MSCI Reports Financial Results for First Quarter 2019

NEW YORK–(BUSINESS WIRE)–MSCI Inc. (NYSE: MSCI), a leading provider of critical decision support
tools and services for the global investment community, today announced
results for the three months ended March 31, 2019 (“first quarter 2019”).

Financial and Operational Highlights for First Quarter 2019

(Note: Percentage and other changes refer to first quarter 2018
unless otherwise noted.)

  • Organic subscription Run Rate growth of 10.4%; Index up 11.6%,
    Analytics up 7.0% and All Other up 19.3%.
  • Operating revenues up 5.7% with recurring subscription revenues up
    8.3%, asset-based fees down 4.3% and non-recurring revenues up 43.7%.
  • Organic operating revenue growth was 8.6% with organic recurring
    subscription revenues up 12.2%.
  • Diluted EPS of $2.08, up 67.7%; Adjusted EPS of $1.55, up 18.3%.
  • Record quarterly Retention Rate at 95.2%. New recurring
    subscription sales up 16.5%, total net new up 34.3%.
  • During first quarter 2019 a total of 0.7 million shares were
    repurchased at an average price of $147.97 per share for a total value
    of $102.1 million.
  Three Months Ended
Mar. 31,   Mar. 31,   Dec. 31,   YoY %
In thousands, except per share data 2019 2018 2018 Change
Operating revenues $ 371,381 $ 351,316 $ 361,688   5.7 %
Operating income $ 162,675 $ 167,166 $ 169,818 (2.7 %)
Operating margin % 43.8 % 47.6 % 47.0 %
 
Net income $ 178,192 $ 115,092 $ 152,132 54.8 %
 
Diluted EPS $ 2.08 $ 1.24 $ 1.70 67.7 %
Adjusted EPS $ 1.55 $ 1.31 $ 1.31 18.3 %
 
Adjusted EBITDA $ 197,707 $ 186,709 $ 189,762 5.9 %
Adjusted EBITDA margin % 53.2 % 53.1 % 52.5 %

“We continue to deliver strong results quarter after quarter, including
our sixth consecutive quarter of approximately 10% organic subscription
run rate growth. We are off to a great start in 2019 as we continue to
execute on the key pillars of our growth strategy. Our consistent and
reliable operating and financial performance, amid volatile market
conditions and a rapidly transforming industry, demonstrates the
strength of our franchise and power of our value proposition. Our
ingrained position at the center of the investment process, coupled with
our flexible technology, differentiated content and actionable
solutions, allows us to provide must-have mission critical tools
enabling global investors to build better portfolios for a better
world,” commented Henry A. Fernandez, Chairman and CEO of MSCI.

“We see enormous opportunities within our core areas of differentiated
content such as equity indexes, factors and ESG, to build stronger
strategic relationships with our clients globally. We also continue to
execute our in-flight opportunities and are well-positioned to
capitalize on the wide range of attractive investment opportunities we
see to help drive top-line growth,” added Mr. Fernandez.

First Quarter 2019 Consolidated Results

Revenues:
Operating revenues for first quarter 2019 increased $20.1 million, or
5.7%, to $371.4 million, compared to the three months ended March 31,
2018 (“first quarter 2018”). The $20.1 million increase in operating
revenues was driven by a $21.5 million, or 8.3%, increase in recurring
subscriptions (driven primarily by a $14.5 million, or 12.8%, increase
in Index and a $5.2 million, or 32.4%, increase in ESG), and a $2.2
million, or 43.7%, increase in non-recurring revenues, partially offset
by a $3.7 million, or 4.3%, decrease in asset-based fees. Organic
operating revenue growth was 8.6%, with organic recurring subscription
revenues up 12.2%, organic non-recurring revenues up 49.0% and organic
asset-based fees down 4.2%.

Run Rate: Total
Run Rate at March 31, 2019 grew by $75.0 million, or 5.3%, to $1,478.1
million, compared to March 31, 2018. The $75.0 million increase was
driven by a $71.9 million, or 6.7%, increase in recurring subscription
Run Rate to $1,142.8 million, and a $3.0 million, or 0.9%, increase in
asset-based fees Run Rate to $335.3 million, which was partially offset
by a $25.4 million decline in recurring subscription Run Rate from the
2018 divestitures of Financial Engineering Associates, Inc. (“FEA”) and
Investor Force Holdings, Inc. (“InvestorForce”). Organic subscription
Run Rate growth of 10.4% in first quarter 2019 was driven by strong
growth in the Index and ESG segments and in the Analytics segment’s
Multi-Asset Class and Equity Analytics products. Retention Rate was
95.2% in first quarter 2019, compared to 94.6% in first quarter 2018,
our highest quarterly retention rate since our initial public offering
in 2007.

