Investor News

NEW YORK--(BUSINESS WIRE)--Jan. 28, 2021-- MSCI Inc. (“MSCI” or the “Company”) (NYSE: MSCI), a leading provider of critical decision support tools and services for the global investment community, today announced its financial results for the three months ended December 31, 2020 (“fourth quarter 2020”) and year ended December 31, 2020 (“full-year 2020”).

Financial and Operational Highlights for Fourth Quarter 2020

(Note: Unless otherwise noted, percentage and other changes are relative to the three months ended December 31, 2019 (“fourth quarter 2019”) and Run Rate percentage changes are relative to December 31, 2019).

• Operating revenues of $443.7 million, up 9.1%
• Recurring subscription revenues up 8.9%; Asset-based fees up 15.3%
• Operating margin of 52.8%; Adjusted EBITDA margin of 57.7%
• Diluted EPS of $1.87, up 29.9%; Adjusted EPS of $1.96, up 17.4%
• New recurring subscription sales growth of 9.3%; Organic subscription Run Rate growth of 9.4%; Retention Rate of 92.6%
• Repurchase of 471,591 shares at an average price of $347.78 per share for a total value of $164.0 million 
• Assets in equity ETFs linked to MSCI indexes surpass $1.0 trillion 
• Approximately $64.4 million in dividends paid to shareholders in fourth quarter 2020; Cash dividend of $0.78 per share declared by MSCI Board of Directors for first quarter 2021

“MSCI delivered robust performance in the fourth quarter and full year 2020, a validation of our highly integrated, client-centric, all-weather franchise and the dedication of our employees,” said Henry A. Fernandez, Chairman and CEO of MSCI.

“While the early part of 2021 has seen continued social, political and economic challenges, we maintain strong conviction in both our long-term growth opportunities and our ability to drive value for our clients and shareholders.”

Fourth Quarter Consolidated Results

Operating Revenues: Operating revenues were $443.7 million, up 9.1%. The $37.1 million increase was driven by $26.3 million in higher recurring subscription revenues and $14.8 million in higher asset-based fees, offset by $4.0 million in lower non-recurring revenues.

Run Rate and Retention Rate: Total Run Rate at December 31, 2020 was $1,832.5 million, up 12.1% compared to December 31, 2019. The $198.0 million increase was driven by a $130.0 million increase in recurring subscription Run Rate and a $68.0 million increase in asset-based fees Run Rate. Organic subscription Run Rate growth was 9.4%, driven by increases across all three reporting segments. Retention Rate in fourth quarter 2020 was 92.6%, compared to 92.9% in fourth quarter 2019.

Expenses: Total operating expenses were $209.6 million, up slightly from fourth quarter 2019. Adjusted EBITDA expenses were $187.5 million, also up slightly, reflecting higher information technology costs and compensation costs, substantially offset by lower travel and entertainment expense. Total operating expenses excluding the impact of foreign currency exchange rate fluctuations (“ex-FX”) and adjusted EBITDA expenses ex-FX increased 0.5% and decreased 0.1%, respectively.

Headcount: As of December 31, 2020, headcount was 3,633 employees, with approximately 35% and approximately 65% of employees located in developed market and emerging market locations, respectively.

Other Expense (Income), Net: Other expense (income), net was $38.9 million, down 26.4%. The lower net expense primarily reflected the absence of debt extinguishment costs that resulted from a notes redemption in the prior period, as well as lower interest expense compared to fourth quarter 2019, partially offset by lower interest income due to lower rates earned on cash balances.

Income Taxes: The effective tax rate was 20.0% in fourth quarter 2020, compared to 16.2% in fourth quarter 2019 reflecting higher U.S. taxable income compared to the prior period resulting, in part, from the absence of debt extinguishment costs related to a notes redemption realized in fourth quarter 2019. In addition, fourth quarter 2020 reflected lower tax benefits from the vesting of share-based compensation awards.

Net Income: As a result of the factors described above, net income was $156.2 million, up 27.2%.

Adjusted EBITDA: Adjusted EBITDA was $256.1 million, up 16.3%. Adjusted EBITDA margin in fourth quarter 2020 was 57.7%, compared to 54.2% in fourth quarter 2019.

Index Segment:

Table 1A: Results (unaudited)

Index operating revenues for fourth quarter 2020 were $268.6 million, up 10.5%. The $25.5 million increase was primarily driven by $14.8 million in higher asset-based fees and $11.0 million in higher recurring subscription revenues.

