Item 1.
|
Financial Statements
|
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except per share and share data)
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,302,858
|
|
|
$
|
1,506,567
|
|
Accounts receivable, net of allowances
|
|
|
429,804
|
|
|
|
499,268
|
|
Prepaid income taxes
|
|
|
63,460
|
|
|
|
31,590
|
|
Prepaid and other assets
|
|
|
46,970
|
|
|
|
44,352
|
|
Total current assets
|
|
|
1,843,092
|
|
|
|
2,081,777
|
|
Property, equipment and leasehold improvements, net
|
|
|
78,965
|
|
|
|
90,708
|
|
Right of use assets
|
|
|
153,727
|
|
|
|
166,406
|
|
Goodwill
|
|
|
1,562,377
|
|
|
|
1,562,868
|
|
Intangible assets, net
|
|
|
240,858
|
|
|
|
261,487
|
|
Equity method investment
|
|
|
190,206
|
|
|
|
—
|
|
Deferred tax assets
|
|
|
23,773
|
|
|
|
20,911
|
|
Other non-current assets
|
|
|
18,721
|
|
|
|
20,282
|
|
Total assets
|
|
$
|
4,111,719
|
|
|
$
|
4,204,439
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,718
|
|
|
$
|
6,498
|
|
Income taxes payable
|
|
|
22,039
|
|
|
|
14,210
|
|
Accrued compensation and related benefits
|
|
|
127,605
|
|
|
|
166,273
|
|
Other accrued liabilities
|
|
|
149,005
|
|
|
|
139,149
|
|
Deferred revenue
|
|
|
531,487
|
|
|
|
574,656
|
|
Total current liabilities
|
|
|
834,854
|
|
|
|
900,786
|
|
Long-term debt
|
|
|
3,365,783
|
|
|
|
3,071,926
|
|
Long-term operating lease liabilities
|
|
|
152,812
|
|
|
|
164,144
|
|
Deferred tax liabilities
|
|
|
63,845
|
|
|
|
66,639
|
|
Other non-current liabilities
|
|
|
81,011
|
|
|
|
77,658
|
|
Total liabilities
|
|
|
4,498,305
|
|
|
|
4,281,153
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (see Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock (par value $0.01, 100,000,000 shares authorized; no shares issued)
|
|
|
—
|
|
|
|
—
|
|
Common stock (par value $0.01; 750,000,000 common shares authorized; 132,823,285
and 132,419,412 common shares issued and 83,041,856 and 84,794,930 common
shares outstanding at September 30, 2020 and December 31, 2019, respectively)
|
|
|
1,328
|
|
|
|
1,324
|
|
Treasury shares, at cost (49,781,429 and 47,624,482 common shares held at September 30, 2020
and December 31, 2019, respectively)
|
|
|
(4,177,563
|
)
|
|
|
(3,565,784
|
)
|
Additional paid in capital
|
|
|
1,391,837
|
|
|
|
1,351,031
|
|
Retained earnings
|
|
|
2,463,108
|
|
|
|
2,199,294
|
|
Accumulated other comprehensive loss
|
|
|
(65,296
|
)
|
|
|
(62,579
|
)
|
Total shareholders' equity (deficit)
|
|
|
(386,586
|
)
|
|
|
(76,714
|
)
|
Total liabilities and shareholders' equity (deficit)
|
|
$
|
4,111,719
|
|
|
$
|
4,204,439
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
5
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
Operating revenues
|
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
70,704
|
|
|
|
70,486
|
|
|
|
215,769
|
|
|
|
224,807
|
|
Selling and marketing
|
|
|
52,668
|
|
|
|
52,107
|
|
|
|
159,834
|
|
|
|
159,812
|
|
Research and development
|
|
|
24,901
|
|
|
|
24,310
|
|
|
|
73,997
|
|
|
|
71,234
|
|
General and administrative
|
|
|
27,613
|
|
|
|
26,559
|
|
|
|
86,755
|
|
|
|
80,434
|
|
Amortization of intangible assets
|
|
|
14,333
|
|
|
|
12,361
|
|
|
|
42,171
|
|
|
|
36,167
|
|
Depreciation and amortization of property, equipment and
leasehold improvements
|
|
|
7,494
|
|
|
|
7,209
|
|
|
|
22,524
|
|
|
|
22,464
|
|
Total operating expenses
|
|
|
197,713
|
|
|
|
193,032
|
|
|
|
601,050
|
|
|
|
594,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
227,620
|
|
|
|
201,219
|
|
|
|
650,679
|
|
|
|
556,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(475
|
)
|
|
|
(3,673
|
)
|
|
|
(4,729
|
)
|
|
|
(11,104
|
)
|
Interest expense
|
|
|
37,536
|
|
|
|
35,922
|
|
|
|
118,994
|
|
|
|
107,752
|
|
Other expense (income)
|
|
|
1,516
|
|
|
|
222
|
|
|
|
45,355
|
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net
|
|
|
38,577
|
|
|
|
32,471
|
|
|
|
159,620
|
|
|
|
99,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
189,043
|
|
|
|
168,748
|
|
|
|
491,059
|
|
|
|
456,785
|
|
Provision for income taxes
|
|
|
6,685
|
|
|
|
31,765
|
|
|
|
45,453
|
|
|
|
15,920
|
|
Net income
|
|
$
|
182,358
|
|
|
$
|
136,983
|
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
|
$
|
2.18
|
|
|
$
|
1.62
|
|
|
$
|
5.30
|
|
|
$
|
5.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share
|
|
$
|
2.16
|
|
|
$
|
1.60
|
|
|
$
|
5.26
|
|
|
$
|
5.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
83,602
|
|
|
|
84,765
|
|
|
|
84,044
|
|
|
|
84,591
|
|
Diluted
|
|
|
84,479
|
|
|
|
85,550
|
|
|
|
84,789
|
|
|
|
85,533
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
6
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
Net income
|
|
$
|
182,358
|
|
|
$
|
136,983
|
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
7,058
|
|
|
|
(5,533
|
)
|
|
|
(3,743
|
)
|
|
|
(4,853
|
)
|
Income tax effect
|
|
|
(1,124
|
)
|
|
|
1,124
|
|
|
|
965
|
|
|
|
1,085
|
|
Foreign currency translation adjustments, net
|
|
|
5,934
|
|
|
|
(4,409
|
)
|
|
|
(2,778
|
)
|
|
|
(3,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other post-retirement adjustments
|
|
|
(245
|
)
|
|
|
134
|
|
|
|
(27
|
)
|
|
|
103
|
|
Income tax effect
|
|
|
83
|
|
|
|
(64
|
)
|
|
|
88
|
|
|
|
(34
|
)
|
Pension and other post-retirement adjustments, net
|
|
|
(162
|
)
|
|
|
70
|
|
|
|
61
|
|
|
|
69
|
|
Other comprehensive (loss) income, net of tax
|
|
|
5,772
|
|
|
|
(4,339
|
)
|
|
|
(2,717
|
)
|
|
|
(3,699
|
)
|
Comprehensive income
|
|
$
|
188,130
|
|
|
$
|
132,644
|
|
|
$
|
442,889
|
|
|
$
|
437,166
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
7
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(unaudited)
|
|
Balance at December 31, 2019
|
|
$
|
1,324
|
|
|
$
|
(3,565,784
|
)
|
|
$
|
1,351,031
|
|
|
$
|
2,199,294
|
|
|
$
|
(62,579
|
)
|
|
$
|
(76,714
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,125
|
|
|
|
|
|
|
|
148,125
|
|
Cumulative-effect adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631
|
|
|
|
|
|
|
|
631
|
|
Dividends declared ($0.68 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,233
|
)
|
|
|
|
|
|
|
(59,233
|
)
|
Dividends paid in shares
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,625
|
)
|
|
|
(9,625
|
)
|
Common stock issued
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Shares withheld for tax withholding
|
|
|
|
|
|
|
(47,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,195
|
)
|
Compensation payable in common stock
|
|
|
|
|
|
|
|
|
|
|
15,333
|
|
|
|
|
|
|
|
|
|
|
|
15,333
|
|
Common stock repurchased and held in treasury
|
|
|
|
|
|
|
(325,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325,699
|
)
|
Common stock issued to Directors and (held in)/released from treasury
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
|
1,328
|
|
|
|
(3,938,714
|
)
|
|
|
1,366,442
|
|
|
|
2,288,817
|
|
|
|
(72,204
|
)
|
|
|
(354,331
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,123
|
|
|
|
|
|
|
|
115,123
|
|
Dividends declared ($0.68 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,360
|
)
|
|
|
|
|
|
|
(57,360
|
)
|
Dividends paid in shares
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,136
|
|
|
|
1,136
|
|
Shares withheld for tax withholding and exercises
|
|
|
|
|
|
|
(603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(603
|
)
|
Compensation payable in common stock
|
|
|
|
|
|
|
|
|
|
|
14,294
|
|
|
|
|
|
|
|
|
|
|
|
14,294
|
|
Common stock repurchased and held in treasury
|
|
|
|
|
|
|
(31,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,071
|
)
|
Common stock issued to Directors and (held in)/released from treasury
|
|
|
|
|
|
|
1,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
|
1,328
|
|
|
|
(3,968,544
|
)
|
|
|
1,380,772
|
|
|
|
2,346,580
|
|
|
|
(71,068
|
)
|
|
|
(310,932
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,358
|
|
|
|
|
|
|
|
182,358
|
|
Dividends declared ($0.78 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,830
|
)
|
|
|
|
|
|
|
(65,830
|
)
|
Dividends paid in shares
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,772
|
|
|
|
5,772
|
|
Shares withheld for tax withholding and exercises
|
|
|
|
|
|
|
(2,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,433
|
)
|
Compensation payable in common stock
|
|
|
|
|
|
|
|
|
|
|
11,045
|
|
|
|
|
|
|
|
|
|
|
|
11,045
|
|
Common stock repurchased and held in treasury
|
|
|
|
|
|
|
(206,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,566
|
)
|
Common stock issued to Directors and (held in)/released from treasury
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
Balance at September 30, 2020
|
|
$
|
1,328
|
|
|
$
|
(4,177,563
|
)
|
|
$
|
1,391,837
|
|
|
$
|
2,463,108
|
|
|
$
|
(65,296
|
)
|
|
$
|
(386,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
8
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT), CONT’D
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(unaudited)
|
|
Balance at December 31, 2018
|
|
$
|
1,300
|
|
|
$
|
(3,272,774
|
)
|
|
$
|
1,306,428
|
|
|
$
|
1,856,951
|
|
|
$
|
(58,399
|
)
|
|
$
|
(166,494
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,192
|
|
|
|
|
|
|
|
178,192
|
|
Dividends declared ($0.58 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,339
|
)
|
|
|
|
|
|
|
(55,339
|
)
|
Dividends paid in shares
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,197
|
|
|
|
1,197
|
|
Common stock issued
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Shares withheld for tax withholding and exercises
|
|
|
|
|
|
|
(182,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182,385
|
)
|
Compensation payable in common stock and options
|
|
|
|
|
|
|
|
|
|
|
9,590
|
|
|
|
|
|
|
|
|
|
|
|
9,590
|
|
Common stock repurchased and held in treasury
|
|
|
|
|
|
|
(102,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,081
|
)
|
Common stock issued to Directors and (held in)/released from treasury
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
1,323
|
|
|
|
(3,557,270
|
)
|
|
|
1,316,837
|
|
|
|
1,979,804
|
|
|
|
(57,202
|
)
|
|
|
(316,508
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,690
|
|
|
|
|
|
|
|
125,690
|
|
Dividends declared ($0.58 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,613
|
)
|
|
|
|
|
|
|
(49,613
|
)
|
Dividends paid in shares
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(557
|
)
|
|
|
(557
|
)
|
Shares withheld for tax withholding and exercises
|
|
|
|
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(742
|
)
|
Compensation payable in common stock and options
|
|
|
|
|
|
|
|
|
|
|
10,566
|
|
|
|
|
|
|
|
|
|
|
|
10,566
|
|
Common stock issued to Directors and (held in)/released from treasury
|
|
|
|
|
|
|
(833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(833
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
|
1,323
|
|
|
|
(3,558,845
|
)
|
|
|
1,327,598
|
|
|
|
2,055,881
|
|
|
|
(57,759
|
)
|
|
|
(231,802
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,983
|
|
|
|
|
|
|
|
136,983
|
|
Dividends declared ($0.68 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,176
|
)
|
|
|
|
|
|
|
(58,176
|
)
|
Dividends paid in shares
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,339
|
)
|
|
|
(4,339
|
)
|
Shares withheld for tax withholding and exercises
|
|
|
|
|
|
|
(1,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,082
|
)
|
Compensation payable in common stock and options
|
|
|
|
|
|
|
|
|
|
|
10,398
|
|
|
|
|
|
|
|
|
|
|
|
10,398
|
|
Common stock issued to Directors and (held in)/released from treasury
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Balance at September 30, 2019
|
|
$
|
1,323
|
|
|
$
|
(3,559,963
|
)
|
|
$
|
1,338,194
|
|
|
$
|
2,134,688
|
|
|
$
|
(62,098
|
)
|
|
$
|
(147,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
9
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
42,171
|
|
|
|
36,167
|
|
Stock-based compensation expense
|
|
|
40,381
|
|
|
|
30,485
|
|
Depreciation and amortization of property, equipment and leasehold improvements
|
|
|
22,524
|
|
|
|
22,464
|
|
Amortization of right of use assets
|
|
|
18,061
|
|
|
|
16,778
|
|
Amortization of debt origination fees
|
|
|
3,338
|
|
|
|
2,956
|
|
Loss on extinguishment of debt
|
|
|
44,930
|
|
|
|
—
|
|
Deferred taxes
|
|
|
(4,622
|
)
|
|
|
(9,844
|
)
|
Other adjustments
|
|
|
1,680
|
|
|
|
708
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
69,848
|
|
|
|
62,331
|
|
Prepaid income taxes
|
|
|
(31,923
|
)
|
|
|
(37,199
|
)
|
Prepaid and other assets
|
|
|
(2,854
|
)
|
|
|
(3,965
|
)
|
Accounts payable
|
|
|
(1,882
|
)
|
|
|
(1,482
|
)
|
Accrued compensation and related benefits
|
|
|
(33,532
|
)
|
|
|
(14,107
|
)
|
Income taxes payable
|
|
|
6,607
|
|
|
|
(4,251
|
)
|
Other accrued liabilities
|
|
|
9,801
|
|
|
|
(6,795
|
)
|
Deferred revenue
|
|
|
(43,186
|
)
|
|
|
(57,804
|
)
|
Long-term operating lease liabilities
|
|
|
(17,017
|
)
|
|
|
(14,774
|
)
|
Other
|
|
|
5,250
|
|
|
|
3,347
|
|
Net cash provided by operating activities
|
|
|
575,181
|
|
|
|
465,880
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of equity method investment
|
|
|
(190,816
|
)
|
|
|
—
|
|
Capitalized software development costs
|
|
|
(21,931
|
)
|
|
|
(18,086
|
)
|
Capital expenditures
|
|
|
(12,152
|
)
|
|
|
(17,216
|
)
|
Proceeds from the sale of capital equipment
|
|
|
—
|
|
|
|
10
|
|
Net cash used in investing activities
|
|
|
(224,899
|
)
|
|
|
(35,292
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
1,405,000
|
|
|
|
—
|
|
Repayment of borrowings
|
|
|
(1,142,382
|
)
|
|
|
—
|
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
1,052
|
|
Repurchase of common stock held in treasury
|
|
|
(613,566
|
)
|
|
|
(286,290
|
)
|
Payment of debt issuance costs in connection with debt
|
|
|
(16,693
|
)
|
|
|
—
|
|
Payment of dividends
|
|
|
(181,843
|
)
|
|
|
(165,077
|
)
|
Net cash used in financing activities
|
|
|
(549,484
|
)
|
|
|
(450,315
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(4,507
|
)
|
|
|
(3,299
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(203,709
|
)
|
|
|
(23,026
|
)
|
Cash and cash equivalent, beginning of period
|
|
|
1,506,567
|
|
|
|
904,176
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent, end of period
|
|
$
|
1,302,858
|
|
|
$
|
881,150
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
109,834
|
|
|
$
|
105,015
|
|
Cash paid for income taxes
|
|
$
|
73,311
|
|
|
$
|
65,364
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing activities
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements accrued, but not yet paid
|
|
$
|
3,281
|
|
|
$
|
4,189
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
Cash dividends declared, but not yet paid
|
|
$
|
1,505
|
|
|
$
|
778
|
|
See Notes to Condensed Consolidated Financial Statements (Unaudited)
10
MSCI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTRODUCTION AND BASIS OF PRESENTATION
MSCI Inc., together with its wholly owned subsidiaries (the “Company” or “MSCI”) provides critical decision support tools and services that bring greater transparency to the global financial markets. MSCI’s tools and services include indexes; portfolio construction tools and risk-management services; environmental, social and governance (“ESG”) research and ratings; and real estate benchmarks, return analytics services and market insights; much of which can be accessed by clients through multiple channels and platforms.
