MSCI Inc. (NYSE: MSCI), a leading provider of critical decision
support tools and services for the global investment community,
today announced results for the three months ended March 31, 2019
(“first quarter 2019”).
Financial and Operational Highlights for First Quarter
2019
(Note: Percentage and other changes refer to first quarter 2018
unless otherwise noted.)
- Organic subscription Run Rate growth
of 10.4%; Index up 11.6%, Analytics up 7.0% and All Other up
19.3%.
- Operating revenues up 5.7% with
recurring subscription revenues up 8.3%, asset-based fees down 4.3%
and non-recurring revenues up 43.7%.
- Organic operating revenue growth was
8.6% with organic recurring subscription revenues up
12.2%.
- Diluted EPS of $2.08, up 67.7%;
Adjusted EPS of $1.55, up 18.3%.
- Record quarterly Retention Rate at
95.2%. New recurring subscription sales up 16.5%, total net new up
34.3%.
- During first quarter 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.
Three Months Ended Mar. 31, Mar.
31, Dec. 31, YoY % In thousands,
except per share data 2019 2018 2018
Change Operating revenues $ 371,381 $ 351,316 $ 361,688
5.7 % Operating income $ 162,675 $ 167,166 $ 169,818 (2.7 %)
Operating margin % 43.8 % 47.6 % 47.0 % Net income $ 178,192
$ 115,092 $ 152,132 54.8 % Diluted EPS $ 2.08 $ 1.24 $ 1.70
67.7 % Adjusted EPS $ 1.55 $ 1.31 $ 1.31 18.3 % Adjusted
EBITDA $ 197,707 $ 186,709 $ 189,762 5.9 % Adjusted EBITDA margin %
53.2 % 53.1 % 52.5 %
“We continue to deliver strong results quarter after quarter,
including our sixth consecutive quarter of approximately 10%
organic subscription run rate growth. We are off to a great start
in 2019 as we continue to execute on the key pillars of our growth
strategy. Our consistent and reliable operating and financial
performance, amid volatile market conditions and a rapidly
transforming industry, demonstrates the strength of our franchise
and power of our value proposition. Our ingrained position at
the center of the investment process, coupled with our flexible
technology, differentiated content and actionable solutions, allows
us to provide must-have mission critical tools enabling global
investors to build better portfolios for a better world,” commented
Henry A. Fernandez, Chairman and CEO of MSCI.
“We see enormous opportunities within our core areas of
differentiated content such as equity indexes, factors and ESG, to
build stronger strategic relationships with our clients globally.
We also continue to execute our in-flight opportunities and are
well-positioned to capitalize on the wide range of attractive
investment opportunities we see to help drive top-line growth,”
added Mr. Fernandez.
First Quarter 2019 Consolidated
Results
Revenues: Operating
revenues for first quarter 2019 increased $20.1 million, or 5.7%,
to $371.4 million, compared to the three months ended March 31,
2018 (“first quarter 2018”). The $20.1 million increase in
operating revenues was driven by a $21.5 million, or 8.3%, increase
in recurring subscriptions (driven primarily by a $14.5 million, or
12.8%, increase in Index and a $5.2 million, or 32.4%, increase in
ESG), and a $2.2 million, or 43.7%, increase in non-recurring
revenues, partially offset by a $3.7 million, or 4.3%, decrease in
asset-based fees. Organic operating revenue growth was 8.6%, with
organic recurring subscription revenues up 12.2%, organic
non-recurring revenues up 49.0% and organic asset-based fees down
4.2%.
Run Rate: Total Run
Rate at March 31, 2019 grew by $75.0 million, or 5.3%, to $1,478.1
million, compared to March 31, 2018. The $75.0 million increase was
driven by a $71.9 million, or 6.7%, increase in recurring
subscription Run Rate to $1,142.8 million, and a $3.0 million, or
0.9%, increase in asset-based fees Run Rate to $335.3 million,
which was partially offset by a $25.4 million decline in recurring
subscription Run Rate from the 2018 divestitures of Financial
Engineering Associates, Inc. (“FEA”) and Investor Force Holdings,
Inc. (“InvestorForce”). Organic subscription Run Rate growth of
10.4% in first quarter 2019 was driven by strong growth in the
Index and ESG segments and in the Analytics segment’s Multi-Asset
Class and Equity Analytics products. Retention Rate was 95.2% in
first quarter 2019, compared to 94.6% in first quarter 2018, our
highest quarterly retention rate since our initial public offering
in 2007.
