msci-10q_20190331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-33812

 

MSCI INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

13-4038723

(State of

Incorporation)

 

(I.R.S. Employer

Identification Number)

 

 

 

7 World Trade Center

250 Greenwich Street, 49th Floor

New York, New York

 

10007

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (212) 804-3900

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

MSCI

 

New York Stock Exchange

As of April 26, 2019, there were 84,678,661 shares of the registrant’s common stock, par value $0.01, outstanding.

 

 

 


 

MSCI INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Part I

 

 

Item 1.

 

Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4.

 

Controls and Procedures

 

40

 

 

 

 

 

 

 

Part II

 

 

Item 1.

 

Legal Proceedings

 

41

Item 1A.

 

Risk Factors

 

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

Item 3.

 

Defaults Upon Senior Securities

 

42

Item 4.

 

Mine Safety Disclosures

 

42

Item 5.

 

Other Information

 

42

Item 6.

 

Exhibits

 

43

 

 

2


 

AVAILABLE INFORMATION

MSCI Inc. files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including MSCI Inc.) file electronically with the SEC. MSCI Inc.’s electronic SEC filings are available to the public at the SEC’s website, www.sec.gov.

MSCI Inc.’s website is www.msci.com. You can access MSCI Inc.’s Investor Relations homepage at http://ir.msci.com. MSCI Inc. makes available free of charge, on or through its Investor Relations homepage, its proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. MSCI Inc. also makes available, through its Investor Relations homepage, via a link to the SEC’s website, statements of beneficial ownership of MSCI Inc.’s equity securities filed by its directors, officers, 5% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about MSCI Inc.’s corporate governance at http://ir.msci.com/corporate-governance.cfm, including copies of the following:

 

Charters for MSCI Inc.’s Audit Committee, Compensation & Talent Management Committee, Nominating and Corporate Governance Committee and Strategy and Finance Committee;

 

Corporate Governance Policies;

 

Procedures for Submission of Ethical or Accounting Related Complaints; and

 

Code of Ethics and Business Conduct.

MSCI Inc.’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer and its Chief Financial Officer. MSCI Inc. will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC on its website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, MSCI Inc., 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, NY 10007; (212) 981-1074. The information on MSCI Inc.’s website is not incorporated by reference into this report or any other report filed or furnished by us with the SEC.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 the 2018 Annual Report on Form 10-K filed with the 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 report 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.

3


 

WEBSITE AND SOCIAL MEDIA DISCLOSURE

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

 

 

4


 

PART I

Item 1.

Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except per share and share data)

 

 

 

As of

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

642,781

 

 

$

904,176

 

Accounts receivable (net of allowances of $707 and $1,027 at March 31, 2019 and

    December 31, 2018, respectively)

 

 

427,099

 

 

 

473,433

 

Prepaid income taxes

 

 

72,505

 

 

 

19,273

 

Prepaid and other assets

 

 

35,541

 

 

 

38,207

 

Total current assets

 

 

1,177,926

 

 

 

1,435,089

 

Property, equipment and leasehold improvements (net of accumulated depreciation and

    amortization of $189,603 and $185,505 at March 31, 2019 and December 31, 2018,

    respectively)

 

 

86,087

 

 

 

90,877

 

Right of use assets

 

 

170,573

 

 

 

 

Goodwill

 

 

1,546,961

 

 

 

1,545,761

 

Intangible assets (net of accumulated amortization of $554,183 and $541,967 at

    March 31, 2019 and December 31, 2018, respectively)

 

 

274,576

 

 

 

280,803

 

Deferred tax assets

 

 

20,211

 

 

 

14,903

 

Other non-current assets

 

 

19,231

 

 

 

20,519

 

Total assets

 

$

3,295,565

 

 

$

3,387,952

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,099

 

 

$

3,892

 

Income taxes payable

 

 

10,422

 

 

 

16,253

 

Accrued compensation and related benefits

 

 

55,884

 

 

 

137,045

 