Expenses: Total
operating expenses for first quarter 2019 increased $24.6 million, or
13.3%, to $208.7 million compared to first quarter 2018, driven mainly
by a $15.4 million payroll tax impact from the vesting of multi-year
restricted stock units granted in 2016 to certain senior executives that
are subject to the achievement of multi-year total shareholder return
targets, which are performance targets with a market condition (the
“Multi-Year PSUs”), and an $8.3 million, or 7.0%, increase in
compensation and benefits costs. The compensation and benefit cost
increase is attributable to higher incentive compensation, benefits,
severance costs and wages and salaries. Non-compensation costs increased
by $0.8 million, or 1.7%, and was attributable to an increase in
professional fees.

The Multi-Year PSUs granted in 2016 covered three years of the annual
performance stock unit (“PSU”) component of long-term incentive
compensation for certain senior executives and, therefore, such
executives did not receive any PSU grants in 2017 or 2018. While the
award is accrued over the vesting period (i.e., between first quarter
2016 and first quarter 2019), there was a related payroll tax upon
vesting in first quarter 2019. Given the one-time and non-recurring
nature of the Multi-Year PSU grant, we have excluded the related payroll
tax expense from our adjusted figures.

Adjusted EBITDA expenses for first quarter 2019 increased $9.1 million,
or 5.5%, to $173.7 million compared to first quarter 2018. Total
operating expenses excluding the impact of foreign currency exchange
rate fluctuations (“ex-FX”) and adjusted EBITDA expenses ex-FX for first
quarter 2019 increased 16.6% and 9.0%, respectively, compared to first
quarter 2018.

Headcount: As
of March 31, 2019, there were 3,179 employees, up 3.9% from 3,059 as of
March 31, 2018, and up 2.2% from 3,112 as of December 31, 2018. The 3.9%
year-over-year increase in employees was primarily driven by increased
headcount in emerging market centers and in areas related to technology,
research and marketing. As of March 31, 2019, a total of 38.0% and 62.0%
of employees were located in developed market and emerging market
centers, respectively, compared to 40.5% in developed market centers and
59.5% in emerging market centers as of March 31, 2018.

Amortization and Depreciation Expenses:
Amortization and depreciation expenses increased $0.1 million, or 0.5%,
to $19.6 million, compared to first quarter 2018, primarily as a result
of higher amortization of internally capitalized software projects,
partially offset by lower amortization due to the impact of the
InvestorForce divestiture in October 2018 and the write-off of the IPD
tradename used by the Real Estate segment in the three months ended June
30, 2018, and lower depreciation expense reflecting certain data center
assets becoming fully depreciated.

Other Expense (Income), Net:
Other expense (income), net increased $6.7 million, or 24.0%, to
$34.4 million, compared to first quarter 2018, mainly due to higher
interest expense associated with higher outstanding debt and higher
foreign currency exchange losses, partially offset by an increase in
interest income driven by higher yields.

Tax Rate: The
first quarter 2019 effective tax rate was a negative 38.9%, compared to
an effective tax rate of 17.5% for first quarter 2018. First quarter
2019 had an income tax benefit of $49.9 million, compared to an income
tax expense of $24.3 million for first quarter 2018. The lower effective
tax rate compared to first quarter 2018 was driven by the income tax
benefit related to the vesting of the Multi-Year PSUs (the “PSU windfall
benefit”), and other discrete items. The PSU windfall benefit totaled
$66.6 million in first quarter 2019 and is excluded from both the
adjusted net income and adjusted EPS measures for first quarter 2019.
Excluding the PSU windfall benefit, the first quarter 2019 adjusted tax
rate was 13.0%.

Net Income: Net
income increased 54.8% to $178.2 million in first quarter 2019, compared
to $115.1 million in first quarter 2018.

Adjusted EBITDA:
Adjusted EBITDA was $197.7 million in first quarter 2019, up $11.0
million, or 5.9%, from first quarter 2018. Adjusted EBITDA margin in
first quarter 2019 was 53.2%, compared to 53.1% in first quarter 2018.

Cash Balances and Outstanding Debt:
Total cash and cash equivalents as of March 31, 2019 was $642.8 million.
MSCI seeks to maintain minimum cash balances globally of approximately
$200.0 million to $250.0 million for general operating purposes.

