MSCI INC : MSCI Inc. Reports Second Quarter 2011 Financial Results
08/04/2011| 07:35am US/Eastern
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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.
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
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