Other accrued liabilities

 

 

127,406

 

 

 

113,841

 

Deferred revenue

 

 

524,988

 

 

 

537,977

 

Total current liabilities

 

 

720,799

 

 

 

809,008

 

Long-term debt

 

 

2,576,388

 

 

 

2,575,502

 

Long-term operating lease liabilities

 

 

168,487

 

 

 

 

Deferred tax liabilities

 

 

79,598

 

 

 

82,008

 

Other non-current liabilities

 

 

66,801

 

 

 

87,928

 

Total liabilities

 

 

3,612,073

 

 

 

3,554,446

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 7 and Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock (par value $0.01, 100,000,000 shares authorized; no shares issued)

 

 

 

 

 

 

Common stock (par value $0.01; 750,000,000 common shares authorized; 132,265,024

    and 130,029,926 common shares issued and 84,675,001 and 84,174,138 common

    shares outstanding at March 31, 2019 and December 31, 2018, respectively)

 

 

1,323

 

 

 

1,300

 

Treasury shares, at cost (47,590,023 and 45,855,788 common shares held at March

     31, 2019 and December 31, 2018, respectively)

 

 

(3,557,270

)

 

 

(3,272,774

)

Additional paid in capital

 

 

1,316,837

 

 

 

1,306,428

 

Retained earnings

 

 

1,979,804

 

 

 

1,856,951

 

Accumulated other comprehensive loss

 

 

(57,202

)

 

 

(58,399

)

Total shareholders' equity (deficit)

 

 

(316,508

)

 

 

(166,494

)

Total liabilities and shareholders' equity (deficit)

 

$

3,295,565

 

 

$

3,387,952

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

5


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Operating revenues

 

$

371,381

 

 

$

351,316

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of revenues

 

 

82,346

 

 

 

71,304

 

Selling and marketing

 

 

56,048

 

 

 

46,409

 

Research and development

 

 

23,172

 

 

 

20,707

 

General and administrative

 

 

27,497

 

 

 

26,187

 

Amortization of intangible assets

 

 

11,793

 

 

 

11,338

 

Depreciation and amortization of property, equipment and leasehold improvements

 

 

7,850

 

 

 

8,205

 

Total operating expenses

 

 

208,706

 

 

 

184,150

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

162,675

 

 

 

167,166

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(4,086

)

 

 

(2,770

)

Interest expense

 

 

35,915

 

 

 

29,560

 

Other expense (income)

 

 

2,554

 

 

 

938

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

34,383

 

 

 

27,728

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

128,292

 

 

 

139,438

 

Provision for income taxes

 

 

(49,900

)

 

 

24,346

 

Net income

 

$

178,192

 

 

$

115,092

 

 

 

 

 

 

 

 

 

 

Earnings per basic common share

 

$

2.11

 

 

$

1.28

 

 

 

 

 

 

 

 

 

 

Earnings per diluted common share

 

$

2.08

 

 

$

1.24

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding used in computing earnings per share

 

 

 

 

 

 

 

 

Basic

 

 

84,253

 

 

 

90,075

 

Diluted

 

 

85,649

 

 

 

92,587

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

6


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2019

 

 

2018

 

 

 

 

(unaudited)

Net income

 

$

178,192

 

 

$

115,092

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

1,533

 

 

 

3,962

 

 

Income tax effect

 

 

(347

)

 

 

 

 

Foreign currency translation adjustments, net

 

 

1,186

 

 

 

3,962

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other post-retirement adjustments

 

 

20

 

 

 

(100

)

 

Income tax effect

 

 

(9

)

 

 

27

 

 

Pension and other post-retirement adjustments, net

 

 

11

 

 

 

(73

)

 

 

 

 

 

 

 

 

 

 

 

Net investment hedge adjustments

 

 

 

 

 

123

 

 

Income tax effect

 

 

 

 

 

 

 

Net investment hedge adjustments, net

 

 

 

 

 

123

 

 