Expenses: Total
operating expenses for first quarter 2019 increased $24.6 million,
or 13.3%, to $208.7 million compared to first quarter 2018, driven
mainly by a $15.4 million payroll tax impact from 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”), and an $8.3 million, or
7.0%, increase in compensation and benefits costs. The compensation
and benefit cost increase is attributable to higher incentive
compensation, benefits, severance costs and wages and salaries.
Non-compensation costs increased by $0.8 million, or 1.7%, and was
attributable to an increase in professional fees.
The Multi-Year PSUs granted in 2016 covered three years of the
annual performance stock unit (“PSU”) component of long-term
incentive compensation for certain senior executives and,
therefore, such executives did not receive any PSU grants in 2017
or 2018. While the award is accrued over the vesting period (i.e.,
between first quarter 2016 and first quarter 2019), there was a
related payroll tax upon vesting in first quarter 2019. Given the
one-time and non-recurring nature of the Multi-Year PSU grant, we
have excluded the related payroll tax expense from our adjusted
figures.
Adjusted EBITDA expenses for first quarter 2019 increased $9.1
million, or 5.5%, to $173.7 million compared to first quarter 2018.
Total operating expenses excluding the impact of foreign currency
exchange rate fluctuations (“ex-FX”) and adjusted EBITDA expenses
ex-FX for first quarter 2019 increased 16.6% and 9.0%,
respectively, compared to first quarter 2018.
Headcount: As of
March 31, 2019, there were 3,179 employees, up 3.9% from 3,059 as
of March 31, 2018, and up 2.2% from 3,112 as of December 31, 2018.
The 3.9% year-over-year increase in employees was primarily driven
by increased headcount in emerging market centers and in areas
related to technology, research and marketing. As of March 31,
2019, a total of 38.0% and 62.0% of employees were located in
developed market and emerging market centers, respectively,
compared to 40.5% in developed market centers and 59.5% in emerging
market centers as of March 31, 2018.
Amortization and Depreciation
Expenses: Amortization and depreciation expenses
increased $0.1 million, or 0.5%, to $19.6 million, compared to
first quarter 2018, primarily as a result of higher amortization of
internally capitalized software projects, partially offset by lower
amortization due to the impact of the InvestorForce divestiture in
October 2018 and the write-off of the IPD tradename used by the
Real Estate segment in the three months ended June 30, 2018, and
lower depreciation expense reflecting certain data center assets
becoming fully depreciated.
Other Expense (Income),
Net: Other expense (income), net increased $6.7
million, or 24.0%, to $34.4 million, compared to first quarter
2018, mainly due to higher interest expense associated with higher
outstanding debt and higher foreign currency exchange losses,
partially offset by an increase in interest income driven by higher
yields.
Tax Rate: The first
quarter 2019 effective tax rate was a negative 38.9%, compared to
an effective tax rate of 17.5% for first quarter 2018. First
quarter 2019 had an income tax benefit of $49.9 million, compared
to an income tax expense of $24.3 million for first quarter 2018.
The lower effective tax rate compared to first quarter 2018 was
driven by the income tax benefit related to the vesting of the
Multi-Year PSUs (the “PSU windfall benefit”), and other discrete
items. The PSU windfall benefit totaled $66.6 million in first
quarter 2019 and is excluded from both the adjusted net income and
adjusted EPS measures for first quarter 2019. Excluding the PSU
windfall benefit, the first quarter 2019 adjusted tax rate was
13.0%.
Net Income: Net
income increased 54.8% to $178.2 million in first quarter 2019,
compared to $115.1 million in first quarter 2018.
Adjusted EBITDA:
Adjusted EBITDA was $197.7 million in first quarter 2019, up $11.0
million, or 5.9%, from first quarter 2018. Adjusted EBITDA margin
in first quarter 2019 was 53.2%, compared to 53.1% in first quarter
2018.
Cash Balances and Outstanding
Debt: Total cash and cash equivalents as of March
31, 2019 was $642.8 million. MSCI seeks to maintain minimum cash
balances globally of approximately $200.0 million to $250.0 million
for general operating purposes.
Total outstanding debt as of March 31, 2019 was $2,600.0
million, which excludes deferred financing fees of $23.6 million.
