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MSCI INC : MSCI Inc. Reports Second Quarter 2011 Financial Results

08/04/2011 | 07:35am US/Eastern

MSCI Inc. (NYSE: MSCI), a leading global provider of investment decision support tools, including indices, portfolio risk and performance analytics and corporate governance services, today announced results for the second quarter and six months ended June 30, 2011. For comparative purposes, selected pro forma results are also presented, as if MSCI had acquired RiskMetrics Group, Inc. ("RiskMetrics") on December 1, 2009. In December 2010, MSCI changed its fiscal year end from November 30 to December 31, effective with the calendar year reporting cycle beginning January 1, 2011.

(Note: Percentage changes are referenced to the comparable fiscal period in fiscal year 2010, unless otherwise noted.)

  • Operating revenues increased 80.9% to $226.5 million in second quarter 2011 and 82.2% to $449.8 million for six months 2011. Compared to pro forma 2010, second quarter 2011 revenues grew by 12.0% and six months 2011 revenues rose 12.3%.
  • Net income increased 89.7% to $45.7 million in second quarter 2011 and 53.5% to $79.2 million for first six months 2011. Pro forma net income increased 48.2% to $45.7 million in second quarter 2011 and 33.4% to $79.2 million for first six months 2011.
  • Adjusted EBITDA (defined below) grew by 73.0% to $107.0 million in second quarter 2011 and 74.6% to $211.5 million in six months 2011. Compared to pro forma 2010, second quarter 2011 Adjusted EBITDA grew by 25.1% and six months 2011 Adjusted EBITDA grew by 24.4%. The Adjusted EBITDA margin was 47.2% in second quarter 2011 and 47.0% for six months 2011.
  • Diluted EPS for second quarter 2011 rose 68.2% to $0.37 and 33.3% to $0.64 for six months 2011.
  • Second quarter 2011 Adjusted EPS (defined below) rose 34.3% to $0.47 and 36.4% to $0.90 for six months 2011.

Henry A. Fernandez, Chairman and CEO, said, "MSCI continued to perform well in second quarter 2011. Compared to pro forma second quarter 2010, MSCI reported 12% growth in revenues and 25% growth in Adjusted EBITDA.

"Our run rate grew 3% sequentially and by 17% compared to pro forma second quarter of 2011. Our index and ESG and our risk management analytics businesses continued to drive our growth and we recorded double digit annual run rate growth in both product lines," added Mr. Fernandez.

 

Table 1: MSCI Inc. Selected Financial Information (unaudited)

 
  Three Months Ended   Change from   Six Months Ended   Change from
June 30,   May 31, May 31, June 30,   May 31, May 31,
In thousands, except per share data 2011 2010 2010 2011 2010 2010
Operating revenues $ 226,483 $ 125,170 80.9 % $ 449,781 $ 246,850 82.2 %
Operating expenses 143,792 78,473 83.2 % 291,661 152,896 90.8 %
Net income 45,660 24,067 89.7 % 79,181 51,585 53.5 %
% Margin 20.2 % 19.2 % 17.6 % 20.9 %
Diluted EPS $ 0.37 $ 0.22 68.2 % $ 0.64 $ 0.48 33.3 %
 
Adjusted EPS1 $ 0.47 $ 0.35 34.3 % 0.90 0.66 36.4 %
 
Adjusted EBITDA2 $ 106,995 $ 61,834 73.0 % $ 211,469 $ 121,083 74.6 %
% Margin 47.2 % 49.4 % 47.0 % 49.1 %
1 Per share net income before after-tax impact of amortization of intangibles, non-recurring stock-based compensation, restructuring costs, third party transaction expenses associated with the acquisition of RiskMetrics and debt repayment expenses. See Table 17 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS" and information about the use of non-GAAP financial information provided under "Notes Regarding the Use of Non-GAAP Financial Measures."

2 NetIncome before interest income, interest expense, other expense (income), provision for income taxes, depreciation, amortization, non-recurring stock-based compensation, restructuring costs, and third party transaction expenses associated with the acquisition of RiskMetrics. See Table 15 titled "Reconciliation of Adjusted EBITDA to Net Income" and information about the use of non-GAAP financial information provided under "Notes Regarding the Use of Non-GAAP Financial Measures."

 

Summary of Results for Second Quarter 2011 compared to Second Quarter 2010

Operating Revenues - See Table 4

Total operating revenues for the three months ended June 30, 2011 (second quarter 2011) increased $101.3 million, or 80.9%, to $226.5 million compared to $125.2 million for the three months ended May 31, 2010 (second quarter 2010). The biggest driver of revenue growth was the acquisition of RiskMetrics, which closed on June 1, 2010 and contributed revenues of $80.3 million in second quarter 2011. Total subscription revenues rose $86.9 million, or 91.2%, to $182.3 million while asset-based fees increased $10.6 million, or 41.3%, to $36.3 million. Non-recurring revenues increased $3.8 million to $7.9 million.

Excluding the impact of the acquisitions of RiskMetrics and Measurisk LLC ("Measurisk", an acquisition completed on July 30, 2010), total operating revenues grew by $17.0 million, or 13.6%, to $142.2 million. Subscription revenues grew $9.2 million, or 9.6%, to $104.5 million in second quarter 2011. Non-recurring revenues declined $1.9 million to $2.3 million.

By segment, Performance and Risk revenues rose $70.3 million, or 56.2%, to $195.5 million. The Performance and Risk segment is comprised of index and ESG (defined below) products, risk management analytics, portfolio management analytics, and energy and commodity analytics. Revenues for the Governance segment were $31.0 million.

Index and ESG products: Our index and ESG products primarily consist of index subscriptions, equity index asset-based fee products and environmental, social and governance ("ESG") products. Revenues related to index and ESG products increased $22.6 million, or 28.3%, to $102.6 million. Index and ESG subscription revenue grew by $12.0 million, or 22.2%, to $66.3 million, with $5.1 million of that coming from the addition of ESG products resulting from the acquisition of RiskMetrics. Also included in the index and ESG revenues were $2.0 million of non-recurring revenues, which fell $2.0 million from second quarter 2010.

Revenues attributable to equity index asset-based fees rose $10.6 million, or 41.3%, to $36.3 million. The increase in asset-based fees was driven primarily by an increase in assets under management in exchange traded funds ("ETFs") linked to MSCI indices.

The quarterly average value of assets in ETFs linked to MSCI equity indices increased 41.4% to $356.8 billion for second quarter 2011 compared to $252.3 billion for the three months ended May 31, 2010. As of June 30, 2011, the value of assets in ETFs linked to MSCI equity indices was $360.5 billion, representing an increase of 51.4% from $238.1 billion as of May 31, 2010 and $10.4 billion, or 3.0%, from $350.1 billion as of March 31, 2010. We estimate that the $10.4 billion sequential increase in second quarter 2011 was attributable to $3.8 billion of net asset depreciation and cash inflows of $14.2 billion.

The three MSCI indices with the largest amount of ETF assets linked to them as of June 30, 2011 were the MSCI Emerging Markets, EAFE (an index of stocks in developed markets outside North America) and US Broad Market indices. The assets linked to these indices were $106.2 billion, $46.7 billion, and $20.1 billion, respectively, at the end of the quarter.

Risk management analytics: Our risk management analytics products offer a consistent risk and performance assessment framework for managing and monitoring investments in a variety of asset classes and are based on our proprietary integrated fundamental multi-factor risk models, value-at-risk methodologies, performance attribution, and asset valuation models. Revenues related to risk management analytics increased $49.7 million, or 447.5%, to $60.8 million. The acquisitions of RiskMetrics and Measurisk added $47.4 million, or 427.0%, to growth in the second quarter. Excluding the impact of the acquisitions, risk management analytics revenues grew by $2.3 million, or 20.5%.