Basis of Presentation and Use of Estimates
These unaudited condensed consolidated financial statements include the accounts of MSCI and its wholly owned subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of September 30, 2020 and December 31, 2019, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2019 have been derived from the 2019 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for interim periods are not necessarily indicative of results for the entire year.
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require the Company to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the deferral and recognition of revenue, research and development and software capitalization, assessment of impairment of long-lived assets, accrued compensation, income taxes, incremental borrowing rates and other matters that affect the unaudited condensed consolidated financial statements and related disclosures. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Intercompany balances and transactions are eliminated in consolidation.
Concentrations
For the nine months ended September 30, 2020 and 2019, BlackRock, Inc. accounted for 10.9% and 11.5% of the Company’s consolidated operating revenues, respectively. For the nine months ended September 30, 2020 and 2019, BlackRock, Inc. accounted for 17.8% and 18.9% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics and All Other segments for the nine months ended September 30, 2020 and 2019.
Allowance for Credit Losses on Accounts Receivable
Following the adoption of Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” effective beginning January 1, 2020, the Company records an allowance on customer accounts at the time of billing based on the estimated amount of the billing that will not be collected.
Changes in the allowance for credit losses on doubtful accounts receivable from December 31, 2018 to September 30, 2020 were as follows:
|
|
Amount
|
|
|
|
(in thousands)
|
|
Balance as of December 31, 2018
|
|
$
|
1,027
|
|
Addition (reduction) to credit loss expense
|
|
|
1,024
|
|
Write-offs, net of recoveries
|
|
|
(336
|
)
|
Balance as of December 31, 2019
|
|
$
|
1,715
|
|
Addition (reduction) to credit loss expense
|
|
|
1,042
|
|
Adjustments and write-offs, net of recoveries
|
|
|
(1,434
|
)
|
Balance as of September 30, 2020
|
|
$
|
1,323
|
|
11
2. RECENT ACCOUNTING STANDARDS UPDATES
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination.
The FASB issued Accounting Standards Update No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2018-19, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-04, Accounting Standards Update No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief,” or ASU 2019-05, Accounting Standards Update No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates,” or ASU 2019-10 and Accounting Standards Update No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-11. The amendments in these ASUs provide clarifications to ASU 2016-13.
The Company adopted ASU 2016-13 and the related clarifications effective January 1, 2020. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” or ASU 2017-04. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity performed procedures to determine the fair value at the impairment testing date of its assets and liabilities. When applying the amendments in ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but not more than the total amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 effective January 1, 2020.
3. REVENUE RECOGNITION
MSCI’s revenues are characterized by product type, which broadly reflects the nature of how they are recognized. The Company’s revenue types are recurring subscription, asset-based fees and non-recurring revenues. The Company also reports revenues by segment.
The tables that follow present the disaggregated revenues for the periods indicated:
|
|
For the Three Months ended September 30, 2020
|
|
|
|
Segments
|
|
|
|
|
|
(in thousands)
|
|
Index
|
|
|
Analytics
|
|
|
All Other
|
|
|
Total
|
|
Revenue Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
|
$
|
146,387
|
|
|
$
|
126,251
|
|
|
$
|
40,552
|
|
|
$
|
313,190
|
|
Asset-based fees
|
|
|
100,371
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,371
|
|
Non-recurring
|
|
|
8,933
|
|
|
|
2,086
|
|
|
|
753
|
|
|
|
11,772
|
|
Total
|
|
$
|
255,691
|
|
|
$
|
128,337
|
|
|
$
|
41,305
|
|
|
$
|
425,333
|
|
|
|
For the Nine Months ended September 30, 2020
|
|
|
|
Segments
|
|
|
|
|
|
(in thousands)
|
|
Index
|
|
|
Analytics
|
|
|
All Other
|
|
|
Total
|
|
Revenue Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
|
$
|
431,631
|
|
|
$
|
376,505
|
|
|
$
|
119,363
|
|
|
$
|
927,499
|
|
Asset-based fees
|
|
|
288,642
|
|
|
|
—
|
|
|
|
—
|
|
|
|
288,642
|
|
Non-recurring
|
|
|
27,582
|
|
|
|
4,903
|
|
|
|
3,103
|
|
|
|
35,588
|
|
Total
|
|
$
|
747,855
|
|
|
$
|
381,408
|
|
|
$
|
122,466
|
|
|
$
|
1,251,729
|
|
12
|
|
For the Three Months ended September 30, 2019
|
|
|
|
Segments
|
|
|
|
|
|
(in thousands)
|
|
Index
|
|
|
Analytics
|
|
|
All Other
|
|
|
Total
|
|
Revenue Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
|
$
|
133,403
|
|
|
$
|
122,120
|
|
|
$
|
32,585
|
|
|
$
|
288,108
|
|
Asset-based fees
|
|
|
96,013
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,013
|
|
Non-recurring
|
|
|
8,011
|
|
|
|
1,483
|
|
|
|
636
|
|
|
|
10,130
|
|
Total
|
|
$
|
237,427
|
|
|
$
|
123,603
|
|
|
$
|
33,221
|
|
|
$
|
394,251
|
|
|
|
For the Nine Months ended September 30, 2019
|
|
|
|
Segments
|
|
|
|
|
|
(in thousands)
|
|
Index
|
|
|
Analytics
|
|
|
All Other
|
|
|
Total
|
|
Revenue Types
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
|
$
|
393,222
|
|
|
$
|
363,929
|
|
|
$
|
102,470
|
|
|
$
|
859,621
|
|
Asset-based fees
|
|
|
265,554
|
|
|
|
—
|
|
|
|
—
|
|
|
|
265,554
|
|
Non-recurring
|
|
|
18,974
|
|
|
|
4,790
|
|
|
|
2,251
|
|
|
|
26,015
|
|
Total
|
|
$
|
677,750
|
|
|
$
|
368,719
|
|
|
$
|
104,721
|
|
|
$
|
1,151,190
|
|
The tables that follow present the change in accounts receivable and in deferred revenue between the dates indicated:
|
|
Accounts receivable
|
|
|
Deferred revenue
|
|
|
|
(in thousands)
|
|
Opening (12/31/2019)
|
|
$
|
499,268
|
|
|
$
|
574,656
|
|
Closing (09/30/2020)
|
|
|
429,804
|
|
|
|
531,487
|
|
Increase/(decrease)
|
|
$
|
(69,464
|
)
|
|
$
|
(43,169
|
)
|
|
|
Accounts receivable
|
|
|
Deferred revenue
|
|
|
|
(in thousands)
|
|
Opening (12/31/2018)
|
|
$
|
473,433
|
|
|
$
|
537,977
|
|
Closing (09/30/2019)
|
|
|
409,519
|
|
|
|
479,371
|
|
Increase/(decrease)
|
|
$
|
(63,914
|
)
|
|
$
|
(58,606
|
)
|
The amounts of revenue recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $494.4 million and $464.3 million for the nine months ended September 30, 2020 and 2019, respectively. The difference between the opening and closing balances of the Company’s deferred revenue was primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. MSCI had an insignificant long-term deferred revenue balance as of September 30, 2020, reflected as a part of “Other non-current liabilities” on its Unaudited Condensed Consolidated Statement of Financial Condition.
For contracts that have a duration of one year or less, the Company has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:
|
|
As of
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
|
(in thousands)
|
|
First 12-month period
|
|
$
|
321,008
|
|
Second 12-month period
|
|
|
174,710
|
|
Third 12-month period
|
|
|
61,190
|
|
Periods thereafter
|
|
|
14,596
|
|
Total
|
|
$
|
571,504
|
|
4. EARNINGS PER COMMON SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities.
13
The following table presents the computation of basic and diluted EPS:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
182,358
|
|
|
$
|
136,983
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
83,602
|
|
|
|
84,765
|
|
|
84,044
|
|
|
|
84,591
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
|
877
|
|
|
|
785
|
|
|
745
|
|
|
|
942
|
|
Diluted weighted average common shares outstanding
|
|
|
84,479
|
|
|
|
85,550
|
|
|
84,789
|
|
|
|
85,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
|
$
|
2.18
|
|
|
$
|
1.62
|
|
$
|
5.30
|
|
|
$
|
5.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share
|
|
$
|
2.16
|
|
|
$
|
1.60
|
|
$
|
5.26
|
|
|
$
|
5.15
|
|
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net consisted of the following as of the specified dates:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Computer & related equipment
|
|
$
|
184,237
|
|
|
$
|
185,794
|
|
Furniture & fixtures
|
|
|
14,961
|
|
|
|
12,478
|
|
Leasehold improvements
|
|
|
57,438
|
|
|
|
52,339
|
|
Work-in-process
|
|
|
2,011
|
|
|
|
8,667
|
|
Subtotal
|
|
|
258,647
|
|
|
|
259,278
|
|
Accumulated depreciation and amortization
|
|
|
(179,682
|
)
|
|
|
(168,570
|
)
|
Property, equipment and leasehold improvements, net
|
|
$
|
78,965
|
|
|
$
|
90,708
|
|
Depreciation and amortization expense of property, equipment and leasehold improvements was $7.5 million and $7.2 million for the three months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $22.5 million for both the nine months ended September 30, 2020 and 2019.
6. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following table presents goodwill by reportable segment:
(in thousands)
|
|
Index
|
|
|
Analytics
|
|
|
All Other
|
|
|
Total
|
|
Goodwill at December 31, 2019
|
|
$
|
1,204,694
|
|
|
$
|
290,976
|
|
|
$
|
67,198
|
|
|
$
|
1,562,868
|
|
Foreign exchange translation adjustment
|
|
|
(805
|
)
|
|
|
—
|
|
|
|
314
|
|
|
|
(491
|
)
|
Goodwill at September 30, 2020
|
|
$
|
1,203,889
|
|
|
$
|
290,976
|
|
|
$
|
67,512
|
|
|
$
|
1,562,377
|
|
The Company completed its annual goodwill impairment test as of July 1, 2020 on its Index, Analytics, ESG and Real Estate operating segments, and no impairments were noted. The Company performed a step zero, qualitative impairment test on these four operating segments and determined that it was more likely than not that the fair value for each was not less than the carrying value. See Note 11, “Segment Information,” for further descriptions of the operating segments.
14
Intangible Assets, Net
Amortization expense related to intangible assets for the three months ended September 30, 2020 and 2019 was $14.3 million and $12.4 million, respectively. The amortization expense of acquired intangible assets for the three months ended September 30, 2020 and 2019 was $8.3 million and $8.6 million, respectively. The amortization expense of internally developed capitalized software for the three months ended September 30, 2020 and 2019 was $6.0 million and $3.8 million, respectively.
Amortization expense related to intangible assets for the nine months ended September 30, 2020 and 2019 was $42.2 million and $36.2 million, respectively. The amortization expense of acquired intangible assets for the nine months ended September 30, 2020 and 2019 was $25.7 million and $26.0 million, respectively. The amortization expense of internally developed capitalized software for the nine months ended September 30, 2020 and 2019 was $16.5 million and $10.2 million, respectively.
