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): July 2, 2008
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 July 2,
2008, MSCI Inc. (the “Registrant”) released financial information with respect
to its second quarter ended May 31, 2008. 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.
Item
7.01 Regulation FD Disclosure.
On July 2,
2008, the Registrant announced that it intends to file shortly a Registration
Statement on Form S-1 for the sale by Morgan Stanley of approximately half of
its ownership interest in MSCI. A copy of the press release containing this
information is annexed as Exhibit 99.2 to this Report.
Item 9.01 Financial Statements and
Exhibits.
(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 July 2, 2008 containing financial information for the second quarter
ended May 31, 2008.
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Exhibit
99.2
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Press
release of the Registrant dated July
2,
2008
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SIGNATURE
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: July 2,
2008
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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 Record Revenues for Second Quarter 2008
New York – July 2, 2008 – 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
second quarter and six months ended May 31, 2008.
(Note: Percentage
changes are referenced to the comparable period in fiscal year 2007, unless
otherwise noted.)
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·
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Operating
revenues increased 21.9% to $108.2 million in second quarter 2008 and
21.2% to $213.1 million for first half
2008.
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·
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Adjusted
EBITDA increased 43.4% to $48.0 million in second quarter 2008 for an
adjusted EBITDA margin of 44.3% and 36.1% to $95.1 million for an adjusted
EBITDA margin of 44.6% for first half 2008. See Tables 9 and 14 each
titled "Reconciliation of Adjusted EBITDA to Net
Income."
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·
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Net income
decreased 6.1% to $18.6 million ($0.18 per diluted share) in second
quarter 2008 for a net income margin of 17.2% and 11.9% to $36.6 million
for first half 2008 for a net income margin of
17.2%.
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Henry A. Fernandez,
Chairman and CEO, said “We again delivered a very strong quarter with revenue
growth of 21.9% and adjusted EBITDA growth of 43.4% for the second quarter.
Importantly, our adjusted EBITDA margin was 44.3% despite incurring expenses
associated with replacing services currently provided by Morgan Stanley. Demand
for our investment decision support tools remained strong across our diversified
client base, further proof of the strength of our franchise during a difficult
market environment. This continued strength is also evident in the 21.4% growth
in the run rate on a year-over-year basis and 4.1% on a sequential
basis.”
Factors
Impacting Comparability of Our Financial Results
Net income and
earnings per share (EPS) for second quarter 2008 are not comparable with second
quarter 2007 primarily because of founders grant expense, changes in our capital
structure and our initial public offering (IPO). See disclosures below for
additional details.
Selected
Financial Information
Table
1
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Three Months
Ended
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Six Months
Ended
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May
31,
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May
31,
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Amounts in
thousands, except per share data
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2008
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2007
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Chg
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2008
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2007
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Chg
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Operating
revenues
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$108,195
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$88,752
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21.9%
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$213,146
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$175,821
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21.2%
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||||||
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Operating
expenses
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$74,747
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$62,095
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20.4%
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$145,008
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$119,591
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21.3%
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Net
income
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$18,631
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$19,851
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(6.1%)
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$36,565
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$41,493
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(11.9%)
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||||||
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%
Margin
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17.2%
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22.4%
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17.2%
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23.6%
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Diluted
EPS
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$0.18
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$0.24
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(25.0%)
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$0.36
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$0.49
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(26.5%)
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Operating
expenses excluding founders grant1
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$67,871
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$62,095
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9.3%
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$133,336
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$119,591
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11.5%
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Adjusted
EBITDA2
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$47,971
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$33,447
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43.4%
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$95,066
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$69,850
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36.1%
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%
Margin
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44.3%
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37.7%
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44.6%
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39.7%
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1
Excludes certain equity-based compensation
(founders grant) expenses of $6.9 million and $11.7 million for the three
months and six months ended May 31, 2008, respectively, and $0 for the
three months and six months ended May 31, 2007.
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2
See Tables 9 and 14 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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www.mscibarra.com
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Summary of Results for Fiscal Second Quarter 2008
Operating
Revenues
Total operating
revenues for the three months ended May 31, 2008 (second quarter 2008) increased
21.9% to a record $108.2 million compared to $88.8 million for the three months
ended May 31, 2007 (second quarter 2007). The growth was driven by an increase
in our revenues related to index and analytics subscriptions and to equity index
asset based fees, which were up 21.3% and 25.0%, respectively, in second quarter
2008. The growth was across all client types and geographic regions as it was
for the three months ended February 29, 2008 (first quarter 2008). On a
sequential basis, our revenue growth was 3.1%.
