UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): October 1,
2009
MSCI
Inc.
(Exact name of
registrant as specified in its charter)
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Delaware
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001-33812
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13-4038723
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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88
Pine Street, New York, NY 10005
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10005
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(Address
of principal executive offices)
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(Zip
Code)
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(212)
804-3900
(Registrant’s
telephone number, including area code)
NOT
APPLICABLE
(Former name or
former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
2.02 Results of Operations and Financial Condition.
On
October 1, 2009, MSCI Inc. (the “Registrant”) released financial information
with respect to its third quarter ended August 31, 2009. A copy
of the press release containing this information is annexed as Exhibit 99.1 to
this Report.
The
Registrant’s press release contains certain non-GAAP financial measures. A
reconciliation of these non-GAAP financial measures to the comparable GAAP
financial measures is also contained in Exhibit 99.1.
The
information furnished under Item 2.02 of this Report, including Exhibit 99.1
shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934 (the “Exchange Act”), as amended, or otherwise subject to
the liabilities of that section, nor shall it be deemed incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific reference in
such filing.
(d) Exhibits.
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Exhibit No.
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Description
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Exhibit
99.1
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Press release of the Registrant
dated October
1, 2009 containing
financial information for the third quarter ended August 31, 2009.
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Pursuant to the requirements of the
Exchange Act, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
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MSCI Inc.
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Date: October 1,
2009
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By:
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/s/ Henry A.
Fernandez
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Name:
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Henry A.
Fernandez
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Title:
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Chief Executive Officer, President
and Chairman
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Exhibit
99.1
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www.mscibarra.com
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MSCI
Inc. Reports Third Quarter 2009 Financial Results
New York – October 1, 2009 –
MSCI Inc. (NYSE: MXB), a leading global
provider of investment decision support tools, including indices and portfolio
risk and performance analytics, today announced results for the third quarter
ended August 31, 2009.
(Note: Percentage
changes are referenced to the comparable period in fiscal year 2008, unless
otherwise noted.)
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·
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Operating
revenues decreased 1.4% to $108.9 million in third quarter 2009 and
increased 0.2% to $324.2 million for the nine months ended August 31,
2009.
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·
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Adjusted
EBITDA increased 5.3% to a record $54.0 million in third quarter 2009 for
an adjusted EBITDA margin of a record 49.6% and increased 6.5% to $155.8
million for an adjusted EBITDA margin of 48.1% for the nine months ended
August 31, 2009. See Tables 9 and 13 each titled "Reconciliation of
Adjusted EBITDA to Net Income."
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·
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Net income
increased 10.8% to $20.9 million ($0.20 per diluted share) in third
quarter 2009 for a net income margin of 19.2% and increased 3.3% to $57.3
million for the nine months ended August 31, 2009 for a net income margin
of 17.7%.
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Henry A. Fernandez,
Chairman and CEO, said “I am pleased to report record levels of profitability
with third quarter adjusted EBITDA of $54.0 million and a margin of 49.6%. The
high margin inherent across most of our products coupled with our disciplined
expense management enabled us to grow adjusted EBITDA 5.3% from a year-ago
despite a 1.4% decline in revenues to $108.9 million. Excluding a one-time
foreign exchange adjustment of $3.3 million, revenues increased 1.6% to $112.2
million. Our fees from licensing exchange traded funds experienced strong growth
as the recovery in financial markets around the world continued during the
quarter while our subscription fees were impacted by the lagging nature of our
business relative to the market environment.”
“Early in the
fourth quarter, we are seeing signs of easing budget constraints among some of
our subscription fee clients which is resulting in healthy levels of sales
activity. Retention rates, however, will likely remain under pressure as the
operating environment for us remains challenging and many clients continue to
monitor their spending closely. Notwithstanding the short-term challenges, our
growth opportunities remain significant, and we continue to grow our headcount
to capitalize on these opportunities and deliver value for our clients and
shareholders,” added Mr. Fernandez.
Selected
Financial Information
Table
1a
MSCI
Inc.
Selected Income
Statement Items (unaudited)
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Three Months
Ended
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Nine Months
Ended
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|||||||||||||||||||||||
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August
31,
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August
31,
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|||||||||||||||||||||||
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In thousands,
except per share data
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2009
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2008
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Change
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2009
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2008
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Change
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||||||||||||||||||
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Operating
revenues
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$ | 108,868 | $ | 110,399 | (1.4 | %) | $ | 324,158 | $ | 323,545 | 0.2 | % | ||||||||||||
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Operating
expenses
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$ | 71,070 | $ | 72,880 | (2.5 | %) | $ | 216,922 | $ | 217,957 | (0.5 | %) | ||||||||||||
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Net
income
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$ | 20,924 | $ | 18,878 | 10.8 | % | $ | 57,266 | $ | 55,443 | 3.3 | % | ||||||||||||
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%
Margin
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19.2% | 17.1% | 17.7% | 17.1% | ||||||||||||||||||||
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Diluted
EPS
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$ | 0.20 | $ | 0.19 | 5.3 | % | $ | 0.56 | $ | 0.55 | 1.8 | % | ||||||||||||
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Adjusted
EBITDA1
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$ | 53,955 | $ | 51,258 | 5.3 | % | $ | 155,812 | $ | 146,255 | 6.5 | % | ||||||||||||
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%
Margin
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49.6% | 46.4% | 48.1% | 45.2% | ||||||||||||||||||||
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1
See Tables 9 and 13 each 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.”
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||||||||||||||||||||||||
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Table 1b
MSCI
Inc.
Selected Balance
Sheet Items (unaudited)
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As
of
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||||||||
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August
31,
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November
30,
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|||||||
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In
thousands
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2009
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2008
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||||||
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Cash and cash
equivalents
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$ | 111,701 | $ | 268,077 | ||||
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Short-term
investments
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$ | 250,061 | $ | 0 | ||||
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Accounts
receivable
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$ | 76,511 | $ | 85,723 | ||||
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Deferred
Revenue
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$ | 166,215 | $ | 144,711 | ||||
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Current
maturities of long-term debt
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$ | 37,087 | $ | 22,086 | ||||
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Long-term
debt, net of current maturities
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$ | 348,144 | $ | 379,709 | ||||
Summary
of Results for Fiscal Third Quarter 2009
Operating
Revenues – See Table 7
Total operating
revenues for the three months ended August 31, 2009 (third quarter 2009)
decreased $1.5 million, or 1.4%, to $108.9 million compared to $110.4 million
for the three months ended August 31, 2008 (third quarter 2008). The decrease
was comprised of a 3.6% decrease in subscription revenues to $88.7 million
offset, in part, by a 10.0% increase to $20.1 million in equity index asset
based fees. The decrease in subscription revenues was driven by declines in
revenues related to Equity Portfolio Analytics, Multi-Asset Class Portfolio
Analytics and Other Products which were down 13.4%, 12.4% and 25.2%,
respectively, in third quarter 2009 offset, in part, by an increase of 8.5% in
equity index subscriptions. Within our subscription product categories, declines
occurred in the Americas and EMEA while there was growth in Asia Pacific and
Japan. By client segment, revenues declined from asset managers, broker dealers
and hedge funds while revenues increased from asset owners and the others
category which includes vendors, custodians and private banks. Our revenues,
excluding asset based fees, for third quarter 2009 would have been higher by
$0.3 million had the U.S. dollar not strengthened relative to the prior year
using foreign exchange rates for the same period of the prior year.