The increase in recurring subscription revenues primarily reflected growth in market cap-weighted products.

Growth in asset-based fees reflected increases in revenues from exchange traded funds (“ETFs”) linked to MSCI indexes, from exchange traded futures & options contracts linked to MSCI indexes and from non-ETF indexed funds linked to MSCI indexes. The increase in revenues from ETFs linked to MSCI indexes was driven by a 15.0% increase in average AUM in equity ETFs linked to MSCI indexes, partially offset by lower fees resulting from the impact of changes in product mix.

Index Run Rate as of December 31, 2020 was $1.1 billion, up 13.3%. The $127.1 million increase was driven by a $68.0 million increase in asset-based fees Run Rate and a $59.1 million increase in recurring subscription Run Rate. The increase in recurring subscription Run Rate was primarily driven by strong growth in market cap-weighted products and reflected growth across all regions and all client segments. The increase in asset-based fees Run Rate was primarily driven by higher AUM in equity ETFs linked to MSCI indexes.

Analytics Segment:

Table 1B: Results (unaudited)

Analytics operating revenues for fourth quarter 2020 were $132.4 million, up 3.3%. The $4.2 million increase was driven by higher recurring subscription revenues, predominantly from Multi-Asset Class Analytics products, offset by lower non-recurring revenues.

Analytics Run Rate as of December 31, 2020 was $555.1 million, up 5.4%. The increase of $28.3 million was primarily driven by growth in Multi-Asset Class Analytics products, with increases across all regions. Analytics organic subscription Run Rate growth was 4.0%.

All Other Segment:

Table 1C: Results (unaudited)

All Other operating revenues for fourth quarter 2020 were $42.6 million, up 21.0%. The $7.4 million increase was driven by $6.3 million of higher ESG operating revenues, primarily driven by strong growth from Ratings products, and $1.1 million of higher Real Estate operating revenues, primarily driven by higher revenues from Enterprise Analytics products. ESG operating revenues were $31.3 million and Real Estate operating revenues were $11.3 million. All Other organic operating revenue growth was 19.0%, including ESG organic operating revenue growth of 23.5% and Real Estate organic operating revenue growth of 7.8%.

All Other Run Rate as of December 31, 2020 was $194.8 million, up 28.0%. The $42.6 million increase was driven by a $36.9 million increase in ESG Run Rate, primarily reflecting strong growth in both Ratings and Climate products. Real Estate Run Rate increased $5.7 million, reflecting growth in both Enterprise Analytics and Global Intel products. All Other organic subscription Run Rate growth was 23.9%, with ESG organic subscription Run Rate growth of 32.6% and Real Estate organic subscription Run Rate growth of 6.6%.

Select Balance Sheet Items and Capital Allocation

Cash Balances and Outstanding Debt: Cash and cash equivalents was $1.3 billion as of December 31, 2020. MSCI typically seeks to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes but may maintain higher minimum cash balances while the COVID-19 pandemic continues to impact global economic markets.

Total outstanding debt as of December 31, 2020 was $3.4 billion. The total debt to net income ratio (based on trailing twelve months net income) was 5.6x. The total debt to adjusted EBITDA ratio (based on trailing twelve months adjusted EBITDA) was 3.5x.

MSCI seeks to maintain gross leverage to adjusted EBITDA in a target range of 3.0x to 3.5x.

Capex and Cash Flow: For fourth quarter 2020, Capex was $16.9 million, cash provided by operating activities was $235.9 million, down 3.2%, and free cash flow was $219.0 million, down 2.7%.

Share Count and Share Repurchases: Weighted average diluted shares outstanding were 83.7 million in fourth quarter 2020, down 2.1% year-over-year. During fourth quarter 2020, a total of 471,591 shares were repurchased at an average price of $347.78 per share for a total value of $164.0 million. A total of $1.7 billion of outstanding share repurchase authorization remains as of January 26, 2021. Total shares outstanding as of December 31, 2020 were 82.6 million. 

Dividends: Approximately $64.4 million in dividends were paid to shareholders in fourth quarter 2020. On January 25, 2021, the MSCI Board of Directors declared a cash dividend of $0.78 per share for first quarter 2021, payable on February 26, 2021 to shareholders of record as of the close of trading on February 19, 2021.

Full-Year 2021 Guidance

MSCI's guidance for 2021 is based on assumptions about a number of macroeconomic and capital market factors, in particular related to equity markets. These assumptions are subject to uncertainty, and actual results for the year could differ materially from our current guidance, including as a result of ongoing uncertainty related to the duration, magnitude and impact of the COVID-19 pandemic.