Net debt, defined as total outstanding debt less cash and cash
equivalents, was $1,957.2 million at March 31, 2019. The total debt
to operating income ratio (based on trailing twelve months
operating income) was 3.8x. The total debt to adjusted EBITDA ratio
(based on trailing twelve months adjusted EBITDA) was 3.3x, 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 $87.9 million in
first quarter 2019, compared to $88.6 million in first quarter 2018
and $173.2 million in the three months ended December 31, 2018
(“fourth quarter 2018”). Capex for first quarter 2019 was $8.1
million, compared to $5.9 million in first quarter 2018 and $22.8
million in fourth quarter 2018. Free cash flow was $79.7 million in
first quarter 2019, compared to $82.7 million in first quarter 2018
and $150.4 million in fourth quarter 2018. The decrease in net cash
provided by operating activities, compared to fourth quarter 2018,
was driven primarily by higher payments of cash expenses (primarily
related to the impact of the annual cash incentives paid in the
first quarter), partially offset by higher cash collections and
lower income tax payments. The decrease in free cash flow, compared
to fourth quarter 2018, was driven by lower net cash provided by
operating activities, partially offset by lower Capex.
The decrease in net cash provided by operating activities,
compared to first quarter 2018, was driven primarily by higher
payments of cash expenses and income taxes, partially offset by
higher cash collections. The decrease in free cash flow, compared
to first quarter 2018, was driven primarily by higher Capex.
Share Count and Capital
Return: The weighted average diluted shares
outstanding in first quarter 2019 declined 7.5% to 85.6 million,
compared to 92.6 million in first quarter 2018. In first quarter
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. A
total of $0.7 billion remains on the outstanding share repurchase
authorization as of April 30, 2019. Total shares outstanding as of
March 31, 2019 was 84.7 million.
On May 1, 2019, the Board declared a cash dividend of $0.58 per
share for second quarter 2019. The second quarter 2019 dividend is
payable on May 31, 2019 to shareholders of record as of the close
of trading on May 17, 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 1Q'19 $
214,773 $ 152,211 70.9 % $ 121,435 $ 36,398 30.0 % $
35,173 $ 9,098 25.9 % 1Q'18 $ 201,914 $ 145,930 72.3 % $
118,987 $ 33,593 28.2 % $ 30,415 $ 7,186 23.6 % % change 6.4 % 4.3
% 2.1 % 8.3 % 15.6 % 26.6 % 4Q'18 $ 210,433 $ 149,930 71.2 %
$ 121,935 $ 36,679 30.1 % $ 29,320 $ 3,153 10.8 % % change
2.1 % 1.5 % (0.4 %) (0.8 %)
20.0 % 188.6 %
Index Segment:
Operating revenues for first quarter 2019 increased $12.9 million,
or 6.4%, to $214.8 million, compared to first quarter 2018. The
increase was driven by a $14.5 million, or 12.8%, increase in
recurring subscriptions and a $2.1 million, or 64.0%, increase in
non-recurring revenues, partially offset by a $3.7 million, or
4.3%, decrease in asset-based fees.
The increase in recurring subscriptions was driven by strong
growth in core products, factor and ESG index products and custom
and specialized index products.
The decrease in asset-based fees was driven by a $3.2 million,
or 5.5%, decline in revenues from exchange traded funds (“ETFs”)
linked to MSCI indexes, a $0.3 million, or 5.8%, decline in
exchange traded futures and options contracts based on MSCI indexes
and a $0.2 million, or 0.8%, decline in revenues from non-ETF
passive funds linked to MSCI indexes. The decrease in revenues from
ETFs linked to MSCI indexes was driven by a 1.7% decline in average
assets under management (“AUM”), coupled with a decline in average
basis point fees resulting primarily from a change in product mix.
The decrease in revenues from futures and options reflected lower
net fees charged by certain exchanges, which more than offset an
increase in total trading volumes.
The increase in non-recurring revenues was primarily driven by
higher volume of deep historical content deals. The adjusted EBITDA
margin for Index was 70.9% for first quarter 2019, compared to
72.3% for first quarter 2018.
Index Run Rate at March 31, 2019 grew by $56.6 million, or 7.1%,
to $850.9 million, compared to March 31, 2018. The increase was
driven by a $53.6 million, or 11.6%, increase in recurring
subscription Run Rate, and a $3.0 million, or 0.9%, increase in
asset-based fees Run Rate. The 11.6% increase in Index recurring
subscription Run Rate was driven by strong growth in core developed
and emerging market modules, factor and ESG, and custom and
specialized index products. The year-over-year increase was also
supported by strong growth across our asset management, banking,
asset owners and wealth management client segments. The increase in
asset-based fees Run Rate was primarily driven by an increase in
non-ETF passive funds linked to MSCI indexes and higher volume in
futures and options.