In
third quarter 2009, MSCI adjusted certain foreign exchange rates used to
amortize its deferred revenue. As a result of this one-time adjustment, MSCI
recorded a $3.3 million aggregate reduction to revenues in third quarter 2009 to
correct for revenues previously reported through May 31, 2009. By product
category, the adjustment increased Equity Indices by $0.7 million and decreased
Equity Portfolio Analytics, Multi-Asset Class Portfolio Analytics and Other
Products by $1.4 million, $2.3 million and $0.3 million, respectively. Excluding
this one-time foreign exchange adjustment, revenues increased $1.8 million, or
1.6%, to $112.2 million compared to the same period in 2008.
Equity
Indices: Revenues related to Equity Indices increased $5.6
million, or 9.0%, to $67.5 million in third quarter 2009 compared to the same
period in 2008.
Revenues from
equity index subscriptions were up 8.5% to $47.4 million in third quarter 2009
with growth across all regions and client categories with the exception of hedge
funds. This growth was led by strong increases in our emerging market, small cap
and developed market subscription index modules as well as in user fees and
reporting license fees, which more than offset a significant decline in
non-subscription fees for historical index data.
Revenues
attributable to equity index asset based fees increased 10.0% to $20.1 million
in third quarter 2009 compared to third quarter 2008 reflecting increases of
7.8% to $15.4 million for ETF asset based fees, 23.0% to $3.7 million for
institutional and retail indexed funds asset based fees and 1.4% to $1.0 million
for other asset and transaction based fees. The average value of assets in ETFs
linked to MSCI equity indices increased 1.1% to $180.3 billion for third quarter
2009 compared to $178.3 billion for third quarter 2008. As of August 31, 2009,
the value of assets in ETFs linked to MSCI equity indices was $199.2 billion,
representing an increase of $32.9 billion, or 19.8%,
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from $166.3 billion
as of August 31, 2008. We estimate that the $32.9 billion year-over-year
increase in the value of assets in ETFs linked to MSCI equity indices was
attributable to $14.5 billion of net asset depreciation offset by $47.4 billion
of net asset inflows.
Compared to second
quarter 2009, equity index asset based fee revenues increased 32.3%, led by
growth in ETF asset based fees. The average value of assets in ETFs linked to
MSCI equity indices increased 33.8% to $180.3 billion from $134.7 billion in
second quarter 2009. The increase in the value of assets in ETFs linked to MSCI
equity indices at the end of third quarter 2009 compared to second quarter 2009
was 13.3%, or $23.3 billion. We estimate that the $23.3 billion increase from
second quarter 2009 was attributable to asset appreciation of $20.1 billion and
asset inflows of $3.2 billion. The $3.2 billion of asset inflows was comprised
of $1.9 billion of asset inflows into established ETFs supplemented by $1.3
billion of asset inflows into ETFs launched over the last 12
months.
The three MSCI
indices with the largest amount of ETF assets linked to them as of August 31,
2009 were the MSCI Emerging Markets, EAFE and US Broad Market Indices. The
assets linked to these indices were $47.8 billion, $37.0 billion and $11.9
billion, respectively.
Equity Portfolio
Analytics: Revenues related to Equity Portfolio Analytics
products decreased $4.5 million, or 13.4%, to $29.2 million in third quarter
2009 compared to the same period in 2008 resulting from lower levels of new
subscriptions, lower retention rates in recent quarters (most notably for Aegis,
our proprietary equity risk data and software product) and the aforementioned
revenue adjustment. Revenues were lower in all regions, most notably EMEA, and
all client categories with the exception of the asset owners category. Revenues
declined 14.6% to $19.5 million for Aegis, 9.6% to $8.5 million for Models
Direct (our proprietary risk data product accessed directly) and 19.4% to $1.1
million for Barra on Vendors (our proprietary risk data product accessed through
third party vendors).
Multi-Asset Class Portfolio
Analytics: Revenues related to Multi-Asset Class Portfolio
Analytics decreased $1.1 million, or 12.4%, to $7.8 million in third quarter
2009 compared to the same period in 2008. This decrease is comprised of a 5.5%
decline to $6.2 million for BarraOne and a 32.0% decline to $1.6 million for
TotalRisk, which is in the process of being decommissioned with its existing
users being offered the opportunity to transition to BarraOne. The decrease
reflects the aforementioned revenue adjustment. From a regional perspective,
declines were reported in the Americas and EMEA while growth was experienced in
both Asia Pacific and Japan. Within client categories, declines were experienced
in the asset managers, hedge funds and others segments while growth was reported
in the broker dealers and asset owners segments.
Other Products: Revenues from
Other Products decreased $1.5 million, or 25.2%, to $4.4 million in third
quarter 2009 compared to the same period in 2008. The decrease reflects declines
of 10.5% to $3.1 million for our energy and commodity analytics products and
24.3% to $1.3 million for fixed income analytics. The decline in our energy and
commodity analytics products largely reflects the absence of non-recurring
revenue recorded in third quarter 2008 which did not repeat in third quarter
2009. Revenue for investable hedge fund indices in third quarter 2009 was
negligible compared to the $0.7 million in third quarter 2008. The decline
largely reflects the termination of the last remaining MSCI investable hedge
fund indices license.
Operating
Expenses – See Tables 8a – 8c
Operating expenses
decreased $1.8 million, or 2.5%, to $71.1 million in third quarter 2009 compared
to third quarter 2008 largely reflecting the elimination of the expense
allocation from Morgan Stanley and reductions in professional services expenses
and amortization of intangibles, partially offset by increases in compensation,
information technology and depreciation expenses. Our operating expense for
third quarter 2009 would have been higher by $3.0 million had the U.S. dollar
not strengthened relative to the prior year using foreign exchange rates for the
same period in 2008.