Other comprehensive (loss) income, net of tax

 

 

1,197

 

 

 

4,012

 

 

Comprehensive income

 

$

179,389

 

 

$

119,104

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

7


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

 

 

(unaudited)

 

Balance at December 31, 2018

 

$

1,300

 

 

$

(3,272,774

)

 

$

1,306,428

 

 

$

1,856,951

 

 

$

(58,399

)

 

$

(166,494

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

178,192

 

 

 

 

 

 

 

178,192

 

Dividends declared ($0.58 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,339

)

 

 

 

 

 

 

(55,339

)

Dividends paid in shares

 

 

 

 

 

 

 

 

 

 

93

 

 

 

 

 

 

 

 

 

 

 

93

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,197

 

 

 

1,197

 

Common stock issued

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Shares withheld for tax withholding and exercises

 

 

 

 

 

 

(182,385

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182,385

)

Compensation payable in common stock and options

 

 

 

 

 

 

 

 

 

 

9,590

 

 

 

 

 

 

 

 

 

 

 

9,590

 

Common stock repurchased and held in treasury

 

 

 

 

 

 

(102,081

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(102,081

)

Common stock issued to directors and held in treasury

 

 

 

 

 

 

(30

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

726

 

 

 

 

 

 

 

 

 

 

 

726

 

Balance at March 31, 2019

 

$

1,323

 

 

$

(3,557,270

)

 

$

1,316,837

 

 

$

1,979,804

 

 

$

(57,202

)

 

$

(316,508

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

$

1,295

 

 

$

(2,321,989

)

 

$

1,264,849

 

 

$

1,505,204

 

 

$

(48,347

)

 

$

401,012

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

115,092

 

 

 

 

 

 

 

115,092

 

ASC 606 Retained Earnings Adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,135

 

 

 

 

 

 

 

16,135

 

Dividends declared ($0.38 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,848

)

 

 

 

 

 

 

(34,848

)

Dividends paid in shares

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

35

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,012

 

 

 

4,012

 

Common stock issued

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Shares withheld for tax withholding and exercises

 

 

 

 

 

 

(22,932

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,932

)

Compensation payable in common stock and options

 

 

 

 

 

 

 

 

 

 

11,123

 

 

 

 

 

 

 

 

 

 

 

11,123

 

Common stock repurchased and held in treasury

 

 

 

 

 

 

(68,345

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68,345

)

Common stock issued to directors and held in treasury

 

 

 

 

 

 

(17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

102

 

 

 

 

 

 

 

 

 

 

 

102

 

Balance at March 31, 2018

 

$

1,300

 

 

$

(2,413,283

)

 

$

1,276,109

 

 

$

1,601,583

 

 

$

(44,335

)

 

$

421,374

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

8


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

178,192

 

 

$

115,092

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

11,793

 

 

 

11,338

 

Stock-based compensation expense

 

 

9,541

 

 

 

9,053

 

Depreciation and amortization of property, equipment and leasehold improvements

 

 

7,850

 

 

 

8,205

 

Amortization of right of use assets

 

 

5,583

 

 

 

 

Amortization of debt origination fees

 

 

986

 

 

 

849

 

Deferred taxes

 

 

(8,397

)

 

 

(1,097

)

Other non-cash adjustments

 

 

(200

)

 

 

321

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

46,805

 

 

 

(134,801

)

Prepaid income taxes

 

 

(53,613

)

 

 

13,626

 

Prepaid and other assets

 

 

406

 

 

 

192

 

Accounts payable

 

 

(1,793

)

 

 

(230

)

Accrued compensation and related benefits

 

 

(81,170

)

 

 

(84,517

)

Income taxes payable

 

 

(5,843

)

 

 

3,001

 

Other accrued liabilities

 

 

(7,107

)

 

 

(1,516

)

Deferred revenue

 

 

(13,352

)

 

 

148,468

 

Other

 

 

(1,806

)

 

 

613

 

Net cash provided by operating activities

 

