8 billion, and $13.7 billion,
respectively.
Equity Portfolio Analytics: Revenues related to Equity
Portfolio Analytics products decreased $2.5 million, or 8.0%, to
$29.0 million in second quarter 2010 compared to the same period in
2009 as lower retention rates more than offset new sales during the
last twelve months. Revenue declined 9.8% to $18.9 million for
Aegis (our proprietary risk data delivered in a bundle with our
proprietary software platform) and 7.3% to $8.6 million for Models
Direct (our proprietary data delivered directly). These declines
were partially offset by an increase of 20.0% to $1.5 million for
Barra on Vendors (our proprietary data accessed through third party
vendors). Revenues declined across all client types and all regions
except Asia Pacific.
Multi-Asset Class Portfolio Analytics: Revenues related
to Multi-Asset Class Portfolio Analytics increased $1.5 million, or
16.0%, to $11.1 million in second quarter 2010 compared to the same
period in 2009. Sales of BarraOne remained the biggest driver of
growth in this product category. BarraOne revenues rose by 26.9% to
$9.1 million offset, in part, by a 16.3% decline to $2.0 million in
revenues from TotalRisk. TotalRisk is in the process of being
decommissioned, with its existing users being offered the
opportunity to transition to BarraOne. Revenues rose in all client
types except for hedge funds and across all regions except Asia
Pacific.
Other Products: Revenues from Other Products decreased
$0.6 million, or 10.8%, to $5.1 million in second quarter 2010
compared to second quarter 2009. A decrease of 24.7% to $1.2
million in revenues from fixed income analytics was partially
offset by growth of 3.6% to $3.9 million in energy and commodity
analytics products revenues.
Operating Expenses – See Table 6
Total operating expenses increased $5.8 million, or 7.9%, to
$78.5 million in second quarter 2010 compared to second quarter
2009. Operating expenses include $5.3 million in third party
transaction expenses associated with MSCI’s acquisition of
RiskMetrics Group, Inc. (transaction expenses). These transaction
expenses, which consist of payments made to outside advisors, are
recorded in Selling, general and administrative expense. Excluding
the transaction expenses, operating expenses would have risen by
only 0.7%.
Total compensation costs decreased 3.9% to $44.8 million.
Excluding founders grant expense, compensation expenses increased
8.8% to $42.7 million. The increase excluding founders grant
expense largely reflects an increase in headcount of 137, or 17.0%,
to 942 employees.
Total founders grant expense fell by $5.3 million, or 72.2%, to
$2.0 million. The drop in founders grant expense is a result of the
vesting of a portion of these awards on November 14, 2009 at the
two-year anniversary of the company’s initial public offering
(IPO). Expenses related to the founders grant awards reflect the
amortization of share based compensation expenses associated with
restricted stock units and options awarded to employees as a
one-time grant in connection with our IPO completed in November
2007, which are being amortized through 2011. Of the $2.0 million
of founders grant expense recorded in second quarter 2010, $0.7
million was recorded in cost of services and $1.3 million was
recorded in Selling, general and administrative expense.
Total non-compensation expenses excluding depreciation and
amortization increased $9.2 million to $25.9 million, a 54.8%
increase. Excluding transaction expenses, non-compensation costs
excluding depreciation and amortization rose 23.3% to $20.6
million. The increase excluding transaction expenses largely
reflects higher outside professional costs, information technology
expenses, and market data costs. These increases were partially
offset by the elimination of expense allocations from Morgan
Stanley.
Cost of services expense rose by $1.2 million, or 4.1%, in the
second quarter 2010. Within cost of services, compensation expense
including founders grant expense declined by $0.1 million or 0.3%.
Excluding founders grant expense, compensation expense rose by $2.1
million, or 10.8%. The biggest drivers of the change were increases
in our IT and development staffing levels. Non-compensation
expenses rose by $1.3 million, or 18.6%. The biggest driver of the
change in non-compensation expenses was a $1.0 million increase in
market data cost.
Selling, general and administrative expense rose by $6.1
million, or 18.0%. Within Selling, general and administrative
expense, compensation expense including founders grant expense fell
by $1.8 million, or 7.3%. Excluding founders grant expense,
compensation expense rose $1.4 million, or 6.9%. Non-compensation
expenses rose by $7.9 million, or 79.8%. Excluding the impact of
$5.3 million of transaction expenses, non-compensation expenses
rose by $2.6 million, or 26.5%, driven by higher IT spending,
occupancy expenses, and higher license and regulatory fees.
