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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from____________to____________
Commission file number 001-33812
________________________________________
MSCI INC.(Exact Name of Registrant as Specified in its Charter)
________________________________________
| | | | | | | | |
Delaware | | 13-4038723 |
(State or other jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) |
| | |
7 World Trade Center 250 Greenwich Street, 49th Floor New York, New York | | 10007 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (212) 804-3900
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | MSCI | | New York Stock Exchange |
________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
| | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of October 24, 2024, there were 78,371,294 shares of the registrant’s common stock, par value $0.01, outstanding.
FOR THE QUARTER ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
AVAILABLE INFORMATION
Our corporate headquarters is located at 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, New York, 10007, and our telephone number is (212) 804-3900. We maintain a website on the internet at www.msci.com. The contents of our website are not a part of or incorporated by reference in this Quarterly Report on Form 10-Q.
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website that contains reports, proxy and information statements and other information that we file electronically with the SEC at www.sec.gov. We also make available free of charge, on or through our website, these reports, proxy statements and other information as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC. To access these, click on the “SEC Filings” link under the “Financial Information” tab found on our Investor Relations homepage (http://ir.msci.com).
We also use our Investor Relations homepage and our Corporate Responsibility homepage as channels of distribution of Company information. The information we post through these channels may be deemed material.
Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about us when you enroll your email address by visiting the “Email Alerts” section of our Investor Relations homepage at https://ir.msci.com/email-alerts. The contents of our website, including our Investor Relations homepage and Corporate Responsibility homepage, and our social media channels are not, however, a part of or incorporated by reference in this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
We have included in this Quarterly Report on Form 10-Q, and from time to time may make in our public filings, press releases or other public statements, certain statements that constitute forward-looking statements. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only MSCI’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements.
In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” or the negative of these terms or other comparable terminology. Statements concerning our financial position, business strategy and plans or objectives for future operations are forward-looking statements. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect our actual results, levels of activity, performance or achievements. Such risks and uncertainties include those set forth under “Risk Factors” in Part I, Item 1A of the 2023 Annual Report on Form 10-K filed with the SEC on February 9, 2024. If any of these risks, uncertainties or other factors materialize, or if MSCI’s underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI projected. Any forward-looking statement reflects our current views with respect to future events, levels of activity, performance or achievements and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. The forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. MSCI assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law. Therefore, readers should carefully review the risk factors set forth in our Annual Report on Form 10-K and in other reports or documents we file from time to time with the SEC.
PART I – FINANCIAL INFORMATION
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, |
(unaudited) | | 2024 | | 2023 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents (includes restricted cash of $3,909 and $3,878 at September 30, 2024 and December 31, 2023, respectively) | | $ | 500,979 | | | $ | 461,693 | |
Accounts receivable (net of allowances of $4,363 and $3,968 at September 30, 2024 and December 31, 2023, respectively) | | 643,807 | | | 839,555 | |
Prepaid income taxes | | 77,493 | | | 59,002 | |
Prepaid and other assets | | 63,517 | | | 57,903 | |
Total current assets | | 1,285,796 | | | 1,418,153 | |
| | | | |
Property, equipment and leasehold improvements, net | | 62,317 | | | 55,920 | |
Right of use assets | | 121,726 | | | 115,243 | |
Goodwill | | 2,916,102 | | | 2,887,692 | |
Intangible assets, net | | 931,428 | | | 956,234 | |
Deferred tax assets | | 41,761 | | | 41,074 | |
Other non-current assets | | 49,819 | | | 43,903 | |
Total assets | | $ | 5,408,949 | | | $ | 5,518,219 | |
| | | | |
| | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 8,748 | | | $ | 9,812 | |
Income taxes payable | | 38,744 | | | 24,709 | |