Total outstanding debt as of March 31, 2019 was $2,600.0 million, which
excludes deferred financing fees of $23.6 million. Net debt, defined as
total outstanding debt less cash and cash equivalents, was $1,957.2
million at March 31, 2019. The total debt to operating income ratio
(based on trailing twelve months operating income) was 3.8x. The total
debt to adjusted EBITDA ratio (based on trailing twelve months adjusted
EBITDA) was 3.3x, which is within the stated gross leverage to adjusted
EBITDA target range of 3.0x to 3.5x.

Cash Flow and Capex:
Net cash provided by operating activities was $87.9 million in first
quarter 2019, compared to $88.6 million in first quarter 2018 and $173.2
million in the three months ended December 31, 2018 (“fourth quarter
2018”). Capex for first quarter 2019 was $8.1 million, compared to $5.9
million in first quarter 2018 and $22.8 million in fourth quarter 2018.
Free cash flow was $79.7 million in first quarter 2019, compared to
$82.7 million in first quarter 2018 and $150.4 million in fourth quarter
2018. The decrease in net cash provided by operating activities,
compared to fourth quarter 2018, was driven primarily by higher payments
of cash expenses (primarily related to the impact of the annual cash
incentives paid in the first quarter), partially offset by higher cash
collections and lower income tax payments. The decrease in free cash
flow, compared to fourth quarter 2018, was driven by lower net cash
provided by operating activities, partially offset by lower Capex.

The decrease in net cash provided by operating activities, compared to
first quarter 2018, was driven primarily by higher payments of cash
expenses and income taxes, partially offset by higher cash collections.
The decrease in free cash flow, compared to first quarter 2018, was
driven primarily by higher Capex.

Share Count and Capital Return:
The weighted average diluted shares outstanding in first quarter 2019
declined 7.5% to 85.6 million, compared to 92.6 million in first quarter
2018. In first quarter 2019, a total of 0.7 million shares were
repurchased at an average price of $147.97 per share for a total value
of $102.1 million. A total of $0.7 billion remains on the outstanding
share repurchase authorization as of April 30, 2019. Total shares
outstanding as of March 31, 2019 was 84.7 million.

On May 1, 2019, the Board declared a cash dividend of $0.58 per share
for second quarter 2019. The second quarter 2019 dividend is payable on
May 31, 2019 to shareholders of record as of the close of trading on May
17, 2019.

Table 1: Results by Segment (unaudited)

           
Index Analytics All Other
Adjusted Adjusted Adjusted
Operating Adjusted EBITDA Operating Adjusted EBITDA Operating Adjusted EBITDA
In thousands Revenues EBITDA Margin Revenues EBITDA Margin Revenues EBITDA Margin
1Q’19 $ 214,773 $ 152,211   70.9 % $ 121,435 $ 36,398   30.0 % $ 35,173 $ 9,098   25.9 %
1Q’18 $ 201,914 $ 145,930 72.3 % $ 118,987 $ 33,593 28.2 % $ 30,415 $ 7,186 23.6 %
% change 6.4 % 4.3 % 2.1 % 8.3 % 15.6 % 26.6 %
 
4Q’18 $ 210,433 $ 149,930 71.2 % $ 121,935 $ 36,679 30.1 % $ 29,320 $ 3,153 10.8 %
% change   2.1 %   1.5 %       (0.4 %)   (0.8 %)       20.0 %   188.6 %    

Index Segment:
Operating revenues for first quarter 2019 increased $12.9 million,
or 6.4%, to $214.8 million, compared to first quarter 2018. The increase
was driven by a $14.5 million, or 12.8%, increase in recurring
subscriptions and a $2.1 million, or 64.0%, increase in non-recurring
revenues, partially offset by a $3.7 million, or 4.3%, decrease in
asset-based fees.

The increase in recurring subscriptions was driven by strong growth in
core products, factor and ESG index products and custom and specialized
index products.

The decrease in asset-based fees was driven by a $3.2 million, or 5.5%,
decline in revenues from exchange traded funds (“ETFs”) linked to MSCI
indexes, a $0.3 million, or 5.8%, decline in exchange traded futures and
options contracts based on MSCI indexes and a $0.2 million, or 0.8%,
decline in revenues from non-ETF passive funds linked to MSCI indexes.
The decrease in revenues from ETFs linked to MSCI indexes was driven by
a 1.7% decline in average assets under management (“AUM”), coupled with
a decline in average basis point fees resulting primarily from a change
in product mix. The decrease in revenues from futures and options
reflected lower net fees charged by certain exchanges, which more than
offset an increase in total trading volumes.