Portfolio management analytics: Our portfolio management analytics products consist of analytics tools for equity and fixed income portfolio management. Revenues related to portfolio management analytics decreased by $1.1 million, or 3.5%, to $29.2 million.

Energy and commodity analytics: Our energy and commodity analytics products consist of software applications that help users value and model physical assets and derivatives across a number of market segments that include energy and commodity assets. Revenues from energy and commodity analytics products declined by $0.9 million, or 23.9%, to $2.9 million. The decrease is driven in part by the timing of new and recurring sales.

Governance: Our governance products consist of corporate governance products and services, including proxy research, recommendation and voting services for asset owners and asset managers as well as governance advisory and compensation services for corporations. It also includes forensic accounting research as well as class action monitoring and claims filing services to aid institutional investors in the recovery of funds from securities litigation, all of which were acquired as part of our acquisition of RiskMetrics. Governance revenues were $31.0 million in second quarter 2011, including $4.2 million of non-recurring revenues.

Operating Expenses - See Table 6

Total operating expense increased $65.3 million, or 83.2%, to $143.8 million in second quarter 2011 compared to second quarter 2010. The increase is due mainly to the acquisition of RiskMetrics.

Compensation costs: Total compensation costs rose $40.4 million, or 90.2%, to $85.2 million in second quarter 2011. Excluding non-recurring stock-based compensation expense, total compensation costs rose $39.8 million, or 93.1%, to $82.5 million.

Non-recurring stock-based compensation expense rose $0.6 million, or 31.0% to $2.7 million, primarily as a result of the addition of the performance awards in the fiscal third quarter of 2010. Non-recurring stock-based compensation expenses for second quarter 2011 consisted of $0.7 million related to the founders grants awarded to certain employees at the time of MSCI's initial public offering ("IPO") and $2.0 million related to the performance awards granted to certain employees in connection with the acquisition of RiskMetrics. The aggregate value of the performance awards is being amortized through the end of 2012 and the aggregate value of the founders grant is being amortized through November 2011.

Non-compensation costs excluding depreciation and amortization: Total non-compensation operating expenses excluding depreciation and amortization, transaction costs associated with the acquisition of RiskMetrics and restructuring costs rose $16.4 million, or 79.5%, to $37.0 million in second quarter 2011. The acquisition of RiskMetrics was the biggest driver behind the increase.

Cost of services: Total cost of services expenses rose by $38.4 million, or 126.0%, to $68.8 million. Within costs of services, compensation expenses increased by $26.9 million, or 120.2%, and non-compensation expenses increased by $11.5 million, or 141.9%. In both cases, the biggest driver behind the increase was the acquisition of RiskMetrics.

Selling, general and administrative expense (SG&A): Total SG&A expense rose $13.1 million, or 32.7%, to $53.3 million. Within SG&A, compensation expenses increased by $13.5 million, or 60.4%, and non-compensation expenses excluding transaction costs increased by $4.9 million, or 39.1%. In both cases, the biggest driver behind the increase was the acquisition of RiskMetrics.

Amortization of intangibles: Amortization of intangibles expense totaled $16.4 million compared to $4.3 million in second quarter 2010. The $12.1 million increase is associated intangible assets acquired in connection with the acquisitions of RiskMetrics and Measurisk.

Other Expense (Income), Net

Other expense (income), net for second quarter 2011 was $13.1 million, an increase of $4.3 million from second quarter 2010. An increase in interest expense resulted from the increased levels of indebtedness incurred in connection with the acquisition of RiskMetrics. In second quarter 2010, MSCI incurred $6.3 million of debt repayment expenses resulting from its decision to repay $297 million of its then-outstanding term loans.

Provision for Income Taxes

The provision for income tax expense was $24.0 million for second quarter 2011, an increase of $10.1 million, or 72.7%, compared to $13.9 million for the same period in 2010, driven primarily by higher income resulting from the acquisition of RiskMetrics. The effective tax rate was 34.4% for second quarter 2011. The effective tax rate benefited from several discrete items that lowered the rate. The effective tax rate for second quarter 2010 was 36.6%.

Net Income and Earnings per Share - See Table 17

Net income increased $21.6 million, or 89.7%, to $45.7 million for second quarter 2011. The net income margin increased to 20.2% versus 19.2% in second quarter 2010. Diluted EPS increased 68.2% to $0.37.

Adjusted net income, which excludes $12.5 million of after-tax impact of amortization of intangibles, non-recurring stock-based compensation expense, transaction expenses, restructuring costs and debt repayment and refinancing expenses, rose $20.6 million, or 54.7%, to $58.2 million. Adjusted EPS, which excludes the after-tax, per share impact of amortization of intangibles, non-recurring stock-based compensation expense, transaction expenses, restructuring costs and debt repayment and refinancing expenses totaling $0.10, rose 34.3% to $0.47.

See table 17 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS."

Adjusted EBITDA - See Table 15

Adjusted EBITDA, which excludes, among other things, the impact of non-recurring stock-based compensation and restructuring costs, was $107.0 million, an increase of $45.2 million, or 73.0%, from second quarter 2010. Adjusted EBITDA margin declined to 47.2% from 49.4% as a result of the dilutive impact of the acquisition of the lower margin RiskMetrics business.

By segment, Adjusted EBITDA for the Performance and Risk segment increased $37.7 million, or 61.0%, to $99.5 million from second quarter 2010. Adjusted EBITDA margin for this segment rose to 50.9% from 49.4% from second quarter 2010. Adjusted EBITDA for the Governance segment was $7.4 million and the Adjusted EBITDA margin was 24.0%.

See Table 15 titled "Reconciliation of Adjusted EBITDA to Net Income" and "Notes Regarding the Use of Non-GAAP Financial Measures" below.

Summary of Results for Six Months Ended June 30, 2011 compared to Six Months Ended May 31, 2010

Operating Revenues - See Table 5

Total operating revenues for the six months ended June 30, 2011 (six months 2011) increased $202.9 million, or 82.2%, to $449.8 million compared to $246.9 million for the six months ended May 31, 2010 (six months 2010). The acquisitions of RiskMetrics and Measurisk added revenues of $165.4 million in six months 2011. Total subscription revenue rose $169.4 million, or 89.3%, to $359.0 million, while asset-based fees rose $19.3 million, or 38.1%, to $69.9 million. Total non-recurring revenues increased $14.3 million, or 215.1%, to $20.9 million.

Excluding the impact of the acquisitions, total operating revenues grew by $37.5 million, or 15.2%, to $284.3 million. Subscription revenues grew by $17.0 million, or 9.0%, and asset-based fee revenues grew by $18.4 million, or 36.4%, to $69.1 million. Non-recurring revenues grew by $2.1 million, or 31.0%, from six months 2010. Excluding the impact of the acquisitions, index and ESG products and risk management analytics revenues grew 24.0% and 21.8%, respectively, in six months 2011. Portfolio management analytics revenues declined 5.3%. Energy and other commodity analytics revenues fell 15.5%, as a result of seasonal differences and a decline in non-recurring sales.

By segment, Performance and Risk revenues rose $140.7 million, or 57.0%, to $387.6 million for six months 2011. Governance revenues were $62.2 million.

Operating Expenses - See Table 7

Total operating expenses increased $138.8 million, or 90.8%, to $291.7 million in six months 2011 compared to six months 2010. Operating expenses in the six months 2011 included restructuring costs of $4.5 million and, in six months 2010, transaction expenses of $7.5 million. Excluding these expenses, total operating expenses would have risen by $141.8 million, or 97.5%. The increase reflects increases of $79.3 million, or 132.7%, in cost of services, $34.6 million, or 49.4%, in SG&A expense and $3.3 million, or 47.9% in depreciation and amortization expense.