Accrued compensation and related benefits | | 179,041 | | | 219,456 | |
Current portion of long-term debt | | — | | | 10,902 | |
Other accrued liabilities | | 208,542 | | | 168,282 | |
Deferred revenue | | 942,840 | | | 1,083,864 | |
Total current liabilities | | 1,377,915 | | | 1,517,025 | |
| | | | |
Long-term debt | | 4,484,773 | | | 4,496,826 | |
Long-term operating lease liabilities | | 123,939 | | | 120,134 | |
Deferred tax liabilities | | 61,281 | | | 27,028 | |
Other non-current liabilities | | 112,039 | | | 96,970 | |
Total liabilities | | 6,159,947 | | | 6,257,983 | |
| | | | |
| | | | |
Commitments and Contingencies (see Note 8) | | | | |
| | | | |
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; 134,079,131 and 133,817,332 common shares issued and 78,371,202 and 79,091,212 common shares outstanding at September 30, 2024 and December 31, 2023, respectively) | | 1,341 | | | 1,338 | |
Treasury shares, at cost (55,707,929 and 54,726,120 common shares held at September 30, 2024 and December 31, 2023, respectively) | | (6,960,512) | | | (6,447,101) | |
Additional paid in capital | | 1,660,793 | | | 1,587,670 | |
Retained earnings | | 4,600,360 | | | 4,179,681 | |
Accumulated other comprehensive loss | | (52,980) | | | (61,352) | |
Total shareholders’ equity (deficit) | | (750,998) | | | (739,764) | |
| | | | |
Total liabilities and shareholders’ equity (deficit) | | $ | 5,408,949 | | | $ | 5,518,219 | |
| | | | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(unaudited) | | 2024 | | 2023 | | 2024 | | 2023 |
Operating revenues | | $ | 724,705 | | | $ | 625,439 | | | $ | 2,112,619 | | | $ | 1,838,814 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Cost of revenues (exclusive of depreciation and amortization) | | 126,192 | | | 105,311 | | | 382,815 | | | 324,024 | |
Selling and marketing | | 70,763 | | | 66,581 | | | 214,385 | | | 201,044 | |
Research and development | | 38,584 | | | 31,438 | | | 120,182 | | | 92,901 | |
General and administrative | | 41,561 | | | 36,826 | | | 137,958 | | | 113,527 | |
Amortization of intangible assets | | 41,939 | | | 26,722 | | | 121,316 | | | 77,543 | |
Depreciation and amortization of property, equipment and leasehold improvements | | 4,332 | | | 5,252 | | | 12,639 | | | 15,911 | |
Total operating expenses | | 323,371 | | | 272,130 | | | 989,295 | | | 824,950 | |
| | | | | | | | |
| | | | | | | | |
Operating income | | 401,334 | | | 353,309 | | | 1,123,324 | | | 1,013,864 | |
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Interest income | | (5,217) | | | (10,314) | | | (17,375) | | | (31,079) | |
Interest expense | | 46,688 | | | 46,902 | | | 139,995 | | | 139,725 | |
Other expense (income) | | 2,927 | | | (935) | | | 7,881 | | | 4,032 | |
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Other expense (income), net | | 44,398 | | | 35,653 | | | 130,501 | | | 112,678 | |
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Income before provision for income taxes | | 356,936 | | | 317,656 | | | 992,823 | | | 901,186 | |
Provision for income taxes | | 76,035 | | | 57,997 | | | 189,210 | | | 155,974 | |
Net income | | $ | 280,901 | | | $ | 259,659 | | | $ | 803,613 | | | $ | 745,212 | |
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Earnings per share: | | | | | | | | |
Basic | | $ | 3.58 | | | $ | 3.28 | | | $ | 10.18 | | | $ | 9.36 | |
Diluted | | $ | 3.57 | | | $ | 3.27 | | | $ | 10.15 | | | $ | 9.32 | |
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Weighted average shares outstanding: | | | | | | | | |
Basic | | 78,499 | | 79,116 | | 78,925 | | 79,580 |
Diluted | | 78,729 | | 79,500 | | 79,159 | | 79,959 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(unaudited) | | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 280,901 | | | $ | 259,659 | | | $ | 803,613 | | | $ | 745,212 | |
Other comprehensive income (loss): | | | | | | | | |
Foreign currency translation adjustments | | 12,899 | | | (5,832) | | | 9,102 | | | 1,046 | |
Income tax effect | | (1,039) | | | 771 | | | (827) | | | (660) | |
Foreign currency translation adjustments, net | | 11,860 | | | (5,061) | | | 8,275 | | | 386 | |
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Pension and other post-retirement adjustments | | (28) | | | 756 | | | 78 | | | (1,338) | |
Income tax effect | | 23 | | | (72) | | | 19 | | | 141 | |
Pension and other post-retirement adjustments, net | | (5) | | | 684 | | | 97 | | | (1,197) | |
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Other comprehensive income (loss), net of tax | | 11,855 | | | (4,377) | | | 8,372 | | | (811) | |
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Comprehensive income | | $ | 292,756 | | | $ | 255,282 | | | $ | 811,985 | | | $ | 744,401 | |
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(in thousands)
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(unaudited) | | Common Stock | | Treasury Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | |
Balance at December 31, 2023 | | $ | 1,338 | | | $ | (6,447,101) | | | $ | 1,587,670 | | | $ | 4,179,681 | | | $ | (61,352) | | | $ | (739,764) | | |
Net income | | | | | | | | 255,954 | | | | | 255,954 | | |
Dividends declared ($1.60 per common share) | | | | | | | | (129,444) | | | | | (129,444) | | |