The gross carrying and accumulated amortization amounts related to the Company’s intangible assets were as follows:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Gross intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
356,700
|
|
|
$
|
356,700
|
|
Trademarks/trade names
|
|
|
207,300
|
|
|
|
207,300
|
|
Technology/software
|
|
|
283,684
|
|
|
|
263,719
|
|
Proprietary data
|
|
|
28,627
|
|
|
|
28,627
|
|
Subtotal
|
|
|
876,311
|
|
|
|
856,346
|
|
Foreign exchange translation adjustment
|
|
|
(8,154
|
)
|
|
|
(7,615
|
)
|
Total gross intangible assets
|
|
$
|
868,157
|
|
|
$
|
848,731
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
(248,011
|
)
|
|
$
|
(231,665
|
)
|
Trademarks/trade names
|
|
|
(140,924
|
)
|
|
|
(133,305
|
)
|
Technology/software
|
|
|
(224,928
|
)
|
|
|
(209,878
|
)
|
Proprietary data
|
|
|
(15,278
|
)
|
|
|
(13,963
|
)
|
Subtotal
|
|
|
(629,141
|
)
|
|
|
(588,811
|
)
|
Foreign exchange translation adjustment
|
|
|
1,842
|
|
|
|
1,567
|
|
Total accumulated amortization
|
|
$
|
(627,299
|
)
|
|
$
|
(587,244
|
)
|
Net intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
108,689
|
|
|
$
|
125,035
|
|
Trademarks/trade names
|
|
|
66,376
|
|
|
|
73,995
|
|
Technology/software
|
|
|
58,756
|
|
|
|
53,841
|
|
Proprietary data
|
|
|
13,349
|
|
|
|
14,664
|
|
Subtotal
|
|
|
247,170
|
|
|
|
267,535
|
|
Foreign exchange translation adjustment
|
|
|
(6,312
|
)
|
|
|
(6,048
|
)
|
Total net intangible assets
|
|
$
|
240,858
|
|
|
$
|
261,487
|
|
The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2020 and succeeding years:
Years Ending December 31,
|
|
Amortization
Expense
|
|
|
|
(in thousands)
|
|
Remainder of 2020
|
|
$
|
14,995
|
|
2021
|
|
|
57,163
|
|
2022
|
|
|
49,862
|
|
2023
|
|
|
38,955
|
|
2024
|
|
|
34,202
|
|
Thereafter
|
|
|
45,681
|
|
Total
|
|
$
|
240,858
|
|
15
7. COMMITMENTS AND CONTINGENCIES
Legal matters. From time to time, the Company is party to various litigation matters incidental to the conduct of its business. The Company is not presently party to any legal proceedings the resolution of which the Company believes would have a material effect on its business, operating results, financial condition or cash flows.
Senior Unsecured Notes. The Company had an aggregate of $3,400.0 million in senior unsecured notes (collectively, the “Senior Notes”) outstanding at September 30, 2020, consisting of five discrete private offerings presented in the table below:
|
|
|
|
Principal
Amount
Outstanding
at
|
|
|
Carrying
Value at
|
|
|
Carrying
Value at
|
|
|
Fair
Value at
|
|
|
Fair
Value at
|
|
|
|
Maturity Date
|
|
September 30, 2020
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(in thousands)
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.25% senior unsecured notes due 2024
|
|
November 15, 2024
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
297,835
|
|
|
$
|
-
|
|
|
$
|
309,225
|
|
5.75% senior unsecured notes due 2025
|
|
August 15, 2025
|
|
|
-
|
|
|
|
-
|
|
|
|
794,063
|
|
|
|
-
|
|
|
|
840,872
|
|
4.75% senior unsecured notes due 2026
|
|
August 1, 2026
|
|
|
500,000
|
|
|
|
496,090
|
|
|
|
495,587
|
|
|
|
518,330
|
|
|
|
525,800
|
|
5.375% senior unsecured notes due 2027
|
|
May 15, 2027
|
|
|
500,000
|
|
|
|
495,656
|
|
|
|
495,168
|
|
|
|
533,490
|
|
|
|
541,300
|
|
4.000% senior unsecured notes due 2029
|
|
November 15, 2029
|
|
|
1,000,000
|
|
|
|
990,091
|
|
|
|
989,273
|
|
|
|
1,051,560
|
|
|
|
1,018,820
|
|
3.625% senior unsecured notes due 2030
|
|
September 1, 2030
|
|
|
400,000
|
|
|
|
395,340
|
|
|
|
-
|
|
|
|
413,764
|
|
|
|
-
|
|
3.875% senior unsecured notes due 2031
|
|
February 15, 2031
|
|
|
1,000,000
|
|
|
|
988,606
|
|
|
|
-
|
|
|
|
1,042,670
|
|
|
|
-
|
|
Total long-term debt
|
|
|
|
$
|
3,400,000
|
|
|
$
|
3,365,783
|
|
|
$
|
3,071,926
|
|
|
$
|
3,559,814
|
|
|
$
|
3,236,017
|
|
Interest payments attributable to the Senior Notes are due as presented in the following table:
|
|
First semi-annual interest
payment date
|
|
Second semi-
annual interest
payment date
|
Senior Notes
|
|
|
|
|
4.75% senior unsecured notes due 2026
|
|
February 1
|
|
August 1
|
5.375% senior unsecured notes due 2027
|
|
May 15
|
|
November 15
|
4.000% senior unsecured notes due 2029
|
|
May 15
|
|
November 15
|
3.625% senior unsecured notes due 2030(1)
|
|
March 1
|
|
September 1
|
3.875% senior unsecured notes due 2031(2)
|
|
June 1
|
|
December 1
|
(1)
|
The first payment occurred on September 1, 2020.
|
(2)
|
The first payment occurring on December 1, 2020.
|
The fair market value of the Company’s debt obligations is determined in accordance with accounting standards related to the determination of fair value and represents Level 2 valuations, which are based on one or more quoted prices in markets that are not considered to be active or for which all significant inputs are observable, either directly or indirectly. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values.
The $500.0 million aggregate principal amount of 4.75% senior unsecured notes due 2026 (the “2026 Senior Notes”) are scheduled to mature and be paid in full on August 1, 2026. At any time prior to August 1, 2021, the Company may redeem all or part of the 2026 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2026 Senior Notes, together with accrued and unpaid interest, on or after August 1, 2021, at redemption prices set forth in the indenture governing the 2026 Senior Notes.
The $500.0 million aggregate principal amount of 5.375% senior unsecured notes due 2027 (the “2027 Senior Notes”) are scheduled to mature and be paid in full on May 15, 2027. At any time prior to May 15, 2022, the Company may redeem all or part of the 2027 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2027 Senior Notes, together with accrued and unpaid interest, on or after May 15, 2022, at redemption prices set forth in the indenture governing
16
the 2027 Senior Notes. At any time prior to May 15, 2021, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2027 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.375% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
The $1,000.0 million aggregate principal amount of 4.000% senior unsecured notes due 2029 (the “2029 Senior Notes”) are scheduled to mature and be paid in full on November 15, 2029. At any time prior to November 15, 2024, the Company may redeem all or part of the 2029 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2029 Senior Notes, together with accrued and unpaid interest, on or after November 15, 2024, at redemption prices set forth in the indenture governing the 2029 Senior Notes. At any time prior to November 15, 2022, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2029 Senior Notes, including any permitted additional notes, at a redemption price equal to 104.000% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
On March 4, 2020, the Company issued $400.0 million aggregate principal amount of 3.625% senior unsecured notes due 2030 (the “2030 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The Company used a portion of the net proceeds from the 2030 Senior Notes to redeem the $300.0 million aggregate principal amount that remained outstanding on its 5.250% senior unsecured notes due 2024 (the “2024 Senior Notes”). The early redemption of the 2024 Senior Notes resulted in a $10.0 million loss on debt extinguishment recorded in other expense (income), which included a redemption price of approximately $7.9 million (as set forth in the indenture governing the terms of the 2024 Senior Notes) and the write-off of approximately $2.1 million of unamortized debt issuance costs associated with the 2024 Senior Notes.
The 2030 Senior Notes are scheduled to mature and be paid in full on September 1, 2030. At any time prior to March 1, 2025, the Company may redeem all or part of the 2030 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2030 Senior Notes, together with accrued and unpaid interest, on or after March 1, 2025, at redemption prices set forth in the indenture governing the 2030 Senior Notes. At any time prior to March 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2030 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.625% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
On May 26, 2020, the Company issued $1,000.0 million aggregate principal amount of 3.875% senior unsecured notes due 2031 (the “2031 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The Company used a portion of the net proceeds from the 2031 Senior Notes for the early redemption of all of the outstanding $800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025 (the "2025 Senior Notes"). The early redemption of the 2025 Senior Notes resulted in an approximately $35.0 million loss on extinguishment recorded in other expense (income). The loss on extinguishment included an applicable premium of approximately $29.5 million (as defined in the indenture governing the terms of the 2025 Senior Notes) and the write-off of approximately $5.5 million unamortized debt issuance costs associated with the 2025 Senior Notes.
The 2031 Senior Notes are scheduled to mature and be paid in full on February 15, 2031. At any time prior to June 1, 2025, the Company may redeem all or part of the 2031 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, the Company may redeem all or part of the 2031 Senior Notes, together with accrued and unpaid interest, on or after June 1, 2025, at redemption prices set forth in the indenture governing the 2031 Senior Notes. At any time prior to June 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2031 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.875% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 50% of the aggregate principal amount of all notes (excluding any additional notes, if any) issued under the indenture governing the 2031 Senior Notes remain outstanding after each such redemption occurs.
Revolver. On November 20, 2014, the Company entered into a $200.0 million senior unsecured revolving credit agreement (as amended, the “Revolving Credit Agreement”) with a syndicate of banks. The Revolving Credit Agreement had an initial term of five years with an option to extend for two additional one-year terms. On August 4, 2016, the Company entered into Amendment No. 1 (the “First Amendment”) to the Revolving Credit Agreement. The First Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $220.0 million, (ii) increased the maximum consolidated leverage ratio and (iii) extended the initial term to August 2021 with an option to extend for an additional one-year term. On May 15, 2018, the Company entered into Amendment No. 2 (the “Second Amendment”) to the Revolving Credit Agreement. The Second Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $250.0 million, (ii) extended the term to May 2023 with an option to extend for an additional one-year term and (iii) decreased the applicable rate and applicable fee rate for loans and commitments. On November 15, 2019, the Company entered into Amendment No. 3 (the “Third Amendment”) to the Revolving Credit Agreement. The
17
Third Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $400.0 million, (ii) extended the term to November 2024 with an option to extend for an additional one-year term, (iii) decreased the applicable rate and applicable fee rate for loans and commitments and (iv) amended certain restrictive covenants that limit, among other things, the Company’s financial flexibility. At September 30, 2020, the Revolving Credit Agreement was undrawn.
In connection with the closings of the Senior Notes offerings and entry into the Revolving Credit Agreement and the First, Second and Third Amendments, the Company paid certain financing fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At September 30, 2020, $36.1 million of the deferred financing fees remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.4 million of which is included in “Other non-current assets” and $34.2 million of which is grouped and presented as part of “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.
8. LEASES
The Company recognized a total of $7.5 million and $7.2 million of operating lease expenses for the three months ended September 30, 2020 and 2019, respectively. The Company recognized a total of $25.4 million and $21.7 million of operating lease expenses for the nine months ended September 30, 2020 and 2019, respectively. The amounts associated with variable lease costs, short-term lease costs and sublease income were not material for any of the three and nine months ended September 30, 2020 and 2019.
Future minimum commitments for the Company’s operating leases in place as of September 30, 2020, the interest and other relevant line items in the Unaudited Condensed Consolidated Statement of Financial Condition are as follows:
Maturity of Lease Liabilities
|
|
Operating
|
|
(in thousands)
|
|
Leases
|
|
Remainder of 2020
|
|
$
|
5,544
|
|
2021
|
|
|
28,598
|
|
2022
|
|
|
25,025
|
|
2023
|
|
|
23,955
|
|
2024
|
|
|
18,651
|
|
Thereafter
|
|
|
103,126
|
|
Total lease payments
|
|
$
|
204,899
|
|
Less: Interest
|
|
|
(30,596
|
)
|
Present value of lease liabilities
|
|
$
|
174,303
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
21,491
|
|
Long-term operating lease liabilities
|
|
$
|
152,812
|
|
Lease term and discount rate for the Company’s operating leases in place as of September 30, 2020 are as follows:
|
|
As of
|
|
|
|
September 30,
|
|
Lease Term and Discount Rate
|
|
2020
|
|
Weighted-average remaining lease term (years)
|
|
|
9.18
|
|
Weighted-average discount rate
|
|
|
3.41
|
%
|
Other information for the Company’s operating leases in place for the nine months ended September 30, 2020 are as follows:
|
|
Nine Months Ended
|
|
Other Information
|
|
September 30,
|
|
(in thousands)
|
|
2020
|
|
Operating cash flows used for operating leases
|
|
$
|
22,735
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
|
$
|
7,491
|
|
18
9. SHAREHOLDERS’ EQUITY (DEFICIT)
Return of capital.
On October 26, 2016, the Board of Directors approved a stock repurchase program for the purchase of up to $750.0 million worth of shares of the Company’s common stock (together with the amount then remaining under a previously existing share repurchase program, the “2016 Repurchase Program”).
On May 1, 2018, the Board of Directors authorized an additional stock repurchase program for the purchase of up to $1,000.0 million worth of shares of the Company’s common stock in addition to the $523.1 million of authorization then remaining under the 2016 Repurchase Program (the “2018 Repurchase Program”).
On October 29, 2019, the Board of Directors authorized an additional stock repurchase program for the purchase of up to $750.0 million worth of shares of MSCI’s common stock in addition to the $706.1 million of authorization remaining under the 2018 Repurchase Program (the “2019 Repurchase Program”) for a total of $1,456.1 million of stock repurchase authorization. Share repurchases made pursuant to the 2019 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice. As of September 30, 2020, there was $892.8 million of available authorization remaining under the 2019 Repurchase Program.