Compensation
expense increased $1.4 million, or 3.2%, to $43.8 million in third quarter 2009
(including higher founders grant expense of $1.5 million). Excluding founders
grant expenses, compensation expense decreased 0.4% to $37.0 million. The
decrease excluding founders grant expense reflects favorable foreign exchange
rates (principally the strengthening of the US dollar) which lowered reported
compensation expense for staff located outside the United States and a lower
bonus accrual in third quarter 2009 offset, in part, by compensation cost for
new hires, a $0.9
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million increase in
severance and $0.8 million of stock based compensation costs relating to the
restricted stock units granted as a component of the 2008 annual bonus. The
number of full-time employees increased by 126 to 850 on August 31, 2009 from
724 on August 31, 2008 and by 45 from 805 on May 31, 2009. In third quarter
2009, we continued to increase our staff in emerging market centers. As of
August 31, 2009, 39% of our employees were located in emerging market centers
compared to 26% as of August 31, 2008.
Non-compensation
expenses excluding depreciation and amortization of intangibles decreased $4.1
million to $17.9 million, an 18.6% decrease, reflecting the elimination of the
expense allocation from Morgan Stanley and lower professional services expenses
offset, in part, by increases in expenses related to information technology
infrastructure.
Depreciation and
amortization expense increased $1.6 million to $2.9 million reflecting greater
depreciation and amortization of the property, equipment and leasehold
improvements purchased, in large part, to operate independently from Morgan
Stanley.
Cost of services
expenses increased $0.5 million, or 1.6%, to $28.2 million in third quarter
2009. Compensation expenses increased 6.3% to $21.0 million reflecting higher
founders grant expense of $0.7 million and higher headcount which were offset,
in part, by favorable foreign exchange rates which lowered reported compensation
expense for staff outside the United States. Non-compensation expenses decreased
10.0% to $7.2 million largely reflecting the elimination of the expense
allocation from Morgan Stanley.
Selling, general
and administrative expenses decreased $3.2 million, or 8.6%, to $33.5 million in
third quarter 2009. Compensation expenses increased 0.6% to $22.8 million,
reflecting higher founders grant expense of $0.8 million and higher headcount
offset, in part, by favorable foreign exchange rates, which lowered reported
compensation expense for staff outside the United States, and a lower bonus
accrual. Non-compensation expenses decreased 23.5% to $10.7 million reflecting
the elimination of the expense allocation from Morgan Stanley as well as lower
professional services and travel and entertainment expenses. Selling expenses
decreased 7.0% to $10.4 million in third quarter 2009 and general and
administrative expenses decreased 9.3% to $23.1 million.
Founders grant
expenses increased to $6.9 million in third quarter 2009 compared to $5.3
million in third quarter 2008, reflecting less attrition of employees with
founders grant awards. Expenses related to the founders grant awards reflect the
amortization of share based compensation expenses associated with restricted
stock units and options awarded to employees as a one-time grant in connection
with our IPO completed in November 2007. Of the $6.9 million of founders grant
expenses in third quarter 2009, $2.3 million was recorded in cost of services
and $4.6 million was recorded in selling, general and administrative
expenses.
Other
Expense (Income), Net
Other expense
(income), net was an expense of $4.1 million in third quarter 2009 compared to
an expense of $7.4 million in third quarter 2008. The $3.3 million decrease
primarily reflects a gain of $0.2 million related to changes in foreign exchange
rates in third quarter 2009 compared to a loss of $3.0 million a year ago and a
reduction of $1.4 million in interest expense due to lower average outstanding
debt and the impact of lower interest rates on the unhedged portion of our debt,
partially offset by a decrease of $1.5 million in interest income resulting from
lower interest returns on invested balances.
Provision
for Income Taxes
The provision for
income taxes increased 13.5% to $12.8 million in third quarter 2009. The
effective tax rate for third quarter 2009 was 37.9% compared to 37.4% in third
quarter 2008. The $1.5 million increase in the income tax expense was primarily
the result of higher pre-tax earnings during the current year.
Net
Income
Net income
increased 10.8% to $20.9 million in third quarter 2009 from third quarter 2008
and the net income margin increased to 19.2% from 17.1%. The increase in net
income primarily reflects lower operating expenses.
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Adjusted
EBITDA
Adjusted EBITDA
increased 5.3% to $54.0 million for third quarter 2009 from $51.3 million for
third quarter 2008. See Table 9 titled “Reconciliation of Adjusted EBITDA to Net
Income” and “Notes Regarding the Use of Non-GAAP Financial Measures” below. The
adjusted EBITDA margin increased to 49.6% in third quarter 2009 from 46.4% in
third quarter 2008.
Retention
Rate
Our Aggregate
Retention Rate (as defined in Table 3) declined to 80.6% for third quarter 2009
from 91.6% for third quarter 2008, reflecting year-over-year declines in each of
the four product categories. Our Core Retention Rate (as defined in Table 3) was
81.9% for third quarter 2009 compared to 94.1% for third quarter 2008. See Table
3 for Retention Rates by product category.
Client
Count
At
August 31, 2009, we had a total of 3,097 clients, excluding clients that pay
only asset based fees, which is unchanged from August 31, 2008 and up 17 from
3,080 at May 31, 2009.
Summary
of Results for Nine Months Ended August 31, 2009
Operating
Revenues – See Table 11
Total operating
revenues for the nine month period ended August 31, 2009 (first nine months
2009) increased $0.6 million, or 0.2%, to $324.2 million compared to the nine
month period ended August 31, 2008 (first nine months 2008). Revenue gains were
reported in two of our four product categories. Our revenues, excluding asset
based fees, for the first nine months 2009 would have been higher by $2.6
million had the US dollar not strengthened relative to the prior year using
foreign exchange rates for the same period of the prior year.
For the first nine
months 2009, the aforementioned one-time foreign exchange adjustment resulted in
an aggregate reduction of $2.2 million to correct for revenues previously
reported through November 30, 2008. By product category, the adjustment
increased Equity Indices by $0.5 million and decreased Equity Portfolio
Analytics, Multi-Asset Class Portfolio Analytics and Other Products by $0.9
million, $1.6 million and $0.2 million, respectively.