Other Expense (Income), Net

Other expense (income), net for six months 2011 was $35.1 million, an increase of $23.0 million from six months 2010. The increase was driven by increased indebtedness resulting from our acquisition of RiskMetrics. Other expense (income), net includes debt repayment expenses of $6.4 million in six months 2011 and $6.3 million in six months 2010.

Provision for Income Taxes

The provision for income tax expense was $43.8 million for six months 2011, an increase of $13.6 million, or 45.0%, compared to $30.2 million for six months 2010. Our effective tax rate for six months 2011 was 35.6% compared to 36.9% for six months 2010.

Net Income and Earnings per Share - See Table 17

Net income increased $27.6 million, or 53.5%, to $79.2 million and the net income margin decreased to 17.6% from 20.9%. Diluted EPS rose by 33.3% to $0.64 from $0.48.

Adjusted net income, which excludes the after-tax impact of amortization of intangibles, non-recurring stock-based compensation expense, transaction expenses, debt repayment expenses, and restructuring costs totaling $31.9 million, rose $40.0 million, or 56.3%, to $111.0 million. Adjusted EPS, which excludes the after-tax, per share impact of amortization of intangibles, non-recurring stock-based compensation expense, transaction expenses, debt repayment expenses, and restructuring costs totaling $0.26, rose 36.4% to $0.90 in six months 2011.

See table 17 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS."

Adjusted EBITDA - See Table 15

Adjusted EBITDA was $211.5 million, an increase of $90.4 million, or 74.6%, from six months 2010. Adjusted EBITDA margin fell to 47.0% from 49.1%.

By segment, Adjusted EBITDA for the Performance and Risk segment increased $73.4 million, or 60.6%, to $194.5 million from six months 2010. Adjusted EBITDA margin rose to 50.2% from 49.1% in six months 2010. Adjusted EBITDA for the Governance segment was $17.0 million and the Adjusted EBITDA Margin was 27.3%.

See Table 15 titled "Reconciliation of Adjusted EBITDA to Net Income" and "Notes Regarding the Use of Non-GAAP Financial Measures" below.

Summary of Results for Second Quarter 2011 compared to Pro Forma Second Quarter 2010

Operating Revenues - See Table 9

Compared to pro forma second quarter 2010, total operating revenues increased $24.3 million, or 12.0%, to $226.5 million. Subscription revenues rose by $16.6 million, or 10.0%, to $182.3 million. Asset-based fees increased $10.6 million, or 41.3%, to $36.3 million. Non-recurring revenues declined $2.9 million to $7.9 million. By segment, Performance and Risk revenues rose $25.6 million, or 15.0%, to $195.5 million. Governance revenues declined $1.3 million, or 4.0%, to $31.0 million.

Index and ESG products: Compared to pro forma second quarter 2010, total index and ESG revenues rose $18.1 million, or 21.4%, to $102.6 million. Index and ESG subscription revenues rose by $7.5 million, or 12.7%, to $66.3 million from $58.8 million. The strong growth was driven by higher revenues from MSCI's core benchmark indices and higher usage fees offset by a decline of $2.4 million of non-recurring revenues to $2.0 million. Revenues from asset-based fees increased $10.6 million, or 41.3%, to $36.3 million, compared to pro forma second quarter 2010, driven by higher levels of assets under management in ETFs linked to MSCI indices.

Risk management analytics: Compared to pro forma second quarter 2010, risk management analytics revenues rose $9.5 million, or 18.5%, to $60.8 million, driven by growth in revenues from both BarraOne and RiskManager products. The acquisition of Measurisk contributed $4.0 million.

Governance: Compared to pro forma second quarter 2010, governance revenues declined $1.3 million, or 4.0%, to $31.0 million. Non-recurring governance revenues were $4.2 million in second quarter 2011 versus $5.8 million in the pro forma second quarter 2010.

The acquisition of RiskMetrics did not impact the revenues attributable to the asset-based fees sub-category of index and ESG products, portfolio management analytics and energy and commodity analytics and comparisons for these products are not presented. Comparisons to second quarter 2010 revenues are discussed in the Summary of Results for Second Quarter 2011 compared to Second Quarter 2010 above.

Operating Expenses - See Table 10

Compared to pro forma second quarter 2010, total operating expenses excluding restructuring costs rose $3.1 million to $143.8 million.

Compensation costs: Compared to pro forma second quarter 2010, compensation costs excluding non-recurring stock-based compensation expense rose $0.9 million, or 1.1%, to $82.5 million. Second quarter 2010 compensation costs includes $1.9 million of employer payroll taxes related to stock options exercised by RiskMetrics employees subsequent to the announced merger with MSCI. Second quarter 2011 non-recurring stock-based compensation expense rose by $0.6 million, or 31.0%, to $2.7 million.

Non-compensation costs excluding depreciation and amortization: Compared to pro forma second quarter 2010, total non-compensation costs excluding depreciation and amortization and restructuring costs increased $1.9 million, or 5.3%, to $37.0 million, led by an increase in professional fees partially offset by declines in tax and license fees, occupancy expenses and information technology costs.

Cost of services: Compared to pro forma second quarter 2010, total cost of services rose $0.4 million, or 0.6%, to $68.8 million. Compensation expenses excluding non-recurring stock-based compensation expense fell $2.0 million, or 3.9%, to $48.1 million. Non-compensation expenses rose by $2.0 million, or 11.3%, to $19.6 million, driven by seasonally higher costs of temporary contractors.

Selling, general and administrative expense (SG&A): Compared to pro forma second quarter 2010, total SG&A expense rose $3.0 million, or 6.0%, to $53.3 million. Within SG&A, compensation expenses excluding non-recurring stock-based compensation rose $2.9 million, or 9.3%, to $34.4 million. Non-compensation expenses fell $0.1 million, or 0.7%, to $17.4 million. The decrease in non-compensation expenses was driven by lower information technology expenses and lower taxes and license fees.

Net Income and Adjusted EBITDA - See Table 16

Compared to pro forma second quarter 2010, net income increased $14.8 million, or 48.2%, to $45.7 million from $30.8 million.

Compared to pro forma second quarter 2010, Adjusted EBITDA increased $21.5 million, or 25.1%, to $107.0 million and the margin expanded to 47.2% from 42.3%. Performance and Risk segment Adjusted EBITDA grew by $22.1 million, or 28.5%, to $99.5 million and the margin increased to 50.9% from 45.6%. Governance Adjusted EBITDA fell by $0.6 million, or 7.7%, to $7.4 million and the margin decreased to 24.0% from 25.0%.

See Table 16 titled "Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Income" and "Notes Regarding the Use of Non-GAAP Financial Measures" below.

Summary of Results for Six Months Ended June 30, 2011 compared to Pro Forma Six Months Ended May 31, 2010

Operating Revenues - See Table 9

Total operating revenues for the pro forma six months 2011 compared to pro forma six months 2010 rose $49.4 million, or 12.3%, to $449.8 million. Subscription revenue rose $28.2 million, or 8.5%, to $359.0 million, driven by growth in index and ESG subscriptions and risk management analytics, which more than offset declines from portfolio management analytics and governance. Asset-based fees rose $19.3 million, or 38.1%, to $69.9 million. Non-recurring revenues increased by $2.0 million, or 10.3%, to $20.9 million, as higher risk management analytics and index and ESG products revenues offset a declines in non-recurring governance revenues. The acquisition of Measurisk contributed $7.1 million, or 1.8%, to growth for six months 2011.

The acquisition of RiskMetrics did not impact the revenues attributable to the asset-based fees sub-category of index and ESG products, portfolio management analytics and energy and commodity analytics and comparisons for these products are not presented. Comparisons to six months 2010 revenues are discussed in the Summary of Results for six months 2011 compared to six months 2010 above.