The following table provides information with respect to repurchases of the Company’s common stock made on the open market:
Nine Months Ended
|
|
Average
Price
Paid Per
Share
|
|
|
Total
Number of
Shares
Repurchased
|
|
|
Dollar
Value of
Shares
Repurchased
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30, 2020
|
|
$
|
278.69
|
|
|
|
2,021
|
|
|
$
|
563,336
|
|
September 30, 2019
|
|
$
|
147.97
|
|
|
|
690
|
|
|
$
|
102,081
|
|
The following table presents dividends declared per common share as well as total amounts declared, distributed and deferred for the periods indicated:
|
|
Dividends
|
|
(in thousands, except per share amounts)
|
|
Per Share
|
|
|
Declared
|
|
|
Distributed
|
|
|
(Released)/Deferred
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
$
|
0.68
|
|
|
$
|
59,233
|
|
|
$
|
59,455
|
|
|
$
|
(222
|
)
|
Three Months Ended June 30,
|
|
0.68
|
|
|
|
57,360
|
|
|
|
57,068
|
|
|
|
292
|
|
Three Months Ended September 30,
|
|
|
0.78
|
|
|
|
65,830
|
|
|
|
65,454
|
|
|
|
376
|
|
Total
|
|
$
|
2.14
|
|
|
$
|
182,423
|
|
|
$
|
181,977
|
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
$
|
0.58
|
|
|
$
|
55,339
|
|
|
$
|
57,988
|
|
|
$
|
(2,649
|
)
|
Three Months Ended June 30,
|
|
0.58
|
|
|
|
49,613
|
|
|
|
49,365
|
|
|
248
|
|
Three Months Ended September 30,
|
|
0.68
|
|
|
|
58,176
|
|
|
|
57,882
|
|
|
|
294
|
|
Total
|
|
$
|
1.84
|
|
|
$
|
163,128
|
|
|
$
|
165,235
|
|
|
$
|
(2,107
|
)
|
19
Common Stock.
The following table presents activity related to shares of common stock issued and repurchased during the nine months ended September 30, 2020:
|
|
Common Stock
|
|
|
Treasury
|
|
|
Common Stock
|
|
|
|
Issued
|
|
|
Stock
|
|
|
Outstanding
|
|
Balance at December 31, 2019
|
|
|
132,419,412
|
|
|
|
(47,624,482
|
)
|
|
|
84,794,930
|
|
Dividend payable/paid
|
|
|
259
|
|
|
|
(120
|
)
|
|
|
139
|
|
Common stock issued
|
|
|
377,843
|
|
|
|
—
|
|
|
|
377,843
|
|
Shares withheld for tax withholding
|
|
|
—
|
|
|
|
(153,923
|
)
|
|
|
(153,923
|
)
|
Shares repurchased under stock repurchase programs
|
|
|
—
|
|
|
|
(1,309,878
|
)
|
|
|
(1,309,878
|
)
|
Shares issued to directors
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
Balance at March 31, 2020
|
|
|
132,797,535
|
|
|
|
(49,088,403
|
)
|
|
|
83,709,132
|
|
Dividend payable/paid
|
|
|
114
|
|
|
|
(114
|
)
|
|
|
—
|
|
Common stock issued
|
|
|
10,101
|
|
|
|
—
|
|
|
|
10,101
|
|
Shares withheld for tax withholding
|
|
|
—
|
|
|
|
(1,838
|
)
|
|
|
(1,838
|
)
|
Shares repurchased under stock repurchase programs
|
|
|
—
|
|
|
|
(113,494
|
)
|
|
|
(113,494
|
)
|
Shares issued to directors
|
|
|
2,229
|
|
|
|
27,284
|
|
|
|
29,513
|
|
Balance at June 30, 2020
|
|
|
132,809,979
|
|
|
|
(49,176,565
|
)
|
|
|
83,633,414
|
|
Dividend payable/paid
|
|
|
54
|
|
|
|
(54
|
)
|
|
|
—
|
|
Common stock issued
|
|
|
13,252
|
|
|
|
—
|
|
|
|
13,252
|
|
Shares withheld for tax withholding
|
|
|
—
|
|
|
|
(6,779
|
)
|
|
|
(6,779
|
)
|
Shares repurchased under stock repurchase programs
|
|
|
—
|
|
|
|
(598,031
|
)
|
|
|
(598,031
|
)
|
Shares issued to directors
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2020
|
|
|
132,823,285
|
|
|
|
(49,781,429
|
)
|
|
|
83,041,856
|
|
10. INCOME TAXES
The Company’s provision for income taxes was $45.5 million and $15.9 million for the nine months ended September 30, 2020 and 2019, respectively. These amounts reflect effective tax rates of 9.3% and 3.5% for the nine months ended September 30, 2020 and 2019, respectively.
The effective tax rate of 9.3% for the nine months ended September 30, 2020 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $61.7 million. For the nine months ended September 30, 2020, these discrete items primarily related to $21.9 million of excess tax benefits recognized on the conversion of equity awards during the period, $20.8 million related to the favorable impact on prior years of final regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (“2017 Tax Act”) and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the 2024 Senior Notes and 2025 Senior Notes. Also included in the discrete items is a $6.3 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.
The effective tax rate of 3.5% for the nine months ended September 30, 2019 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $82.7 million. For the nine months ended September 30, 2019, these discrete items primarily related to $66.6 million of excess tax benefits recognized on the conversion during the period of certain multi-year restricted stock units that were subject to the achievement of multi-year total shareholder return targets (performance targets subject to market conditions) granted in 2016 (“2016 multi-year PSUs”) and $10.8 million of excess tax benefits related to the conversion of other equity awards recognized during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.
During the nine months ended September 30, 2020, a number of countries enacted economic stimulus laws including the CARES Act in the U.S. The Company has evaluated the laws that were passed during the nine months ended September 30, 2020 and does not believe the laws have a material impact on the Company’s effective tax rate or cash flows. A number of the laws, however, have enabled the Company to defer certain eligible tax payments that would have fallen due in earlier quarters.
The Company is under examination by the IRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and India, and states in which the Company has significant operations, such as New York. The tax years currently under examination vary by jurisdiction but include years ranging from 2007 through 2019.
20
The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. As part of the Company’s periodic review of unrecognized tax benefits and based on new information regarding the status of federal and state examinations, the Company’s unrecognized tax benefits were remeasured. Based on the current status of income tax audits, the total amount of unrecognized benefits may decrease by approximately $9.6 million in the next twelve months as a result of the resolution of tax examinations.
11. SEGMENT INFORMATION
ASC Subtopic 280-10, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or CODM, in deciding how to allocate resources and assess performance. MSCI’s Chief Executive Officer and its President and Chief Operating Officer, who are together considered to be its CODM, review financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.
The CODM measures and evaluates reportable segments based on segment operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, including the impact related to the vesting of the 2016 Multi-Year PSUs, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment Adjusted EBITDA, they are included in reported consolidated net income and are included in the reconciliation that follows.
The Company’s computation of segment Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because all companies do not calculate segment Adjusted EBITDA in the same fashion.
Operating revenues and expenses directly associated with each segment are included in determining its operating results. Other expenses that are not directly attributable to a particular segment are based upon allocation methodologies, including time estimates, revenue, headcount, sales targets, data center consumption and other relevant usage measures. Due to the integrated structure of MSCI’s business, certain costs incurred by one segment may benefit other segments. A segment may use the content and data produced by another segment without incurring an arm’s-length intersegment charge.
The CODM does not review any information regarding total assets on an operating segment basis. Operating segments do not record intersegment revenues, and, accordingly, there is none to be reported. The accounting policies for segment reporting are the same as for MSCI as a whole.
The Company has five operating segments: Index, Analytics, ESG, Real Estate and The Burgiss Group, LLC (“Burgiss”).
The Index operating segment is a provider of primarily equity indexes. The indexes are used in many areas of the investment process, including index-linked product creation (e.g., Exchange Traded Funds (“ETFs”) and futures and options), performance benchmarking, portfolio construction and rebalancing, broker-dealer structured products and asset allocation.
The Analytics operating segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and an analysis of market, credit, liquidity and counterparty risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access Analytics content through MSCI’s own proprietary applications and application programming interfaces, third-party applications or directly through their own platforms. Additionally, the Analytics operating segment also provides various managed services to help clients operate more efficiently, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting.
The ESG operating segment offers products and services that help institutional investors understand how ESG considerations can impact the long-term risk and return of their portfolio and individual security-level investments. In addition, MSCI ESG Research data and ratings are used in the construction of equity and fixed income indexes to help institutional investors more effectively benchmark ESG investment performance, issue index-based investment products, as well as manage, measure and report on ESG mandates.
21
The Real Estate operating segment offers research, reporting, market data and benchmarking offerings that provide real estate performance analysis for funds, investors and managers. Real Estate performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Estate operating segment also provides business intelligence to real estate owners, managers, developers and brokers worldwide.
The Burgiss operating segment represents the Company’s equity method investment in Burgiss, a global provider of investment decision support tools for private capital. See Note 12, “Equity Method Investments,” for further information.
The operating segments of ESG, Real Estate and Burgiss do not individually meet the segment reporting thresholds and have been combined and presented as part of All Other for disclosure purposes. Burgiss is an equity-method investment, therefore, the All Other segment does not include the Company’s proportionate share of operating revenues and Adjusted EBITDA related to Burgiss. The Company’s proportionate share of Burgiss’s equity earnings is not a component of Adjusted EBITDA as it is reported as a component of other (expense) income, net.
The following table presents operating revenue by reportable segment for the periods indicated:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
$
|
255,691
|
|
|
$
|
237,427
|
|
|
$
|
747,855
|
|
|
$
|
677,750
|
|
Analytics
|
|
|
128,337
|
|
|
|
123,603
|
|
|
|
381,408
|
|
|
|
368,719
|
|
All Other
|
|
|
41,305
|
|
|
|
33,221
|
|
|
|
122,466
|
|
|
|
104,721
|
|
Total
|
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
The following table presents segment profitability and a reconciliation to net income for the periods indicated:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Index Adjusted EBITDA
|
|
$
|
194,720
|
|
|
$
|
177,680
|
|
|
$
|
561,563
|
|
|
$
|
493,806
|
|
Analytics Adjusted EBITDA
|
|
|
45,056
|
|
|
|
37,797
|
|
|
|
127,540
|
|
|
|
113,266
|
|
All Other Adjusted EBITDA
|
|
|
9,671
|
|
|
|
5,312
|
|
|
|
26,271
|
|
|
|
23,220
|
|
Total operating segment profitability
|
|
|
249,447
|
|
|
|
220,789
|
|
|
|
715,374
|
|
|
|
630,292
|
|
2016 Multi-Year PSUs grant payroll tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,389
|
|
Amortization of intangible assets
|
|
|
14,333
|
|
|
|
12,361
|
|
|
|
42,171
|
|
|
|
36,167
|
|
Depreciation and amortization of property,
equipment and leasehold improvements
|
|
|
7,494
|
|
|
|
7,209
|
|
|
|
22,524
|
|
|
|
22,464
|
|
Operating income
|
|
|
227,620
|
|
|
|
201,219
|
|
|
|
650,679
|
|
|
|
556,272
|
|
Other expense (income), net
|
|
|
38,577
|
|
|
|
32,471
|
|
|
|
159,620
|
|
|
|
99,487
|
|
Provision for income taxes
|
|
|
6,685
|
|
|
|
31,765
|
|
|
|
45,453
|
|
|
|
15,920
|
|
Net income
|
|
$
|
182,358
|
|
|
$
|
136,983
|
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
22
Revenue by geography is based on the shipping address of the ultimate customer utilizing the product. The following table presents revenue by geographic area for the periods indicated:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
180,206
|
|
|
$
|
177,154
|
|
|
$
|
537,071
|
|
|
$
|
516,568
|
|
Other
|
|
|
18,039
|
|
|
|
15,878
|
|
|
|
52,686
|
|
|
|
48,669
|
|
Total Americas
|
|
|
198,245
|
|
|
|
193,032
|
|
|
|
589,757
|
|
|
|
565,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe, the Middle East and Africa ("EMEA"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
65,155
|
|
|
|
60,856
|
|
|
|
193,042
|
|
|
|
174,984
|
|
Other
|
|
|
90,539
|
|
|
|
80,022
|
|
|
|
268,677
|
|
|
|
237,745
|
|
Total EMEA
|
|
|
155,694
|
|
|
|
140,878
|
|
|
|
461,719
|
|
|
|
412,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia & Australia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
19,885
|
|
|
|
18,171
|
|
|
|
59,002
|
|
|
|
52,838
|
|
Other
|
|
|
51,509
|
|
|
|
42,170
|
|
|
|
141,251
|
|
|
|
120,386
|
|
Total Asia & Australia
|
|
|
71,394
|
|
|
|
60,341
|
|
|
|
200,253
|
|
|
|
173,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
Long-lived assets consist of property, equipment, leasehold improvements, goodwill and intangible assets, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,754,130
|
|
|
$
|
1,781,667
|
|
Other
|
|
|
5,026
|
|
|
|
6,398
|
|
Total Americas
|
|
|
1,759,156
|
|
|
|
1,788,065
|
|
|
|
|
|
|
|
|
|
|
EMEA:
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
77,802
|
|
|
|
81,338
|
|
Other
|
|
|
36,510
|
|
|
|
36,433
|
|
Total EMEA
|
|
|
114,312
|
|
|
|
117,771
|
|
|
|
|
|
|
|
|
|
|
Asia & Australia:
|
|
|
|
|
|
|
|
|
Japan
|
|
|
378
|
|
|
|
398
|
|
Other
|
|
|
8,354
|
|
|
|
8,829
|
|
Total Asia & Australia
|
|
|
8,732
|
|
|
|
9,227
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,882,200
|
|
|
$
|
1,915,063
|
|
23
12. EQUITY METHOD INVESTMENT
In January 2020, MSCI entered into a strategic relationship with Burgiss, a global provider of investment decision support tools for private capital. The Company acquired a 40% non-controlling interest for $190.8 million, including capitalized costs, which is accounted for as an equity method investment with the Company’s share of Burgiss’ earnings being recognized in “Other expense (income), net” in the Condensed Consolidated Statements of Income. The Company is applying a policy election to recognize its share of Burgiss’ earnings on a three-month lag. Accordingly, the Company has recognized in its results of operations an immaterial amount in earnings related to its investment in Burgiss in both the three months and nine months ended September 30, 2020. MSCI has also elected to apply the nature of the distribution approach to determine the classification of the distributions it receives from its equity method investee. In the three months ended September 30, 2020, MSCI received an immaterial amount in distributions from its equity method investee.
The Company’s investment substantially exceeds the Company’s share of the underlying equity of Burgiss. A portion of this excess, representing the excess of the fair value of Burgiss’ intangible assets over their book value, is amortized into “Other expense (income), net” over the useful lives of the respective intangible assets.
13. SUBSEQUENT EVENTS
On October 26, 2020, the Board of Directors declared a quarterly cash dividend of $0.78 per share for the three months ending December 31, 2020 (“fourth quarter 2020”). The fourth quarter 2020 dividend is payable on November 30, 2020 to shareholders of record as of the close of trading on November 13, 2020.