Revenues from our
subscription products grew $8.3 million, or 3.1%, in aggregate for the first
nine months 2009 to $275.6 million. Revenues attributable to equity index asset
based fees decreased $7.7 million, or 13.6%, to $48.6 million in the first nine
months 2009. Within our subscription product categories, revenue growth was
experienced across all regions, with the exception of EMEA, and all client
segments with the exception of hedge funds. Total revenue growth was led by
equity index subscriptions, which increased 12.6% to $139.9 million for the
first nine months 2009 compared to the first nine months 2008 and by Multi-Asset
Class Portfolio Analytics which increased 6.3% to $27.0 million and was
primarily driven by new subscriptions to BarraOne.
Revenues from
Equity Portfolio Analytics decreased 7.0% to $92.9 million for the first nine
months 2009 reflecting lower levels of new subscriptions and lower retention
rates. Other Products decreased 11.0% to $15.8 million for the first nine months
2009 compared to the same period in 2008. The decline reflects a decrease
of 72.7% in asset based fees from investment products linked to MSCI investable
hedge fund indices products and a decrease of 11.1% for fixed income analytics
offset by a 4.3% increase for our energy and commodity analytics
products.
Our Aggregate
Retention Rate was 86.4% for the first nine months 2009 compared to 92.9% for
the first nine months 2008. Our Core Retention Rate was 87.6% for the first nine
months 2009 compared to 94.4% for the first nine months 2008.
In
the first nine months 2009, we gained 6 clients compared to November 30, 2008.
At August 31, 2009, we had a total of 3,097 clients, excluding clients that pay
only asset based fees.
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Operating
Expenses – See Tables 12a - 12c
Operating expenses
for the first nine months 2009 decreased $1.0 million, or 0.5%, to $216.9
million compared to the first nine months 2008 largely reflecting the reduction
of the expense allocation from Morgan Stanley and reductions in professional
services expenses, travel and entertainment expenses, and amortization of
intangibles. These reductions were partially offset by increases in
compensation, information technology and depreciation expenses.
Our operating
expense for the first nine months 2009 would have been higher by $10.4 million
had the U.S. dollar not strengthened relative to the prior year using exchange
rates for the same period of the prior year.
Compensation
expense increased $7.4 million, or 5.8%, to $134.9 million for the first nine
months 2009. Excluding founders grant expenses, compensation expense increased
3.6% to $114.5 million. The increase in compensation expense includes costs for
new hires, $2.2 million of stock based compensation costs relating to the
restricted stock units granted as a component of the 2008 annual bonus and $1.1
million of severance. These increases were offset, in part, by favorable foreign
exchange rates (principally the strengthening of the US dollar) which lowered
reported compensation expense for staff located outside the United States,
increased migration to emerging market centers and a lower bonus accrual in the
first nine months 2009. Non-compensation expense decreased $13.0 million, or
19.4%, to $53.8 million largely reflecting a reduction in the expense allocation
from Morgan Stanley offset, in part, by an increase in expenses related to
replacing services previously provided by Morgan Stanley.
Cost of services
decreased $1.8 million, or 2.1%, to $86.5 million in the first nine months 2009.
The change was largely due to a reduction in costs allocated by Morgan Stanley,
partially offset by an increase in compensation expense.
Selling, general
and administrative expenses decreased $3.7 million, or 3.5%, to $102.3 million
in the first nine months 2009. The decline resulted from a reduction in costs
allocated by Morgan Stanley, partially offset by an increase in expenses related
to replacing services previously provided by Morgan Stanley, principally
compensation, information technology and insurance.
Other
Expense (Income), Net
Other expense
(income), net was an expense of $15.2 million for the first nine months 2009
compared to an expense of $16.3 million for the first nine months 2008. The $1.1
million decrease primarily reflects a reduction of $6.0 million in interest
expense due to lower average outstanding debt and the impact of lower interest
rates on the unhedged portion of our debt and a loss of $0.4 million related to
changes in foreign exchange rates in the current year compared to a loss of $3.0
million in the prior year, partially offset by a decrease of $7.0 million in
interest income resulting from lower interest returns on invested
balances.
Provision
for Income Taxes
The provision for
income taxes increased 2.9% to $34.8 million for the first nine months 2009
compared to the first nine months 2008. The effective tax rate for the first
nine months 2009 was 37.8% compared to 37.9% for the first nine months 2008. The
$1.0 million increase in the income tax expense was primarily the result of
higher pre-tax earnings during the current year.
Net
Income
Net income
increased 3.3% to $57.3 million for the first nine months 2009 from the first
nine months 2008 and the net income margin was 17.7%. The increase in net income
primarily reflects higher revenues, lower operating expenses, lower interest
expense and higher interest income.
Adjusted
EBITDA
Adjusted EBITDA
increased 6.5% to $155.8 million for the first nine months 2009 from $146.3
million for the comparable period in 2008. See Table 13 titled “Reconciliation
of Adjusted EBITDA to Net Income.” The adjusted EBITDA margin increased to 48.1%
for the first nine months 2009 from 45.2% for the first nine months
2008.
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Table
2
Run Rate
Metrics
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As
of
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Change
from
|
|||||||||||||||||||
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August
31,
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May
31,
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August
31,
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May
31,
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|||||||||||||||||
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In
thousands
|
2009
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2008
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2009
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2008
|
2009
|
|||||||||||||||
|
Run Rates
1
|
||||||||||||||||||||
|
Equity
indices
|
||||||||||||||||||||
|
Subscription
|
$ | 182,166 | $ | 167,126 | $ | 178,634 | 9.0 | % | 2.0 | % | ||||||||||
|
Asset based
fees 2
|
81,349 | 69,741 | 68,892 | 16.6 | % | 18.1 | % | |||||||||||||
|
Equity
Indices total
|
263,515 | 236,867 | 247,526 | 11.3 | % | 6.5 | % | |||||||||||||
|
Equity
portfolio analytics
|
120,973 | 135,280 | 126,344 | (10.6 | %) | (4.3 | %) | |||||||||||||
|
Multi-asset
class analytics
|
38,734 | 32,681 | 37,194 | 18.5 | % | 4.1 | % | |||||||||||||
|
Other
Products
|
||||||||||||||||||||
|
FEA
|
14,706 | 12,965 | 14,863 | 13.4 | % | (1.1 | %) | |||||||||||||
|
Other 3
|
5,609 | 9,288 | 6,749 | (39.6 | %) | (16.9 | %) | |||||||||||||
|
Other
Products total
|
20,315 | 22,253 | 21,612 | (8.7 | %) | (6.0 | %) | |||||||||||||
|
Total Run
Rate
|
$ | 443,537 | $ | 427,081 | $ | 432,676 | 3.9 | % | 2.5 | % | ||||||||||
|
Subscription
total
|
362,188 | 354,559 | 362,784 | 2.2 | % | (0.2 | %) | |||||||||||||
|
Asset based
fees total
|
81,349 | 72,522 | 69,892 | 12.2 | % | 16.4 | % | |||||||||||||
|
Total Run
Rate
|
$ | 443,537 | $ | 427,081 | $ | 432,676 | 3.9 | % | 2.5 | % | ||||||||||
|
Subscription
based fees by region
|
||||||||||||||||||||
|
%
Americas
|
43 | % | 44 | % | 44 | % | ||||||||||||||
|
%
non-Americas
|
57 | % | 56 | % | 56 | % | ||||||||||||||
|
Subscription
based fees by client type
|
||||||||||||||||||||
|
%
Asset Managers
|
61 | % | 62 | % | 62 | % | ||||||||||||||
|
%
Broker Dealers
|
12 | % | 12 | % | 12 | % | ||||||||||||||
|
%
Hedge Funds
|
6 | % | 6 | % | 6 | % | ||||||||||||||
|
%
Asset Owners
|
6 | % | 6 | % | 6 | % | ||||||||||||||
|
%
Others
|
15 | % | 14 | % | 14 | % | ||||||||||||||
1 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 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. 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 at the time we determine 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.