Dividends paid in shares | | | | | | 74 | | | | | | | 74 | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | (2,205) | | | (2,205) | | |
Common stock issued | | 3 | | | | | | | | | | | 3 | | |
Shares withheld for tax withholding | | | | (69,991) | | | | | | | | | (69,991) | | |
Compensation payable in common stock | | | | | | 34,894 | | | | | | | 34,894 | | |
Common stock repurchased and held in treasury | | | | | | | | | | | | — | | |
Common stock issued to Directors and (held in)/released from treasury | | | | (38) | | | | | | | | | (38) | | |
Balance at March 31, 2024 | | 1,341 | | | (6,517,130) | | | 1,622,638 | | | 4,306,191 | | | (63,557) | | | (650,517) | | |
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Net income | | | | | | | | 266,758 | | | | | 266,758 | | |
Dividends declared ($1.60 per common share) | | | | | | | | (127,304) | | | | | (127,304) | | |
Dividends paid in shares | | | | | | | 40 | | | | | | | 40 | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | (1,278) | | | (1,278) | | |
Common stock issued | | | | | | | | | | | | | — | | |
Shares withheld for tax withholding | | | | (200) | | | | | | | | | (200) | | |
Compensation payable in common stock | | | | | | 19,707 | | | | | | | 19,707 | | |
Common stock repurchased and held in treasury | | | | (243,035) | | | | | | | | | (243,035) | | |
Common stock issued to Directors and (held in)/released from treasury | | | | 1,346 | | | | | | | | | 1,346 | | |
Balance at June 30, 2024 | | $ | 1,341 | | | $ | (6,759,019) | | | $ | 1,642,385 | | | $ | 4,445,645 | | | $ | (64,835) | | | $ | (734,483) | | |
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Net income | | | | | | | | 280,901 | | | | | 280,901 | | |
Dividends declared ($1.60 per common share) | | | | | | | | (126,186) | | | | | (126,186) | | |
Dividends paid in shares | | | | | | 8 | | | | | | | 8 | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | 11,855 | | | 11,855 | | |
Common stock issued | | — | | | | | | | | | | | — | | |
Shares withheld for tax withholding and exercises | | | | (761) | | | | | | | | | (761) | | |
Compensation payable in common stock | | | | — | | | 18,400 | | | | | | | 18,400 | | |
Common stock repurchased and held in treasury | | | | (200,724) | | | | | | | | | (200,724) | | |
Common stock issued to Directors and (held in)/released from treasury | | | | (8) | | | | | | | | | (8) | | |
Balance at September 30, 2024 | | $ | 1,341 | | | $ | (6,960,512) | | | $ | 1,660,793 | | | $ | 4,600,360 | | | $ | (52,980) | | | $ | (750,998) | | |
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(in thousands)
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(unaudited) | | Common Stock | | Treasury Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | |
Balance at December 31, 2022 | | $ | 1,336 | | | $ | (5,938,116) | | | $ | 1,515,874 | | | $ | 3,473,192 | | | $ | (60,211) | | | $ | (1,007,925) | | |
Net income | | | | | | | | 238,728 | | | | | 238,728 | | |
Dividends declared ($1.38 per common share) | | | | | | | | (111,986) | | | | | (111,986) | | |
Dividends paid in shares | | | | | | 44 | | | | | | | 44 | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | 2,775 | | | 2,775 | | |
Common stock issued | | 2 | | | | | | | | | | | 2 | | |
Shares withheld for tax withholding | | | | (43,960) | | | | | | | | | (43,960) | | |
Compensation payable in common stock | | | | | | 20,988 | | | | | | | 20,988 | | |
Common stock repurchased and held in treasury | | | | | | | | | | | | — | | |
Common stock issued to Directors and (held in)/released from treasury | | | | (30) | | | | | | | | | (30) | | |
Balance at March 31, 2023 | | 1,338 | | | (5,982,106) | | | 1,536,906 | | | 3,599,934 | | | (57,436) | | | (901,364) | | |
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Net income | | | | | | | | 246,825 | | | | | 246,825 | | |
Dividends declared ($1.38 per common share) | | | | | | | | (110,383) | | | | | (110,383) | | |
Dividends paid in shares | | — | | | | | 33 | | | | | | | 33 | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | 791 | | | 791 | | |
Common stock issued | | — | | | | | | | | | | | — | | |
Shares withheld for tax withholding | | | | (611) | | | | | | | | | (611) | | |
Compensation payable in common stock | | | | | | 16,426 | | | | | | | 16,426 | | |
Common stock repurchased and held in treasury | | | | (444,655) | | | | | | | | | (444,655) | | |
Common stock issued to Directors and (held in)/released from treasury | | | | (730) | | | | | | | | | (730) | | |
Balance at June 30, 2023 | | $ | 1,338 | | | $ | (6,428,102) | | | $ | 1,553,365 | | | $ | 3,736,376 | | | $ | (56,645) | | | $ | (1,193,668) | | |
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Net income | | | | | | | | 259,659 | | | | | 259,659 | | |
Dividends declared ($1.38 per common share) | | | | | | | | (109,847) | | | | | (109,847) | | |
Dividends paid in shares | | | | | | 30 | | | | | | | 30 | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | (4,377) | | | (4,377) | | |
Common stock issued | | — | | | | | | | | | | | — | | |
Shares withheld for tax withholding and exercises | | | | (871) | | | | | | | | | (871) | | |
Compensation payable in common stock | | | | | | 18,047 | | | | | | | 18,047 | | |