Selling expenses excluding founders grant expense rose by $0.3
million, or 2.8%, to $11.5 million. General and administrative
costs excluding founders grant expense rose $8.9 million, or 48.5%,
to $27.3 million. Excluding founders grant expense and transaction
expenses, general and administrative costs rose by $3.7 million, or
19.9%.
Adjusted EBITDA – See Table 11
Adjusted EBITDA, which excludes the impact of founders grant
expense and transaction expenses, was $61.8 million, an increase of
15.8% from second quarter 2009. The Adjusted EBITDA margin
increased to 49.4% in second quarter 2010 from 48.8% in second
quarter 2009. See Table 11 titled “Reconciliation of Adjusted
EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP
Financial Measures” below.
Other Expense (Income), Net
Other expense (income), net was an expense of $8.7 million in
second quarter 2010 compared to an expense of $4.7 million in
second quarter 2009. In second quarter 2010, MSCI elected to repay
$297.0 million of its outstanding term loans. As a result, the
company incurred a total of $6.3 million of accelerated interest
expense resulting from the termination of an interest rate swap and
the acceleration of deferred financing and debt discount costs
(debt repayment expenses). Excluding these charges, Other expense
(income) was $2.5 million, a decline of $2.2 million, or 47% from
second quarter 2009. The decline of Other expense excluding debt
repayment expenses was primarily due to lower interest expense
resulting from lower average outstanding debt and the impact of
lower interest rates on the unhedged portion of our debt. The
repayment of debt during the quarter contributed to a $1.0 million
reduction in interest expense.
Provision for Income Taxes
The provision for income taxes increased 12.4% to $13.9 million
in second quarter 2010. The effective tax rate for second quarter
2010 was 36.6% compared to 38.6% in second quarter 2009. Our
effective tax rate was approximately 1.6% higher, on a net basis,
for the three months ended May 31, 2010 as a result of the
transaction expenses related to the acquisition of RiskMetrics,
which are not tax deductible, offset by the impact of net discrete
tax benefits recognized during the period.
Net Income and Earnings per Share
Net income increased 22.7% to $24.1 million in second quarter
2010 from second quarter 2009 and the net income margin increased
to 19.2% from 17.9%. Diluted EPS rose 15.8% to $0.22 from
$0.19.
Net income excluding the after-tax impact of amortization of
intangibles, founders grant expense, transaction expenses and debt
repayment expenses totaling $13.3 million, rose 32.3% to $37.3
million in second quarter 2010. Adjusted EPS, which excludes the
after-tax, per share impact of amortization of intangibles,
founders grant expense, transaction expenses and debt repayment
expenses totaling $0.13, rose 29.6% to $0.35 in the second quarter
of 2010 from $0.27 in second quarter 2009. See Table 12 titled
"Reconciliation of Adjusted Net Income and Adjusted EPS to Net
Income and EPS."
Summary of Results for First Half 2010
Operating Revenues – See Table 5
Total operating revenues for first half ended May 31, 2010
(first half 2010) increased 14.7% to $246.9 million compared to
$215.3 million for the first half ended May 31, 2009 (first half
2009). Revenue gains in our Equity Indices and Multi-Asset Class
Portfolio Analytics products, which grew by 28.2% and 14.4%
respectively, more than offset declines in our Equity Portfolio
Analytics and Other Product areas of 7.4% and 5.5%, respectively.
First half operating revenues rose in every region and across all
client types with the exception of hedge funds.
Subscription revenues of $196.2 million rose 5.0% from the first
half of 2009 as growth in equity index subscriptions and Multi
Asset Class Analytics product revenues offset declines in Equity
Portfolio Analytics and Other products. Asset based fees of $50.7
million rose 78.4% from first half of 2009, propelled in large part
by the growth in average assets under management in ETFs linked to
our indices of 87.4% to $252.4 billion.
Operating Expenses – See Table 7
Operating expenses for first half 2010 increased $7.0 million,
or 4.8%, to $152.9 million compared to first half 2009. Operating
expenses for first half 2010 include $7.5 million in third party
transaction expenses related to the acquisition of RiskMetrics
Group, Inc. These transaction expenses are recorded in Selling,
general and administrative expense.
The $7.0 million increase reflects increases of $11.7 million in
non-compensation expenses and $0.9 million in depreciation and
amortization expense offset, in part, by decreases of $1.3 million
in total compensation expense and $4.3 million in amortization of
intangibles.