2 Includes
asset based fees for ETFs, institutional and retail indexed funds, transaction
volume-based fees for futures and options traded on certain MSCI indices and
other structured products.
3
Includes run rate related to subscriptions to fixed income analytics and to
investable hedge fund index asset based fees.
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Table
3
Retention
Rates
|
As
of
|
||||||||||||
|
August
31,
|
May
31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Aggregate
Retention Rate 1,3
|
||||||||||||
|
Equity
indices
|
91.4 | % | 95.6 | % | 92.8 | % | ||||||
|
Equity
portfolio analytics
|
67.6 | % | 87.7 | % | 82.0 | % | ||||||
|
Multi-asset
class analytics
|
73.9 | % | 91.1 | % | 83.2 | % | ||||||
|
Other
products
|
84.2 | % | 89.1 | % | 88.3 | % | ||||||
|
Total
aggregate retention
|
80.6 | % | 91.6 | % | 87.7 | % | ||||||
|
Core
Retention Rate 2,3
|
||||||||||||
|
Equity
indices
|
92.1 | % | 96.0 | % | 93.2 | % | ||||||
|
Equity
portfolio analytics
|
68.8 | % | 92.0 | % | 83.5 | % | ||||||
|
Multi-asset
class analytics
|
77.5 | % | 93.7 | % | 93.7 | % | ||||||
|
Other
products
|
86.1 | % | 93.1 | % | 89.6 | % | ||||||
|
Total core
retention
|
81.9 | % | 94.1 | % | 89.5 | % | ||||||
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 fiscal quarters and lower in the fourth fiscal 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.
2 Our
Core Retention Rate is calculated similarly to our Aggregate Retention Rate
except that the Core Retention Rate does not treat switches between our products
as a cancellation.
3 The Aggregate and
Core Retention Rates shown are for the three-month periods ended August 31,
2009, August 31, 2008 and May 31, 2009, respectively.
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Table
4
Clients and
Employees
|
As of
|
Change from
|
|||||||||||||||||||
|
August 31,
|
May 31,
|
August 31,
|
May 31,
|
|||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
|
Client count
1
|
3,097 | 3,097 | 3,080 | 0.0 | % | 0.6 | % | |||||||||||||
|
Full-time
employees
|
850 | 724 | 805 | 17.4 | % | 5.6 | % | |||||||||||||
|
% Full-time employees by
location
|
||||||||||||||||||||
|
Developed Market
Centers
|
61 | % | 74 | % | 65 | % | ||||||||||||||
|
Emerging Market
Centers
|
39 | % | 26 | % | 35 | % | ||||||||||||||
1The
client count excludes clients that pay only asset based fees. Our client count
includes affiliates, cities and certain business units within a single
organization as distinct clients when they separately subscribe to our
products.
Table
5
ETF Assets linked to MSCI
Indices
(Quarter-End)
|
2008
|
2009
|
|||||||||||||||||||||||||||
|
In Billions
|
February
|
May
|
August
|
November
|
February
|
May
|
August
|
|||||||||||||||||||||
|
AUM in ETFs linked to MSCI
Indices
|
$ | 179.2 | $ | 199.6 | $ | 166.3 | $ | 119.0 | $ | 107.8 | $ | 175.9 | $ | 199.2 | ||||||||||||||
|
Sequential Change ($ Growth in
Billions)
|
||||||||||||||||||||||||||||
|
Appreciation/Depreciation
|
$ | (15.2 | ) | $ | 9.9 | $ | (31.2 | ) | $ | (63.2 | ) | $ | (13.6 | ) | $ | 42.2 | $ | 20.1 | ||||||||||
|
Cash Inflow/
Outflow
|
2.7 | 10.5 | (2.1 | ) | 15.9 | 2.4 | 25.9 | 3.2 | ||||||||||||||||||||
|
Total
Change
|
$ | (12.5 | ) | $ | 20.4 | $ | (33.3 | ) | $ | (47.3 | ) | $ | (11.2 | ) | $ | 68.1 | $ | 23.3 | ||||||||||
Source: Bloomberg and
MSCI
ETF Assets linked to MSCI
Indices
(Quarterly Average)
|
2008
|
2009
|
|||||||||||||||||||||||||||
|
In Billions
|
February
|
May
|
August
|
November
|
February
|
May
|
August
|
|||||||||||||||||||||
|
AUM in ETFs linked to MSCI
Indices
|
$ | 183.2 | $ | 184.4 | $ | 178.3 | $ | 134.9 | $ | 126.4 | $ | 134.7 | $ | 180.3 | ||||||||||||||
|
Source: Bloomberg and
MSCI
|
||||||||||||||||||||||||||||
Conference
Call Information
Investors will have
the opportunity to listen to MSCI Inc.'s senior management review third quarter
2009 results on Thursday, October 1, 2009 at 11:00 am Eastern time. To hear the
live event, visit the investor relations section of MSCI's website,
http://ir.msci.com, or dial 1-888-267-6301 within the United States.
International callers dial 1-719-457-2604.
9 of
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|
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 October 8, 2009. To listen to the recording, visit the
investor relations section at http://ir.msci.com, or dial 1-888-203-1112
(passcode: 9742808) within the United States. International callers dial
1-719-457-0820 (passcode: 9742808).