By segment, Performance and Risk revenues rose $51.8 million, or 15.4%, to $387.6 million. Governance revenues declined $2.4 million, or 3.7%, to $62.2 million.

Operating Expenses - See Table 10

Compared to pro forma six months 2010, total operating expense for pro forma six months 2011 increased $13.7 million, or 4.9%, to $291.7 million.

Total compensation expense excluding non-recurring stock-based compensation increased $8.2 million, or 5.1%, to $168.4 million. Non-compensation costs excluding depreciation and amortization and restructuring costs fell $0.2 million, or 0.3%, to $69.9 million.

Compared to pro forma six months 2010, total cost of services for pro forma six months 2011 rose $5.0 million, or 3.7%, to $139.1 million. The growth was driven by an increase of $0.9 million, or 1.0%, in compensation excluding non-recurring stock-based compensation expense and a $3.2 million, or 9.3%, increase in non-compensation expenses.

Total SG&A increased $4.4 million, or 4.3%, to $104.7 million in pro forma six months 2011. The increase was driven by growth of $7.2 million, or 11.7%, in compensation excluding non-recurring stock-based compensation partially offset by a decrease of $3.4 million, or 9.6%, in non-compensation expenses.

Net Income and Adjusted EBITDA - See Table 16

Compared to pro forma six months 2010, net income increased $19.8 million, or 33.4%, to $79.2 million from $59.3 million.

Compared to pro forma six months 2010, pro forma six months 2011 Adjusted EBITDA increased $41.4 million, or 24.4%, to $211.5 million and the margin expanded to 47.0% from 42.5%. By segment, Performance and Risk Adjusted EBITDA rose $41.1 million, or 26.8%, to $194.5 million. The margin expanded to 50.2% from 45.7%. Governance Adjusted EBITDA increased $0.3 million, or 1.8%, to $17.0 million and the margin rose to 27.3% from 25.8%.

See Table 16 titled "Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Income" and "Notes Regarding the Use of Non-GAAP Financial Measures" below.

Conference Call Information

Investors will have the opportunity to listen to MSCI Inc.'s senior management review second quarter 2011 results on Thursday, August 4, 2011 at 11:00 am Eastern Time. To listen to the live event, visit the investor relations section of MSCI's website, http://ir.msci.com/events.cfm, or dial 1-877-312-9206 within the United States. International callers dial 1-408-774-4001.

An audio recording of the conference call will be available on our website approximately two hours after the conclusion of the live event and will be accessible through August 10, 2011. To listen to the recording, visit http://ir.msci.com/events.cfm, or dial 1-855-859-2056 (passcode: 84048648) within the United States. International callers dial 1-404-537-3406 (passcode: 84048648).

About MSCI Inc.

MSCI Inc. is a leading provider of investment decision support tools to investors globally, including asset managers, banks, hedge funds and pension funds. MSCI products and services include indices, portfolio risk and performance analytics, and governance tools.

The company's flagship product offerings are: the MSCI indices which include more than 145,000 daily indices covering more than 70 countries; Barra portfolio risk and performance analytics covering global equity and fixed income markets; RiskMetrics market and credit risk analytics; ISS governance research and outsourced proxy voting and reporting services; MSCI environmental, social and governance research; FEA valuation models and risk management software for the energy and commodities markets; and CFRA forensic accounting risk research, legal/regulatory risk assessment, and due-diligence. MSCI is headquartered in New York, with research and commercial offices around the world. MSCI#IR

For further information on MSCI Inc. or our products please visit www.msci.com.

Forward-Looking Statements

This press release contains forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," or "continue" or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements.

Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in MSCI's Annual Report on Form 10-K for the fiscal year ended November 30, 2010 and filed with the Securities and Exchange Commission (SEC) on January 31, 2011, and in quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this release reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise.

Notes Regarding the Use of Non-GAAP Financial Measures

MSCI has presented supplemental non-GAAP financial measures as part of this earnings release. A reconciliation is provided below that reconciles each non-GAAP financial measure with the most comparable GAAP measure. The presentation of non-GAAP financial measures should not be considered as alternative measures for the most directly comparable GAAP financial measures. These measures are used by management to monitor the financial performance of the business, inform business decision making and forecast future results.

Adjusted EBITDA is defined as net income before provision for income taxes, other net expense and income, depreciation and amortization, non-recurring stock-based compensation expense, restructuring costs, and third party transaction costs related to the acquisition of RiskMetrics.

Adjusted net income and Adjusted EPS are defined as net income and EPS, respectively, before provision for non-recurring stock-based compensation expenses, amortization of intangible assets, third party transaction costs related to the acquisition of RiskMetrics, restructuring costs, and the accelerated interest expense resulting from the termination of an interest rate swap and the accelerated amortization of deferred financing and debt discount costs (debt repayment expenses), as well as for any related tax effects.

We believe that adjustments related to transaction costs and debt repayment expenses are useful to management and investors because it allows for an evaluation of MSCI's underlying operating performance by excluding the costs incurred in connection with the acquisition of RiskMetrics. Additionally, we believe that adjusting for non-recurring stock-based compensation expenses and the amortization of intangible assets may help investors compare our performance to that of other companies in our industry as we do not believe that other companies in our industry have as significant a portion of their operating expenses represented by one-time non-recurring stock-based compensation expenses and amortization of intangible assets. We believe that the non-GAAP financial measures presented in this earnings release facilitate meaningful period-to-period comparisons and provide a baseline for the evaluation of future results.

Adjusted EBITDA, Adjusted net income and Adjusted EPS are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies.

Table 2: MSCI Inc. Consolidated Statement of Income (unaudited)

 
          Three Months Ended       Six Months Ended
June 30,     May 31,     March 31, June 30,     May 31,
In thousands, except per share data   2011     2010     2011     2011     2010  
Operating revenues $ 226,483 $ 125,170 $ 223,298 $ 449,781 $ 246,850
 
Operating expenses
Cost of services 68,840 30,463 70,218 139,058 59,754
Selling, general and administrative 53,321 40,177 51,418 104,739 77,638
Restructuring costs 40 - 4,431 4,471 -
Amortization of intangible assets 16,423 4,277 16,692 33,115 8,555
Depreciation and amortization of property,
equipment, and leasehold improvements   5,168     3,556     5,110     10,278     6,949  
Total operating expenses $ 143,792   $ 78,473   $ 147,869   $ 291,661   $ 152,896  
 
Operating income 82,691 46,697 75,429 158,120 93,954
Operating Margin 36.5 % 37.3 % 33.8 % 35.2 % 38.1 %
 
Interest income (186 ) (343 ) (143 ) (329 ) (751 )
Interest expense 12,852 8,991 16,587 29,439 13,427
Other expense (income)   383     98     5,641     6,024     (510 )
Other expense, net $ 13,049   $ 8,746   $ 22,085   $ 35,134   $ 12,166  
 
Income before income taxes 69,642 37,951 53,344 122,986 81,788
 
Provision for income taxes 23,982 13,884 19,823 43,805 30,203
         
Net income $ 45,660   $ 24,067   $ 33,521   $ 79,181   $ 51,585  
Net Income Margin 20.2 % 19.2 % 15.0 % 17.6 % 20.9 %
 
Earnings per basic common share $ 0.38   $ 0.23   $ 0.28   $ 0.65   $ 0.48  
Earnings per diluted common share $ 0.37   $ 0.22   $ 0.27   $ 0.64   $ 0.48  
 
Weighted average shares outstanding used
in computing earnings per share
Basic   120,592     105,345     120,282     120,438     105,290  
Diluted   122,235     106,003     122,013     122,125     105,923  
 

Table 3: MSCI Inc. Selected Balance Sheet Items (unaudited)