The increase in non-recurring revenues was primarily driven by higher
volume of deep historical content deals. The adjusted EBITDA margin for
Index was 70.9% for first quarter 2019, compared to 72.3% for first
quarter 2018.

Index Run Rate at March 31, 2019 grew by $56.6 million, or 7.1%, to
$850.9 million, compared to March 31, 2018. The increase was driven by a
$53.6 million, or 11.6%, increase in recurring subscription Run Rate,
and a $3.0 million, or 0.9%, increase in asset-based fees Run Rate. The
11.6% increase in Index recurring subscription Run Rate was driven by
strong growth in core developed and emerging market modules, factor and
ESG, and custom and specialized index products. The year-over-year
increase was also supported by strong growth across our asset
management, banking, asset owners and wealth management client segments.
The increase in asset-based fees Run Rate was primarily driven by an
increase in non-ETF passive funds linked to MSCI indexes and higher
volume in futures and options.

Analytics Segment:
Operating revenues for first quarter 2019 increased $2.4 million, or
2.1%, to $121.4 million, compared to first quarter 2018, primarily
driven by growth in both Multi-Asset Class and Equity Analytics products
and the timing of client implementations, partially offset by the
divestitures of InvestorForce and FEA. Organic operating revenue growth
was 9.2%. The adjusted EBITDA margin for Analytics was 30.0% for first
quarter 2019, compared to 28.2% for first quarter 2018.

Analytics Run Rate at March 31, 2019 grew by $1.4 million, or 0.3%, to
$496.2 million, compared to March 31, 2018, primarily driven by growth
in both Multi-Asset Class and Equity Analytics products, partially
offset by the removal of Run Rate associated with FEA, which was
divested in April 2018, and InvestorForce, which was divested in October
2018. Analytics organic subscription Run Rate growth was 7.0% compared
to March 31, 2018.

All Other Segment:
Operating revenues for first quarter 2019 increased $4.8 million, or
15.6%, to $35.2 million, compared to first quarter 2018. The increase in
All Other operating revenues was driven by a $5.1 million, or 31.0%,
increase in ESG operating revenues to $21.6 million, partially offset by
a $0.3 million, or 2.5%, decrease in Real Estate operating revenues to
$13.6 million. The increase in ESG operating revenues was driven by
strong growth in ESG Ratings products and ESG Screening product
revenues, as we continue to see strong demand across all client segments
and new use cases. The decrease in Real Estate operating revenues was
primarily driven by the negative impact of foreign currency exchange
rate fluctuations. First quarter 2019 All Other organic operating
revenue growth was 20.9%, with ESG organic operating revenues up 34.3%
and Real Estate organic operating revenues up 5.0%. The adjusted EBITDA
margin for All Other was 25.9% for first quarter 2019, compared to 23.6%
for first quarter 2018.

All Other Run Rate at March 31, 2019 grew by $17.0 million, or 14.9%, to
$131.0 million, compared to March 31, 2018. The increase was driven by a
$15.1 million, or 22.0%, increase in ESG Run Rate to $84.0 million, and
a $1.8 million, or 4.1%, increase in Real Estate Run Rate to $46.9
million. The increase in ESG Run Rate was primarily driven by strong
growth in ESG Ratings products and an increase in ESG Screening
products. The increase in Real Estate Run Rate was primarily driven by
growth in Global Intel products. All Other organic subscription Run Rate
increased 19.3%, with ESG Run Rate increasing 25.0%, and Real Estate Run
Rate up 10.6%, each compared to March 31, 2018.

Full-Year 2019 Guidance

MSCI’s guidance for full-year 2019 is as follows:

  • Total operating expenses are now expected to be in the range of $775
    million to $800 million.
  • Adjusted EBITDA expenses1 are expected to be in the range
    of $685 million to $705 million.
  • Interest expense, including the amortization of financing fees, is
    expected to be approximately $144 million, assuming no additional
    financings.
  • Capex is expected to be in the range of $45 million to $55 million.
  • Net cash provided by operating activities and free cash flow are
    expected to be in the ranges of $600 million to $630 million and $545
    million to $585 million, respectively.
  • The effective tax rate2 is now expected to be in the range
    of 9.0% to 12.0%.
1Excludes the payroll tax impact from the vesting in
first quarter 2019 of the Multi-Year PSUs.
2Includes the PSU windfall benefit which is expected to
reduce the 2019 effective tax rate by ~11 percentage points. The
previous effective tax rate guidance was expected to be in the range
of 11.5% to 14.5%.