About
MSCI Inc.
MSCI Inc. is a
leading provider of investment decision support tools to investment institutions
worldwide. MSCI Inc. products include indices and portfolio risk and performance
analytics for use in managing equity, fixed income and multi-asset class
portfolios.
The company’s
flagship products are the MSCI International Equity Indices, which include over
120,000 indices calculated daily across more than 70 countries, and the Barra
risk models and portfolio analytics, which cover 56 equity and 46 fixed income
markets. MSCI Inc. is headquartered in New York, with research and commercial
offices around the world. MXB#IR
For
further information on MSCI Inc. or our products please visit
www.mscibarra.com.
MSCI
Inc. Contact:
| Lisa Monaco, MSCI, New York | + 1.866.447.7874 |
|
For
media inquiries please contact:
|
|
|
Sally Todd |
Clare Milton, Penrose Financial, London
|
+ 44.20.7786.4888 |
| Pen Pendleton | Patrick Clifford, Abernathy MacGregor, New York | + 1.212.371.5999 |
Forward-Looking
Statements
This 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, 2008 and filed with the Securities and Exchange
Commission on January 29, 2009 and in quarterly reports on form 10-Q and current
reports on form 8-K. 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.
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Table
6
MSCI Inc.
Consolidated Statements of Income
(unaudited)
|
Three Months
Ended
|
||||||||||||
|
August 31,
|
May 31,
|
|||||||||||
|
In thousands, except per share
data
|
2009
|
2008
|
2009
|
|||||||||
|
Operating
revenues
|
$ | 108,868 | $ | 110,399 | $ | 109,375 | ||||||
|
Operating
expenses
|
||||||||||||
|
Cost of
services
|
28,247 | 27,800 | 29,269 | |||||||||
|
Selling, general
and administrative
|
33,525 | 36,687 | 34,052 | |||||||||
|
Amortization of
intangible assets
|
6,429 | 7,125 | 6,428 | |||||||||
|
Depreciation and
amortization of property, equipment, and leasehold
improvements
|
2,869 | 1,268 | 2,972 | |||||||||
|
Total operating
expenses
|
71,070 | 72,880 | 72,721 | |||||||||
|
Operating
income
|
37,798 | 37,519 | 36,654 | |||||||||
|
Interest
income
|
(373 | ) | (1,843 | ) | (220 | ) | ||||||
|
Interest
expense
|
4,628 | 5,991 | 4,904 | |||||||||
|
Other expense
(income)
|
(168 | ) | 3,224 | (2 | ) | |||||||
|
Other expense (income),
net
|
4,087 | 7,372 | 4,682 | |||||||||
|
Income before income
taxes
|
33,711 | 30,147 | 31,972 | |||||||||
|
Provision for income
taxes
|
12,787 | 11,269 | 12,354 | |||||||||
|
Net income
|
$ | 20,924 | $ | 18,878 | $ | 19,618 | ||||||
|
Earnings per basic common
share
|
$ | 0.21 | $ | 0.19 | $ | 0.20 | ||||||
|
Earnings per diluted common
share
|
$ | 0.20 | $ | 0.19 | $ | 0.19 | ||||||
|
Weighted average shares
outstanding used in computing earnings per share
|
||||||||||||
|
Basic
|
100,402 | 100,052 | 100,360 | |||||||||
|
Diluted
|
102,717 | 101,698 | 101,915 | |||||||||
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Table
7
Operating Revenues by Product Category
|
Three Months
Ended
|
Change from
|
|||||||||||||||||||
|
August 31,
|
May 31,
|
August 31,
|
May 31,
|
|||||||||||||||||
|
In
thousands
|
2009
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||||
|
Equity
indices
|
||||||||||||||||||||
|
Equity index
subscriptions
|
$ | 47,393 | $ | 43,666 | $ | 47,282 | 8.5 | % | 0.2 | % | ||||||||||
|
Equity index
asset based fees
|
20,137 | 18,312 | 15,220 | 10.0 | % | 32.3 | % | |||||||||||||
|
Equity indices
total
|
67,530 | 61,978 | 62,502 | 9.0 | % | 8.0 | % | |||||||||||||
|
Equity portfolio
analytics
|
29,157 | 33,659 | 31,582 | (13.4 | %) | (7.7 | %) | |||||||||||||
|
Multi-asset class portfolio
analytics
|
7,815 | 8,923 | 9,572 | (12.4 | %) | (18.4 | %) | |||||||||||||
|
Other
products
|
4,366 | 5,839 | 5,719 | (25.2 | %) | (23.7 | %) | |||||||||||||
|
Total operating
revenues
|
$ | 108,868 | $ | 110,399 | $ | 109,375 | (1.4 | %) | (0.5 | %) | ||||||||||
|
Subscription
|
88,731 | 92,087 | 94,155 | (3.6 | %) | (5.8 | %) | |||||||||||||
|
Equity index asset based
fees
|
20,137 | 18,312 | 15,220 | 10.0 | % | 32.3 | % | |||||||||||||
|
Total operating
revenues
|
$ | 108,868 | $ | 110,399 | $ | 109,375 | (1.4 | %) | (0.5 | %) | ||||||||||
Table
8a
Operating Expenses by Category with
Founders Grant Shown Separately
(Compensation vs.