 
      As of
June 30,     November 30,
In thousands         2011   2010
Cash and cash equivalents $ 175,895 $ 226,575
Short-term investments 111,167 73,891
Trade receivables, net of allowances 177,189 147,662
 
Deferred revenue $ 296,793 $ 271,300
Current maturities of long-term debt 10,331 54,916
Long-term debt, net of current maturities 1,106,700 1,207,881
 

Table 4: Second Quarter 2011 Operating Revenues by Product Category and Revenue Type

 
          Three Months Ended       % Change from  
  June 30,       May 31,       March 31,     May 31,       March 31,  
In thousands   2011     2010     2011     2010     2011  
Index and ESG products                  
Subscriptions $ 66,275 $ 54,250 $ 62,159 22.2 % 6.6 %
Asset-based fees   36,287   25,674   37,869 41.3 % (4.2 %)
Index and ESG products total 102,562 79,924 100,028 28.3 % 2.5 %
Risk management analytics 60,806 11,105 58,866 447.5 % 3.3 %
Portfolio management analytics 29,193 30,266 29,284 (3.5 %) (0.3 %)
Energy and commodity analytics   2,949   3,875   3,870 (23.9 %) (23.8 %)
 
Total Performance and Risk revenues $ 195,510 $ 125,170 $ 192,048 56.2 % 1.8 %
 
Total Governance revenues 30,973 - 31,250 n/m (0.9 %)
 
Total operating revenues $ 226,483 $ 125,170 $ 223,298 80.9 % 1.4 %
 
Subscriptions $ 182,251 $ 95,317 $ 176,724 91.2 % 3.1 %
Asset-based fees 36,287 25,674 33,607 41.3 % 8.0 %
Non-recurring revenues   7,945   4,179   12,967 90.1 % (38.7 %)
Total operating revenues $ 226,483 $ 125,170 $ 223,298 80.9 % 1.4 %
 

Table 5: Six Months 2011 Operating Revenues by Product Category and Revenue Type

 
        Six Months Ended       % Change from
  June 30,       May 31,     May 31,  
In thousands       2011     2010     2010  
Index and ESG products    
Subscriptions $ 128,434 $ 104,474 22.9 %
Asset-based fees   74,156   50,620 46.5 %
Index and ESG products total 202,590 155,094 30.6 %
Risk management analytics 119,672 21,964 444.9 %
Portfolio management analytics 58,477 61,725 (5.3 %)
Energy and commodity analytics   6,819   8,067 (15.5 %)
 
Total Performance and Risk revenues $ 387,558 $ 246,850 57.0 %
 
Total Governance revenues 62,223 - n/m
 
Total operating revenues $ 449,781 $ 246,850 82.2 %
 
Subscriptions $ 358,976 $ 189,593 89.3 %
Asset-based fees 69,894 50,620 38.1 %
Non-recurring revenues   20,911   6,637 215.1 %
Total operating revenues $ 449,781 $ 246,850 82.2 %
 

Table 6: Additional Second Quarter 2011 Operating Expense Detail

 
          Three Months Ended       % Change from  
  June 30,       May 31,       March 31,     May 31,       March 31,  
In thousands   2011     2010     2011     2010     2011  
Cost of services                
Compensation $ 48,118 $ 21,639 $ 51,082 122.4 % (5.8 %)
Non-Recurring Stock Based Comp     1,108       715       1,130   54.8 % (2.0 %)
Total Compensation $ 49,226 $ 22,354 $ 52,212 120.2 % (5.7 %)
Non-Compensation     19,614       8,109       18,006   141.9 % 8.9 %
Total cost of services $ 68,840 $ 30,463 $ 70,218 126.0 % (2.0 %)
Selling, general and administrative
Compensation 34,370 21,085 34,805 63.0 % (1.2 %)
Non-Recurring Stock Based Comp     1,565       1,325       1,683   18.1 % (7.0 %)
Total Compensation $ 35,935 $ 22,410 $ 36,488 60.4 % (1.5 %)
Transaction expenses - 5,264 - (100.0 %) n/m
Non-compensation excl. transaction expenses     17,386       12,503     14,930   39.1 % 16.5 %
Total selling, general and administrative $ 53,321 $ 40,177 $ 51,418 32.7 % 3.7 %
Restructuring costs 40 - 4,431 n/m (99.1 %)
Amortization of intangible assets 16,423 4,277 16,692 284.0 % (1.6 %)
Depreciation and amortization     5,168       3,556       5,110   45.4 % 1.1 %
Total operating expenses   $ 143,792     $ 78,473     $ 147,869   83.2 % (2.8 %)
 
In thousands                              
Total non-recurring stock based comp 2,673 $ 2,040 $ 2,813 31.0 % (5.0 %)
Compensation excluding non-recurring comp 82,488 42,724 85,887 93.1 % (4.0 %)
Transaction expenses - 5,264 - (100.0 %) n/m
Non-compensation excluding transaction expenses 37,000 20,612 32,936 79.5 % 12.3 %
Restructuring charges 40 - 4,431 n/m (99.1 %)
Amortization of intangible assets 16,423 4,277 16,692 284.0 % (1.6 %)
Depreciation and amortization     5,168       3,556       5,110   45.4 % 1.1 %
 
Total operating expenses   $ 143,792     $ 78,473     $ 147,869   83.2 % (2.8 %)
 

Table 7: Additional Six Months 2011 Operating Expense Detail

 
              Six Months Ended              
  June 30,       May 31,  
In thousands       2011       2010    

$ Change

      % Change    
Cost of services        
Compensation $ 99,201 $ 43,324   55,878 129.0 %
Non-Recurring Stock Based Comp     2,238       1,397   841 60.2 %
Total Compensation $ 101,439 $ 44,721 56,718 126.8 %
Non-compensation     37,619       15,033   22,586 150.2 %
Total cost of services $ 139,058 $ 59,754 79,304 132.7 %
Selling, general and administrative
Compensation 69,175 42,355 26,820 63.3 %
Non-Recurring Stock Based Comp     3,247       2,714   533 19.7 %
Total Compensation $ 72,422 $ 45,069 27,354 60.7 %
Transaction expenses - 7,514 (7,514 ) n/m
Non-compensation excl. transaction expenses     32,317       25,055   7,262 29.0 %
Total selling, general and administrative $ 104,739 $ 77,638 27,101 34.9 %
Restructuring costs 4,471 - 4,471 n/m
Amortization of intangible assets 33,115 8,555 24,559 287.1 %
Depreciation and amortization     10,278       6,949   3,329 47.9 %
Total operating expenses   $ 291,661     $ 152,896   138,765 90.8 %
 
In thousands              

$ Change

    % Change  
Total non-recurring stock based comp $ 5,485 $ 4,111 1,374 33.4 %
Compensation excluding non-recurring comp 168,376 85,679 82,697 96.5 %
Transaction expenses - 7,514 (7,514 ) n/m
Non-compensation excluding transaction expenses 69,936 40,088 29,849 74.5 %
Restructuring charges 4,471 - 4,471 n/m
Amortization of intangible assets 33,115 8,555 24,559 287.1 %
Depreciation and amortization     10,278       6,949   3,329 47.9 %
 
Total operating expenses   $ 291,661     $ 152,896   138,765 90.8 %
 

Table 8: Summary Second Quarter 2011 Segment Information

 
            Three Months Ended       Six Months Ended     % Change from
June 30,     May 31,     March 31, June 30,     May 31, Second Quarter     Six Months
In thousands         2011     2010     2011     2011     2010   2010 2010
Revenues:
Performance and Risk $ 195,510 $ 125,170 $ 192,048 $ 387,558 $ 246,850 56.2 % 57.0 %
Governance   30,973     -     31,250     62,223     -   n/m n/m
Total Operating revenues $ 226,483 $ 125,170 $ 223,298 $ 449,781 $ 246,850 80.9 % 82.2 %
 