Analytics Segment:
Operating revenues for first quarter 2019 increased $2.4 million,
or 2.1%, to $121.4 million, compared to first quarter 2018,
primarily driven by growth in both Multi-Asset Class and Equity
Analytics products and the timing of client implementations,
partially offset by the divestitures of InvestorForce and FEA.
Organic operating revenue growth was 9.2%. The adjusted EBITDA
margin for Analytics was 30.0% for first quarter 2019, compared to
28.2% for first quarter 2018.
Analytics Run Rate at March 31, 2019 grew by $1.4 million, or
0.3%, to $496.2 million, compared to March 31, 2018, primarily
driven by growth in both Multi-Asset Class and Equity Analytics
products, partially offset by the removal of Run Rate associated
with FEA, which was divested in April 2018, and InvestorForce,
which was divested in October 2018. Analytics organic subscription
Run Rate growth was 7.0% compared to March 31, 2018.
All Other Segment:
Operating revenues for first quarter 2019 increased $4.8 million,
or 15.6%, to $35.2 million, compared to first quarter 2018. The
increase in All Other operating revenues was driven by a $5.1
million, or 31.0%, increase in ESG operating revenues to $21.6
million, partially offset by a $0.3 million, or 2.5%, decrease in
Real Estate operating revenues to $13.6 million. 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
decrease in Real Estate operating revenues was primarily driven by
the negative impact of foreign currency exchange rate fluctuations.
First quarter 2019 All Other organic operating revenue growth was
20.9%, with ESG organic operating revenues up 34.3% and Real Estate
organic operating revenues up 5.0%. The adjusted EBITDA margin for
All Other was 25.9% for first quarter 2019, compared to 23.6% for
first quarter 2018.
All Other Run Rate at March 31, 2019 grew by $17.0 million, or
14.9%, to $131.0 million, compared to March 31, 2018. The increase
was driven by a $15.1 million, or 22.0%, increase in ESG Run Rate
to $84.0 million, and a $1.8 million, or 4.1%, increase in Real
Estate Run Rate to $46.9 million. The increase in ESG Run Rate was
primarily driven by strong growth in ESG Ratings products and an
increase in ESG Screening products. The increase in Real Estate Run
Rate was primarily driven by growth in Global Intel products. All
Other organic subscription Run Rate increased 19.3%, with ESG Run
Rate increasing 25.0%, and Real Estate Run Rate up 10.6%, each
compared to March 31, 2018.
Full-Year 2019 Guidance
MSCI’s guidance for full-year 2019 is as follows:
- Total operating expenses are now
expected to be in the range of $775 million to $800 million.
- Adjusted EBITDA expenses1 are expected
to be in the 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 in the range of
$45 million to $55 million.
- Net cash provided by operating
activities and free cash flow are expected to be in the 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 9.0% to 12.0%.
1Excludes the payroll tax impact from the vesting in first quarter
2019 of the Multi-Year PSUs. 2Includes the PSU windfall benefit
which is expected to reduce the 2019 effective tax rate by ~11
percentage points. The previous effective tax rate guidance was
expected to be in the range of 11.5% to 14.5%.
Conference Call Information
MSCI's senior management will review the first quarter 2019
results on Thursday, May 2, 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: 1957547 within the United States. International callers dial
1-720-405-2251 conference ID: 1957547. The earnings release, first
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 May 5, 2019, the recording will also be available by
dialing 1-855-859-2056 conference ID: 1957547 within the United
States or 1-404-537-3406 conference ID: 1957547 for international
callers. A replay of the conference call will be archived in the
events and presentations section of MSCI's Investor Relations
website for 12 months after the call.
About MSCI
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, our 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 our
control and that could materially affect our actual results, levels
of activity, performance or achievements.
Other factors that could materially affect actual results,
levels of activity, performance or achievements can be found in
MSCI’s Annual Report on Form 10-K for the fiscal year ended
December 31, 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 our
underlying assumptions prove to be incorrect, actual results may
vary significantly from what MSCI projected. Any forward-looking
statement in this earnings release reflects MSCI’s current views
with respect to future events and is subject to these and other
risks, uncertainties and assumptions relating to MSCI’s operations,
results of operations, growth strategy and liquidity. MSCI assumes
no obligation to publicly update or revise these forward-looking
statements for any reason, whether as a result of new information,
future events, or otherwise, except as required by law.