Non-compensation)
|
Three Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Compensation
|
$ | 36,984 | $ | 37,121 | (0.4 | %) | ||||||
|
Non-compensation excluding
depreciation
|
17,929 | 22,020 | (18.6 | %) | ||||||||
|
Total
|
54,913 | 59,141 | (7.1 | %) | ||||||||
|
Amortization of intangible
assets
|
6,429 | 7,125 | (9.8 | %) | ||||||||
|
Depreciation and amortization of
property, equipment, and leasehold improvements
|
2,869 | 1,268 | 126.3 | % | ||||||||
|
Operating expenses excluding
founders grant
|
64,211 | 67,534 | (4.9 | %) | ||||||||
|
Founders
grant
|
6,859 | 5,346 | 28.3 | % | ||||||||
|
Operating expenses including
founders grant
|
$ | 71,070 | $ | 72,880 | (2.5 | %) | ||||||
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Table
8b
Operating Expenses by Category with
Founders Grant Shown Separately
(Cost of Services vs. Selling, General
and Administrative)
|
Three Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$ | 18,727 | $ | 18,222 | 2.8 | % | ||||||
|
Non-compensation
excluding depreciation
|
7,205 | 8,003 | (10.0 | %) | ||||||||
|
Total
|
25,932 | 26,225 | (1.1 | %) | ||||||||
|
Selling, general and
administrative
|
||||||||||||
|
Compensation
|
18,257 | 18,899 | (3.4 | %) | ||||||||
|
Non-compensation
excluding depreciation
|
10,724 | 14,017 | (23.5 | %) | ||||||||
|
Total
|
28,981 | 32,916 | (12.0 | %) | ||||||||
|
Amortization of intangible
assets
|
6,429 | 7,125 | (9.8 | %) | ||||||||
|
Depreciation and amortization of
property, equipment, and leasehold improvements
|
2,869 | 1,268 | 126.3 | % | ||||||||
|
Operating expenses excluding
founders grant
|
64,211 | 67,534 | (4.9 | %) | ||||||||
|
Founders
grant
|
6,859 | 5,346 | 28.3 | % | ||||||||
|
Operating expenses including
founders grant
|
$ | 71,070 | $ | 72,880 | (2.5 | %) | ||||||
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|
Table
8c
Operating Expenses
by Category
(Cost of Services
vs. Selling, General and Administrative)
|
Three Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$ | 18,727 | $ | 18,222 | 2.8 | % | ||||||
|
Founders
grant
|
2,315 | 1,575 | 47.0 | % | ||||||||
|
Total
|
21,042 | 19,797 | 6.3 | % | ||||||||
|
Non-compensation
excluding depreciation
|
7,205 | 8,003 | (10.0 | %) | ||||||||
|
Total
|
28,247 | 27,800 | 1.6 | % | ||||||||
|
Selling, general and
administrative
|
||||||||||||
|
Compensation
|
18,257 | 18,899 | (3.4 | %) | ||||||||
|
Founders
grant
|
4,544 | 3,771 | 20.5 | % | ||||||||
|
Total
|
22,801 | 22,670 | 0.6 | % | ||||||||
|
Non-compensation
excluding depreciation
|
10,724 | 14,017 | (23.5 | %) | ||||||||
|
Total
|
33,525 | 36,687 | (8.6 | %) | ||||||||
|
Amortization of intangible
assets
|
6,429 | 7,125 | (9.8 | %) | ||||||||
|
Depreciation and amortization of
property, equipment, and leasehold improvements
|
2,869 | 1,268 | 126.3 | % | ||||||||
|
Operating expenses including
founders grant
|
$ | 71,070 | $ | 72,880 | (2.5 | %) | ||||||
Table
9
Reconciliation of Adjusted EBITDA
to Net Income
|
Three Months
Ended
|
||||||||||||
|
August 31,
|
May 31,
|
|||||||||||
|
In
thousands
|
2009
|
2008
|
2009
|
|||||||||
|
Adjusted EBITDA1
|
$ | 53,955 | $ | 51,258 | $ | 53,392 | ||||||
|
Less: Founders grant
expense
|
6,859 | 5,346 | 7,338 | |||||||||
|
Less: Depreciation and
amortization
|
2,869 | 1,268 | 2,972 | |||||||||
|
Less: Amortization of
intangible assets
|
6,429 | 7,125 | 6,428 | |||||||||
|
Less: Other expense
(income), net
|
4,087 | 7,372 | 4,682 | |||||||||
|
Less: Provision for
income taxes
|
12,787 | 11,269 | 12,354 | |||||||||
|
Net income
|
$ | 20,924 | $ | 18,878 | $ | 19,618 | ||||||
1 All stock based compensation other than
the founders grant is considered an expense for purposes of calculating adjusted
EBITDA
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|
Table
10
MSCI Inc.
Consolidated Statements of Income
(unaudited)
|
Nine Months
Ended
|
||||||||
|
August 31,
|
||||||||
|
In thousands, except per share
data
|
2009
|
2008
|
||||||
|
Operating
revenues
|
$ | 324,158 | $ | 323,545 | ||||
|
Operating
expenses
|
||||||||
|
Cost of
services
|
86,451 | 88,296 | ||||||
|
Selling, general
and administrative
|
102,293 | 106,012 | ||||||
|
Amortization of
intangible assets
|
19,286 | 21,375 | ||||||
|
Depreciation and
amortization of property, equipment, and leasehold
improvements
|
8,892 | 2,274 | ||||||
|
Total operating
expenses
|
216,922 | 217,957 | ||||||
|
Operating
income
|
107,236 | 105,588 | ||||||
|
Interest
income
|
(714 | ) | (7,723 | ) | ||||
|
Interest
expense
|
15,170 | 21,122 | ||||||
|
Other expense
(income)
|
712 | 2,922 | ||||||
|
Other expense (income),
net
|
15,168 | 16,321 | ||||||
|
Income before income
taxes
|
92,068 | 89,267 | ||||||
|
Provision for income
taxes
|
34,802 | 33,824 | ||||||
|
Net income
|
$ | 57,266 | $ | 55,443 | ||||
|
Earnings per basic common
share
|
$ | 0.57 | $ | 0.55 | ||||
|
Earnings per diluted common
share
|
$ | 0.56 | $ | 0.55 | ||||
|
Weighted average shares
outstanding used in computing earnings per share
|
||||||||
|
Basic
|
100,350 | 100,020 | ||||||
|
Diluted
|
102,034 | 101,236 | ||||||
Table
11
Operating Revenues
by Product Category
|
Nine Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Equity
indices
|
||||||||||||
|
Equity index
subscriptions
|
$ | 139,942 | $ | 124,279 | 12.6 | % | ||||||
|
Equity index
asset based fees
|
48,539 | 56,207 | (13.6 | %) | ||||||||
|
Equity indices
total
|
188,481 | 180,486 | 4.4 | % | ||||||||
|
Equity portfolio
analytics
|
92,879 | 99,903 | (7.0 | %) | ||||||||
|
Multi-asset class portfolio
analytics
|
27,010 | 25,413 | 6.3 | % | ||||||||
|
Other
products
|
15,788 | 17,743 | (11.0 | %) | ||||||||
|
Total operating
revenues
|
$ | 324,158 | $ | 323,545 | 0.2 | % | ||||||
|
Subscription
|
275,619 | 267,338 | 3.1 | % | ||||||||
|
Equity index asset based
fees
|
48,539 | 56,207 | (13.6 | %) | ||||||||
|
Total operating
revenues
|
$ | 324,158 | $ | 323,545 | 0.2 | % | ||||||
15 of
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|
Table
12a
Operating Expenses by Category with
Founders Grant Shown Separately
(Compensation vs.