Common stock repurchased and held in treasury | | | | (18,039) | | | | | | | | | (18,039) | | |
Common stock issued to Directors and (held in)/released from treasury | | | | (30) | | | | | | | | | (30) | | |
Balance at September 30, 2023 | | $ | 1,338 | | | $ | (6,447,042) | | | $ | 1,571,442 | | | $ | 3,886,188 | | | $ | (61,022) | | | $ | (1,049,096) | | |
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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| | Nine Months Ended September 30, |
(unaudited) | | 2024 | | 2023 |
Cash flows from operating activities | | | | |
Net income | | $ | 803,613 | | | $ | 745,212 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Amortization of intangible assets | | 121,316 | | | 77,543 | |
Stock-based compensation expense | | 72,235 | | | 55,375 | |
Depreciation and amortization of property, equipment and leasehold improvements | | 12,639 | | | 15,911 | |
Amortization of right of use assets | | 19,582 | | | 17,484 | |
Amortization of debt origination fees | | 3,856 | | | 3,791 | |
Loss on extinguishment of debt | | 1,510 | | | — | |
Deferred taxes | | 32,085 | | | (30,973) | |
Other adjustments | | 7,915 | | | 1,199 | |
Changes in assets and liabilities: | | | | |
Accounts receivable | | 194,233 | | | 58,132 | |
Prepaid income taxes | | (17,882) | | | (17,654) | |
Prepaid and other assets | | (6,179) | | | 1,687 | |
Other non-current assets | | (579) | | | (4,837) | |
Accounts payable | | (1,163) | | | (5,719) | |
Income taxes payable | | 14,063 | | | 11,425 | |
Accrued compensation and related benefits | | (38,461) | | | (25,599) | |
Other accrued liabilities | | 20,664 | | | 15,118 | |
Deferred revenue | | (146,357) | | | (43,571) | |
Long-term operating lease liabilities | | (19,294) | | | (16,027) | |
Other non-current liabilities | | (2,681) | | | (11,195) | |
Other | | (121) | | | (226) | |
Net cash provided by operating activities | | 1,070,994 | | | 847,076 | |
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Cash flows from investing activities | | | | |
Capitalized software development costs | | (59,648) | | | (50,080) | |
Capital expenditures | | (19,515) | | | (18,942) | |
Cash paid for acquisitions, net of cash acquired | | (27,467) | | | — | |
Other | | (892) | | | (389) | |
Net cash used in investing activities | | (107,522) | | | (69,411) | |
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Cash flows from financing activities | | | | |
Repurchase of common stock held in treasury | | (511,218) | | | (504,161) | |
Payment of dividends | | (383,980) | | | (331,640) | |
Repayment of borrowings | | (364,063) | | | (6,563) | |
Proceeds from borrowings | | 336,875 | | | — | |
Payment of debt issuance costs | | (3,739) | | | — | |
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Net cash used in financing activities | | (926,125) | | | (842,364) | |
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Effect of exchange rate changes | | 1,939 | | | (313) | |
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Net increase (decrease) in cash, cash equivalents and restricted cash | | 39,286 | | | (65,012) | |
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Cash, cash equivalents and restricted cash, beginning of period | | 461,693 | | | 993,564 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 500,979 | | | $ | 928,552 | |
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Supplemental disclosure of cash flow information: | | | | |
Cash paid for interest | | $ | 124,963 | | | $ | 125,068 | |
Cash paid for income taxes, net of refunds received | | $ | 161,423 | | | $ | 197,746 | |
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Supplemental disclosure of non-cash investing activities | | | | |
Property, equipment and leasehold improvements in other accrued liabilities | | $ | 3,153 | | | $ | 4,734 | |
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Supplemental disclosure of non-cash financing activities | | | | |
Cash dividends declared, but not yet paid | | $ | 1,173 | | | $ | 1,453 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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”) is a leading provider of critical decision support tools and solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. Our products and services include indexes; portfolio construction and risk management tools; environmental, social and governance (“ESG”) and climate solutions; and private asset data and analysis.
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. If not materially different, certain note disclosures included therein have been omitted from these interim condensed consolidated financial statements.
In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim consolidated financial statements, have been included. 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. The Company makes 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 operating revenues and expenses during the periods presented. Significant estimates and judgments made by management include such examples as assessment of impairment of goodwill and intangible assets and income taxes. 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. Inter-company balances and transactions are eliminated in consolidation.