Total compensation expense decreased $1.3 million, or 1.4%, to
$89.8 million for first half 2010. Excluding founders grant
expense, compensation expense increased $8.1 million, or 10.5%, to
$85.7 million. The increase in compensation expense primarily
reflects increases in headcount. These increases were offset by a
$9.4 million decrease in founders grant expense. Non-compensation
expense increased $11.7 million, or 32.7%, to $47.6 million.
Excluding transaction charges, non compensation expenses rose by
$4.2 million or 11.8%.
Cost of services increased $1.6 million, or 2.7%, to $59.8
million in first half 2010. The change was largely due to an
increase in compensation cost. Selling, general and administrative
expenses increased to $77.6 million in first half 2010. The
increase reflects $7.5 million of transaction expenses as well as
higher information technology and recruiting expenses.
Adjusted EBITDA – See Table 11
Adjusted EBITDA, which excludes the impact of founders grant
expense and transaction expenses, increased 18.9% to $121.1 million
for first half 2010 from $101.9 million for first half 2009. The
Adjusted EBITDA margin rose to 49.1% in first half 2010 from 47.3%
in first half 2009. See Table 11 titled “Reconciliation of Adjusted
EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP
Financial Measures” below.
Other Expense (Income), Net
Other expense (income), net was an expense of $12.2 million in
first half 2010 compared to an expense of $11.1 million in first
half 2009. Excluding the impact of the debt repayment expenses of
$6.3 million discussed above, Other expense (income) was $5.9
million, a decrease of $5.2 million, or 46.9% from first half 2009.
The decline of Other expense excluding debt repayment expenses was
primarily due to lower interest expense resulting from lower
average outstanding debt.
Provision for Income Taxes
The provision for income taxes increased 37.2% to $30.2 million
in first half 2010. The effective tax rate for first half 2010 was
36.9% compared to 37.7% in first half 2009. Our effective tax rate
was approximately 0.3% higher for the six months ended May 31, 2010
as a result of the transaction expenses related to the acquisition
of RiskMetrics, which are not tax deductible, offset by the impact
of net discrete tax benefits recognized during the period.
Net Income
Net income increased 41.9% to $51.6 million in first half 2010
from $36.3 million in first half 2009 and the net income margin
increased to 20.9% from 16.9%. Diluted EPS for the first six months
of 2010 was $0.48, an increase of 37.1% from first half 2009.
Net income excluding the after-tax impact of amortization of
intangibles, founders grant expense, transaction expenses and debt
repayment expenses totaling $19.5 million rose 34.6% to $71.1
million from $52.8 million in first half 2009. First half 2010
Adjusted EPS, which excludes the per-share, after-tax impact of
amortization of intangibles, founders grant expense, transaction
expenses and debt repayment expenses totaling $0.18, rose 29.4% to
$0.66 from $0.51. See Table 12 titled "Reconciliation of Adjusted
Net Income and Adjusted EPS to Net Income and EPS."
Acquisition of RiskMetrics Group, Inc.
On June 1, 2010, MSCI completed the acquisition of RiskMetrics
Group, Inc. In connection with the acquisition of RiskMetrics, MSCI
entered into a senior secured credit agreement which is comprised
of a $1,275.0 million six-year term loan facility and an undrawn
$100.0 million five-year revolving credit facility. Principal on
the term loan facility is expected to be paid at 1.00% per year
plus a portion of MSCI’s excess cash flows (as defined in the
agreement and depending on its leverage ratio), with remaining
principal payable in the final year. Borrowings under the credit
facilities bear interest at a rate equal to the greater of the
London Interbank Offered Rate (“LIBOR”), or 1.50%, plus a margin of
3.25%. In connection with the senior secured credit agreement
described above, MSCI paid $71.1 million on June 1, 2010 to retire
its existing term loan facility plus accrued interest and $0.7
million to retire its interest rate swap and accrued interest. In
addition to the new loans, MSCI issued approximately 12.6 million
shares and reserved approximately 4.3 million common shares for
outstanding vested and unvested stock options and restricted stock
awards assumed as part of the acquisition.
Change in Ticker Symbol to ‘MSCI’
MSCI Inc. will change the ticker symbol for its common stock
listed on the New York Stock Exchange to “MSCI” from “MXB,”
effective at the start of trading on Tuesday, July 6, 2010.
Conference Call Information
Investors will have the opportunity to listen to MSCI Inc.'s
senior management review second quarter 2010 results on Thursday,
July 1, 2010 at 11:00 am Eastern Time. To hear the live event,
visit the investor relations section of MSCI's website,
http://ir.msci.com/events.cfm, or dial 1-877-312-9206 within the
United States. International callers dial 1-408-774-4001.