Website and Social Media Disclosure
MSCI uses its website, including its first quarter update, blog,
podcasts and social media channels, including its corporate Twitter
account (@MSCI_Inc), as channels of distribution of company
information. The information we post through these channels may be
deemed material. Accordingly, investors should monitor these
channels, in addition to following our press releases, SEC filings
and public conference calls and webcasts. In addition, you may
automatically receive email alerts and other information about MSCI
when you enroll your email address by visiting the “Email Alerts
Subscription” section of MSCI’s Investor Relations homepage at
http://ir.msci.com/alerts.cfm. The contents of MSCI’s website,
including its first quarter update, blog, podcasts and social media
channels are not, however, incorporated by reference into this
earnings release.
The historical values of the AUM in ETFs linked to our indexes
as of the last day of and the monthly average for April 2019 will
be available under the link “AUM in ETFs Linked to MSCI Indexes” on
our Investor Relations homepage at http://ir.msci.com on or about
May 15, 2019.
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 – 14 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 Mar. 31, Mar.
31, Dec. 31, YoY % In thousands, except
per share data 2019 2018 2018
Change Operating revenues $ 371,381 $ 351,316 $ 361,688
5.7 % Operating expenses: Cost of revenues 82,346 71,304
73,757 15.5 % Selling and marketing 56,048 46,409 52,949 20.8 %
Research and development 23,172 20,707 20,312 11.9 % General and
administrative 27,497 26,187 24,908 5.0 % Amortization of
intangible assets 11,793 11,338 11,633 4.0 % Depreciation and
amortization of property, equipment and leasehold improvements
7,850 8,205 8,311 (4.3 %) Total operating
expenses(1) 208,706 184,150 191,870 13.3 %
Operating income 162,675 167,166 169,818 (2.7 %)
Interest income (4,086 ) (2,770 ) (6,096 ) 47.5 % Interest expense
35,915 29,560 35,891 21.5 % Other expense (income) 2,554
938 (47,266 ) 172.3 % Other expense (income), net
34,383 27,728 (17,471 ) 24.0 % Income
before provision for income taxes 128,292 139,438 187,289 (8.0 %)
Provision for income taxes (49,900 ) 24,346
35,157 n/m Net income $ 178,192 $ 115,092 $ 152,132 54.8 %
Earnings per basic
common share $ 2.11 $ 1.28 $ 1.75 64.8 %
Earnings per diluted common share $
2.08 $ 1.24 $ 1.70 67.7 % Weighted average shares
outstanding used in computing earnings per share: Basic
84,253 90,075 86,968 (6.5 %) Diluted
85,649 92,587 89,495 (7.5 %)
n/m: not meaningful
(1) Includes stock-based compensation expense of $10.5
million, $9.8 million and $10.5 million for the three months ended
Mar. 31, 2019, Mar. 31, 2018 and Dec. 31, 2018, respectively.
Table 3: Selected Balance Sheet Items
(unaudited)
As of Mar. 31, Dec. 31, In
thousands 2019 2018 Cash and cash equivalents
$642,781 $904,176 Accounts receivable, net of allowances $427,099
$473,433 Deferred revenue $524,988 $537,977 Long-term
debt(1) $2,576,388 $2,575,502 (1) Consists of gross
long-term debt, net of deferred financing fees. Gross long-term
debt at both Mar. 31, 2019 and Dec. 31, 2018 was $2.6 billion.
Table 4: Selected Cash Flow Items
(unaudited)
Three Months Ended Mar. 31, Mar.
31, Dec. 31, In thousands 2019
2018 2018 Net cash provided by operating activities $
87,875 $ 88,597 $ 173,175 Net cash (used in) provided by investing
activities (8,136 ) (5,872 ) 40,038 Net cash used in financing
activities (341,635 ) (126,058 ) (707,083 ) Effect of exchange rate
changes 501 3,659 (352 )
Net increase
(decrease) in cash and cash equivalents $
(261,395 ) $ (39,674 ) $
(494,222 )
Table 5: Operating Results by Segment
and Revenue Type (unaudited)
Index Three Months Ended Mar. 31,
Mar. 31, Dec. 31, YoY %
In thousands 2019 2018 2018
Change Operating revenues: Recurring subscriptions $
127,674 $ 113,205 $ 123,496 12.8 % Asset-based fees 81,808 85,483
81,439 (4.3 %) Non-recurring 5,291 3,226 5,498
64.0 % Total operating revenues 214,773 201,914 210,433 6.4 %
Adjusted EBITDA expenses 62,562 55,984 60,503
11.7 % Adjusted EBITDA $ 152,211 $ 145,930 $ 149,930 4.3 % Adjusted
EBITDA margin % 70.9 % 72.3 % 71.2 %
Analytics
Three Months Ended Mar. 31, Mar. 31, Dec.