Subsequent to the nine months ended September 30, 2020 and through October 23, 2020, the Company repurchased an additional 0.1 million shares of common stock at an average price of $347.26 per share for a total value of $51.0 million.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A.—Risk Factors,” in our Form 10-K.
Except as the context otherwise indicates, the terms “MSCI,” the “Company,” “we,” “our” and “us” refer to MSCI Inc., together with its subsidiaries.
Overview
We are a leading provider of critical decision support tools and services for the global investment community. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, our actionable solutions1 power better investment decisions by enabling our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios.
Investors all over the world use our tools and services to gain insight and improve transparency throughout their investment processes, including to help define their investment universe, inform and analyze their asset allocation and portfolio construction decisions, measure and manage portfolio performance and risk, conduct performance attribution, implement sustainable and other investment strategies, design and issue ETFs and other index-enabled financial products, and facilitate reporting to stakeholders.
Our industry-leading, research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG research and ratings; and real estate benchmarks, return-analytics and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients’ dynamic and complex needs. We are flexible in the delivery of our content and capabilities, much of which can be accessed by our clients through multiple channels and platforms.
We are focused on staying at the forefront of investment trends to address the evolving needs of our clients in a changing industry. In order to most effectively serve our clients, we are committed to driving an integrated solutions-based approach, achieving service excellence, enhancing our differentiated research and content, and delivering flexible, cutting-edge technology and platforms.
Our clients comprise a wide spectrum of the global investment industry and include the following key client types:
|
•
|
Asset owners (pension funds, endowments, foundations, central banks, sovereign wealth funds, family offices and insurance companies)
|
|
•
|
Asset managers (institutional funds and accounts, mutual funds, hedge funds, ETFs, insurance products, private banks and real estate investment trusts)
|
|
•
|
Financial intermediaries (banks, broker-dealers, exchanges, custodians, trust companies and investment consultants)
|
|
•
|
Wealth managers (including an increasing number of “robo-advisors”)
|
As of September 30, 2020, we served over 7,900 clients in more than 90 countries. To calculate the number of clients, we use the shipping address of the ultimate customer utilizing the product, which counts affiliates, user locations or business units within a single organization as separate clients. If we aggregate all related clients under their respective parent entity, the number of clients would be over 4,300, as of September 30, 2020. As of September 30, 2020, we had offices in more than 30 cities across more than 20 countries to help serve our diverse client base, with 47.1% of our revenues coming from clients in the Americas, 36.9% in EMEA and 16.0% in Asia and Australia.
Our principal business model is generally to license annual, recurring subscriptions for the majority of our Index, Analytics and ESG products and services for a fee due in advance of the service period. We also license annual recurring subscriptions for the majority of our Real Estate products for a fee which is primarily paid in arrears after the product is delivered, with the exception of the Market Information product for which the fees are generally paid in advance. A portion of our fees comes from clients who use our indexes as the basis for index-linked investment products. Such fees are primarily based on a client’s assets under management (“AUM”), trading volumes and fee levels.
1
|
The term “solutions” as used throughout this Quarterly Report on Form 10-Q refers to the use of our products or services by our clients to help them achieve their objectives.
|
25
In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under accounting principles generally accepted in the United States (“GAAP”) as well as non-GAAP measures, for the Company as a whole and by operating segment. In addition, we focus on operating metrics, including Run Rate, subscription sales and Retention Rate, to manage the business. Our business is not highly capital intensive and, as such, we expect to continue to convert a high percentage of our profits into excess cash in the future. Our growth strategy includes: (a) expanding leadership in research-enhanced content, (b) strengthening existing and new client relationships by providing solutions, (c) improving access to our solutions through cutting-edge technology and platforms, (d) expanding value-added service offerings and (e) executing strategic relationships and acquisitions with complementary content and technology companies.
In the discussion that follows, we provide certain variances excluding 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.
The discussion of our results of operations for the three and nine months ended September 30, 2020 and 2019 are presented below. The results of operations for interim periods may not be indicative of future results.
Results of Operations
The following table presents the results of operations for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands, except per share data)
|
|
Operating revenues
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
|
7.9
|
%
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
|
|
8.7
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
70,704
|
|
|
|
70,486
|
|
|
|
0.3
|
%
|
|
|
215,769
|
|
|
|
224,807
|
|
|
|
(4.0
|
%)
|
Selling and marketing
|
|
52,668
|
|
|
|
52,107
|
|
|
|
1.1
|
%
|
|
|
159,834
|
|
|
|
159,812
|
|
|
|
0.0
|
%
|
Research and development
|
|
24,901
|
|
|
|
24,310
|
|
|
|
2.4
|
%
|
|
|
73,997
|
|
|
|
71,234
|
|
|
|
3.9
|
%
|
General and administrative
|
|
27,613
|
|
|
|
26,559
|
|
|
|
4.0
|
%
|
|
|
86,755
|
|
|
|
80,434
|
|
|
|
7.9
|
%
|
Amortization of intangible assets
|
|
14,333
|
|
|
|
12,361
|
|
|
|
16.0
|
%
|
|
|
42,171
|
|
|
|
36,167
|
|
|
|
16.6
|
%
|
Depreciation and amortization of property,
equipment and leasehold improvements
|
|
7,494
|
|
|
|
7,209
|
|
|
|
4.0
|
%
|
|
|
22,524
|
|
|
|
22,464
|
|
|
|
0.3
|
%
|
Total operating expenses
|
|
197,713
|
|
|
|
193,032
|
|
|
|
2.4
|
%
|
|
|
601,050
|
|
|
|
594,918
|
|
|
|
1.0
|
%
|
Operating income
|
|
227,620
|
|
|
|
201,219
|
|
|
|
13.1
|
%
|
|
|
650,679
|
|
|
|
556,272
|
|
|
|
17.0
|
%
|
Other expense (income), net
|
|
38,577
|
|
|
|
32,471
|
|
|
|
18.8
|
%
|
|
|
159,620
|
|
|
|
99,487
|
|
|
|
60.4
|
%
|
Income before provision for income taxes
|
|
189,043
|
|
|
|
168,748
|
|
|
|
12.0
|
%
|
|
|
491,059
|
|
|
|
456,785
|
|
|
|
7.5
|
%
|
Provision for income taxes
|
|
6,685
|
|
|
|
31,765
|
|
|
|
(79.0
|
%)
|
|
|
45,453
|
|
|
|
15,920
|
|
|
|
185.5
|
%
|
Net income
|
$
|
182,358
|
|
|
$
|
136,983
|
|
|
|
33.1
|
%
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share
|
$
|
2.18
|
|
|
$
|
1.62
|
|
|
|
34.6
|
%
|
|
$
|
5.30
|
|
|
$
|
5.21
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share
|
$
|
2.16
|
|
|
$
|
1.60
|
|
|
|
35.0
|
%
|
|
$
|
5.26
|
|
|
$
|
5.15
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
53.5
|
%
|
|
|
51.0
|
%
|
|
|
|
|
|
|
52.0
|
%
|
|
|
48.3
|
%
|
|
|
|
|
Operating Revenues
Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics and All Other, which includes the ESG and Real Estate product lines.
26
The following table presents operating revenues by type for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Recurring subscriptions
|
$
|
313,190
|
|
|
$
|
288,108
|
|
|
|
8.7
|
%
|
|
$
|
927,499
|
|
|
$
|
859,621
|
|
|
|
7.9
|
%
|
Asset-based fees
|
|
100,371
|
|
|
|
96,013
|
|
|
|
4.5
|
%
|
|
|
288,642
|
|
|
|
265,554
|
|
|
|
8.7
|
%
|
Non-recurring
|
|
11,772
|
|
|
|
10,130
|
|
|
|
16.2
|
%
|
|
|
35,588
|
|
|
|
26,015
|
|
|
|
36.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
|
7.9
|
%
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
|
|
8.7
|
%
|
Total operating revenues for the three months ended September 30, 2020 increased 7.9% to $425.3 million compared to $394.3 million for the three months ended September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 7.5% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the increase was 8.7%, growing to $1,251.7 million compared to $1,151.2 million for the nine months ended September 30, 2019. The impact of foreign currency exchange rate fluctuations on total operating revenues was negligible.
As a result of the impact of the COVID-19 pandemic, growth in operating revenues from recurring subscriptions may moderate in the near term. In addition, the volatility in the global equity markets may adversely impact AUM levels which in turn may impact future operating revenues from asset-based fees.
Operating revenues from recurring subscriptions for the three months ended September 30, 2020 increased 8.7% to $313.2 million compared to $288.1 million for the three months ended September 30, 2019, primarily driven by growth in Index products, which increased $13.0 million, or 9.7%, growth in ESG products, which increased $5.6 million, or 24.8%, and growth in Analytics products, which increased $4.1 million, or 3.4%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 8.2% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the increase was 7.9%, growing to $927.5 million compared to $859.6 million for the nine months ended September 30, 2019, primarily driven by growth in Index products, which increased $38.4 million, or 9.8%, growth in ESG products, which increased $13.9 million, or 21.4%, and growth in Analytics products, which increased $12.6 million, or 3.5%. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.
Operating revenues from asset-based fees for the three months ended September 30, 2020 increased 4.5% to $100.4 million compared to $96.0 million for the three months ended September 30, 2019. The increase in asset-based fees was primarily driven by an increase in revenues from ETFs linked to MSCI indexes and non-ETF indexed funds linked to MSCI indexes. The increase in revenues from ETFs linked to MSCI indexes was driven by a 10.2% increase in average AUM in equity ETFs, partially offset by the impact of a change in product mix. Revenue growth from non-ETF indexed funds linked to MSCI indexes was primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
For the nine months ended September 30, 2020, revenues from asset-based fees increased 8.7% to $288.6 million compared to $265.6 million for the nine months ended September 30, 2019. The increase in asset-based fees was primarily driven by a strong increase in revenues from exchange traded futures and options contracts linked to MSCI indexes, primarily driven by price and volume increases. The increase was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
27
The following table presents the value of AUM in equity ETFs linked to MSCI indexes and the sequential change of such assets as of the end of each of the periods indicated:
|
|
Period Ended
|
|
|
|
2019
|
|
|
2020
|
|
(in billions)
|
|
March
31,
|
|
|
June
30,
|
|
|
September
30,
|
|
|
December
31,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
September
30,
|
|
AUM in equity ETFs linked to MSCI indexes(1), (2), (3)
|
|
$
|
802.2
|
|
|
$
|
819.3
|
|
|
$
|
815.0
|
|
|
$
|
934.4
|
|
|
$
|
709.5
|
|
|
$
|
825.4
|
|
|
$
|
908.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sequential Change in Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Appreciation/(Depreciation)
|
|
$
|
78.3
|
|
|
$
|
14.9
|
|
|
$
|
(9.2
|
)
|
|
$
|
63.5
|
|
|
$
|
(216.5
|
)
|
|
$
|
117.4
|
|
|
$
|
57.0
|
|
Cash Inflows
|
|
|
28.3
|
|
|
|
2.2
|
|
|
|
4.9
|
|
|
|
55.9
|
|
|
|
(8.4
|
)
|
|
|
(1.5
|
)
|
|
|
26.5
|
|
Total Change
|
|
$
|
106.6
|
|
|
$
|
17.1
|
|
|
$
|
(4.3
|
)
|
|
$
|
119.4
|
|
|
$
|
(224.9
|
)
|
|
$
|
115.9
|
|
|
$
|
83.5
|
|
The following table presents the average value of AUM in equity ETFs linked to MSCI indexes for the periods indicated:
|
|
2019
|
|
|
2020
|
|
(in billions)
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
March
|
|
|
June
|
|
|
September
|
|
AUM in equity ETFs linked to MSCI indexes(1), (2), (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average
|
|
$
|
766.0
|
|
|
$
|
811.4
|
|
|
$
|
810.9
|
|
|
$
|
869.1
|
|
|
$
|
877.1
|
|
|
$
|
776.9
|
|
|
$
|
893.4
|
|
Year-to-date average
|
|
$
|
766.0
|
|
|
$
|
788.7
|
|
|
$
|
796.1
|
|
|
$
|
814.4
|
|
|
$
|
877.1
|
|
|
$
|
827.0
|
|
|
$
|
849.1
|
|
(1)
|
The historical values of the AUM in equity ETFs linked to our indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in equity ETFs Linked to MSCI Indexes” on our Investor Relations homepage at http://ir.msci.com. This information is updated mid-month each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any other report filed with the SEC. The AUM in equity ETFs also includes AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.
|
(2)
|
The values for periods prior to April 26, 2019 were based on data from Bloomberg and MSCI, while the values for periods on or after April 26, 2019 were based on data from Refinitiv and MSCI. De minimis amounts of data are reported on a delayed basis.
|
(3)
|
The value of AUM in equity ETFs linked to MSCI indexes is calculated by multiplying the equity ETF net asset value by the number of shares outstanding.
|
The average value of AUM in equity ETFs linked to MSCI equity indexes for the three months ended September 30, 2020 was $893.4 billion, up $82.5 billion, or 10.2%, from $810.9 billion for the three months ended September 30, 2019. For the nine months ended September 30, 2020, it was $849.1 billion, up $53.0 billion, or 6.7%, from $796.1 billion for the nine months ended September 30, 2019.
Non-recurring revenues for the three months ended September 30, 2020 increased 16.2% to $11.8 million compared to $10.1 million for the three months ended September 30, 2019, primarily driven by growth in Index products, which increased $0.9 million, or 11.5%.
For the nine months ended September 30, 2020, the increase was 36.8%, growing to $35.6 million compared to $26.0 million for the nine months ended September 30, 2019, primarily driven by growth in Index products, which increased $8.6 million, or 45.4%.