An audio recording of the conference call will be available on
our website approximately two hours after the conclusion of the
live event and will be accessible through July 7, 2010. To listen
to the recording, visit http://ir.msci.com/events.cfm, or dial
1-800-642-1687 (passcode: 80714875) within the United States.
International callers dial 1-706-645-9291 (passcode: 80714875).
About MSCI Inc.
MSCI Inc. is a leading provider of investment decision support
tools to investors globally, including asset managers, banks, hedge
funds and pension funds. MSCI Inc. products and services include
indices, portfolio risk and performance analytics, and governance
tools.
The company's flagship product offerings are: the MSCI indices
which include over 120,000 daily indices covering more than 70
countries; Barra portfolio risk and performance analytics covering
global equity and fixed income markets; RiskMetrics market and
credit risk analytics; ISS governance research and outsourced proxy
voting and reporting services; CFRA forensic accounting risk
research, legal/regulatory risk assessment, and due-diligence; and
FEA valuation models and risk management software for the energy
and commodities markets. MSCI Inc. is headquartered in New York,
with research and commercial offices around the world. MXB#IR
For further information on MSCI Inc. or our products please
visit www.msci.com.
Forward-Looking Statements
This release contains forward-looking statements. These
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 forward-looking
statements. In some cases, you can identify forward-looking
statements by the use of words such as “may,” “could,” “expect,”
“intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,”
“predict,” “potential,” or “continue” or the negative of these
terms or other comparable terminology. You should not place undue
reliance on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors that are, in
some cases, beyond our control and that could materially affect
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
November 30, 2009 and filed with the Securities and Exchange
Commission (SEC) on January 29, 2010, the Registration Statement on
Form S-4, as amended, filed with the SEC on April 27, 2010 and in
quarterly reports on form 10-Q and current reports on form 8-K. If
any of these risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may
vary significantly from what we projected. Any forward-looking
statement in this release reflects our current views with respect
to future events and is subject to these and other risks,
uncertainties and assumptions relating to our operations, results
of operations, growth strategy and liquidity. We assume 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.
Notes Regarding the Use of Non-GAAP Financial
Measures
MSCI has presented supplemental non-GAAP financial measures as
part of this earnings release. A reconciliation is provided below
that reconciles each non-GAAP financial measure with the most
comparable GAAP measure. The presentation of non-GAAP financial
measures should not be considered as alternative measures for the
most directly comparable GAAP financial measures. These measures
are used by management to monitor the financial performance of the
business, inform business decision making and forecast future
results.
Adjusted EBITDA is defined as net income before provision for
income taxes, amortization of intangible assets, other net expense
and income, depreciation and amortization, founders grant expense
and third party transaction costs related to the acquisition of
RiskMetrics.
Adjusted net income and Adjusted EPS are defined as net income
and EPS, respectively, before provision for founders grant
expenses, amortization of intangible assets, third party
transaction costs related to the acquisition of RiskMetrics, and
the accelerated interest expense resulting from the termination of
an interest rate swap and the acceleration of deferred financing
and debt discount costs (debt repayment expenses), as well as for
any related tax effects.
We believe that adjustments related to transaction costs and
debt repayment expenses are useful to management and investors
because it allows for an evaluation of the MSCI’s underlying
operating performance by excluding the costs incurred in connection
with the acquisition of RiskMetrics. Additionally, we believe that
adjusting for founders grant expenses and the amortization of
intangible assets may help investors compare our performance to
that of other companies in our industry as we do not believe that
other companies in our industry have as significant a portion of
their operating expenses represented by one-time founders grant
expenses and amortization of intangible assets. 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, Adjusted net income and Adjusted EPS are not
defined in the same manner by all companies and may not be
comparable to other similarly titled measures of other
companies.