Our Aggregate
Retention Rate (as defined below) decreased to 91% for second quarter 2008 from
94% for second quarter 2007. The Aggregate Retention Rate for second quarter
2008 was negatively impacted by the cancellation of a TotalRisk subscription. We
are in the process of decommissioning TotalRisk and are providing clients the
opportunity to transition to BarraOne. Excluding this cancellation, the
Aggregate Retention Rate was 93%.
In second quarter
2008, we added 52 net new clients. At May 31, 2008, we had a total of 3,032
clients, excluding asset based fee only clients.
Equity
Indices: Revenues related to Equity Indices increased 25.7% to
$60.1 million in second quarter 2008 compared to the same period in 2007 and
increased 2.9% compared to first quarter 2008. Revenues from equity index
subscriptions were up 26.0% to $41.8 million in second quarter 2008 reflecting
growth in subscriptions to our MSCI Global Investable Market Indices, with
particular strength in subscriptions to our core and small cap developed market
and emerging market indices as well as strong sales of historical index data. We
experienced growth across all client types led by asset managers, typically our
largest client category, and hedge funds, a small but growing client category
for our equity indices subscription products.
Revenues
attributable to equity index asset based fees increased 25.0% to $18.3 million
in second quarter 2008 led by growth in our ETF asset based fee revenues. The
average value of assets in ETFs linked to MSCI equity indices was $184.4 billion
for second quarter 2008 compared to $140.8 billion for second quarter 2007. As
of May 31, 2008, the value of assets in ETFs linked to MSCI equity indices was
$199.6 billion, representing an increase of $49.4 billion, or 32.9%, from $150.2
billion as of May 31, 2007. Approximately 90% of the year-over-year growth in
value of assets in ETFs linked to MSCI equity indices was attributable to net
asset inflows and 10% was attributable to net asset appreciation.
Compared to first
quarter 2008, equity index asset based fee revenues declined 6.5% as a result of
declines in asset-based revenues for products other than ETFs. These asset-based
non-ETF revenues include fees from passive mutual funds, futures, options and
other structured products.
Our ETF asset based
revenues were flat in second quarter 2008 compared to first quarter 2008. The
average value of assets in ETFs linked to MSCI equity indices was $184.4 billion
for second quarter 2008 compared to $183.2 billion for first quarter 2008. At
May 31, 2008, the value of assets in ETFs linked to MSCI equity indices was
$199.6 billion representing an increase of 11.4% or $20.4 billion from $179.2
billion as of February 29, 2008. The $20.4 billion increase from February 29,
2008 was attributable to asset inflows of $10.5 billion and asset appreciation
of $9.9 billion. The majority of the $10.5 billion of asset inflows came from
established ETFs; however, ETFs introduced over the last twelve months accounted
for 27% of the inflows.
The three MSCI
indices with the largest amount of ETF assets linked to them as of May 31, 2008
were the MSCI EAFE, Emerging Markets and Brazil Indices. The assets linked to
these indices were $49.0 billion, $40.6 billion and $11.0 billion,
respectively.
Equity Portfolio
Analytics: Revenues related to Equity Portfolio Analytics
products increased 12.2% to $33.9 million in second quarter 2008 compared to the
same period in 2007 and increased 4.8% compared to first quarter
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2008. The
year-over-year increase reflects continued new subscriptions of our proprietary
equity risk data accessed through our Equity Models Direct and Barra on Vendors
products. Overall growth reflects an increase in demand for our tools used in
managing equity portfolio risk and enhancing equity trading strategies; however,
we experienced an increase in cancellations of equity portfolio
analytics subscriptions as result of the closing of several quantitative
portfolio management teams at several of our clients during the
quarter.
Multi-Asset Class Portfolio
Analytics: Revenues related to Multi-Asset Class Portfolio
Analytics increased 94.6% to $8.6 million in second quarter 2008 compared to the
same period in 2007 and increased 8.9% compared to first quarter 2008. The
year-over-year increase is attributable to revenue growth from BarraOne due
primarily to strong demand from asset managers and asset owners for our risk
management application used for internal risk reporting and compliance
reporting. We also benefited from licensing to existing clients our performance
attribution module which was launched in first quarter 2008.