Concentrations
For the nine months ended September 30, 2024 and 2023, BlackRock, Inc. (“BlackRock”) accounted for 10.1% and 10.1% of the Company’s consolidated operating revenues, respectively. For the nine months ended September 30, 2024 and 2023, BlackRock accounted for 17.8% and 17.0% of the Index segment’s operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics, ESG and Climate or All Other – Private Assets segments for the nine months ended September 30, 2024 and 2023.
Allowance for Credit Losses
Changes in the allowance for credit losses from December 31, 2022 to September 30, 2024 were as follows:
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(in thousands) | | Amount |
Balance as of December 31, 2022 | | $ | 2,652 | |
Addition to credit loss expense | | 2,196 | |
Write-offs, net of recoveries | | (880) | |
Balance as of December 31, 2023 | | $ | 3,968 | |
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Addition to credit loss expense | | 2,377 | |
Write-offs, net of recoveries | | (1,982) | |
Balance as of September 30, 2024 | | $ | 4,363 | |
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2. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the FASB issued Accounting Standards Update No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” or ASU 2023-07. The amendments in ASU 2023-07 aim to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. The adoption of ASU 2023-07 will expand our disclosures, and we do not expect the adoption of ASU 2023-07 to have a material impact on our consolidated financial statements.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” or ASU 2023-09. The amendments in ASU 2023-09 aim to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, with early adoption permitted. The Company is currently evaluating the impact of this update on disclosures within its consolidated financial statements.
3. REVENUE RECOGNITION
MSCI’s operating revenues are reported by product type and each product type may have different timing for recognizing revenue. The Company’s operating revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. The Company also disaggregates operating revenues by segment.
The tables that follow present the disaggregated operating revenues for the periods indicated:
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| | For the Three Months Ended September 30, 2024 |
| | Segments | | |
(in thousands) | | Index | | Analytics | | ESG and Climate | | All Other - Private Assets | | Total |
Operating Revenue Types | | | | | | | | | | |
Recurring subscriptions | | $ | 223,945 | | | $ | 168,150 | | | $ | 81,536 | | | $ | 62,991 | | | $ | 536,622 | |
Asset-based fees | | 168,622 | | | — | | | — | | | — | | | 168,622 | |
Non-recurring | | 12,315 | | | 4,226 | | | 2,107 | | | 813 | | | 19,461 | |
Total | | $ | 404,882 | | | $ | 172,376 | | | $ | 83,643 | | | $ | 63,804 | | | $ | 724,705 | |
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| | For the Nine Months Ended September 30, 2024 |
| | Segments | | |
(in thousands) | | Index | | Analytics | | ESG and Climate | | All Other - Private Assets | | Total |
Operating Revenue Types | | | | | | | | | | |
Recurring subscriptions | | $ | 653,929 | | | $ | 490,829 | | | $ | 235,954 | | | $ | 190,434 | | | $ | 1,571,146 | |
Asset-based fees | | 482,162 | | | — | | | — | | | — | | | 482,162 | |
Non-recurring | | 39,855 | | | 11,508 | | | 5,428 | | | 2,520 | | | 59,311 | |
Total | | $ | 1,175,946 | | | $ | 502,337 | | | $ | 241,382 | | | $ | 192,954 | | | $ | 2,112,619 | |
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| | For the Three Months Ended September 30, 2023 |
| | Segments | | |
(in thousands) | | Index | | Analytics | | ESG and Climate | | All Other - Private Assets | | Total |
Operating Revenue Types | | | | | | | | | | |
Recurring subscriptions | | $ | 206,453 | | | $ | 151,269 | | | $ | 71,744 | | | $ | 35,531 | | | $ | 464,997 | |
Asset-based fees | | 141,066 | | | — | | | — | | | — | | | 141,066 | |
Non-recurring | | 14,603 | | | 2,999 | | | 1,294 | | | 480 | | | 19,376 | |
Total | | $ | 362,122 | | | $ | 154,268 | | | $ | 73,038 | | | $ | 36,011 | | | $ | 625,439 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2023 |
| | Segments | | |
(in thousands) | | Index | | Analytics | | ESG and Climate | | All Other - Private Assets | | Total |
Operating Revenue Types | | | | | | | | | | |
Recurring subscriptions | | $ | 603,845 | | | $ | 443,276 | | | $ | 207,523 | | | $ | 111,292 | | | $ | 1,365,936 | |
Asset-based fees | | 412,354 | | | — | | | — | | | — | | | 412,354 | |
Non-recurring | | 47,621 | | | 7,943 | | | 3,792 | | | 1,168 | | | 60,524 | |
Total | | $ | 1,063,820 | | | $ | 451,219 | | | $ | 211,315 | | | $ | 112,460 | | | $ | 1,838,814 | |
| | | | | | | | | | |
The tables that follow present the change in accounts receivable, net of allowances, and current deferred revenue between the dates indicated:
| | | | | | | | | | | | | | |
(in thousands) | | Accounts receivable, net of allowances | | Deferred revenue |
Opening (December 31, 2023) | | $ | 839,555 | | | $ | 1,083,864 | |
Closing (September 30, 2024) | | 643,807 | | | 942,840 | |
Increase/(decrease) | | $ | (195,748) | | | $ | (141,024) | |
| | | | |
| | | | | | | | | | | | | | |
(in thousands) | | Accounts receivable, net of allowances | | Deferred revenue |
Opening (December 31, 2022) | | $ | 663,236 | | | $ | 882,886 | |
Closing (September 30, 2023) | | 603,266 | | | 837,479 | |