Conference Call Information

MSCI's senior management will review the fourth quarter 2020 and full year 2020 results on Thursday, January 28, 2021 at 11:00 AM Eastern Time. To listen to the live event, visit the events and presentations section of MSCI's Investor Relations homepage, https://ir.msci.com/events-and-presentations, or dial 1-877-376-9931 conference ID: 6308417 within the United States. International callers may dial 1-720-405-2251 conference ID: 6308417. The teleconference will also be webcast with an accompanying slide presentation which can be accessed through MSCI's Investor Relations website. An archived replay of the webcast also will be available shortly after the live event on MSCI's Investor Relations website, https://ir.msci.com/events-and-presentations.

About MSCI Inc.

MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 50 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, MSCI’s full-year 2021 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 MSCI’s 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 December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 18, 2020 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 MSCI’s 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 quarterly updates, blog, podcasts and social media channels, including its corporate Twitter account (@MSCI_Inc), as channels of distribution of company information. The information MSCI posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following MSCI’s press releases, quarterly 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/email-alerts. The contents of MSCI’s website, including its quarterly updates, blog, podcasts and social media channels are not, however, incorporated by reference into this earnings release.

Notes Regarding the Use of Operating Metrics

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

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.

The Retention Rate for a non-annual period is calculated by annualizing the cancellations for which we have received a notice of termination or for which we believe there is an intention not to renew during the non-annual period, and we believe that such notice or intention evidences the client’s final decision to terminate or not renew the applicable 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 fiscal year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the period.

Retention Rate is computed by operating segment on a product/service-by-product/service basis. In general, if a client reduces the number of products or services to which it subscribes within a segment, or switches between products or services within a segment, we treat it as a cancellation for purposes of calculating our Retention Rate except in the case of a product or service switch that management considers to be a replacement product or service. In those replacement cases, only the net change to the client subscription, if a decrease, is reported as a cancel. In the Analytics and the ESG operating segments, substantially all product or service switches are treated as replacement products or services and netted in this manner, while in our Index and Real Estate operating segments, product or service switches that are treated as replacement products or services and receive netting treatment occur only in certain limited instances. In addition, we treat any reduction in fees resulting from a down-sale of the same product or service as a cancellation to the extent of the reduction. We do not calculate Retention Rate for that portion of our Run Rate attributable to assets in index-linked investment products or futures and options contracts, in each case, linked to our indexes.

Run Rate estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements (“Client Contracts”) for the next 12 months, assuming all Client Contracts that come up for renewal are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product’s assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets. Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we add to Run Rate the annualized fee value of recurring new sales, whether to existing or new clients, when we execute Client Contracts, even though the license start date, and associated revenue recognition, may not be effective until a later date. We remove from Run Rate the annualized fee value associated with products or services under any Client Contract with respect to which we have received a notice of termination or non-renewal during the period and have determined that such notice evidences the client’s final decision to terminate or not renew the applicable products or services, even though such notice is not effective until a later date.

“Organic subscription Run Rate growth” is defined as the period over period Run Rate growth, excluding the impact of changes in foreign currency and the first year impact of any acquisitions. It is also adjusted for divestitures. Changes in foreign currency are calculated by applying the currency exchange rate from the comparable prior period to current period foreign currency denominated Run Rate.

Sales represents the annualized value of products and services clients commit to purchase from MSCI and will result in additional operating revenues. Non-recurring sales represent the actual value of the customer agreements entered into during the period and are not a component of Run Rate. New recurring subscription sales represent additional selling activities, such as new customer agreements, additions to existing agreements or increases in price that occurred during the period and are additions to Run Rate. Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or reductions in price, resulting in reductions to Run Rate. Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact to Run Rate during the period.

Total gross sales represent the sum of new recurring subscription sales and non-recurring sales. Total net sales represent the total gross sales net of the impact from subscription cancellations.

Notes Regarding the Use of Non-GAAP Financial Measures

MSCI has presented supplemental non-GAAP financial measures as part of this earnings release. Reconciliations are provided in Tables 9 through 15 below that reconcile each non-GAAP financial measure with the most comparable GAAP measure. The non-GAAP financial measures presented in this earnings release should not be considered as alternative measures for the most directly comparable GAAP financial measures. The non-GAAP financial measures presented in this earnings release 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 (1) provision for income taxes, (2) other expense (income), net, (3) depreciation and amortization of property, equipment and leasehold improvements, (4) amortization of intangible assets and, at times, (5) certain other transactions or adjustments, including the impact related to the vesting of the multi-year restricted stock units subject to performance payout adjustments granted in 2016 (the “Multi-Year PSUs”).