Other Products: Revenues from
Other Products decreased 11.3% to $5.6 million in second quarter 2008 compared
to the same period in 2007. The decline reflects a decrease of 66.8% to $0.5
million in asset based fees from investment products linked to MSCI hedge fund
indices and a decrease of 19.8% to $1.8 million for fixed income analytics
offset by a 28.2% increase to $3.3 million for our energy and commodity
analytics products. The decline in hedge fund indices revenues
reflects lower values of assets in hedge fund indices linked to our indices,
caused by market depreciation and investor withdrawals.
Operating
Expenses
Operating expenses
increased 20.4% to $74.7 million in second quarter 2008 compared to second
quarter 2007. Excluding expenses related to the founders grant (as described
below), operating expenses increased 9.3% to $67.9 million in second quarter
2008, with increases in compensation and non-compensation expenses of 11.0% and
5.5%, respectively. Expenses associated with replacing services currently
provided by Morgan Stanley were $5.1 million in second quarter 2008 compared to
$2.7 million in first quarter 2008, and the allocation expense for cost of
services provided by Morgan Stanley was $5.8 million in second quarter 2008
compared to $6.3 million in both second quarter 2007 and first quarter
2008.
Compensation expense
in second quarter 2008 includes $1.9 million of expenses attributable to people
hired to eventually replace Morgan Stanley services. In addition, the increase
compared to second quarter 2007 reflects higher compensation costs for existing
staff and new hires offset, in part, by a movement of personnel to lower cost
locations. The non-compensation expense increase reflects expenses of $3.2
million related to replacing Morgan Stanley services, $1.3 million associated
with being a public company and $0.9 million from expenses associated with the
May 2008 secondary equity offering. In addition, higher occupancy and
information technology costs contributed to the increase. These expenses were
offset by a $0.6 million reduction in the expense allocation from Morgan
Stanley, declines in professional service fees and a bad debt provision
reversal.
Cost of services
decreased 1.1% to $30.0 million in second quarter 2008 compared to second
quarter 2007. Excluding the founders grant, cost of services expenses decreased
7.3% to $28.1 million in second quarter 2008, reflecting decreases in both
compensation and non-compensation expenses. Compensation expenses excluding the
founders grant declined 6.5% reflecting lower headcount and the movement of
personnel to lower cost centers. Non-compensation expenses decreased 8.7% due
largely to a reduction in the expense allocation from Morgan
Stanley.
Selling, general and
administrative expenses increased 47.6% to $37.6 million in second quarter 2008
compared to $25.5 million in second quarter 2007. Excluding the founders grant,
selling, general and administrative expenses increased 28.0% to $32.6 million in
second quarter 2008. Compensation expenses excluding the founders grant
increased 33.6% to $19.4 million, which was attributable to higher compensation
costs for existing staff and increased staffing levels related to replacing
current Morgan Stanley services. Non-compensation expenses increased 20.5% to
$13.2 million. The $2.2 million increase in non-compensation expense includes
$3.2 million related to replacing services currently provided by Morgan Stanley,
$1.3 million associated with being a public
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company and $0.9
million due to expenses associated with the May 2008 secondary equity offering,
partially offset by declines in professional service fees and a bad
debt provision reversal.
Selling expenses
increased 0.7% to $11.4 million in second quarter 2008 and general and
administrative expenses increased 85.0% to $26.2 million.
We expect operating
expense increases from initial set-up costs and overlaps with the cost of Morgan
Stanley services to continue until we have replaced services currently provided
by Morgan Stanley.
Expenses related to
the founders grant of $6.9 million in second quarter 2008 reflected the
amortization of share based compensation expenses associated with restricted
stock units and options awarded to employees as a one-time grant which became
effective in connection with our IPO completed in November 2007. Of the $6.9
million of founders grant expenses, $1.9 million was recorded in cost of
services and $5.0 million was recorded in selling, general and administrative.
Compared to first quarter 2008, expenses related to the founders grant increased
by $2.1 million due to adjusting the forfeiture rate used to calculate the
amortization rate to reflect the lower than average employee turn-over rate
experienced in the second quarter. In second quarter 2007, there were no
amortized expenses associated with the founders grant.
The number of
full-time employees increased by 43 to 686 on May 31, 2008 from 643 on May 31,
2007 and by 34 from 652 on February 29, 2008. On May 31, 2008, 103 full-time
employees were located in Budapest and Mumbai compared to 49 on May 31, 2007 and
83 on February 29, 2008.