Increase/(decrease) | | $ | (59,970) | | | $ | (45,407) | |
| | | | |
The amounts of revenues recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $209.9 million and $915.5 million for the three and nine months ended September 30, 2024, respectively, and $171.8 million and $798.0 million for the three and nine months ended September 30, 2023, 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. As of September 30, 2024 and December 31, 2023, the Company carried a long-term deferred revenue balance of $28.8 million and $28.8 million, respectively, in “Other non-current liabilities” on the 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, |
(in thousands) | | 2024 |
First 12-month period | | $ | 912,103 | |
Second 12-month period | | 567,796 | |
Third 12-month period | | 258,819 | |
Periods thereafter | | 172,423 | |
Total | | $ | 1,911,141 | |
| | |
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. Diluted EPS reflects the assumed conversion of all dilutive securities, including, when applicable, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”).
The following table presents the computation of basic and diluted EPS:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | | 2024 | | 2023 | | 2024 | | 2023 |
Net income | | $ | 280,901 | | | $ | 259,659 | | | $ | 803,613 | | | $ | 745,212 | |
| | | | | | | | |
Basic weighted average common shares outstanding | | 78,499 | | | 79,116 | | | 78,925 | | | 79,580 | |
Effect of dilutive securities: | | | | | | | | |
PSUs, RSUs and PSOs | | 230 | | | 384 | | | 234 | | | 379 | |
Diluted weighted average common shares outstanding | | 78,729 | | | 79,500 | | | 79,159 | | | 79,959 | |
| | | | | | | | |
| | | | | | | | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 3.58 | | | $ | 3.28 | | | $ | 10.18 | | | $ | 9.36 | |
Diluted | | $ | 3.57 | | | $ | 3.27 | | | $ | 10.15 | | | $ | 9.32 | |
5. ACQUISITIONS
On October 2, 2023, the Company acquired the remaining 66.4% interest in The Burgiss Group, LLC (“Burgiss”) for $696.8 million in cash (the “step acquisition”). The Company’s existing 33.6% interest in Burgiss had a fair value at acquisition date of $353.2 million which resulted in a non-taxable gain of $143.0 million which the Company recognized during the three months ended December 31, 2023. The acquisition of Burgiss provides the Company with comprehensive data and deep expertise in private assets, enabling investors to evaluate fundamental information, measure and compare performance, understand exposures, manage risk, and conduct robust analytics.
The step acquisition has been accounted for as a business combination using the acquisition method of accounting and its results are reported within the Private Capital Solutions operating segment within the All Other – Private Assets reportable segment. With the step acquisition, the Company renamed the Burgiss operating segment to Private Capital Solutions. Prior to the step acquisition, Burgiss was accounted for as an equity-method investment. Therefore, MSCI did not recognize the proportionate share of Burgiss’ operating revenues, rather, the Company’s proportionate share of the income or loss of Burgiss was reported as a component of other (expense) income, net. A portion of Burgiss’s client agreements do not have automatic renewal clauses at the end of the subscription period. Due to the historically high retention rate, the expectation that a substantial portion of the client agreements will be renewed and the nature of the subscription service, the associated revenue is recorded as recurring subscription revenue.
The table below represents the final purchase price allocation to total assets acquired and liabilities assumed based on their respective estimated fair values as of October 2, 2023 and the associated estimated useful lives of acquired intangibles as of that date.
| | | | | | | | | | | | | | |
(in thousands) | | Estimated Useful Life | | Fair Value |
Cash and cash equivalents | | | | $ | 5,397 | |
Accounts receivable | | | | 25,839 | |
Prepaid Income Taxes | | | | 72 | |
Other current assets | | | | 4,201 | |
Property, equipment and leasehold improvements, net | | | | 670 | |
Right of use assets | | | | 3,443 | |
Other non-current assets | | | | 487 | |
Deferred revenue | | | | (21,479) | |
Other current liabilities | | | | (13,705) | |
Long-term operating lease liabilities | | | | (2,525) | |
| | | | |
| | | | |
Intangible assets: | | | | |
Proprietary data | | 11 years | | 229,900 | |
Customer relationships | | 21 years | | 179,900 | |
Acquired technology and software | | 3 years | | 19,000 | |
Trademarks | | 1 year | | 900 | |
Goodwill | | | | 617,834 | |
Net assets acquired | | | | $ | 1,049,934 | |
| | | | |
The Company, with the assistance of third-party valuation experts, calculated the fair values of intangible assets using the relief from royalty method for proprietary data, acquired technology and software and trademarks and the multi-period excess earnings method for customer relationships. The significant assumptions used to estimate the fair value of the acquired intangible assets included forecasted cash flows, which were determined based on certain assumptions that included, among others, projected future revenues, and expected market royalty rates, technology obsolescence rates and discount rates. The weighted average amortization period of the acquired intangible assets was 14.8 years.