Table 2: MSCI Inc. Consolidated Statements of Income
(unaudited)
Three Months Ended Six Months Ended May 31,
February 28, May 31, In thousands, except per share data 2010
2009 2010 2010 2009 Operating revenues $
125,170 $ 109,375 $ 121,680 $ 246,850 $
215,290 Operating expenses Cost of services 30,463 29,269
29,291 59,754 58,204 Selling, general and administrative 40,177
34,052 37,461 77,638 68,768 Amortization of intangible assets 4,277
6,428 4,278 8,555 12,857 Depreciation and amortization of property,
3,556 2,972 3,393 6,949 6,023 equipment, and leasehold improvements
Total operating expenses
78,473 72,721
74,423 152,896
145,852 Operating income 46,697 36,654 47,257 93,954
69,438 Interest income (343 ) (220 ) (408 ) (751 ) (341 )
Interest expense 8,991 4,904 4,436 13,427 10,542 Other expense
(income) 98 (2 )
(608 ) (510 ) 880
Other expense (income), net 8,746
4,682 3,420
12,166 11,081 Income
before income taxes 37,951 31,972 43,837 81,788 58,357
Provision for income taxes 13,884 12,354 16,319 30,203 22,015
Net income $
24,067 $ 19,618 $
27,518 $ 51,585 $ 36,342
Earnings per basic common share $ 0.23
$ 0.19 $ 0.26 $ 0.48 $
0.35 Earnings per diluted common share $ 0.22
$ 0.19 $ 0.26 $
0.48 $ 0.35 Weighted average
shares outstanding used in computing earnings per share Basic
105,345 100,359
105,235 105,290
100,324 Diluted 106,003
100,371 105,844
105,923 100,330
Table 3: MSCI Inc. Selected Balance
Sheet Items (unaudited) As of May 31, November 30, In
thousands
2010 2009 Cash and cash equivalents $ 152,148 $ 176,024
Short-term investments $ 61,399 $ 295,304 Trade receivables, net of
allowances $ 92,530 $ 77,180 Deferred revenue $ 181,906 $
152,944 Current maturities of long-term debt $ 8,245 $ 42,088
Long-term debt, net of current maturities $ 62,325 $ 337,622
Table 4: Second Quarter 2010 Operating Revenues by Product
Category
Three Months Ended Change
from May 31, February 28, May 31, February 28, In thousands 2010
2009 2010 2009 2010 Equity indices Equity index subscriptions $
54,222 $ 47,282 $ 50,175 14.7 % 8.1 % Equity
index asset based fees 25,696 15,220
24,985 68.8 % 2.8 % Equity indices total 79,918
62,502 75,160 27.9 % 6.3 % Equity portfolio analytics 29,041 31,582
29,983 (8.0 %) (3.1 %) Multi-asset class portfolio analytics 11,107
9,572 10,845 16.0 % 2.4 % Other products 5,104
5,719 5,692 (10.8 %) (10.3 %) Total operating
revenues $ 125,170 $ 109,375 $ 121,680 14.4 %
2.9 % Subscriptions 99,474 94,155 96,695 5.6 % 2.9 % Equity index
asset based fees 25,696 15,220
24,985 68.8 % 2.8 % Total operating revenues $
125,170 $ 109,375 $ 121,680 14.4 % 2.9 %
Table 5: First Half 2010 Operating Revenues by Product
Category
Six Months Ended May 31, In thousands
2010 2009 Change Equity indices Equity index subscriptions $
104,397 $ 92,549 12.8 % Equity index asset based fees
50,681 28,402 78.4 % Equity indices total
155,078 120,951 28.2 % Equity portfolio analytics 59,024 63,722
(7.4 %) Multi-asset class portfolio analytics 21,952 19,195 14.4 %
Other products 10,796 11,422 (5.5 %)
Total operating revenues $ 246,850 $ 215,290 14.7 %
Subscriptions 196,169 186,888 5.0 % Equity index asset based fees
50,681 28,402 78.4 % Total operating
revenues $ 246,850 $ 215,290 14.7 %
Table
6: Additional Second Quarter 2010 Operating Expenses Detail
Three Months Ended Change from May 31,
February 28, May 31, February 28, In thousands 2010 2009 2010 2009
2010 Cost of services Compensation $ 21,639 $ 19,538
$ 21,686 10.8 % (0.2 %) Founders grant 715
2,892 681 (75.3 %) 5.0 % Total
Compensation 22,354 22,430 22,367 (0.3 %) (0.1 %) Non-compensation
8,109 6,839 6,924 18.6 %
17.1 % Total cost of services 30,463 29,269 29,291 4.1 % 4.0 %
Selling, general and administrative Compensation 21,085 19,724
21,269 6.9 % (0.9 %) Founders grant 1,325
4,446 1,390 (70.2 %) (4.7 %) Total
Compensation 22,410 24,170 22,659 (7.3 %) (1.1 %) Transaction
expenses 5,264 0 2,250 NA 134.0 % Non-compensation excl.