Interest
Income (Expense) and Other, Net
Interest income
(expense) and other, net was an expense of $3.1 million in second quarter 2008
compared to income of $5.0 million in second quarter 2007. The $8.1 million
decrease reflects a reduction of interest income resulting from lower cash
balances and an increase in interest expense due to interest paid on term loan
borrowings under our credit facility, which was partially offset by $1.4 million
of interest income on a federal income tax refund.
Provision
for Income Taxes
The provision for
income taxes decreased 0.8% to $11.8 million in second quarter 2008 as a result
of lower pre-tax income. The effective tax rate for second quarter 2008 was
38.7% compared to 37.4% in second quarter 2007. The increase is largely due to a
higher portion of our income being subject to US income tax rather than non-US
income tax.
Net
Income
Net income decreased
6.1% to $18.6 million in second quarter 2008 from second quarter 2007 and the
net income margin decreased to 17.2% from 22.4%. The decline in net income
primarily reflects founders grant expense, higher interest expense and lower
interest income, which were offset, in part, by the increase in operating
income. On a diluted per share basis, the decline was 25.0% which, in addition
to the items cited above, also reflects a higher number of diluted shares in
second quarter 2008 compared to second quarter 2007 due to the additional common
shares issued in conjunction with our November 2007 IPO.
Adjusted
EBITDA
Adjusted EBITDA
increased 43.4% to $48.0 million for second quarter 2008 from Adjusted EBITDA of
$33.4 million for second quarter 2007. See Table 9 titled “Reconciliation of
Adjusted EBITDA to Net Income.” The adjusted EBITDA margin increased to 44.3% in
second quarter 2008 from 37.7% in second quarter 2007. The increase reflects the
operating leverage in the business and disciplined cost management. Adjusted
EBITDA for second quarter 2008 increased $0.9 million or 1.9% compared to first
quarter 2008.
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Summary
of Results for First Six Months of Fiscal 2008
Operating
Revenues
Total operating
revenues for the six months ended May 31, 2008 (first half 2008) increased 21.2%
to $213.1 million compared to $175.8 million for the six months ended May 31,
2007 (first half 2007). Double-digit revenue gains were reported across three of
our four product categories. The largest contributor to revenue growth in terms
of dollars was Equity Indices which increased $24.5 million or 26.0% in first
half 2008. The 26.0% gain was comprised of a 21.5% gain in revenues from Equity
Index subscriptions and a 36.8% gain in revenues from Equity Index asset based
fees.
Revenues from our
subscription products grew 18.3% in the aggregate for first half 2008 to $175.3
million reflecting increased subscriptions from existing clients and new client
wins. Approximately 80% of our new subscriptions during first half 2008 came
from existing clients. On a percentage basis, revenue growth was led by our
Multi-Asset Class Analytics products which increased 89.5% to $16.5 million and
was primarily driven by new subscriptions to BarraOne. Revenues
related to Equity Portfolio Analytics products increased 11.2% to $66.2 million
in first half 2008 compared to the same period in 2007.
Revenues from Other
Products decreased 11.9% to $11.9 million in first half 2008 compared to the
same period in 2007. The decline reflects a decrease of 45.9% in asset based
fees from investment products linked to MSCI hedge fund indices and a decrease
of 21.1% for fixed income analytics offset by a 26.9% increase for our energy
and commodity analytics products.
Our Aggregate
Retention Rate remained at 94% for first half 2008 compared to 94% for first
half 2007. The Aggregate Retention Rate for first half 2008 was negatively
impacted by the cancellation of a TotalRisk subscription. We are in the process
of decommissioning TotalRisk and are providing clients the opportunity to
transition to BarraOne. Excluding this cancellation, the Aggregate Retention
Rate was 95%.
In first half 2008,
we added 106 net new clients. At May 31, 2008, we had a total of 3,032 clients,
excluding asset based fee only clients.
Operating
Expenses
Operating expenses
for first half 2008 increased 21.3% to $145.0 million compared to first half
2007. Excluding the founders grant, operating expenses increased 11.5% to $133.3
million for first half 2008 with compensation expense increasing 6.8% and
non-compensation expense increasing 19.2%. Expenses associated with replacing
services currently provided by Morgan Stanley were $7.8 million in first half
2008.