The recorded goodwill is primarily attributable to the expected synergies from the utilization of the acquired data as well as expanded market opportunities. Goodwill attributable to the acquisition is deductible for federal income tax purposes to the extent of consideration paid.
Revenue of Burgiss recognized within the consolidated financial statements was $27.0 million and $78.0 million for the three and nine months ended September 30, 2024, respectively.
On November 1, 2023, MSCI completed the acquisition of Trove Research Ltd (“Trove”), a carbon markets intelligence provider. Trove is a part of the ESG and Climate operating segment.
On January 2, 2024, MSCI completed the acquisition of Fabric RQ, Inc. (“Fabric”), a wealth technology platform specializing in portfolio design, customization and analytics for wealth managers and advisors. Fabric is a part of the Analytics operating segment. The contingent consideration related to Fabric is payable based upon the future product sales of the acquired business.
On April 16, 2024, MSCI completed the acquisition of Foxberry Ltd. (“Foxberry”), a front-office index technology platform. Foxberry is a part of the Index operating segment. The contingent consideration related to Foxberry is payable based upon the achievement of integration metrics related to the operation of the platform.
The Company recognizes the fair value of contingent consideration at the date of acquisition. The liability associated with any contingent consideration is remeasured to fair value at each reporting date subsequent to the acquisition and changes in the fair value are recorded in the Unaudited Condensed Consolidated Statements of Income.
The following table presents the preliminary acquired balances related to the acquisitions of Trove, Fabric and Foxberry:
| | | | | | | | | | | | | | | | | | | | |
(in thousands, except weighted average amortization period of intangible asset) | | Trove | | Fabric | | Foxberry |
Acquisition Date | | November 1, 2023 | | January 2, 2024 | | April 16, 2024 |
| | | | | | |
Cash payments | | $ | 37,465 | | | $ | 7,959 | | | $ | 20,945 | |
Deferred payments | | — | | | — | | | 2,529 | |
Contingent consideration liability | | — | | | 8,146 | | | 19,094 | |
Aggregate purchase price | | $ | 37,465 | | | $ | 16,105 | | | $ | 42,568 | |
| | | | | | |
| | | | | | |
Net tangible assets acquired (liabilities assumed) | | $ | (4,787) | | | $ | (226) | | | $ | 1,748 | |
Intangible assets | | 7,705 | | | 11,300 | | | 22,500 | |
Goodwill | | 34,547 | | | 5,031 | | | 18,320 | |
Aggregate purchase price | | $ | 37,465 | | | $ | 16,105 | | | $ | 42,568 | |
| | | | | | |
| | | | | | |
Weighted average amortization period of intangible assets (years) | | 13.0 | | 9.1 | | 7.9 |
The fair values of the contingent consideration were determined based on management estimates and assumptions which primarily include forecasted product sales, probability of achievement of certain integration targets and discount rates. The Company classifies these liabilities as Level 3 within the fair value hierarchy, as the measurement is based on inputs that are not observable in the market. As of September 30, 2024, the fair value of the contingent consideration was $28.2 million, of which $9.3 million is included in “Other accrued liabilities” and $18.9 million is included in “Other non-current liabilities” on the Unaudited Condensed Consolidated Statement of Financial Condition.
Changes in the Company’s Level 3 financial liabilities for the three and nine months ended September 30, 2024 and 2023, respectively, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Beginning balance | | $ | 27,746 | | | $ | — | | | $ | — | | | $ | — | |
Additions of contingent consideration1 | | — | | | — | | | 27,240 | | | — | |
Change in fair value | | 448 | | | — | | | 954 | | | — | |
Payments | | — | | | — | | | — | | | — | |
Ending Balance | | $ | 28,194 | | | $ | — | | | $ | 28,194 | | | $ | — | |
| | | | | | | | |
___________________________
(1)Reflects balance of contingent consideration at acquisition date fair value.
The recorded goodwill for Trove is primarily attributable to expected synergies from the utilization of the acquired data as well as expanded market opportunities. The recorded goodwill amounts for Fabric and Foxberry are primarily attributable to expected synergies from the utilization of the acquired technology platforms. Goodwill attributable to the acquisitions of Fabric, Trove and Foxberry are not deductible for federal income tax purposes.