 

87,875

 

 

 

88,597

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,156

)

 

 

(1,512

)

Capitalized software development costs

 

 

(4,990

)

 

 

(4,360

)

Proceeds from the sale of capital equipment

 

 

10

 

 

 

 

Net cash used in investing activities

 

 

(8,136

)

 

 

(5,872

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

726

 

 

 

102

 

Repurchase of treasury shares

 

 

(284,466

)

 

 

(91,277

)

Payment of dividends

 

 

(57,895

)

 

 

(34,883

)

Net cash used in financing activities

 

 

(341,635

)

 

 

(126,058

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes

 

 

501

 

 

 

3,659

 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(261,395

)

 

 

(39,674

)

Cash and cash equivalent, beginning of period

 

 

904,176

 

 

 

889,502

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalent, end of period

 

$

642,781

 

 

$

849,828

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

35,148

 

 

$

35,121

 

Cash paid for income taxes

 

$

17,312

 

 

$

8,602

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities

 

 

 

 

 

 

 

 

Property, equipment and leasehold improvements accrued, but not yet paid

 

$

2,848

 

 

$

3,101

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash financing activities

 

 

 

 

 

 

 

 

Cash dividends declared, but not yet paid

 

$

237

 

 

$

337

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

9


 

MSCI INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1. INTRODUCTION AND BASIS OF PRESENTATION

MSCI Inc., together with its wholly-owned subsidiaries (the “Company” or “MSCI”) provides critical investment decision support tools and services for the global investment community.  MSCI is dynamic and flexible in the delivery of content and capabilities, such as indexes; portfolio construction tools and risk management services; environmental, social and governance (“ESG”) research and ratings; and real estate benchmarks, return analytics services and market insights; much of which can be accessed by clients through multiple channels and platforms.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements include the accounts of MSCI and its subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of March 31, 2019 and December 31, 2018, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2018 have been derived from the 2018 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2018.  The results of operations for interim periods are not necessarily indicative of results for the entire year.

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require the Company to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the deferral and recognition of revenue, research and development and software capitalization, impairment of long-lived assets, accrued compensation, income taxes, incremental borrowing rates and other matters that affect the unaudited condensed consolidated financial statements and related disclosures. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Intercompany balances and transactions are eliminated in consolidation.

Concentrations

For the three months ended March 31, 2019 and 2018, BlackRock, Inc. accounted for 11.6% and 12.9% of the Company’s consolidated operating revenues, respectively. For the three months ended March 31, 2019 and 2018, BlackRock, Inc. accounted for 19.3% and 22.1% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics and All Other segments for the three months ended March 31, 2019 and 2018.

 

 

2. RECENT ACCOUNTING STANDARDS UPDATES

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. The FASB issued ASU 2016-02 in order to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB amended the FASB Accounting Standards Codification and created Topic 842, Leases. ASU 2016-02 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018.

In July 2018, the FASB issued Accounting Standards Update No. 2018-10, “Codification Improvements to Topic 842, Leases,” or ASU 2018-10, and Accounting Standards Update No. 2018-11, “Targeted Improvements,” or ASU 2018-11. The amendments in ASU 2018-10 include how an entity should perform the lease classification reassessment, a clarification that a change in a reference index or rate upon which some or all of the variable lease payments in the contract are based does not constitute the resolution of a contingency and a clarification as to whether to recognize a transition adjustment in earnings rather than through equity when an entity initially applies Topic 842 retrospectively to each prior reporting period. The amendments in ASU 2018-11 provide an optional transition method that permits an entity to initially apply the new guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and not recast comparative periods. As a result, prior period financial statements and disclosures will continue to be presented in accordance with ASC Topic 840. In addition, ASU 2018-11 also includes a practical expedient for lessors to not separate the lease and non-lease components of a contract. The effective date for this amendment is the same as ASU 2016-02 discussed above.  