Operating Income
Performance and Risk 79,855 46,697 72,646 152,501 93,954 71.0 % 62.3 %
Margin 40.8 % 37.3 % 37.8 % 39.3 % 38.1 %
Governance 2,836 - 2,783 5,619 - n/m n/m
Margin 9.2 % 8.9 % 9.0 %
Total Operating Income $ 82,691 $ 46,697 $ 75,429 $ 158,120 $ 93,954 77.1 % 68.3 %
Margin 36.5 % 37.3 % 33.8 % 35.2 % 38.1 %
 
Adjusted EBITDA
Performance and Risk 99,549 61,834 94,962 194,510 121,083 61.0 % 60.6 %
Margin 50.9 % 49.4 % 49.4 % 50.2 % 49.1 %
Governance 7,446 - 9,513 16,959 - n/m n/m
Margin 24.0 % 30.4 % 27.3 %
Total Adjusted EBITDA $ 106,995 $ 61,834 $ 104,475 $ 211,469 $ 121,083 73.0 % 74.6 %
Margin 47.2 % 49.4 % 46.8 % 47.0 % 49.1 %
 

Table 9: Pro Forma Operating Revenues by Product Category and Revenue Type

 
                % Change from  
Second Quarter Six Months Second Quarter     Six Months  
In thousands       2011  

20101

 

  2011  

20102

 

2010   2010  
Index and ESG products  
Subscriptions $ 66,275 $ 58,809 $ 128,434 $ 113,539 12.7 % 13.1 %
Asset-based fees   36,287   25,674     74,156   50,620   41.3 % 46.5 %
Index and ESG products total 102,562 84,483 202,590 164,159 21.4 % 23.4 %
Risk management analytics 60,806 51,321 119,672 101,770 18.5 % 17.6 %
Portfolio management analytics 29,193 30,266 58,477 61,725 (3.5 %) (5.3 %)
Energy and commodity analytics   2,949   3,875     6,819   8,067   (23.9 %) (15.5 %)
 
Total Performance and Risk revenues $ 195,510 $ 169,945 $ 387,558 $ 335,721 15.0 % 15.4 %
 
Total Governance revenues 30,973 32,271 62,223 64,647 (4.0 %) (3.7 %)
 
Total operating revenues $ 226,483 $ 202,216   $ 449,781 $ 400,368   12.0 % 12.3 %
 
Subscriptions $ 182,251 $ 165,662 $ 358,976 $ 330,794 10.0 % 8.5 %
Asset-based fees 36,287 25,674 69,894 50,620 41.3 % 38.1 %
Non-recurring revenues   7,945   10,880     20,911   18,954   (27.0 %) 10.3 %
Total operating revenues $ 226,483 $ 202,216   $ 449,781 $ 400,368   12.0 % 12.3 %
 
1IncludesMSCI's results for the second quarter ended May 31, 2010 and RiskMetrics' first quarter ended March 31, 2010
2Includes MSCI's results for the six months ended May 31, 2010 and RiskMetrics' fourth quarter ended December 31, 2009 and first quarter ended March 31, 2010.
 

Table 10: Pro Forma Operating Expense Detail

 
            % Change from
Second Quarter Six Months Second Quarter   Six Months
In thousands   2011

20101

  2011

20102

2010 2010
Cost of services
Compensation $ 48,118 $ 50,095 $ 99,201 $ 98,256 (3.9 %) 1.0 %
Non-Recurring Stock Based Comp   1,108   715     2,238   1,397   54.8 % 60.2 %
Total Compensation $ 49,226 $ 50,810 $ 101,439 $ 99,653 (3.1 %) 1.8 %
Non-compensation   19,614   17,619     37,619   34,414   11.3 % 9.3 %
Total cost of services $ 68,840 $ 68,429 $ 139,058 $ 134,067 0.6 % 3.7 %
Selling, general and administrative
Compensation 34,370 31,460 69,175 61,932 9.3 % 11.7 %
Non-Recurring Stock Based Comp   1,565   1,325     3,247   2,714   18.1 % 19.7 %
Total Compensation $ 35,935 $ 32,785 $ 72,422 $ 64,646 9.6 % 12.0 %
Transaction expenses - - - - - -
Non-compensation excl. transaction expenses   17,386   17,506     32,317   35,730   (0.7 %) (9.6 %)
Total selling, general and administrative $ 53,321 $ 50,291 $ 104,739 $ 100,376 6.0 % 4.3 %
Restructuring costs 40 - 4,471 - n/m n/m
Amortization of intangible assets 16,423 16,180 33,115 32,360 1.5 % 2.3 %
Depreciation and amortization   5,168   5,707     10,278   11,196   (9.4 %) (8.2 %)
Total operating expenses $ 143,792 $ 140,607   $ 291,661 $ 277,999   2.3 % 4.9 %
 
In thousands              
Total non-recurring stock based comp $ 2,673 $ 2,040 $ 5,485 $ 4,111 31.0 % 33.4 %
Compensation excluding non-recurring comp 82,488 81,555 168,376 160,188 1.1 % 5.1 %
Transaction expenses - - - - - -
Non-compensation excluding transaction expenses 37,000 35,125 69,936 70,144 5.3 % (0.3 %)
Restructuring charges 40 - 4,471 - n/m n/m
Amortization of intangible assets 16,423 16,180 33,115 32,360 1.5 % 2.3 %
Depreciation and amortization   5,168   5,707     10,278   11,196   (9.4 %) (8.2 %)
 
Total operating expenses $ 143,792 $ 140,607   $ 291,661 $ 277,999   2.3 % 4.9 %
 
 
1IncludesMSCI's results for the second quarter ended May 31, 2010 and RiskMetrics' first quarter ended March 31, 2010
2Includes MSCI's results for the six months ended May 31, 2010 and RiskMetrics' fourth quarter ended December 31, 2009 and first quarter ended March 31, 2010.
 

Table 11: Pro Forma Summary Segment

 
              % Change from
Second Quarter Six Months Second Quarter   Six Months
In thousands       2011    

20101

  2011    

20102

2010 2010
 
Revenues:
Performance and Risk $ 195,510 $ 169,945 $ 387,558 $ 335,721 15.0 % 15.4 %
Governance   30,973     32,271     62,223     64,647   (4.0 %) (3.7 %)
Total Operating revenues $ 226,483 $ 202,216 $ 449,781 $ 400,368 12.0 % 12.3 %
 
Operating Income
Performance and Risk 79,855 58,027 152,501 114,560 37.6 % 33.1 %
Margin 40.8 % 34.1 % 39.3 % 34.1 %
Governance 2,836 3,582 5,619 7,809 (20.8 %) (28.0 %)
Margin 9.2 % 11.1 % 9.0 % 12.1 %
Total Operating Income $ 82,691 $ 61,609 $ 158,120 $ 122,369 34.2 % 29.2 %
Margin 36.5 % 30.5 % 35.2 % 30.6 %
 
Adjusted EBITDA
Performance and Risk 99,549 77,465 194,510 153,375 28.5 % 26.8 %
Margin 50.9 % 45.6 % 50.2 % 45.7 %
Governance 7,446 8,071 16,959 16,661 (7.7 %) 1.8 %
Margin 24.0 % 25.0 % 27.3 % 25.8 %
Total Adjusted EBITDA $ 106,995 $ 85,536 $ 211,469 $ 170,036 25.1 % 24.4 %
Margin 47.2 % 42.3 % 47.0 % 42.5 %
 
1IncludesMSCI's results for the second quarter ended May 31, 2010 and RiskMetrics' first quarter ended March 31, 2009
2Includes MSCI's results for the six months ended May 31, 2010 and RiskMetrics' fourth quarter ended December 31, 2009 and first quarter ended March 31, 2010.
 