Compensation expense
in first half 2008 includes $3.1 million of expenses attributable to people
hired to eventually replace Morgan Stanley services. In addition, the increase
compared to first half 2007 reflects higher compensation costs for existing
staff and new hires which was partially offset by the movement of personnel to
lower cost locations. The increase in non-compensation expense reflects $4.7
million of expenses related to replacing Morgan Stanley services, $2.4 million
of public company expenses, and $0.9 of expenses associated with the May 2008
secondary equity offering, partially offset by the decline in the expense
allocation from Morgan Stanley to $12.1 million in first half 2008 from $12.8
million in first half 2007.
Interest
Income (Expense) and Other, Net
Interest income
(expense) and other, net was an expense of $9.0 million in first half 2008
compared to income of $10.0 million in first half 2007. The $19.1 million
decrease reflects a reduction of interest income resulting from lower cash
balances and an increase in interest expense due to interest paid on term loan
borrowings under our credit facility, which was partially offset by $1.4 million
of interest income on a federal income tax refund.
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Provision
for Income Taxes
The provision for
income taxes decreased 9.0% to $22.6 million in first half 2008 as a result of
lower pre-tax income. The effective tax rate for first half 2008 was 38.2%
compared to 37.4% in second quarter 2007. The increase is largely due to a
higher portion of our income being subject to US income tax rather than non-US
income tax.
Net
Income
Net income decreased
11.9% to $36.6 million in first half 2008 from first half 2007 and the net
income margin decreased to 17.2% from 23.6%. The decline in net income primarily
reflects founders grant expense, higher interest expense and lower interest
income, which were offset, in part, by the increase in operating income. On a
diluted per share basis, the decline was 26.5% which, in addition to the items
cited above, also reflects a higher number of diluted shares in first half 2008
compared to first half 2007 due to the additional common shares issued in
conjunction with our November 2007 IPO.
Adjusted
EBITDA
Adjusted EBITDA
increased 36.1% to $95.1 million for first half 2008 from Adjusted EBITDA of
$69.9 million for first half 2007. See Table 14 titled “Reconciliation of
Adjusted EBITDA to Net Income.” The adjusted EBITDA margin increased to 44.6% in
first half 2008 from 39.7% in first half 2007. The increase reflects the
operating leverage in the business and disciplined cost management.
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Table
2
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Run Rates and
Other Key Metrics
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As
of
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Change
from
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|||||||||
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May
31,
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May
31,
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February
29,
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May
31,
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February
29,
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||||||
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2008
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2007
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2008
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2007
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2008
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Run Rates1 ($
thousands)
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Subscription
based fees
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||||||||||
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Equity
indices
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$161,147
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$129,627
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$154,103
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24.3%
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4.6%
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|||||
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Equity
portfolio analytics
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134,509
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116,243
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131,349
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15.7%
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2.4%
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|||||
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Multi-asset
class analytics
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33,255
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24,112
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31,739
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37.9%
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4.8%
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|||||
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Other
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19,315
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15,913
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18,400
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21.4%
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5.0%
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|||||
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Subscription
based fees total
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348,226
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285,895
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335,591
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21.8%
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3.8%
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|||||
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Asset based
fees
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||||||||||
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Equity
indices2
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79,358
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62,185
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73,358
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27.6%
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8.2%
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|||||
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Hedge
fund indices
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2,684
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6,217
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4,371
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(56.8%)
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(38.6%)
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Asset based
fees total
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82,042
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68,402
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77,729
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19.9%
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5.5%
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|||||
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Total Run
Rate
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$430,268
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$354,297
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$413,320
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21.4%
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4.1%
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|||||
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Subscription
based fees - % Americas
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44%
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44%
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44%
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|||||||
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Subscription
based fees - % non-Americas
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56%
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56%
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56%
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|||||||
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Aggregate
Retention Rate3
|
91%
|
94%
|
97%
|
|||||||
|
Core Retention
Rate4
|
92%
|
96%
|
97%
|
|||||||
|
Client
Count5
|
3,032
|
2,837
|
2,980
|
|||||||
|
ETF Assets
linked to MSCI indices ($ billions)
|
||||||||||
|
Quarter
end
|
$199.6
|
$150.2
|
$179.2
|
|||||||
|
Quarterly
average
|
$184.4
|
$140.8
|
$183.2
|
|||||||
|
Full-time
employees
|
686
|
643
|
652
|
|||||||
|
1The
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 receive such notice, even if
the notice is not effective until a later date.