10


 

The Company adopted ASU 2016-02 effective January 1, 2019 using the optional transition method available under ASU 2018-11. In preparation for adoption of the guidance, the Company implemented internal controls and processes to enable the preparation of financial information.  MSCI elected to apply the transition package of practical expedients permitted within the new guidance which, among other things, allowed the Company to carry forward the historical lease classification. In addition, MSCI elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company made an election to apply the exemption allowed under ASU 2016-02 for leases with an initial term of 12 months or less to not be recorded in the Condensed Consolidated Statement of Financial Condition and to only recognize the related amounts in the Condensed Consolidated Statement of Income on a straight-line basis over the lease term. See Note 8, “Leases” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding leases.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” or ASU 2018-15, to help entities evaluate the accounting for costs of implementation activities incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with those incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted. The Company early-adopted ASU 2018-15 under the prospective transition method effective January 1, 2019. The adoption of ASU 2018-15 did not have a material effect on the Company’s condensed consolidated financial statements.

 

3. REVENUE RECOGNITION

MSCI’s revenues are characterized by type, which broadly reflects the nature of how they are recognized or earned. The Company’s revenue types are recurring subscription, asset-based fees and non-recurring revenues. The Company also groups its revenues by segment.

The tables that follow present the disaggregated revenues for the periods indicated (in thousands):

 

 

 

For the Three Months ended March 31, 2019

 

 

 

Segments

 

 

 

 

 

 

 

Index

 

 

Analytics

 

 

All Other

 

 

Total

 

Product Types

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring subscriptions

 

$

127,674

 

 

$

120,110

 

 

$

34,580

 

 

$

282,364

 

Asset-based fees

 

 

81,808

 

 

 

 

 

 

 

 

 

81,808

 

Non-recurring

 

 

5,291

 

 

 

1,325

 

 

 

593

 

 

 

7,209

 

Total

 

$

214,773

 

 

$

121,435

 

 

$

35,173

 

 

$

371,381

 

 

 

 

For the Three Months ended March 31, 2018

 

 

 

Segments

 

 

 

 

 

 

 

Index

 

 

Analytics

 

 

All Other

 

 

Total

 

Product Types

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring subscriptions

 

$

113,205

 

 

$

118,244

 

 

$

29,367

 

 

$

260,816

 

Asset-based fees

 

 

85,483

 

 

 

 

 

 

 

 

 

85,483

 

Non-recurring

 

 

3,226

 

 

 

743

 

 

 

1,048

 

 

 

5,017

 

Total

 

$

201,914

 

 

$

118,987

 

 

$

30,415

 

 

$

351,316

 

 

 

 

Accounts receivable

 

 

Deferred revenue

 

Opening (12/31/2018)

 

$

473,433

 

 

$

537,977

 

Closing (03/31/2019)

 

 

427,099

 

 

 

524,988

 

Increase/(decrease)

 

$

(46,334

)

 

$

(12,989

)

 

The amount of revenue recognized in the period that was included in the opening current deferred revenue, which reflects contract liability amounts, was $168.6 million. The difference between the opening and closing balances of the Company’s deferred revenue was primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. MSCI had an insignificant long-term deferred revenue balance as of March 31, 2019 reflected as a part of “Other non-current liabilities” on its Unaudited Condensed Consolidated Statement of Financial Condition.

11


 

For contracts that have a duration of one year or less, the Company has chosen to use the practical expedient available under the new revenue standard and, as such, has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:

 

 

 

As of

 

 

 

March 31,

 

 

 

2019

 

 

 

(in thousands)

 

First 12-month period

 

$

293,968

 

Second 12-month period

 

 

173,545

 

Third 12-month period

 

 

63,478

 

Periods thereafter

 

 

36,860

 

Total

 

$

567,851

 

 

4. EARNINGS PER COMMON SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. There were an immaterial number of anti-dilutive securities excluded from the calculation of diluted EPS for all periods presented.

The following table presents the computation of basic and diluted EPS:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

Net income

 

$

178,192