transaction expenses 12,503 9,882
12,552 26.5 % (0.4 %) Total selling, general and
administrative 40,177 34,052 37,461 18.0 % 7.3 % Amortization of
intangible assets 4,277 6,428 4,278 (33.5 %) (0.0 %) Depreciation
and amortization 3,556 2,972
3,393 19.7 % 4.8 % Total operating expenses $ 78,473 $
72,721 $ 74,423 7.9 % 5.4 % Three Months Ended
Change from May 31, February 28, May 31, February 28, In thousands
2010 2009 2010 2009 2010 Total founders grant $ 2,040 $ 7,338 $
2,071 (72.2 %) (1.5 %) Compensation excluding founders grant 42,724
39,262 42,955 8.8 % (0.5 %) Transaction expenses 5,264 0 2,250 NA
134.0 % Non-compensation excluding transaction expenses 20,612
16,721 19,476 23.3 % 5.8 % Amortization of intangible assets 4,277
6,428 4,278 (33.5 %) (0.0 %) Depreciation and amortization
3,556 2,972 3,393 19.7 % 4.8 %
Total operating expenses $ 78,473 $ 72,721 $
74,423 7.9 % 5.4 %
Table 7: Additional First Half
2010 Operating Expenses Detail
Six Months Ended
May 31, In thousands 2010 2009
$ Change
% Change Cost of services Compensation $ 43,324 $ 38,790 $
4,534 11.7 % Founders grant 1,397 4,937 (3,540 )
(71.7 %) Total Compensation 44,721 43,727 994 2.3 %
Non-compensation 15,033 14,477 556 3.8 % Total cost
of services 59,754 58,204 1,550 2.7 % Selling, general and
administrative Compensation 42,355 38,771 3,584 9.2 % Founders
grant 2,714 8,602 (5,888 ) (68.4 %) Total
Compensation 45,069 47,373 (2,304 ) (4.9 %) Transaction expenses
7,514 0 7,514 NA Non-compensation excl. transaction expenses
25,055 21,395 3,660 17.1 % Total selling, general and
administrative 77,638 68,768 8,870 12.9 % Amortization of
intangible assets 8,555 12,857 (4,302 ) (33.5 %) Depreciation and
amortization 6,949 6,023 926 15.4 % Total operating
expenses $ 152,896 $ 145,852 $ 7,044 4.8 % Six Months Ended
May 31, In thousands 2010 2009
$ Change
% Change Total founders grant $ 4,111 $ 13,539 (9,428 ) (69.6 %)
Compensation excluding founders grant 85,679 77,561 8,118 10.5 %
Transaction expenses 7,514 0 7,514 NA Non-compensation excluding
transaction expenses 40,088 35,872 4,216 11.8 % Amortization of
intangible assets 8,555 12,857 (4,302 ) (33.5 %) Depreciation and
amortization 6,949 6,023 926 15.4 % Total
operating expenses $ 152,896 $ 145,852 $ 7,044 4.8 %
Table 8: Key Operating Metrics
As of or For the Quarter Ended Change from May
February May February Dollars in thousands 2010
2009 2010 2009 2010 Run Rates 1 Equity indices Equity
index subscriptions $ 202,101 $ 178,634 $
191,862 13.1 % 5.3 % Equity index asset based fees 2
91,977 68,892 94,033
33.5 % (2.2 %) Equity Indices total 294,078 247,526 285,895
18.8 % 2.9 % Equity portfolio analytics 118,064 126,344 119,046
(6.6 %) (0.8 %) Multi-asset class analytics 42,145 37,194 41,142
13.3 % 2.4 % Other Products Energy and commodity analytics 15,340
14,863 15,671 3.2 % (2.1 %) Other 3 4,598 6,749 4,829 (31.9 %) (4.8
%) Other Products total 19,938
21,612 20,500 (7.7 %) (2.7 %) Total Run
Rate $ 474,225 $ 432,676 $
466,583 9.6 % 1.6 % Subscription total 382,248 362,784
372,550 5.4 % 2.6 % Asset based fees total 91,977
69,892 94,033 31.6
% (2.2 %) Total Run Rate $ 474,225 $ 432,676
$ 466,583 9.6 % 1.6 % Subscription Run
Rate by region % Americas 43.9 % 43.9 % 43.7 % % non-Americas 56.1
% 56.1 % 56.4 % Subscription Run Rate by client type % Asset
Managers 60.8 % 61.4 % 61.0 % % Broker Dealers 11.7 % 12.2 % 11.7 %
% Hedge Funds 5.2 % 6.0 % 5.4 % % Asset Owners 6.2 % 6.1 % 6.2 % %
Others 16.1 % 14.4 % 15.7 % New Recurring Subscription Sales
$ 21,936 $ 14,286 $ 17,717 53.5 % 23.8 % Subscription Cancellations
$ (9,932 ) $ (10,913 ) $ (7,161 ) (9.0 %) 38.7
% Net New Recurring Subscription Sales $ 12,004 $ 3,373 $ 10,556
255.9 % 13.7 % Non-Recurring Sales $ 3,730 $ 1,328 $ 1,168
180.9
% 219.4 % Client count 4 3,203 3,080 3,153 4.0 % 1.6
% Employees 942 805 918
17.0