Non-compensation)
|
Nine Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Compensation
|
$ | 114,545 | $ | 110,516 | 3.6 | % | ||||||
|
Non-compensation
|
53,801 | 66,774 | (19.4 | %) | ||||||||
|
Total
|
168,346 | 177,290 | (5.0 | %) | ||||||||
|
Amortization of intangible
assets
|
19,286 | 21,375 | (9.8 | %) | ||||||||
|
Depreciation and amortization of
property, equipment, and leasehold improvements
|
8,892 | 2,274 | 291.0 | % | ||||||||
|
Operating expenses excluding
founders grant
|
196,524 | 200,939 | (2.2 | %) | ||||||||
|
Founders
grant
|
20,398 | 17,018 | 19.9 | % | ||||||||
|
Operating expenses including
founders grant
|
$ | 216,922 | $ | 217,957 | (0.5 | %) | ||||||
Table
12b
Operating Expenses
by Category with Founders Grant Shown Separately
(Cost of Services
vs. Selling, General and Administrative)
|
Nine Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$ | 57,517 | $ | 54,745 | 5.1 | % | ||||||
|
Non-compensation
|
21,682 | 28,800 | (24.7 | %) | ||||||||
|
Total
|
79,199 | 83,545 | (5.2 | %) | ||||||||
|
Selling, general and
administrative
|
||||||||||||
|
Compensation
|
57,028 | 55,771 | 2.3 | % | ||||||||
|
Non-compensation
|
32,119 | 37,974 | (15.4 | %) | ||||||||
|
Total
|
89,147 | 93,745 | (4.9 | %) | ||||||||
|
Amortization of intangible
assets
|
19,286 | 21,375 | (9.8 | %) | ||||||||
|
Depreciation and amortization of
property, equipment, and leasehold improvements
|
8,892 | 2,274 | 291.0 | % | ||||||||
|
Operating expenses excluding
founders grant
|
196,524 | 200,939 | (2.2 | %) | ||||||||
|
Founders
grant
|
20,398 | 17,018 | 19.9 | % | ||||||||
|
Operating expenses including
founders grant
|
$ | 216,922 | $ | 217,957 | (0.5 | %) | ||||||
16 of
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|
Table
12c
Operating
Expenses by Category
(Cost
of Services vs. Selling, General and Administrative)
|
Nine Months
Ended
|
||||||||||||
|
August 31,
|
||||||||||||
|
In
thousands
|
2009
|
2008
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$ | 57,517 | $ | 54,745 | 5.1 | % | ||||||
|
Founders
grant
|
7,252 | 4,751 | 52.6 | % | ||||||||
|
Total
|
64,769 | 59,496 | 8.9 | % | ||||||||
|
Non-compensation
|
21,682 | 28,800 | (24.7 | %) | ||||||||
|
Total
|
86,451 | 88,296 | (2.1 | %) | ||||||||
|
Selling, general and
administrative
|
||||||||||||
|
Compensation
|
57,028 | 55,771 | 2.3 | % | ||||||||
|
Founders
grant
|
13,146 | 12,267 | 7.2 | % | ||||||||
|
Total
|
70,174 | 68,038 | 3.1 | % | ||||||||
|
Non-compensation
|
32,119 | 37,974 | (15.4 | %) | ||||||||
|
Total
|
102,293 | 106,012 | (3.5 | %) | ||||||||
|
Amortization of intangible
assets
|
19,286 | 21,375 | (9.8 | %) | ||||||||
|
Depreciation and amortization of
property, equipment, and leasehold improvements
|
8,892 | 2,274 | 291.0 | % | ||||||||
|
Operating expenses including
founders grant
|
$ | 216,922 | $ | 217,957 | (0.5 | %) | ||||||
Table
13
Reconciliation
of Adjusted EBITDA to Net Income
|
Nine Months
Ended
|
||||||||
|
August 31,
|
||||||||
|
In
thousands
|
2009
|
2008
|
||||||
|
Adjusted EBITDA1
|
$ | 155,812 | $ | 146,255 | ||||
|
Less: Founders grant
expense
|
20,398 | 17,018 | ||||||
|
Less: Depreciation and
amortization
|
8,892 | 2,274 | ||||||
|
Less: Amortization of
intangible assets
|
19,286 | 21,375 | ||||||
|
Less: Other expense
(income), net
|
15,168 | 16,321 | ||||||
|
Less: Provision for
income taxes
|
34,802 | 33,824 | ||||||
|
Net income
|
$ | 57,266 | $ | 55,443 | ||||
1 All stock based compensation other than
the founders grant is considered an expense for purposes of calculating adjusted
EBITDA
Notes
Regarding the Use of Non-GAAP Financial Measures
17 of
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www.mscibarra.com
|
Adjusted
EBITDA
Adjusted EBITDA is
defined as income before interest income, interest expense, other income,
provision for income taxes, depreciation, amortization and founders grant
expense. Adjusted EBITDA is not presented as an alternative measure of operating
results, as determined in accordance with accounting principles generally
accepted in the U.S. Rather, we believe adjusted EBITDA is one additional
measure that investors use to evaluate companies, like our company, that have
substantial amortization of intangible assets and other unusual one-time
non-cash charges included in their statement of income. This is particularly
relevant to a company in our industry because we do not believe other companies
in our industry have as significant a proportion of their operating expenses
represented by amortization of intangible assets and one-time founders grant as
we do. As stated above, adjusted EBITDA excludes expense for the one-time $68.0
million founders grant which is being amortized through 2011. Management
believes that it is useful to exclude the founders grant expense in order to
focus on what is deemed to be a more reliable indicator of ongoing operating
performance. Amortization expense for the one-time $68.0 million founders grant,
representing restricted stock units and options awarded to employees effective
with the IPO, is expected to be amortized through 2011.
Additionally, our
management uses adjusted EBITDA to compare MSCI to other companies in the same
industry when evaluating relative performance and industry development. Adjusted
EBITDA as presented herein, however, may not be comparable to similarly titled
measures reported by other companies. Adjusted EBITDA is a non-GAAP measure that
should not be considered as an alternative to net income, as an indication of
financial performance or as an alternative to cash flow from operations as a
measure of liquidity.
Operating Expenses
excluding Founders Grant
Operating expenses
excluding founders grant (described above), cost of services expenses excluding
founders grant, and selling, general, and administrative expenses excluding
founders grant are deemed to be a more reliable indicator of ongoing expense
trends. Management believes that it is useful to exclude founders grant expenses
from operating expenses because the founders grant was a one-time event,
although the amortization expense of the award will be recognized over four
years.
18 of 18