Revenue of Trove, Fabric and Foxberry recognized within the Unaudited Condensed Consolidated Statement of Income was $1.1 million, $189 thousand and $207 thousand for the three months ended September 30, 2024, respectively. Revenue of Trove, Fabric and Foxberry recognized within the Unaudited Condensed Consolidated Statement of Income was $3.5 million, $526 thousand and $385 thousand for the nine months ended September 30, 2024, respectively.
6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net consisted of the following as of the dates indicated:
| | | | | | | | | | | | | | |
| | As of |
| | September 30, | | December 31, |
(in thousands) | | 2024 | | 2023 |
Computer & related equipment | | $ | 167,939 | | | $ | 192,008 | |
Furniture & fixtures | | 15,980 | | | 16,169 | |
Leasehold improvements | | 56,412 | | | 58,582 | |
Work-in-process | | 1,646 | | | 897 | |
Subtotal | | 241,977 | | | 267,656 | |
| | | | |
Accumulated depreciation and amortization | | (179,660) | | | (211,736) | |
Property, equipment and leasehold improvements, net | | $ | 62,317 | | | $ | 55,920 | |
| | | | |
Depreciation and amortization expense of property, equipment and leasehold improvements was $4.3 million and $5.3 million for the three months ended September 30, 2024 and 2023, respectively.
Depreciation and amortization expense of property, equipment and leasehold improvements was $12.6 million and $15.9 million for the nine months ended September 30, 2024 and 2023, respectively.
7. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following table presents goodwill by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Index | | Analytics | | ESG and Climate | | All Other - Private Assets | | Total |
Goodwill at December 31, 2023 | | $ | 1,203,435 | | | $ | 290,976 | | | $ | 84,724 | | | $ | 1,308,557 | | | $ | 2,887,692 | |
Acquisitions (1) | | 18,320 | | | 5,031 | | | (365) | | | (582) | | | 22,404 | |
Foreign exchange translation adjustment | | 3,095 | | | — | | | 1,876 | | | 1,035 | | | 6,006 | |
Goodwill at September 30, 2024 | | $ | 1,224,850 | | | $ | 296,007 | | | $ | 86,235 | | | $ | 1,309,010 | | | $ | 2,916,102 | |
| | | | | | | | | | |
___________________________
(1)Reflects the impact of the acquisitions of Foxberry, Fabric, Trove and Burgiss.
The Company completed its annual goodwill impairment test as of July 1, 2024 on its Index, Analytics, ESG and Climate, Real Assets and Private Capital Solutions reporting units, which are also the Company’s operating segments, and no impairments were noted. The Company performed a test for impairment and determined that it was more likely than not that the fair value of each reporting unit was greater than its carrying value. See Note 12, “Segment Information,” for further descriptions of the operating segments.
Intangible Assets, Net
The following table presents the amount of amortization expense related to intangible assets by category for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Amortization expense of acquired intangible assets | | $ | 26,066 | | | $ | 15,748 | | | $ | 77,226 | | | $ | 47,430 | |
Amortization expense of internally developed capitalized software | | 15,873 | | | 10,974 | | | 44,090 | | | 30,113 | |
Total amortization of intangible assets expense | | $ | 41,939 | | | $ | 26,722 | | | $ | 121,316 | | | $ | 77,543 | |
| | | | | | | | |
The gross carrying and accumulated amortization amounts related to the Company’s intangible assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
(in thousands) | | Gross intangible assets: | | Accumulated amortization: | | Net intangible assets: | | Gross intangible assets: | | Accumulated amortization: | | Net intangible assets: |
Customer relationships | | $ | 716,121 | | | $ | (369,817) | | | $ | 346,304 | | | $ | 709,299 | | | $ | (340,248) | | | $ | 369,051 | |
Proprietary data | | 454,477 | | | (96,417) | | | 358,060 | | | 452,543 | | | (64,694) | | | 387,849 | |
Acquired technology and software | | 258,108 | | | (195,608) | | | 62,500 | | | 228,785 | | | (185,583) | | | 43,202 | |
Trademarks | | 209,090 | | | (179,238) | | | 29,852 | | | 209,090 | | | (171,715) | | | 37,375 | |
Internally developed capitalized software | | 297,489 | | | (162,777) | | | 134,712 | | | 237,060 | | | (118,303) | | | 118,757 | |
Total | | $ | 1,935,285 | | | $ | (1,003,857) | | | $ | 931,428 | | | $ | 1,836,777 | | | $ | (880,543) | | | $ | 956,234 | |
| | | | | | | | | | | | |
The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2024 and succeeding years:
| | | | | | | | |
Years Ending December 31, (in thousands) | | Amortization Expense |
Remainder of 2024 | | $ | 43,292 | |
2025 | | 151,514 | |
2026 | | |