% 2.6 % % Employees by location Developed Market Centers
52
% 65 % 54 % Emerging Market Centers
48
% 35 % 46 %
1 The run rate at a particular
point in time represents the forward-looking fees for the next 12
months from all subscriptions and investment product licenses we
currently provide to our clients under renewable contracts assuming
all contracts that come up for renewal are renewed and assuming
then-current exchange rates. For any license whose fees are linked
to an investment product’s assets or trading volume, the run rate
calculation reflects an annualization of the most recent periodic
fee earned under such license. The run rate does not include fees
associated with “one-time” and other non-recurring transactions. In
addition, we remove from the run rate the fees associated with any
subscription or investment product license agreement with respect
to which we have received a notice of termination or non-renewal
during the period and we have determined that such notice evidences
the client's final decision to terminate or not renew the
applicable subscription or agreement, even though the notice is not
effective until a later date.
2 Includes asset based fees for
ETFs, institutional and retail indexed funds, transaction
volume-based fees for futures and options traded on certain MSCI
indices and other structured products.
3 Includes run rate related to
subscriptions to fixed income analytics and, for quarter ended May
2009, to investable hedge fund index asset based fees.
4 The client count excludes
clients that pay only asset based fees. Our client count includes
affiliates, cities and certain business units within a single
organization as distinct clients when they separately subscribe to
our products.
Table 9: Supplemental Operating Metrics
Recurring Subscription Sales1 & Subscription Cancellations 2009
2010 February May
August November February May 2009 YTD 2010 YTD New
Recurring Subscription Sales $ 10,770 $ 14,286 $
15,524 $ 16,123 $ 17,717 $ 21,936 $
25,056 $ 39,653 Subscription Cancellations
(8,187 ) (10,913 ) (17,175 )
(16,312 ) (7,161 ) (9,932
) (19,100 ) (17,093 ) Net New Recurring
Subscription Sales $ 2,583 $ 3,373 $
(1,651 ) $ (189 ) $ 10,556 $
12,004 $ 5,956 $ 22,560
1 This does not include
non-recurring sales.
Retention Rates 2009 2010 February May August
November February May 2009 YTD 2010 YTD Aggregate Retention Rate 1
Equity indices 94.9 % 92.8 % 91.4 % 88.6 % 94.9 % 92.9 % 93.9 %
93.9 % Equity portfolio analytics 86.2 % 82.0 % 67.6 % 78.9 % 92.2
% 84.5 % 84.1 % 88.4 % Multi-asset class analytics 92.0 % 83.2 %
73.9 % 60.0 % 82.7 % 89.1 % 87.6 % 85.9 % Other products 83.3 %
88.3 % 84.2 % 77.7 % 85.8 % 81.3 % 85.8 % 83.5 % Total aggregate
retention 90.8 % 87.7 % 80.6 % 81.6 % 92.2 % 89.1 % 89.2 % 90.6 %
Core Retention Rate 2 Equity indices 95.0 % 93.2 % 92.2 %
89.2 % 95.7 % 93.4 % 94.1 % 94.6 % Equity portfolio analytics 87.4
% 83.5 % 68.9 % 79.2 % 93.7 % 86.4 % 85.4 % 90.1 % Multi-asset
class analytics 92.0 % 93.7 % 77.5 % 65.6 % 89.5 % 93.5 % 92.8 %
91.5 % Other products 84.0 % 89.6 % 86.1 % 81.7 % 88.6 % 81.3 %
86.8 % 85.0 % Total core retention 91.3 % 89.5 % 81.9 % 82.8 % 94.0
% 90.5 % 90.4 % 92.2 %
1 The quarterly Aggregate
Retention Rates are calculated by annualizing the cancellations for
which we have received a notice of termination or non-renewal
during the quarter and we have determined that such notice
evidences the client’s final decision to terminate or not renew the
applicable subscription or agreement, even though such notice is
not effective until a later date. This annualized cancellation
figure is then divided by the subscription Run Rate at the
beginning of the year to calculate a cancellation rate. This
cancellation rate is then subtracted from 100% to derive the
annualized Retention Rate for the quarter. The Aggregate
Retention Rate is computed on a product-by-product basis.