|
||||||||||
|
2Includes
asset based fees for ETFs, passive mutual funds, transaction volume-based
fees for futures and options traded on certain MSCI indices and other
structured products.
|
||||||||||
|
3Our
Aggregate Retention Rate represents the percentage of the subscription run
rate as of the beginning of the period that is not cancelled during the
period. 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. The Aggregate Retention Rate for non-annual periods are
annualized. Aggregate Retention Rates are generally higher during the
first three fiscal quarters and lower in the fourth fiscal quarter. The
Aggregate Retention Rate is for the three month periods ended May 31,
2008, May 31, 2007, and February 29, 2008,
respectively.
|
||||||||||
|
4Our
Core Retention Rate means our Aggregate Retention Rate except that the
Core Retention Rate does not treat switches between our products as a
cancellation.
|
||||||||||
|
5The
client count excludes asset based fee only clients. Our client count
includes affiliates, cities and certain business units within a single
organization as separate clients when they separately subscribe to our
products.
|
||||||||||
7 of 16
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|
Table
3
|
ETF Assets
Linked to MSCI Indices
|
|||||||||||||
|
(Quarter-End)
|
|||||||||||||
|
2007
|
2008
|
||||||||||||
|
$ in
Billions
|
February
|
May
|
August
|
November
|
February
|
May
|
|||||||
|
AUM in ETFs
linked to MSCI Indices
|
$135.4
|
$150.2
|
$156.4
|
$191.7
|
$179.2
|
$199.6
|
|||||||
|
Sequential
Change ($ Growth in Billions)
|
|||||||||||||
|
Appreciation/Depreciation
|
$9.8
|
$5.9
|
($0.8)
|
$11.2
|
($15.2)
|
$9.9
|
|||||||
|
Cash Inflow/
Outflow
|
13.3
|
8.9
|
7.1
|
24.0
|
2.7
|
10.5
|
|||||||
|
Total
Change
|
$23.1
|
$14.8
|
$6.3
|
$35.2
|
($12.5)
|
$20.4
|
|||||||
|
Source:
Bloomberg and MSCI
|
|||||||||||||
Conference
Call Information
Investors will have
the opportunity to listen to MSCI Inc.'s senior management review second quarter
2008 results on Wednesday, July 2, 2008 at 11:00 am Eastern time. To hear the
live event, visit the investor relations section of MSCI's website,
www.mscibarra.com or dial 1-877-397-0284 within the United
States. International callers dial 1-719-325-4879.
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 July 9,
2008. To listen to the recording, visit the investor relations section of
www.mscibarra.com, or dial 1-888-203-1112 (passcode: 2589941) within the United
States. International callers dial 1-719-457-0820 (passcode:
2589941).
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 are estimated
to have over US $3 trillion benchmarked to them, 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 offices around the world. Morgan Stanley,
a global financial services firm, is the majority shareholder of MSCI
Inc. 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:
Steve Bruce | Pen
Pendleton | Ann Taylor Reed, Abernathy MacGregor, New
York + 1.212.371.5999
Sally Todd | Clare
Milton, Penrose Financial,
London +
44.20.7786.4888
8 of 16
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|
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, 2007 and filed with the Securities and Exchange
Commission on February 28, 2008 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.
Factors
Impacting Comparability of Our Financial Results
Net income and EPS
for second quarter and first half 2008 are not comparable with second quarter
and first half 2007 because of our IPO, changes in our capital structure, and
founders grant expense.
Weighted Shares
Outstanding
In November 2007, we
completed our initial public offering in which we issued 16.1 million class A
common shares. As such, weighted average common shares outstanding for second
quarter 2008 and first half 2008 include these additional shares while second
quarter 2007 and first half 2007 does not.
Credit
Facility
As of May 31, 2008,
we had borrowings of $413.9 million outstanding under our credit facility. As of
May 31, 2007, there was no debt outstanding. Consequently, interest and other
income (expense), net was an expense in second quarter and first half 2008
compared to income in second quarter and first half 2007.
Founders
Grant
On November 6, 2007,
our Board of Directors approved the award of founders grants to our employees in
the form of restricted stock units and/or options. The aggregate value of the
grants, which were made on November 14, 2007, was approximately $68.0 million of
restricted stock units and options. The restricted stock units and options vest
over a four-year period, with 50% vesting on the second anniversary of the grant
date and 25% vesting on the third and fourth anniversary of the grant date. The
options have an exercise price per share of $18.00 and have a term of ten years
subject to earlier cancellation in certain circumstances. The aggregate value of
the options is calculated using the Black-Scholes valuation method consistent
with SFAS No. 123R. As a result, operating expenses in second quarter
and first half 2008 included $6.9 million and $11.7 million of founders grant
expense, respectively, compared to $0 for second quarter and first half
2007.