31, YoY % In thousands 2019 2018
2018 Change Operating revenues: Recurring
subscriptions $ 120,110 $ 118,244 $ 119,705 1.6 % Non-recurring
1,325 743 2,230 78.3 % Total operating
revenues 121,435 118,987 121,935 2.1 % Adjusted EBITDA expenses
85,037 85,394 85,256 (0.4 %) Adjusted EBITDA $
36,398 $ 33,593 $ 36,679 8.3 % Adjusted EBITDA margin % 30.0 % 28.2
% 30.1 %
All Other Three Months Ended Mar.
31, Mar. 31, Dec. 31, YoY % In
thousands 2019 2018 2018 Change
Operating revenues: Recurring subscriptions $ 34,580 $ 29,367 $
28,405 17.8 % Non-recurring 593 1,048 915
(43.4 %) Total operating revenues 35,173 30,415 29,320 15.6 %
Adjusted EBITDA expenses 26,075 23,229 26,167
12.3 % Adjusted EBITDA $ 9,098 $ 7,186 $ 3,153 26.6 % Adjusted
EBITDA margin % 25.9 % 23.6 % 10.8 %
Consolidated
Three Months Ended Mar. 31, Mar. 31, Dec.
31, YoY % In thousands 2019 2018
2018 Change Operating revenues: Recurring
subscriptions $ 282,364 $ 260,816 $ 271,606 8.3 % Asset-based fees
81,808 85,483 81,439 (4.3 %) Non-recurring 7,209
5,017 8,643 43.7 % Operating revenues total 371,381 351,316
361,688 5.7 % Adjusted EBITDA expenses 173,674
164,607 171,926 5.5 % Adjusted EBITDA $ 197,707 $ 186,709 $
189,762 5.9 % Adjusted EBITDA margin % 53.2 % 53.1 % 52.5 %
Operating margin % 43.8 % 47.6 % 47.0 %
Table 6: Sales and Retention Rate by
Segment (unaudited)
Three Months Ended Mar. 31, Dec.
31, Sep. 30, June 30,
Mar. 31, In thousands 2019 2018
2018 2018 2018 Index New recurring
subscription sales $ 17,329 $ 21,013 $ 15,546 $ 20,906 $ 15,195
Subscription cancellations (4,366 ) (7,699 )
(4,428 ) (4,577 ) (4,115 ) Net new recurring
subscription sales $ 12,963 $ 13,314 $ 11,118 $ 16,329 $ 11,080
Non-recurring sales $ 5,081 $ 6,845 $ 7,097 $ 5,328 $ 3,459 Total
gross sales(1) $ 22,410 $ 27,858 $ 22,643 $ 26,234 $ 18,654 Total
Index net sales $ 18,044 $ 20,159 $ 18,215 $ 21,657 $ 14,539
Index Retention Rate(2) 96.5 % 93.2 % 96.1 % 95.9 % 96.4 %
Analytics New recurring subscription sales $ 12,751 $ 19,438
$ 16,797 $ 17,395 $ 11,356 Subscription cancellations (7,764
) (8,524 ) (7,117 ) (9,452 ) (8,578 )
Net new recurring subscription sales $ 4,987 $ 10,914 $ 9,680 $
7,943 $ 2,778 Non-recurring sales $ 2,577 $ 3,249 $ 3,189 $ 2,425 $
1,346 Total gross sales(1) $ 15,328 $ 22,687 $ 19,986 $ 19,820 $
12,702 Total Analytics net sales $ 7,564 $ 14,163 $ 12,869 $ 10,368
$ 4,124 Analytics Retention Rate(2) 93.7 % 92.7 % 94.1 %
92.1 % 93.0 %
All Other New recurring subscription
sales $ 7,215 $ 7,596 $ 6,459 $ 6,678 $ 5,468 Subscription
cancellations (1,275 ) (1,959 ) (1,547 )
(1,384 ) (1,531 ) Net new recurring subscription
sales $ 5,940 $ 5,637 $ 4,912 $ 5,294 $ 3,937 Non-recurring sales $
454 $ 1,194 $ 641 $ 909 $ 694 Total gross sales(1) $ 7,669 $ 8,790
$ 7,100 $ 7,587 $ 6,162 Total All Other net sales $ 6,394 $ 6,831 $
5,553 $ 6,203 $ 4,631 All Other Retention Rate(2) 95.9 %
92.8 % 94.3 % 94.9 % 94.4 %
Consolidated New
recurring subscription sales $ 37,295 $ 48,047 $ 38,802 $ 44,979 $
32,019 Subscription cancellations (13,405 ) (18,182 )
(13,092 ) (15,413 ) (14,224 ) Net new
recurring subscription sales $ 23,890 $ 29,865 $ 25,710 $ 29,566 $
17,795 Non-recurring sales $ 8,112 $ 11,288 $ 10,927 $ 8,662 $
5,499 Total gross sales(1) $ 45,407 $ 59,335 $ 49,729 $ 53,641 $
37,518 Total net sales $ 32,002 $ 41,153 $ 36,637 $ 38,228 $ 23,294
Total Retention Rate(2) 95.2 % 92.9 % 95.0 % 94.1 % 94.6 %
(1) Total gross sales equal new recurring subscription sales
plus non-recurring sales. (2) See "Notes Regarding the Use of
Operating Metrics" for details regarding the definition of
Retention Rate.