Conference Call Information

MSCI’s senior management will review the first quarter 2019 results on
Thursday, May 2, 2019 at 11:00 AM Eastern Time. To listen to the live
event, visit the events and presentations section of MSCI’s Investor
Relations homepage, http://ir.msci.com/events.cfm,
or dial 1-877-376-9931 conference ID: 1957547 within the United States.
International callers dial 1-720-405-2251 conference ID: 1957547. The
earnings release, first quarter update and related investor presentation
used during the conference call will be made available on MSCI’s
Investor Relations homepage.

An audio recording of the conference call will be available on our
Investor Relations website, http://ir.msci.com/events.cfm,
beginning approximately two hours after the conclusion of the live
event. Through May 5, 2019, the recording will also be available by
dialing 1-855-859-2056 conference ID: 1957547 within the United States
or 1-404-537-3406 conference ID: 1957547 for international callers. A
replay of the conference call will be archived in the events and
presentations section of MSCI’s Investor Relations website for 12 months
after the call.

About MSCI

MSCI is a leading provider of critical decision support tools and
services for the global investment community. With over 45 years of
expertise in research, data and technology, we power better investment
decisions by enabling clients to understand and analyze key drivers of
risk and return and confidently build more effective portfolios. We
create industry-leading, research-enhanced solutions that clients use to
gain insight into and improve transparency across the investment process.

To learn more, please visit www.msci.com.
MSCI#IR

Forward-Looking Statements

This earnings release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including without limitation, our full-year 2019 guidance. These
forward-looking statements relate to future events or to future
financial performance and involve known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or
implied by these statements. In some cases, you can identify
forward-looking statements by the use of words such as “may,” “could,”
“expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,”
“predict,” “potential” or “continue,” or the negative of these terms or
other comparable terminology. You should not place undue reliance on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors that are, in some cases, beyond our
control and that could materially affect our actual results, levels of
activity, performance or achievements.

Other factors that could materially affect actual results, levels of
activity, performance or achievements can be found in MSCI’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2018 filed
with the Securities and Exchange Commission (“SEC”) on February 22, 2019
and in quarterly reports on Form 10-Q and current reports on Form 8-K
filed or furnished with the SEC. If any of these risks or uncertainties
materialize, or if our underlying assumptions prove to be incorrect,
actual results may vary significantly from what MSCI projected. Any
forward-looking statement in this earnings release reflects MSCI’s
current views with respect to future events and is subject to these and
other risks, uncertainties and assumptions relating to MSCI’s
operations, results of operations, growth strategy and liquidity. MSCI
assumes no obligation to publicly update or revise these forward-looking
statements for any reason, whether as a result of new information,
future events, or otherwise, except as required by law.

Website and Social Media Disclosure

MSCI uses its website, including its first quarter update, blog,
podcasts and social media channels, including its corporate Twitter
account (@MSCI_Inc), as channels of distribution of company information.
The information we post through these channels may be deemed material.
Accordingly, investors should monitor these channels, in addition to
following our press releases, SEC filings and public conference calls
and webcasts. In addition, you may automatically receive email alerts
and other information about MSCI when you enroll your email address by
visiting the “Email Alerts Subscription” section of MSCI’s Investor
Relations homepage at http://ir.msci.com/alerts.cfm.
The contents of MSCI’s website, including its first quarter update,
blog, podcasts and social media channels are not, however, incorporated
by reference into this earnings release.

The historical values of the AUM in ETFs linked to our indexes as of the
last day of and the monthly average for April 2019 will be available
under the link “AUM in ETFs Linked to MSCI Indexes” on our Investor
Relations homepage at http://ir.msci.com
on or about May 15, 2019.

Notes Regarding the Use of Operating Metrics

MSCI has presented supplemental key operating metrics as part of this
earnings release, including Run Rate, subscription sales and
cancellations, non-recurring sales and Retention Rate.

Retention Rate is an important metric because subscription cancellations
decrease our Run Rate and ultimately our operating revenues over time.
The annual Retention Rate represents the retained subscription Run Rate
(subscription Run Rate at the beginning of the fiscal year less actual
cancels during the year) as a percentage of the subscription Run Rate at
the beginning of the fiscal year.

Contacts

MSCI Inc.
Investors
Jay Penn [email protected]
+ 1 212 981 1074

Media Inquiries
[email protected]
Sam
Wang +1 212 804 5244
Melanie Blanco +1 212 981 1049
Laura
Hudson +44 20 7336 9653

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