28
The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
$
|
146,387
|
|
|
$
|
133,403
|
|
|
|
9.7
|
%
|
|
$
|
431,631
|
|
|
$
|
393,222
|
|
|
|
9.8
|
%
|
Asset-based fees
|
|
100,371
|
|
|
|
96,013
|
|
|
|
4.5
|
%
|
|
|
288,642
|
|
|
|
265,554
|
|
|
|
8.7
|
%
|
Non-recurring
|
|
8,933
|
|
|
|
8,011
|
|
|
|
11.5
|
%
|
|
|
27,582
|
|
|
|
18,974
|
|
|
|
45.4
|
%
|
Index total
|
|
255,691
|
|
|
|
237,427
|
|
|
|
7.7
|
%
|
|
|
747,855
|
|
|
|
677,750
|
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analytics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
|
126,251
|
|
|
|
122,120
|
|
|
|
3.4
|
%
|
|
|
376,505
|
|
|
|
363,929
|
|
|
|
3.5
|
%
|
Non-recurring
|
|
2,086
|
|
|
|
1,483
|
|
|
|
40.7
|
%
|
|
|
4,903
|
|
|
|
4,790
|
|
|
|
2.4
|
%
|
Analytics total
|
|
128,337
|
|
|
|
123,603
|
|
|
|
3.8
|
%
|
|
|
381,408
|
|
|
|
368,719
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
|
40,552
|
|
|
|
32,585
|
|
|
|
24.4
|
%
|
|
|
119,363
|
|
|
|
102,470
|
|
|
|
16.5
|
%
|
Non-recurring
|
|
753
|
|
|
|
636
|
|
|
|
18.4
|
%
|
|
|
3,103
|
|
|
|
2,251
|
|
|
|
37.8
|
%
|
All Other total
|
|
41,305
|
|
|
|
33,221
|
|
|
|
24.3
|
%
|
|
|
122,466
|
|
|
|
104,721
|
|
|
|
16.9
|
%
|
Total operating revenues
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
|
7.9
|
%
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
|
|
8.7
|
%
|
Refer to the section titled "Segment Results" that follows for further discussion of segment revenues.
Operating Expenses
We group our operating expenses into the following activity categories:
|
•
|
Research and development (“R&D”);
|
|
•
|
General and administrative (“G&A”);
|
|
•
|
Amortization of intangible assets; and
|
|
•
|
Depreciation and amortization of property, equipment and leasehold improvements.
|
Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.
The following table presents operating expenses by activity category for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
$
|
70,704
|
|
|
$
|
70,486
|
|
|
|
0.3
|
%
|
|
$
|
215,769
|
|
|
$
|
224,807
|
|
|
|
(4.0
|
%)
|
Selling and marketing
|
|
52,668
|
|
|
|
52,107
|
|
|
|
1.1
|
%
|
|
|
159,834
|
|
|
|
159,812
|
|
|
|
0.0
|
%
|
Research and development
|
|
24,901
|
|
|
|
24,310
|
|
|
|
2.4
|
%
|
|
|
73,997
|
|
|
|
71,234
|
|
|
|
3.9
|
%
|
General and administrative
|
|
27,613
|
|
|
|
26,559
|
|
|
|
4.0
|
%
|
|
|
86,755
|
|
|
|
80,434
|
|
|
|
7.9
|
%
|
Amortization of intangible assets
|
|
14,333
|
|
|
|
12,361
|
|
|
|
16.0
|
%
|
|
|
42,171
|
|
|
|
36,167
|
|
|
|
16.6
|
%
|
Depreciation and amortization of property,
equipment and leasehold improvements
|
|
7,494
|
|
|
|
7,209
|
|
|
|
4.0
|
%
|
|
|
22,524
|
|
|
|
22,464
|
|
|
|
0.3
|
%
|
Total operating expenses
|
$
|
197,713
|
|
|
$
|
193,032
|
|
|
|
2.4
|
%
|
|
$
|
601,050
|
|
|
$
|
594,918
|
|
|
|
1.0
|
%
|
29
Total operating expenses for the three months ended September 30, 2020 increased 2.4% to $197.7 million compared to $193.0 million for the three months ended September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.2% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the increase was 1.0%, growing to $601.1 million compared to $594.9 million for the nine months ended September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.0% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
Cost of Revenues
Cost of revenues expenses consist of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support and maintain existing products; costs of product management teams; costs of client service and consultant teams to support customer needs; as well as other support costs directly attributable to the cost of revenues including certain human resources, finance and legal costs.
Cost of revenues for the three months ended September 30, 2020 was relatively flat at $70.7 million compared to $70.5 million for the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the decrease was 4.0% to $215.8 million compared to $224.8 million for the nine months ended September 30, 2019, reflecting decreases across the Analytics and Index reportable segments, partially offset by an increase in the All Other reportable segment. The change was driven by the absence of $7.0 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019, and decreases in other compensation and benefits costs, primarily relating to lower incentive compensation, as well as lower non-compensation costs, reflecting lower travel and entertainment costs, partially offset by higher information technology costs.
Selling and Marketing
Selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations.
Selling and marketing expenses for the three months ended September 30, 2020 increased 1.1% to $52.7 million compared to $52.1 million for the three months ended September 30, 2019, driven by higher costs in the All Other reportable segment, partially offset by lower costs in the Index and Analytics reportable segments. The change was driven by increases in compensation and benefits costs, including wages and salaries and severance costs, partially offset by decreases in non-compensation costs, primarily relating to lower travel and entertainment costs.
For the nine months ended September 30, 2020, it was flat at $159.8 million compared to the nine months ended September 30, 2019, with higher costs in the All Other and Analytics reportable segments, offset by lower costs in the Index reportable segment. The higher costs reflect increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs, offset by the absence of $4.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019 and lower non-compensation costs, including travel and entertainment costs and marketing costs.
Research and Development
R&D expenses consist of the costs to develop new or enhance existing products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support associated with these efforts.
R&D expenses for the three months ended September 30, 2020 increased 2.4% to $24.9 million compared to $24.3 million for the three months ended September 30, 2019, reflecting higher investments in the Index and All Other reportable segments, partially offset by lower investment in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, including wages and salaries and severance costs, partially offset by decreases in non-compensation costs, primarily relating to lower travel and entertainment costs.
For the nine months ended September 30, 2020, the increase was 3.9%, growing to $74.0 million compared to $71.2 million for the nine months ended September 30, 2019, reflecting higher investments in the All Other and Index reportable segments, partially offset by lower investment in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, including wages and salaries and severance costs.
30
General and Administrative
G&A expenses consist of costs primarily related to finance operations, human resources, office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service.
G&A expenses for the three months ended September 30, 2020 increased 4.0% to $27.6 million compared to $26.6 million for the three months ended September 30, 2019, reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher severance costs, partially offset by decreases in non-compensation costs.
For the nine months ended September 30, 2020, the increase was 7.9%, growing to $86.8 million compared to $80.4 million for the nine months ended September 30, 2019, reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, wages and salaries and severance costs, partially offset by the absence of $3.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019 and lower non-compensation costs.
The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Compensation and benefits
|
$
|
129,920
|
|
|
$
|
122,009
|
|
|
|
6.5
|
%
|
|
$
|
395,985
|
|
|
$
|
388,496
|
|
|
|
1.9
|
%
|
Non-compensation expenses
|
|
45,966
|
|
|
|
51,453
|
|
|
|
(10.7
|
%)
|
|
|
140,370
|
|
|
|
147,791
|
|
|
|
(5.0
|
%)
|
Amortization of intangible assets
|
|
14,333
|
|
|
|
12,361
|
|
|
|
16.0
|
%
|
|
|
42,171
|
|
|
|
36,167
|
|
|
|
16.6
|
%
|
Depreciation and amortization of property,
equipment and leasehold improvements
|
|
7,494
|
|
|
|
7,209
|
|
|
|
4.0
|
%
|
|
|
22,524
|
|
|
|
22,464
|
|
|
|
0.3
|
%
|
Total operating expenses
|
$
|
197,713
|
|
|
$
|
193,032
|
|
|
|
2.4
|
%
|
|
$
|
601,050
|
|
|
$
|
594,918
|
|
|
|
1.0
|
%
|
Compensation and Benefits
Compensation and benefits costs are our most significant expense and typically represent approximately 65% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 3,545 and 3,358 employees as of September 30, 2020 and 2019, respectively, reflecting a 5.6% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses. As of September 30, 2020, 64.2% of our employees were located in emerging market centers compared to 63.3% as of September 30, 2019.
Compensation and benefits costs for the three months ended September 30, 2020 increased 6.5% to $129.9 million compared to $122.0 million for the three months ended September 30, 2019, driven by higher severance costs, wages and salaries and benefits costs, partially offset by lower incentive compensation costs.
For the nine months ended September 30, 2020, the increase was 1.9%, growing to $396.0 million compared to $388.5 million for the nine months ended September 30, 2019, primarily driven by higher wages and salaries, benefits costs and severance costs, partially offset by the absence of $15.4 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019.
A significant portion of the incentive compensation component of operating expenses is based on the achievement of a number of financial and operating metrics. In a scenario where operating revenue growth and profitability moderate as a result of the impact of the COVID-19 pandemic, incentive compensation is expected to decrease accordingly.
Non-Compensation Expenses
Non-compensation expenses for the three months ended September 30, 2020 decreased 10.7% to $46.0 million compared to $51.5 million for the three months ended September 30, 2019, primarily driven by lower travel and entertainment costs and professional fees.
For the nine months ended September 30, 2020, the decrease was 5.0%, declining to $140.4 million compared to $147.8 million for the nine months ended September 30, 2019, primarily driven by lower travel and entertainment and marketing costs, partially offset by higher information technology costs.
31
Fixed costs constitute a significant portion of the non-compensation component of operating expenses. The discretionary non-compensation component of operating expenses could, however, be reduced in the near-term in a scenario where operating revenue growth moderates as a result of the COVID-19 pandemic.
Amortization of Intangible Assets
Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects recognized over their estimated useful lives. Amortization of intangible assets expense for the three months ended September 30, 2020 increased 16.0% to $14.3 million compared to $12.4 million for the three months ended September 30, 2019, primarily driven by higher amortization of internally developed capitalized software.
For the nine months ended September 30, 2020, it increased 16.6% to $42.2 million compared to $36.2 million for the nine months ended September 30, 2019, primarily driven by higher amortization of internally developed capitalized software.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements consists of expenses related to depreciating or amortizing the cost of furniture and fixtures, computer and related equipment and leasehold improvements over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements for the three months ended September 30, 2020 increased 4.0% to $7.5 million compared to $7.2 million for the three months ended September 30, 2019. The increase was primarily the result of higher depreciation on computer and related equipment and furniture.
For the nine months ended September 30, 2020, it remained consistent at $22.5 million compared to the nine months ended September 30, 2019.
Other Expense (Income), Net
Other expense (income), net for the three months ended September 30, 2020 increased 18.8% to $38.6 million compared to $32.5 million for the three months ended September 30, 2019. The increase in net expenses was primarily driven by lower interest income due to lower rates earned on cash balances and higher interest expense associated with the higher outstanding debt during the three months ended September 30, 2020.
For the nine months ended September 30, 2020, it increased 60.4% to $159.6 million compared to $99.5 million for the nine months ended September 30, 2019. The increase in net expenses was primarily driven by the $35.0 million and $10.0 million loss on debt extinguishment associated with the redemption of all of the outstanding $800.0 million aggregate principal amount of the 2025 Senior Notes (“2025 Senior Notes Redemption”) and the redemption of all of the remaining $300.0 million of the 5.250% Senior Notes due 2024 (“2024 Senior Notes Redemption”), respectively. The loss on debt extinguishment associated with the 2025 Senior Notes included an applicable premium of approximately $29.5 million (as defined in the indenture governing the terms of the 2025 Senior Notes) and the write-off of approximately $5.5 million of unamortized debt issuance costs. The loss on debt extinguishment associated with the 2024 Senior Notes Redemption included a redemption price of approximately $7.9 million (as set forth in the indenture governing the terms of the 2024 Senior Notes) and the write-off of approximately $2.1 million of unamortized debt issuance costs. In addition, the increase reflects higher interest expense associated with the higher outstanding debt during the nine months ended September 30, 2020 and lower interest income due to lower rates earned on cash balances.
Income Taxes
The Company’s provision for income taxes for the three months ended September 30, 2020 and 2019 was $6.7 million and $31.8 million, respectively. These amounts reflect effective tax rates of 3.5% and 18.8% for the three months ended September 30, 2020 and 2019, respectively.
For the three months ended September 30, 2020, the effective tax rate of 3.5% reflects the Company’s estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling $27.7 million. These discrete items primarily related to the $20.8 million tax impact from the favorable impact on prior years of final regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the 2017 Tax Act. Also included in the discrete items is a $5.5 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.
For the three months ended September 30, 2019, the effective tax rate of 18.8% reflected the Company’s estimate of the effective tax rate for the period which was impacted by $4.1 million of discrete tax benefits related to the resolution of certain prior years’ items. In addition, the effective tax rate was also impacted by a beneficial geographic mix of earnings and lower anticipated taxes on the repatriation of foreign earnings.
32
The Company’s provision for income taxes for the nine months ended September 30, 2020 and 2019 was $45.5 million and $15.9 million, respectively. These amounts reflect effective tax rates of 9.3% and 3.5% for the nine months ended September 30, 2020 and 2019, respectively.
For the nine months ended September 30, 2020, the effective tax rate of 9.3% reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $61.7 million. These discrete items primarily related to $21.9 million of excess tax benefits recognized on the conversion of equity awards during the period, $20.8 million tax impact from the favorable impact on prior years of final regulations released during the three months ended September 30, 2020 clarifying certain provisions established in the 2017 Tax Act and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2024 Senior Notes Redemption and 2025 Senior Notes Redemption. Also included in the discrete items is a $6.3 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings.
For the nine months ended September 30, 2019, the effective tax rate of 3.5% reflected the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $82.7 million. These discrete items primarily related to $66.6 million of excess tax benefits recognized on the conversion of the 2016 Multi-Year PSUs and $10.8 million of excess tax benefits related to the conversion of other equity awards recognized during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.
Net Income
As a result of the factors described above, net income for the three months ended September 30, 2020 increased 33.1% to $182.4 million compared to $137.0 million for the three months ended September 30, 2019 and for the nine months ended September 30, 2020, it increased 1.1% to $445.6 million compared to $440.9 million for the nine months ended September 30, 2019.
Weighted Average Shares
The weighted average shares outstanding used to calculate basic and diluted earnings per share for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 decreased by 1.4% and 1.3%, respectively. The decreases primarily reflect the impact of share repurchases made prior to September 30, 2020 pursuant to the 2019 Repurchase Program and the vesting of the restricted stock units that were included in the dilutive share count in the prior year.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, the weighted average shares outstanding remained flat.