Table 12: Key Operating Metrics1

 
          As of or For the Quarter Ended   % Change from
June 30,   March 31, June 30,   March 31,
Dollars in thousands       2011   2010 2011 2010 2011
Run Rates 2
Index and ESG products
Subscriptions $ 257,470 $ 221,174 $ 247,870 16.4 % 3.9 %
Asset-based fees   140,144     94,496     134,257   48.3 % 4.4 %
Index and ESG products total 397,614 315,670 382,127 26.0 % 4.1 %
Risk management analytics 249,048 200,161 243,853 24.4 % 2.1 %
Portfolio management analytics 118,452 121,525 116,839 (2.5 %) 1.4 %
Energy and commodity analytics   15,074     15,344     15,047   (1.8 %) 0.2 %
 
Total Performance and Risk Run Rate $ 780,188 $ 652,700 $ 757,866 19.5 % 2.9 %
 
Governance Run Rate   107,755     105,448     105,870   2.2 % 1.8 %
Total Run Rate $ 887,943   $ 758,148   $ 863,736   17.1 % 2.8 %
 
Subscription total 747,799 663,652 729,479 12.7 % 2.5 %
Asset-based fees total   140,144     94,496     134,257   48.3 % 4.4 %
Total Run Rate $ 887,943   $ 758,148   $ 863,736   17.1 % 2.8 %
 
Subscription Run Rate by region
% Americas 52 % 52 % 52 %
% non-Americas 48 % 48 % 48 %
 
Subscription Run Rate by client type
% Asset Management 57 % 57 % 56 %
% Banking & Trading 16 % 16 % 17 %
% Alternative Invt Mgmt 11 % 10 % 11 %
% Asset Owners & Consultants 9 % 9 % 9 %
% Corporate 2 % 2 % 2 %
% Others 5 % 6 % 5 %
 
New Recurring Subscription Sales $ 30,298 $ 33,847 $ 34,612 (10.5 %) (12.5 %)
Subscription Cancellations   (14,965 )   (18,222 )   (14,402 ) (17.9 %) 3.9 %
Net New Recurring Subscription Sales $ 15,333 $ 15,624 $ 20,210 (1.9 %) (24.1 %)
Non-recurring sales 8,415 6,292 13,648 33.7 % (38.3 %)
 
Employees 2,133 2,055 2,049 3.8 % 4.1 %
 
% Employees by location
Developed Market Centers 65 % 73 % 68 %
Emerging Market Centers 35 % 27 % 32 %
 
        1 Reflects combined legacy MSCI and RiskMetrics results in June 2010.
2 The run rate at a particular point in time represents the forward-looking fees for the next 12 months from all subscriptions and investment product licenses we currently provide to our clients under renewable contracts assuming all contracts that come up for renewal are renewed and assuming then-current exchange rates. For any subscription or license whose fees are linked to an investment product's assets or trading volume, the run rate calculation reflects an annualization of the most recent periodic fee earned under such license or subscription. The run rate does not include fees associated with "one-time" and other non-recurring transactions. In addition, we remove from the run rate the fees associated with any subscription or investment product license agreement with respect to which we have received a notice of termination or non-renewal during the period and we have determined that such notice evidences the client's final decision to terminate or not renew the applicable subscription or agreement, even though the notice is not effective until a later date.
 

Table 13: Supplemental Operating Metrics

 
  Recurring Subscription Sales & Subscription Cancellations
Three Months Ended 2010   Three Months Ended 2011   Six Months Ended
    March June September December March June   June 2010 June 2011
New Recurring Subscription Sales $ 26,831 $ 33,847 $ 35,373 $ 33,742 $ 34,612 $ 30,298 $ 60,678 $ 64,910
Subscription Cancellations   (19,379 )   (18,222 )   (19,654 )   (30,174 )   (14,402 )   (14,965 )     (37,601 )   (29,367 )
Net New Recurring Subscription Sales $ 7,452   $ 15,625   $ 15,719   $ 3,568   $ 20,210   $ 15,333     $ 23,077   $ 35,543  
 
 
 
Aggregate & Core Retention Rates
Three Months Ended 2010 Three Months Ended 2011 Six Months Ended
    March June September December March June June 2010 June 2011
Aggregate Retention Rate 1
Index and ESG products 94.4 % 90.2 % 92.4 % 89.8 % 95.0 % 92.8 % 92.3 % 93.9 %
 
Risk management analytics 83.4 % 92.0 % 87.7 % 85.6 % 94.2 % 92.2 % 87.7 % 93.0 %
 
Portfolio management analytics 88.9 % 84.5 % 82.2 % 63.1 % 88.6 % 91.4 % 86.7 % 90.0 %
 
Energy & commodity analytics 80.7 % 86.8 % 90.3 % 81.7 % 76.9 % 88.8 % 83.7 % 82.9 %
 
Total Performance and Risk 88.7 % 89.4 % 88.3 % 82.1 % 93.0 % 92.2 % 89.1 % 92.5 %
 
Total Governance 84.8 % 85.6 % 87.1 % 80.1 % 85.0 % 90.4 % 85.2 % 87.7 %
               
Total Aggregate Retention Rate   88.1 %   88.8 %   88.1 %   81.8 %   91.8 %   91.9 %   88.4 %   91.8 %
 
Core Retention Rate 1
Index and ESG products 95.1 % 90.7 % 92.6 % 90.1 % 95.2 % 92.8 % 92.9 % 94.0 %
 
Risk management analytics 85.2 % 92.5 % 90.0 % 85.6 % 94.2 % 92.7 % 88.8 % 93.5 %
 
Portfolio management analytics 90.9 % 86.7 % 86.0 % 64.1 % 89.9 % 93.2 % 88.8 % 91.5 %
 
Energy & commodity analytics 80.7 % 86.8 % 90.3 % 81.2 % 76.9 % 88.8 % 83.7 % 82.9 %
 
Total Performance and Risk 90.1 % 90.3 % 90.1 % 82.4 % 93.4 % 92.7 % 90.2 % 93.0 %
 
Total Governance 84.8 % 85.6 % 87.1 % 80.1 % 85.0 % 90.4 % 85.2 % 87.7 %
               
Total Core Retention Rate   89.2 %   89.5 %   89.6 %   82.0 %   92.1 %   92.4 %   89.4 %   92.2 %
 

1 The quarterly Aggregate Retention Rates are calculated by annualizing the cancellations for which we have received a notice of termination or non-renewal during the quarter and we have determined that such notice evidences the client's final decision to terminate or not renew the applicable subscription or agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscription Run Rate at the beginning of the year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the quarter. The Aggregate Retention Rate is computed on a product-by-product basis. Therefore, if a client reduces the number of products to which it subscribes or switches between our products, we treat it as a cancellation. In addition, we treat any reduction in fees resulting from renegotiated contracts as a cancellation in the calculation to the extent of the reduction. Aggregate Retention Rates are generally higher during the first three quarters and lower in the fourth quarter. For the calculation of the Core Retention Rate the same methodology is used except the amount of cancellations in the quarter is reduced by the amount of product swaps.