Table 7: AUM in ETFs Linked to MSCI
Indexes (unaudited)(1)(2)
Three Months Ended Mar. 31,
Dec. 31, Sep. 30, June
30, Mar. 31, In billions 2019
2018 2018 2018 2018 Beginning Period
AUM in ETFs linked to MSCI indexes $ 695.6 $ 765.5 $ 744.7 $ 764.9
$ 744.3 Market Appreciation/(Depreciation) 78.3 (94.7 ) 15.6 (19.4
) (11.7 ) Cash Inflows 28.3 24.8 5.2 (0.8 ) 32.3 Period-End AUM in
ETFs linked to
MSCI indexes $ 802.2 $ 695.6 $ 765.5 $ 744.7 $
764.9 Period Average AUM in ETFs linked to MSCI indexes $
766.0 $ 717.1 $ 755.8 $ 776.5 $ 779.5 Avg. Basis Point
Fee(3) 2.88 2.92 2.90 2.96 3.02 Source: Bloomberg and MSCI
(estimated based on data available as of March 31, 2019) (1)
ETF assets under management calculation methodology is ETF net
asset value multiplied by shares outstanding. (2) The AUM in ETFs
includes AUM in Exchange Traded Notes, the value of which is less
than 1.0% of the AUM amounts presented. (3) Based on period-end Run
Rate for ETFs linked to MSCI indexes using period-end AUM.
Table 8: Run Rate by Segment and Type
(unaudited)(1)
As of Mar. 31,
Mar. 31, Dec. 31, YoY % In
thousands 2019 2018 2018 Change
Index Recurring subscriptions $ 515,667 $ 462,097 $ 502,665
11.6 % Asset-based fees 335,261 332,240
311,908 0.9 %
Index Run Rate 850,928 794,337
814,573 7.1 %
Analytics Run Rate
496,183 494,779 491,861 0.3 %
All Other Run
Rate 130,979 114,015 124,886 14.9 %
Total Run Rate $ 1,478,090 $
1,403,131 $ 1,431,320 5.3 %
Total recurring subscriptions $ 1,142,829 $ 1,070,891 $
1,119,412 6.7 % Total asset-based fees 335,261
332,240 311,908 0.9 %
Total Run Rate $
1,478,090 $ 1,403,131 $
1,431,320 5.3 % (1) See "Notes
Regarding the Use of Operating Metrics" for details regarding the
definition of Run Rate.
Table 9: Reconciliation of Adjusted
EBITDA to Net Income (unaudited)
Three Months Ended Mar. 31, Mar.
31, Dec. 31, In thousands
2019 2018 2018 Index adjusted EBITDA $ 152,211
$ 145,930 $ 149,930 Analytics adjusted EBITDA 36,398 33,593 36,679
All Other adjusted EBITDA 9,098 7,186 3,153
Consolidated adjusted EBITDA 197,707
186,709 189,762
Multi-Year PSU payroll tax expense
15,389 — — Amortization of intangible assets 11,793 11,338 11,633
Depreciation and amortization of property, equipment and leasehold
improvements 7,850 8,205 8,311
Operating
income 162,675 167,166 169,818 Other
expense (income), net 34,383 27,728 (17,471 ) Provision for income
taxes (49,900 ) 24,346 35,157
Net
income $ 178,192 $ 115,092 $
152,132
Table 10: Reconciliation of Net Income
and Diluted EPS to Adjusted Net Income and Adjusted EPS
(unaudited)
Three Months Ended Mar. 31, Mar.