“Adjusted EBITDA expenses” is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments, including the impact related to the vesting of the Multi-Year PSUs.

“Adjusted net income” and “adjusted EPS” are defined as net income and diluted EPS, respectively, before the after-tax impact of the amortization of acquired intangible assets, including the amortization of the basis difference between the cost of the equity method investment and MSCI’s share of the net assets of the investee at historical carrying value, the impact of divestitures, the impact of adjustments for the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (“Tax Reform”), except for certain amounts associated with active tax planning implemented as a result of Tax Reform, and, at times, certain other transactions or adjustments, including the impact related to the vesting of the Multi-Year PSUs and costs associated with debt extinguishment.

“Adjusted tax rate” is defined as the effective tax rate excluding the impact of Tax Reform adjustments (except for certain amounts associated with active tax planning implemented as a result of Tax Reform) and the impact related to the vesting of the Multi-Year PSUs.

“Capex” is defined as capital expenditures plus capitalized software development costs.

“Free cash flow” is defined as net cash provided by operating activities, less Capex.

“Organic operating revenue growth” is defined as operating revenue growth compared to the prior year period excluding the impact of acquired businesses, divested businesses and foreign currency exchange rate fluctuations.

Asset-based fees ex-FX does not adjust for the impact from foreign currency exchange rate fluctuations on the underlying assets under management (“AUM”).

We believe adjusted EBITDA and adjusted EBITDA expenses are meaningful measures of the operating performance of MSCI because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be our ongoing operating performance in the period.

We believe adjusted net income and adjusted EPS are meaningful measures of the performance of MSCI because they adjust for the after-tax impact of significant one-time, unusual or non-recurring items as well as eliminate the impact of any transactions that do not directly affect what management considers to be our ongoing operating performance in the period. We also exclude the after-tax impact of the amortization of acquired intangible assets and amortization of the basis difference between the cost of the equity method investment and MSCI’s share of the net assets of the investee at historical carrying value, as these non-cash amounts are significantly impacted by the timing and size of each acquisition and therefore not meaningful to the ongoing operating performance in the period.

We believe that adjusted tax rate is useful to investors because it increases the comparability of period-to-period results by adjusting for the estimated net impact of Tax Reform and the impact related to the vesting of the Multi-Year PSUs.

We believe that free cash flow is useful to investors because it relates the operating cash flow of MSCI to the capital that is spent to continue and improve business operations, such as investment in MSCI’s existing products. Further, free cash flow indicates our ability to strengthen MSCI’s balance sheet, repay our debt obligations, pay cash dividends and repurchase shares of our common stock.

We believe organic operating revenue growth is a meaningful measure of the operating performance of MSCI because it adjusts for the impact of foreign currency exchange rate fluctuations and excludes the impact of operating revenues attributable to acquired and divested businesses for the comparable prior year period, providing insight into our ongoing operating performance for the period(s) presented.

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 expenses, adjusted EBITDA, adjusted net income, adjusted EPS, adjusted tax rate, Capex, free cash flow and organic operating revenue growth are not defined in the same manner by all companies and may not be comparable to similarly-titled non-GAAP financial measures of other companies. These measures can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of these measures may not be comparable to similarly-titled measures computed by other companies.

Notes Regarding Adjusting for the Impact of Foreign Currency Exchange Rate Fluctuations

Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period. While operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations, the underlying AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. More than three-fifths of the AUM are invested in securities denominated in currencies other than the U.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency-adjusted variances.

Table 2: Condensed Consolidated Statements of Income (unaudited)

^{(1) Includes stock-based compensation expense of $12.3 million and $11.5 million for the three months ended Dec. 31, 2020 and Dec. 31, 2019, respectively. Includes stock-based compensation expense of $55.6 million and $44.1 million for the years ended Dec. 31, 2020 and Dec. 31, 2019, respectively.}

Table 3: Selected Balance Sheet Items (unaudited)

^{(1) Consists of gross long-term debt, net of deferred financing fees. Gross long-term debt was $3,400.0 million at Dec. 31, 2020 and $3,100.0 million at Dec. 31, 2019.}

Table 4: Selected Cash Flow Items (unaudited)

Table 5: Operating Results by Segment and Revenue Type (unaudited)

Table 6: Sales and Retention Rate by Segment (unaudited)(1)