Therefore, if a client reduces the number of products to which it
subscribes or switches between our products, we treat it as a
cancellation. In addition, we treat any reduction in fees resulting
from renegotiated contracts as a cancellation in the calculation to
the extent of the reduction. Aggregate Retention Rates are
generally higher during the first three fiscal quarters and lower
in the fourth fiscal quarter. For the calculation of the Core
Retention Rate the same methodology is used except the amount of
cancellations in the quarter is reduced by the amount of product
swaps.
2 Our Core Retention Rate is
calculated similarly to our Aggregate Retention Rate except that
the Core Retention Rate does not treat switches between our
products as a cancellation.
Table 10: ETF Assets Linked to MSCI Indices
2009 2010 In Billions February May August
November February May Quarterly Average AUM in ETFs linked to MSCI
Indices $ 126.4 $ 134.7 $ 180.3 $ 216.8
$ 239.6 $ 252.4 Quarter-End AUM in ETFs linked
to MSCI Indices $ 107.8 $ 175.9 $ 199.2 $ 234.2 $ 235.6 $ 237.6
Sequential Change ($ Growth in Billions)
Appreciation/Depreciation $ (13.6 ) $ 42.2 $ 20.1 $ 18.0 $ (3.0 ) $
(5.9 ) Cash Inflow/ Outflow 2.4
25.9 3.2 17.0 4.4
7.9 Total Change $ (11.2 ) $
68.1 $ 23.3 $ 35.0 $ 1.4 $ 2.0
Source: Bloomberg and MSCI
Table 11:
Reconciliation of Adjusted EBITDA to Net Income
Three Months Ended
Six Months Ended May 31, February 28, May 31, In thousands
2010 2009 2010 2010 2009 GAAP - Net income $ 24,067 $
19,618 $ 27,518 $ 51,585 $ 36,342 Provision
for income taxes 13,884 12,354 16,319 30,203 22,015 Other expense
(income), net 8,746 4,682 3,420 12,166 11,081 Amortization of
intangible assets 4,277 6,428 4,278 8,555 12,857 Depreciation and
amortization 3,556 2,972 3,393 6,949 6,023 Founders grant expense
2,040 7,338 2,071 4,111 13,539 Transaction expenses
5,264 0 2,250
7,514 0
Adjusted
EBITDA $ 61,834 $
53,392 $ 59,249 $
121,083 $ 101,857
Table 12: Reconciliation of Adjusted
Net Income and Adjusted EPS to Net Income and EPS Three
Months Ended Six Months Ended May 31, February 28, May 31, 2010
2009 2010 2010 2009 GAAP - Net income $ 24,067 $ 19,618 $ 27,518 $
51,585 $ 36,342 Plus: Founders grant expense 2,040 7,338 2,071
4,111 13,539 Plus: Amortization of intangible assets 4,277 6,428
4,278 8,555 12,857 Plus: Transaction costs 5,264 0 2,250 7,514 0
Plus: Debt repayment expenses 6,280 0 0 6,280 0 Less: Income tax
effect1 (4,610 ) (5,176 )
(2,324 ) (6,934 ) (9,924 ) Adjusted net
income $ 37,318 $ 28,208 $
33,793 $ 71,111 $
52,814 GAAP - EPS $ 0.22 $ 0.19 $ 0.26 $ 0.48
$ 0.35 Plus: Founders grant expense 0.02 0.07 0.02 0.04 0.13 Plus:
Amortization of intangible assets 0.04 0.06 0.04 0.08 0.13 Plus:
Transaction costs 0.05 0.00 0.02 0.07 0.00 Plus: Debt repayment
expenses 0.06 0.00 0.00 0.06 0.00 Less: Income tax effect1
(0.04 ) (0.05 ) (0.03 )
(0.07 ) (0.10 )
Adjusted EPS -
diluted $ 0.35 $ 0.27 $
0.31 $ 0.66 $ 0.51
Diluted Shares 106,003 100,371 105,844 105,923 100,330
1 For the purposes of calculating
Adjusted EPS, founders grant expense, amortization of intangible
assets and debt repayment expenses during the current fiscal year
are assumed to be taxed at the first half 2010 effective tax rate
excluding discrete items of 36.6% For the prior year, the effective
rate is assumed to be 37.6%, which was the 2009 effective tax rate,
excluding discrete items. No tax adjustments are made for
transaction expenses.
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