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 the impact related to the vesting of the 2016 Multi-Year PSUs.
“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 the impact related to the vesting of the 2016 Multi-Year PSUs.
Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of 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.
33
The following table presents the calculation of Adjusted EBITDA for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Operating revenues
|
$
|
425,333
|
|
|
$
|
394,251
|
|
|
|
7.9
|
%
|
|
$
|
1,251,729
|
|
|
$
|
1,151,190
|
|
|
|
8.7
|
%
|
Adjusted EBITDA expenses
|
|
175,886
|
|
|
|
173,462
|
|
|
|
1.4
|
%
|
|
|
536,355
|
|
|
|
520,898
|
|
|
|
3.0
|
%
|
Adjusted EBITDA
|
$
|
249,447
|
|
|
$
|
220,789
|
|
|
|
13.0
|
%
|
|
$
|
715,374
|
|
|
$
|
630,292
|
|
|
|
13.5
|
%
|
Adjusted EBITDA margin %
|
|
58.6
|
%
|
|
|
56.0
|
%
|
|
|
|
|
|
|
57.2
|
%
|
|
|
54.8
|
%
|
|
|
|
|
Operating margin %
|
|
53.5
|
%
|
|
|
51.0
|
%
|
|
|
|
|
|
|
52.0
|
%
|
|
|
48.3
|
%
|
|
|
|
|
Adjusted EBITDA for the three months ended September 30, 2020 increased 13.0% to $249.4 million compared to $220.8 million for the three months ended September 30, 2019. Adjusted EBITDA margin for the three months ended September 30, 2020 increased to 58.6% compared to 56.0% for the three months ended September 30, 2019. The increase in Adjusted EBITDA margin reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses.
For the nine months ended September 30, 2020, Adjusted EBITDA increased 13.5% to $715.4 million compared to $630.3 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, Adjusted EBITDA margin increased to 57.2% compared to 54.8% for the nine months ended September 30, 2019. The increase in Adjusted EBITDA margin reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses.
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
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Index Adjusted EBITDA
|
|
$
|
194,720
|
|
|
$
|
177,680
|
|
|
$
|
561,563
|
|
|
$
|
493,806
|
|
Analytics Adjusted EBITDA
|
|
|
45,056
|
|
|
|
37,797
|
|
|
|
127,540
|
|
|
|
113,266
|
|
All Other Adjusted EBITDA
|
|
|
9,671
|
|
|
|
5,312
|
|
|
|
26,271
|
|
|
|
23,220
|
|
Consolidated Adjusted EBITDA
|
|
|
249,447
|
|
|
|
220,789
|
|
|
|
715,374
|
|
|
|
630,292
|
|
2016 Multi-Year PSUs grant payroll tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,389
|
|
Amortization of intangible assets
|
|
|
14,333
|
|
|
|
12,361
|
|
|
|
42,171
|
|
|
|
36,167
|
|
Depreciation and amortization of property,
equipment and leasehold improvements
|
|
|
7,494
|
|
|
|
7,209
|
|
|
|
22,524
|
|
|
|
22,464
|
|
Operating income
|
|
|
227,620
|
|
|
|
201,219
|
|
|
|
650,679
|
|
|
|
556,272
|
|
Other expense (income), net
|
|
|
38,577
|
|
|
|
32,471
|
|
|
|
159,620
|
|
|
|
99,487
|
|
Provision for income taxes
|
|
|
6,685
|
|
|
|
31,765
|
|
|
|
45,453
|
|
|
|
15,920
|
|
Net income
|
|
$
|
182,358
|
|
|
$
|
136,983
|
|
|
$
|
445,606
|
|
|
$
|
440,865
|
|
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Index Adjusted EBITDA expenses
|
|
$
|
60,971
|
|
|
$
|
59,747
|
|
|
$
|
186,292
|
|
|
$
|
183,944
|
|
Analytics Adjusted EBITDA expenses
|
|
|
83,281
|
|
|
|
85,806
|
|
|
|
253,868
|
|
|
|
255,453
|
|
All Other Adjusted EBITDA expenses
|
|
|
31,634
|
|
|
|
27,909
|
|
|
|
96,195
|
|
|
|
81,501
|
|
Consolidated Adjusted EBITDA expenses
|
|
|
175,886
|
|
|
|
173,462
|
|
|
|
536,355
|
|
|
|
520,898
|
|
2016 Multi-Year PSUs grant payroll tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,389
|
|
Amortization of intangible assets
|
|
|
14,333
|
|
|
|
12,361
|
|
|
|
42,171
|
|
|
|
36,167
|
|
Depreciation and amortization of property,
equipment and leasehold improvements
|
|
|
7,494
|
|
|
|
7,209
|
|
|
|
22,524
|
|
|
|
22,464
|
|
Total operating expenses
|
|
$
|
197,713
|
|
|
$
|
193,032
|
|
|
$
|
601,050
|
|
|
$
|
594,918
|
|
34
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
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
$
|
146,387
|
|
|
$
|
133,403
|
|
|
|
9.7
|
%
|
|
$
|
431,631
|
|
|
$
|
393,222
|
|
|
|
9.8
|
%
|
Asset-based fees
|
|
100,371
|
|
|
|
96,013
|
|
|
|
4.5
|
%
|
|
|
288,642
|
|
|
|
265,554
|
|
|
|
8.7
|
%
|
Non-recurring
|
|
8,933
|
|
|
|
8,011
|
|
|
|
11.5
|
%
|
|
|
27,582
|
|
|
|
18,974
|
|
|
|
45.4
|
%
|
Operating revenues total
|
|
255,691
|
|
|
|
237,427
|
|
|
|
7.7
|
%
|
|
|
747,855
|
|
|
|
677,750
|
|
|
|
10.3
|
%
|
Adjusted EBITDA expenses
|
|
60,971
|
|
|
|
59,747
|
|
|
|
2.0
|
%
|
|
|
186,292
|
|
|
|
183,944
|
|
|
|
1.3
|
%
|
Adjusted EBITDA
|
$
|
194,720
|
|
|
$
|
177,680
|
|
|
|
9.6
|
%
|
|
$
|
561,563
|
|
|
$
|
493,806
|
|
|
|
13.7
|
%
|
Adjusted EBITDA margin %
|
|
76.2
|
%
|
|
|
74.8
|
%
|
|
|
|
|
|
|
75.1
|
%
|
|
|
72.9
|
%
|
|
|
|
|
Revenues related to Index products for the three months ended September 30, 2020 increased 7.7% to $255.7 million compared to $237.4 million for the three months ended September 30, 2019 and for the nine months ended September 30, 2020, the increase was 10.3%, growing to $747.9 million compared to $677.8 million for the nine months ended September 30, 2019.
Recurring subscriptions for the three months ended September 30, 2020 increased 9.7% to $146.4 million compared to $133.4 million for the three months ended September 30, 2019. The increase was primarily driven by growth in core products, strong growth in factor and ESG/Climate index products and growth in custom index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.
For the nine months ended September 30, 2020, the increase was 9.8%, growing to $431.6 million compared to $393.2 million for the nine months ended September 30, 2019. The increase was driven by strong growth in core products, factor and ESG/Climate index products and custom index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.
Revenues from asset-based fees for the three months ended September 30, 2020 increased 4.5% to $100.4 million compared to $96.0 million for the three months ended September 30, 2019. The increase in asset-based fees was primarily driven by an increase in revenues from ETFs linked to MSCI indexes and non-ETF indexed funds linked to MSCI indexes. The increase in revenues from ETFs linked to MSCI indexes was driven by a 10.2% increase in average AUM in equity ETFs, partially offset by the impact of a change in product mix. Revenue growth from non-ETF indexed funds linked to MSCI indexes was primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
For the nine months ended September 30, 2020, the increase was 8.7%, growing to $288.6 million compared to $265.6 million for the nine months ended September 30, 2019. The increase in asset-based fees was primarily driven by a strong increase in revenues from exchange traded futures and options contracts linked to MSCI indexes, primarily driven by higher volumes from new and existing agreements. The increase was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
Non-recurring revenues for the three months ended September 30, 2020 increased 11.5% to $8.9 million compared to $8.0 million for the three months ended September 30, 2019. The increase was driven by higher contributions from licenses of historical data.
For the nine months ended September 30, 2020 the increase was 45.4%, growing to $27.6 million compared to $19.0 million for the nine months ended September 30, 2019. The increase was primarily driven by the recognition of higher fees resulting from the finalization of fees with clients.
Index segment Adjusted EBITDA expenses for the three months ended September 30, 2020 increased 2.0% to $61.0 million compared to $59.7 million for the three months ended September 30, 2019, reflecting higher expenses across the cost of revenues, R&D and G&A expense activity categories, partially offset by lower expenses across the selling and marketing expense activity
35
category. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 1.8% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the increase was 1.3%, growing to $186.3 million compared to $183.9 million for the nine months ended September 30, 2019, reflecting higher expenses across the G&A, R&D and cost of revenues expense activity categories, partially offset by lower expenses across the selling and marketing expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.2% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
Analytics Segment
The following table presents the results for the Analytics segment for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
$
|
126,251
|
|
|
$
|
122,120
|
|
|
|
3.4
|
%
|
|
$
|
376,505
|
|
|
$
|
363,929
|
|
|
|
3.5
|
%
|
Non-recurring
|
|
2,086
|
|
|
|
1,483
|
|
|
|
40.7
|
%
|
|
|
4,903
|
|
|
|
4,790
|
|
|
|
2.4
|
%
|
Operating revenues total
|
|
128,337
|
|
|
|
123,603
|
|
|
|
3.8
|
%
|
|
|
381,408
|
|
|
|
368,719
|
|
|
|
3.4
|
%
|
Adjusted EBITDA expenses
|
|
83,281
|
|
|
|
85,806
|
|
|
|
(2.9
|
%)
|
|
|
253,868
|
|
|
|
255,453
|
|
|
|
(0.6
|
%)
|
Adjusted EBITDA
|
$
|
45,056
|
|
|
$
|
37,797
|
|
|
|
19.2
|
%
|
|
$
|
127,540
|
|
|
$
|
113,266
|
|
|
|
12.6
|
%
|
Adjusted EBITDA margin %
|
|
35.1
|
%
|
|
|
30.6
|
%
|
|
|
|
|
|
|
33.4
|
%
|
|
|
30.7
|
%
|
|
|
|
|
Analytics segment revenues for the three months ended September 30, 2020 increased 3.8% to $128.3 million compared to $123.6 million for the three months ended September 30, 2019, primarily driven by growth in Multi-Asset Class Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.
For the nine months ended September 30, 2020, the increase was 3.4%, growing to $381.4 million compared to $368.7 million for the nine months ended September 30, 2019, primarily driven by growth in Multi-Asset Class Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.
Analytics segment Adjusted EBITDA expenses for the three months ended September 30, 2020 decreased 2.9% to $83.3 million compared to $85.8 million for the three months ended September 30, 2019, primarily driven by lower expenses across the cost of revenues, R&D and selling and marketing expense activity categories, partially offset by higher expenses across the G&A expense activity category. The impact of foreign currency exchange rate fluctuations on Analytics segment Adjusted EBITDA expenses was negligible.
For the nine months ended September 30, 2020, the decrease was 0.6%, declining to $253.9 million compared to $255.5 million for the nine months ended September 30, 2019, primarily driven by lower expenses across the cost of revenues and R&D expense activity categories, partially offset by higher expenses across the selling and marketing and G&A expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have increased 0.5% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
All Other Segment
The following table presents the results for the All Other segment for the periods indicated:
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
(in thousands)
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
$
|
40,552
|
|
|
$
|
32,585
|
|
|
|
24.4
|
%
|
|
$
|
119,363
|
|
|
$
|
102,470
|
|
|
|
16.5
|
%
|
Non-recurring
|
|
753
|
|
|
|
636
|
|
|
|
18.4
|
%
|
|
|
3,103
|
|
|
|
2,251
|
|
|
|
37.8
|
%
|
Operating revenues total
|
|
41,305
|
|
|
|
33,221
|
|
|
|
24.3
|
%
|
|
|
122,466
|
|
|
|
104,721
|
|
|
|
16.9
|
%
|
Adjusted EBITDA expenses
|
|
31,634
|
|
|
|
27,909
|
|
|
|
13.3
|
%
|
|
|
96,195
|
|
|
|
81,501
|
|
|
|
18.0
|
%
|
Adjusted EBITDA
|
$
|
9,671
|
|
|
$
|
5,312
|
|
|
|
82.1
|
%
|
|
$
|
26,271
|
|
|
$
|
23,220
|
|
|
|
13.1
|
%
|
Adjusted EBITDA margin %
|
|
23.4
|
%
|
|
|
16.0
|
%
|
|
|
|
|
|
|
21.5
|
%
|
|
|
22.2
|
%
|
|
|
|
|
All Other segment revenues for the three months ended September 30, 2020 increased 24.3% to $41.3 million compared to $33.2 million for the three months ended September 30, 2019. The increase in All Other revenues was driven by a $5.8 million, or
36
25.6%, increase in ESG revenues to $28.5 million and a $2.3 million, or 21.6%, increase in Real Estate revenues to $12.8 million. The increase in ESG revenues was primarily driven by strong growth from Ratings, Climate and Screening products. The increase in Real Estate revenues was primarily driven by strong growth in Enterprise Analytics and Global Intel products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other operating revenues would have increased 20.6%, ESG revenues would have increased 22.3% and Real Estate revenues would have increased 16.7% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, All Other segment revenues increased 16.9% to $122.5 million compared to $104.7 million for the nine months ended September 30, 2019. The increase in All Other revenues was driven by a $14.3 million, or 21.9%, increase in ESG revenues to $80.1 million and by a $3.4 million, or 8.7%, increase in Real Estate revenues to $42.4 million. The increase in ESG revenues was primarily driven by strong growth in Ratings, Climate and Screening products. The increase in Real Estate revenues was primarily driven by strong growth from our Global Intel products and growth from our Enterprise Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other operating revenues would have increased 17.3%, ESG revenues would have increased 21.8% and Real Estate revenues would have increased 9.5% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
All Other segment Adjusted EBITDA expenses for the three months ended September 30, 2020 increased 13.3% to $31.6 million compared to $27.9 million for the three months ended September 30, 2019, driven by higher expenses attributable primarily to ESG operations. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 12.4% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the increase was 18.0%, growing to $96.2 million compared to $81.5 million for the nine months ended September 30, 2019, driven by higher expenses attributable primarily to ESG operations. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 19.0% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
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 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.