31, Dec. 31, In thousands, except per share
data 2019 2018 2018 Net income $ 178,192 $
115,092 $ 152,132 Plus: Amortization of acquired intangible assets
8,716 9,207 8,746
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 InvestorForce — — (46,595 )
Less: Tax Reform adjustments — (1,601 ) (6,671 ) Less: Income tax
effect (3,134 ) (1,608 ) 9,390
Adjusted net
income $ 132,582 $ 121,090 $
117,002 Diluted EPS $ 2.08 $ 1.24 $ 1.70 Plus:
Amortization of acquired intangible assets 0.10 0.10 0.10
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 InvestorForce — — (0.52 ) Less: Tax
Reform adjustments — (0.02 ) (0.07 ) Less: Income tax effect
(0.03 ) (0.01 ) 0.10
Adjusted EPS $
1.55 $ 1.31 $ 1.31
Table 11: Reconciliation of Adjusted
EBITDA Expenses to Operating Expenses (unaudited)
Three Months Ended Full-Year
Mar. 31, Mar. 31, Dec.
31, 2019 In thousands 2019 2018
2018 Outlook(1) Index adjusted EBITDA expenses $
62,562 $ 55,984 $ 60,503 Analytics adjusted EBITDA expenses 85,037
85,394 85,256 All Other adjusted EBITDA expenses 26,075
23,229 26,167
Consolidated adjusted EBITDA
expenses 173,674 164,607
171,926 $685,000 - $705,000
Multi-Year PSU payroll tax expense
15,389 — — 15,389 Amortization of intangible assets 11,793 11,338
11,633 Depreciation and amortization of property, 75,000 - 80,000
equipment and leasehold improvements 7,850 8,205
8,311
Total operating expenses $
208,706 $ 184,150 $ 191,870
$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 Full-Year Mar.
31, Mar. 31, Dec. 31, 2019
In thousands 2019 2018 2018
Outlook(1) Net cash provided by operating activities $
87,875 $ 88,597 $ 173,175 $600,000 - $630,000 Capital expenditures
(3,156 ) (1,512 ) (17,188 ) Capitalized software development costs
(4,990 ) (4,360 ) (5,589 ) Capex
(8,146 ) (5,872 ) (22,777 ) (55,000 - 45,000)
Free
cash flow $ 79,729 $ 82,725
$ 150,398 $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 Mar. 31, Mar.
31, Dec. 31, 2019 2018 2018
Effective tax rate (38.90%) 17.46% 18.77% Tax Reform impact on
effective tax rate —% 1.15% 3.56% Multi-Year PSU impact on
effective tax rate 51.90% —% —% Adjusted tax rate 13.00% 18.61%
22.33%
Table 14: Reconciliation of Operating
Revenue Growth to Organic Operating Revenue Growth
(unaudited)
Comparison of the Three Months Ended March 31, 2019 and
2018 Total
RecurringSubscription
Asset-Based Fees
Non-RecurringRevenues
Index Change Percentage Change Percentage Change Percentage
Change Percentage Operating revenue growth 6.4% 12.8% (4.3%) 64.0%
Impact of acquisitions and divestures —% —% —% —% Impact of foreign
currency exchange rate fluctuations 0.1% —% 0.1% 0.2% Organic
operating revenue growth 6.5% 12.8% (4.2%) 64.2%
Total
RecurringSubscription
Asset-Based Fees
Non-RecurringRevenues
Analytics Change Percentage Change Percentage Change
Percentage Change Percentage Operating revenue growth 2.1% 1.6% —%
78.3% Impact of acquisitions and divestures 7.0% 6.9% —% 41.4%
Impact of foreign currency exchange rate fluctuations 0.1% 0.1% —%
2.5% Organic operating revenue growth 9.2% 8.6% —% 122.2%
Total
RecurringSubscription
Asset-Based Fees
Non-RecurringRevenues
All Other Change Percentage Change Percentage Change
Percentage Change Percentage Operating revenue growth 15.6% 17.8%
—% (43.4%) Impact of acquisitions and divestures —% —% —% —% Impact
of foreign currency exchange rate fluctuations 5.3% 5.3% —% 3.6%
Organic operating revenue growth 20.9% 23.1% —% (39.8%)
Total
RecurringSubscription
Asset-Based Fees
Non-RecurringRevenues
Consolidated Change Percentage Change Percentage Change
Percentage Change Percentage Operating revenue growth 5.7% 8.3%
(4.3%) 43.7% Impact of acquisitions and divestures 2.4% 3.2% —%
4.1% Impact of foreign currency exchange rate fluctuations 0.5%
0.7% 0.1% 1.2% Organic operating revenue growth 8.6% 12.2% (4.2%)
49.0%
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MSCI Inc.InvestorsJay Penn jay.penn@msci.com + 1
212 981 1074
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