 

Table 14: ETF Assets Linked to MSCI Indices1

 
    Three Months Ended 2010     Three Months Ended 2011   Six Months Ended
In Billions   March   June   September   December March   June   June 2010   June 2011
Beginning Period AUM in ETFs linked to MSCI Indices $ 243.0   $ 255.4   $ 236.8   $ 290.7 $ 333.3   $ 350.1 $ 243.0 $ 333.3
Cash Inflow/ Outflow 4.9 11.8 14.9 21.9 6.7 14.2 16.7 20.9
Appreciation/Depreciation   7.5   (30.4 )   39.0   20.7   10.1   (3.8 )   (22.9 )   6.3
Period End AUM in ETFs linked to MSCI Indices $ 255.4 $ 236.8   $ 290.7 $ 333.3 $ 350.1 $ 360.5   $ 236.8   $ 360.5
 
Period Average AUM in ETFs linked to MSCI Indices $ 242.8 $ 249.6 $ 263.7 $ 317.0 $ 337.6 $ 356.8 $ 246.9 $ 348.1
 
1Our ETF assets under management calculation methodology is ETF net asset value (NAV) multiplied by shares outstanding. Source: Bloomberg and MSCI
 

Table 15: Reconciliation of Adjusted EBITDA to Net Income

 
Three Months Ended June 30, 2011         Three Months Ended May 31, 2010

Performance

and Risk

    Governance     Total

Performance

 and Risk

    Governance     Total
Net Income         $ 45,660         $ 24,067
Plus: Provision for income taxes 23,982 13,884
Plus: Other expense (income), net               13,049               8,746
Operating income $ 79,855     $ 2,836       $ 82,691 $ 46,697     $ -     $ 46,697
Plus: Non-recurring stock based comp 2,508 165 2,673 2,040 - 2,040
Plus: Transaction costs - - - 5,264 - 5,264
Plus: Depreciation and amortization 4,041 1,127 5,168 3,556 - 3,556
Plus: Amortization of intangible assets 13,073 3,350 16,423 4,277 - 4,277
Plus: Restructuring costs   72       (32 )       40   -       -       -
Adjusted EBITDA $ 99,549     $ 7,446       $ 106,995 $ 61,834     $ -     $ 61,834
 
 
 
 
Six Months Ended June 30, 2011 Six Months Ended May 31, 2010

Performance

and Risk

    Governance     Total

Performance

and Risk

    Governance     Total
Net Income $ 79,181 $ 51,585
Plus: Provision for income taxes 43,805 30,203
Plus: Other expense (income), net               35,134               12,166
Operating income $ 152,501     $ 5,619       $ 158,120 $ 93,954     $ -     $ 93,954
Plus: Non-recurring stock based comp 5,186 299 5,485 4,111 - 4,111
Plus: Transaction costs - - - 7,514 - 7,514
Plus: Depreciation and amortization 8,020 2,258 10,278 6,949 - 6,949
Plus: Amortization of intangible assets 26,415 6,700 33,115 8,555 - 8,555
Plus: Restructuring costs   2,388       2,083         4,471   -       -       -
Adjusted EBITDA $ 194,510     $ 16,959       $ 211,469 $ 121,083     $ -     $ 121,083
 

Table 16: Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Income

 
    Three Months Ended June 30, 2011   Second Quarter 20101

Performance

and Risk

Governance Total

Performance

and Risk

Governance Total
Net Income $ 45,660 $ 30,813
Plus: Provision for income taxes 23,982 12,915
Plus: Other expense (income), net       13,049       17,881
Operating income $ 79,855 $ 2,836   $ 82,691 $ 58,027 $ 3,582 $ 61,609
Plus: Non-recurring stock based comp 2,508 165 2,673 2,040 - 2,040
Plus: Transaction costs - - - - - -
Plus: Depreciation and amortization 4,041 1,127 5,168 4,568 1,139 5,707
Plus: Amortization of intangible assets 13,073 3,350 16,423 12,830 3,350 16,180
Plus: Restructuring costs   72   (32 )   40   -   -   -
Adjusted EBITDA $ 99,549 $ 7,446   $ 106,995 $ 77,465 $ 8,071 $ 85,536
 
 
 
Six Months Ended June 30, 2011 Six Months 20102

Performance

and Risk

Governance Total

Performance

and Risk

Governance Total
Net Income $ 79,181 $ 59,347
Plus: Provision for income taxes 43,805 28,096
Plus: Other expense (income), net       35,134       34,926
Operating income $ 152,501 $ 5,619   $ 158,120 $ 114,560 $ 7,809 $ 122,369
Plus: Non-recurring stock based comp 5,186 299 5,485 4,111 - 4,111
Plus: Transaction costs - - - - - -
Plus: Depreciation and amortization 8,020 2,258 10,278 9,044 2,152 11,196
Plus: Amortization of intangible assets 26,415 6,700 33,115 25,660 6,700 32,360
Plus: Restructuring costs   2,388   2,083     4,471   -   -   -
Adjusted EBITDA $ 194,510 $ 16,959   $ 211,469 $ 153,375 $ 16,661 $ 170,036
 
1IncludesMSCI's results for the second quarter ended May 31, 2010 and RiskMetrics' first quarter ended March 31, 2010
2Includes MSCI's results for the six months ended May 31, 2010 and RiskMetrics' fourth quarter ended December 31, 2009 and first quarter ended March 31, 2010.
 

Table 17: Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS

 

      Three Months Ended     Six Months Ended
June 30,   May 31,   March 31, June 30,   May 31,
  2011     2010     2011     2011     2010  
GAAP - Net income $ 45,660 $ 24,067 $ 33,521 $ 79,181 $ 51,585
Plus: Non-recurring stock based comp 2,673 2,040 2,813 5,485 4,111
Plus: Amortization of intangible assets 16,423 4,277 16,692 33,115 8,555
Plus: Transaction costs1 - 5,264 - - 7,514
Plus: Debt repayment and refinancing expenses2 - 6,280 6,404 6,404 6,280
Plus: Restructuring costs $ 40 $ - $ 4,431 $ 4,471 $ -
Less: Income tax effect3   (6,590 )   (4,315 )   (11,275 )   (17,622 )   (6,997 )
Adjusted net income $ 58,206   $ 37,613   $ 52,585   $ 111,034   $ 71,048  
 
GAAP - EPS $ 0.37 $ 0.22 $ 0.27 $ 0.64 $ 0.48
Plus: Non-recurring stock based comp 0.02 0.02 0.02 0.04 0.04
Plus: Amortization of intangible assets 0.13 0.04 0.14 0.27 0.08
Plus: Transaction costs1 0.00 0.05 0.00 0.00 0.07
Plus: Debt repayment and refinancing expenses2 0.00 0.06 0.05 0.05 0.06
Plus: Restructuring costs 0.00 0.00 0.04 0.04 0.00
Less: Income tax effect3   (0.05 )   (0.04 )   (0.09 )   (0.14 )   (0.07 )
Adjusted EPS $ 0.47   $ 0.35   $ 0.43   $ 0.90   $ 0.66  
 
1Third party transaction expenses related to the acquisition of RiskMetrics
2In the first quarter of 2011, MSCI repaid $88.0 million of its outstanding term loan. At the same time, MSCI repriced the remaining $1.125 million loan. As a result, MSCI recorded $6.1 million of underwriting fees in conjunction with the repricing and $0.3 million of accelerated deferred financing expense related to the $88 million repayment. MSCI also incurred $6.3 million of expenses in second quarter 2010 resulting from its decision to repay $297 million of its then outstanding term loans.
3For the purposes of calculating Adjusted EPS, non-recurring stock based compensation, amortization of intangible assets, debt repayment and refinancing expenses, and restructuring costs are assumed to be taxed at the effective tax rate excluding transaction costs. For the second quarter 2011, the rate is 34.4%. For the second quarter 2010, the effective tax rate excluding transaction costs was 36.6%. For the six months 2011, the rate is 35.6% and for six months 2010, the rate was 36.9%.
 

MSCI Inc.
Edings Thibault, + 1-212-804-5273
MSCI, New York
or
For media inquiries:
Abernathy MacGregor, New York
Kenny Suarez| Patrick Clifford, + 1-212-371-5999
or
MHP Communications, London
Sally Todd| Kristy Fitzpatrick, + 44-20-3128-8100


© Business Wire 2011
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