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;
|
|
•
|
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
|
37
|
•
|
the impact of acquisitions and divestitures.
|
The following table presents the Run Rates as of the dates indicated and the growth percentages over the periods indicated:
|
As of
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
%
|
|
|
|
2020
|
|
|
|
2019
|
|
|
Change
|
|
|
(in thousands)
|
|
|
|
Index:
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions
|
$
|
598,799
|
|
|
$
|
544,059
|
|
|
|
10.1
|
%
|
Asset-based fees
|
|
401,196
|
|
|
|
356,013
|
|
|
|
12.7
|
%
|
Index total
|
|
999,995
|
|
|
|
900,072
|
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Analytics
|
|
544,315
|
|
|
|
509,261
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
175,243
|
|
|
|
141,283
|
|
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Run Rate
|
$
|
1,719,553
|
|
|
$
|
1,550,616
|
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring subscriptions total
|
$
|
1,318,357
|
|
|
$
|
1,194,603
|
|
|
|
10.4
|
%
|
Asset-based fees
|
|
401,196
|
|
|
|
356,013
|
|
|
|
12.7
|
%
|
Total Run Rate
|
$
|
1,719,553
|
|
|
$
|
1,550,616
|
|
|
|
10.9
|
%
|
Total Run Rate grew 10.9% to $1,719.6 million as of September 30, 2020 compared to $1,550.6 million as of September 30, 2019. Recurring subscriptions Run Rate grew 10.4% to $1,318.4 million as of September 30, 2020 compared to $1,194.6 million as of September 30, 2019. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions Run Rate would have increased 9.6% as of September 30, 2020 compared to September 30, 2019.
Run Rate from asset-based fees increased 12.7% to $401.2 million as of September 30, 2020 from $356.0 million as of September 30, 2019, primarily driven by higher volume in futures and options, higher AUM in equity ETFs linked to MSCI indexes and higher AUM non-ETF indexed funds linked to MSCI indexes. Offsetting the impact of the increase in AUM in equity ETFs linked to MSCI indexes was a change in product mix, which was the primary driver of a decline in period-end basis point fees to 2.67 as of September 30, 2020 from 2.81 as of September 30, 2019. As of September 30, 2020, the value of AUM in equity ETFs linked to MSCI indexes was $908.9 billion, up $93.9 billion, or 11.5%, from $815.0 billion as of September 30, 2019. The increase of $93.9 billion consisted of net inflows of $72.5 billion and market appreciation of $21.4 billion.
Index recurring subscriptions Run Rate grew 10.1% to $598.8 million as of September 30, 2020 compared to $544.1 million as of September 30, 2019, primarily driven by strong growth in core products, custom and specialized index products and factor and ESG/Climate index products, with growth across all our regions and client segments.
Run Rate from Analytics products increased 6.9% to $544.3 million as of September 30, 2020 compared to $509.3 million as of September 30, 2019, primarily driven by growth in Multi-Asset Class Analytics products with increases across all regions. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 5.9% as of September 30, 2020.
Run Rate from All Other products increased 24.0% to $175.2 million as of September 30, 2020 compared to $141.3 million as of September 30, 2019. The $34.0 million increase was driven by a $29.1 million, or 31.2%, increase in ESG Run Rate to $122.3 million, and a $4.9 million, or 10.2%, increase in Real Estate Run Rate to $52.9 million. The increase in ESG Run Rate was primarily driven by strong growth in Ratings and Climate products. The increase in Real Estate Run Rate was primarily driven by growth in Global Intel and Enterprise Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG Run Rate would have increased 28.6%, All Other Run Rate would have increased 21.1% and Real Estate Run Rate would have increased 6.5% as of September 30, 2020 compared to September 30, 2019.
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.
38
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
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
%
|
|
|
September 30,
|
|
|
September 30,
|
|
|
%
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
(in thousands)
|
|
New recurring subscription sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
$
|
18,743
|
|
|
$
|
17,553
|
|
|
|
6.8
|
%
|
|
$
|
58,073
|
|
|
$
|
54,408
|
|
|
|
6.7
|
%
|
Analytics
|
|
15,229
|
|
|
|
15,285
|
|
|
|
(0.4
|
%)
|
|
|
41,426
|
|
|
|
41,705
|
|
|
|
(0.7
|
%)
|
All Other
|
|
9,344
|
|
|
|
7,495
|
|
|
|
24.7
|
%
|
|
|
29,861
|
|
|
|
22,724
|
|
|
|
31.4
|
%
|
New recurring subscription sales total
|
|
43,316
|
|
|
|
40,333
|
|
|
|
7.4
|
%
|
|
|
129,360
|
|
|
|
118,837
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription cancellations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
(7,050
|
)
|
|
|
(5,066
|
)
|
|
|
39.2
|
%
|
|
|
(19,589
|
)
|
|
|
(13,033
|
)
|
|
|
50.3
|
%
|
Analytics
|
|
(8,211
|
)
|
|
|
(7,854
|
)
|
|
|
4.5
|
%
|
|
|
(27,008
|
)
|
|
|
(22,720
|
)
|
|
|
18.9
|
%
|
All Other
|
|
(1,871
|
)
|
|
|
(1,002
|
)
|
|
|
86.7
|
%
|
|
|
(6,167
|
)
|
|
|
(4,179
|
)
|
|
|
47.6
|
%
|
Subscription cancellations total
|
|
(17,132
|
)
|
|
|
(13,922
|
)
|
|
|
23.1
|
%
|
|
|
(52,764
|
)
|
|
|
(39,932
|
)
|
|
|
32.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new recurring subscription sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
11,693
|
|
|
|
12,487
|
|
|
|
(6.4
|
%)
|
|
|
38,484
|
|
|
|
41,375
|
|
|
|
(7.0
|
%)
|
Analytics
|
|
7,018
|
|
|
|
7,431
|
|
|
|
(5.6
|
%)
|
|
|
14,418
|
|
|
|
18,985
|
|
|
|
(24.1
|
%)
|
All Other
|
|
7,473
|
|
|
|
6,493
|
|
|
|
15.1
|
%
|
|
|
23,694
|
|
|
|
18,545
|
|
|
|
27.8
|
%
|
Net new recurring subscription sales total
|
|
26,184
|
|
|
|
26,411
|
|
|
|
(0.9
|
%)
|
|
|
76,596
|
|
|
|
78,905
|
|
|
|
(2.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
10,001
|
|
|
|
9,029
|
|
|
|
10.8
|
%
|
|
|
30,734
|
|
|
|
20,092
|
|
|
|
53.0
|
%
|
Analytics
|
|
2,562
|
|
|
|
4,876
|
|
|
|
(47.5
|
%)
|
|
|
7,486
|
|
|
|
10,084
|
|
|
|
(25.8
|
%)
|
All Other
|
|
247
|
|
|
|
487
|
|
|
|
(49.3
|
%)
|
|
|
1,852
|
|
|
|
1,571
|
|
|
|
17.9
|
%
|
Non-recurring sales total
|
|
12,810
|
|
|
|
14,392
|
|
|
|
(11.0
|
%)
|
|
|
40,072
|
|
|
|
31,747
|
|
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
$
|
28,744
|
|
|
$
|
26,582
|
|
|
|
8.1
|
%
|
|
$
|
88,807
|
|
|
$
|
74,500
|
|
|
|
19.2
|
%
|
Analytics
|
|
17,791
|
|
|
|
20,161
|
|
|
|
(11.8
|
%)
|
|
|
48,912
|
|
|
|
51,789
|
|
|
|
(5.6
|
%)
|
All Other
|
|
9,591
|
|
|
|
7,982
|
|
|
|
20.2
|
%
|
|
|
31,713
|
|
|
|
24,295
|
|
|
|
30.5
|
%
|
Total gross sales
|
$
|
56,126
|
|
|
$
|
54,725
|
|
|
|
2.6
|
%
|
|
$
|
169,432
|
|
|
$
|
150,584
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
$
|
21,694
|
|
|
$
|
21,516
|
|
|
|
0.8
|
%
|
|
$
|
69,218
|
|
|
$
|
61,467
|
|
|
|
12.6
|
%
|
Analytics
|
|
9,580
|
|
|
|
12,307
|
|
|
|
(22.2
|
%)
|
|
|
21,904
|
|
|
|
29,069
|
|
|
|
(24.6
|
%)
|
All Other
|
|
7,720
|
|
|
|
6,980
|
|
|
|
10.6
|
%
|
|
|
25,546
|
|
|
|
20,116
|
|
|
|
27.0
|
%
|
Total net sales
|
$
|
38,994
|
|
|
$
|
40,803
|
|
|
|
(4.4
|
%)
|
|
$
|
116,668
|
|
|
$
|
110,652
|
|
|
|
5.4
|
%
|
39
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. As of September 30, 2020, cancellations have not deviated significantly from historical levels as a result of the COVID-19 pandemic. However, new sales could moderate and cancellations could increase in the near term as a result of the COVID-19 pandemic.
Retention Rate
The following table presents our Retention Rate by reportable segment for the periods indicated:
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2020
|
|
|
|
2019
|
|
|
2020
|
|
|
|
2019
|
|
Index
|
95.0%
|
|
|
96.0%
|
|
95.3%
|
|
|
96.5%
|
|
Analytics
|
93.8%
|
|
|
93.6%
|
|
93.2%
|
|
|
93.8%
|
|
All Other
|
95.1%
|
|
|
96.8%
|
|
94.6%
|
|
|
95.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
94.5%
|
|
|
95.0%
|
|
94.3%
|
|
|
95.2%
|
|
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 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 Estate 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-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.
In our product lines, 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 and also in Note 2, “Recent Accounting Standards Updates,” in the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year ended December 31, 2019 other than those described in Note 2, “Recent Accounting Standards Updates” in the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein.
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 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.
40
Senior Notes and Credit Agreement
We have an aggregate of $3,400.0 million in Senior Notes outstanding and a $400.0 million undrawn Revolving Credit Agreement with a syndicate of banks. See Note 7, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our Senior Notes and Revolving Credit Agreement.
The Senior Notes and the Revolving 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 Revolving 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 Wells Fargo Bank, National Association, as trustee, 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 Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and 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 Revolving 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, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business.
The Revolving 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 Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of September 30, 2020, our Consolidated Leverage Ratio was 3.31:1.00 and our Consolidated Interest Coverage Ratio was 6.81:1.00. As of September 30, 2020, there were no amounts drawn and outstanding under the Revolving Credit Agreement.
41
Our non-guarantor subsidiaries under the Senior Notes 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 $956.6 million, or 57.7%, of our total revenue for the trailing 12 months ended September 30, 2020, approximately $341.0 million, or 40.1%, of our consolidated operating income for the trailing 12 months ended September 30, 2020, and approximately $947.0 million, or 23.0%, of our consolidated total assets (excluding intercompany assets) and $605.0 million, or 13.5%, of our consolidated total liabilities, in each case as of September 30, 2020.
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
|
|
Average
Price
Paid Per
Share
|
|
|
Total
Number of
Shares
Repurchased
|
|
|
Dollar
Value of
Shares
Repurchased
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30, 2020
|
|
$
|
278.69
|
|
|
|
2,021
|
|
|
$
|
563,336
|
|
September 30, 2019
|
|
$
|
147.97
|
|
|
|
690
|
|
|
$
|
102,081
|
|
As of September 30, 2020, there was $892.8 million of available authorization remaining under the 2019 Repurchase Program.
Subsequent to the nine months ended September 30, 2020 and through October 23, 2020, the Company repurchased an additional 0.1 million shares of common stock at an average price of $347.26 per share for a total value of $51.0 million.
Cash Dividend
On October 26, 2020, the Board of Directors declared a quarterly cash dividend of $0.78 per share for the three months ending September 30, 2020. The fourth quarter 2020 dividend is payable on November 30, 2020 to shareholders of record as of the close of trading on November 13, 2020.
Cash Flows
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
1,302,858
|
|
|
$
|
1,506,567
|
|
Cash and cash equivalents were $1,302.9 million and $1,506.6 million as of September 30, 2020 and December 31, 2019, respectively. We typically seek to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes but may maintain higher minimum cash balances while the COVID-19 pandemic continues to impact global economic markets. As of September 30, 2020 and December 31, 2019, $411.0 million and $321.2 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries. As a result of the 2017 Tax Act, we can now more efficiently access a significant portion of our cash held outside of the U.S. in the short-term without being subject to U.S. income taxes. Repatriation of some foreign cash may still be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. 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 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.
42
Net Cash Provided by (Used In) Operating, Investing and Financing Activities
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
575,181
|
|
|
$
|
465,880
|
|
Net cash used in investing activities
|
|
|
(224,899
|
)
|
|
|
(35,292
|
)
|
Net cash used in financing activities
|
|
|
(549,484
|
)
|
|
|
(450,315
|
)
|
Effect of exchange rate changes
|
|
|
(4,507
|
)
|
|
|
(3,299
|
)
|
Net decrease in cash
|
|
$
|
(203,709
|
)
|
|
$
|
(23,026
|
)
|
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. Cash provided by operating activities was $575.2 million and $465.9 million for the nine months ended September 30, 2020 and 2019, respectively. The year-over-year increase was primarily driven by higher cash collections from customers, partially offset by higher payments for income taxes and higher interest payments. As a result of a provision within the Cares Act, we elected to defer estimated payments for income taxes for the year ending December 31, 2020 that historically would have been paid in the six months ended June 30, 2020 into the month of July 2020.
Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent, technology costs, market data costs, interest expenses and income taxes. 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
Cash used in investing activities was $224.9 million for the nine months ended September 30, 2020 compared to $35.3 million for the nine months ended September 30, 2019. The year-over-year change was primarily driven by the $190.8 million investment in Burgiss.
Cash Flows From Financing Activities
Cash used in financing activities was $549.5 million for the nine months ended September 30, 2020 compared to $450.3 million for the nine months ended September 30, 2019. The year-over-year change was primarily driven by the early redemptions of the 2025 Senior Notes and 2024 Senior Notes, as well as the impact of higher share repurchases. This was partially offset by the impact of the 2031 Senior Notes and 2030 Senior Notes offerings in May 2020 and February 2020, respectively.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.