9 of 16
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|
Table
4
|
MSCI
Inc.
|
||||||
|
Consolidated
Statements of Income (unaudited)
|
||||||
|
Three Months
Ended
|
||||||
|
May
31,
|
February
29,
|
|||||
|
Amounts in
thousands, except per share data
|
2008
|
2007
|
2008
|
|||
|
Operating
revenues
|
$108,195
|
$88,752
|
$104,951
|
|||
|
Operating
expenses
|
||||||
|
Cost
of services
|
30,011
|
30,341
|
31,586
|
|||
|
Selling,
general and administrative
|
37,611
|
25,489
|
31,550
|
|||
|
Amortization
of intangible assets
|
7,125
|
6,265
|
7,125
|
|||
|
Total
operating expenses
|
74,747
|
62,095
|
70,261
|
|||
|
Operating
income
|
33,448
|
26,657
|
34,690
|
|||
|
Interest
income
|
3,508
|
5,524
|
2,372
|
|||
|
Interest
expense
|
(6,668)
|
(502)
|
(8,463)
|
|||
|
Other
income
|
97
|
26
|
136
|
|||
|
Interest
income (expense) and other, net
|
(3,063)
|
5,048
|
(5,955)
|
|||
|
Income before
income taxes
|
30,385
|
31,705
|
28,735
|
|||
|
Provision for
income taxes
|
11,754
|
11,854
|
10,801
|
|||
|
Net
income
|
$18,631
|
$19,851
|
$17,934
|
|||
|
Earnings per
basic common share
|
$0.19
|
$0.24
|
$0.18
|
|||
|
Earnings per
diluted common share
|
$0.18
|
$0.24
|
$0.18
|
|||
|
Weighted
average shares outstanding used in computing earnings per
share
|
||||||
|
Basic
|
100,026
|
83,900
|
100,011
|
|||
|
Diluted
|
101,282
|
83,900
|
100,728
|
|||
10 of
16
|
|
|
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www.mscibarra.com
|
Table
5
|
Operating
Revenues by Product Category
|
||||||||||
|
Three Months
Ended
|
Change
from
|
|||||||||
|
May
31,
|
February
29,
|
May
31,
|
February
29,
|
|||||||
|
Amounts in
thousands
|
2008
|
2007
|
2008
|
2007
|
2008
|
|||||
|
Equity
indices
|
||||||||||
|
Equity
index subscriptions
|
$41,804
|
$33,189
|
$38,809
|
26.0%
|
7.7%
|
|||||
|
Equity
index asset based fees
|
18,307
|
14,644
|
19,588
|
25.0%
|
(6.5%)
|
|||||
|
Equity indices
total
|
60,111
|
47,833
|
58,397
|
25.7%
|
2.9%
|
|||||
|
Equity
portfolio analytics
|
33,902
|
30,207
|
32,342
|
12.2%
|
4.8%
|
|||||
|
Multi-asset
class portfolio analytics
|
8,598
|
4,418
|
7,892
|
94.6%
|
8.9%
|
|||||
|
Other
products
|
5,584
|
6,294
|
6,320
|
(11.3%)
|
(11.6%)
|
|||||
|
Total
operating revenues
|
$108,195
|
$88,752
|
$104,951
|
21.9%
|
3.1%
|
|||||
Table
6
|
Operating
Expenses by Category excluding Founders Grant
|
||||||
|
(Compensation
vs. Non-compensation)
|
||||||
|
Three Months
Ended
|
||||||
|
May
31,
|
||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Compensation
|
$37,028
|
$33,354
|
11.0%
|
|||
|
Non-compensation
|
23,718
|
22,476
|
5.5%
|
|||
|
Total
|
60,746
|
55,830
|
8.8%
|
|||
|
Amortization
of intangible assets
|
7,125
|
6,265
|
13.7%
|
|||
|
Operating
expenses excluding Founders Grant
|
67,871
|
62,095
|
9.3%
|
|||
|
Founders
Grant
|
6,876
|
-
|
-
|
|||
|
Operating
expenses including Founders Grant
|
$74,747
|
$62,095
|
20.4%
|
|||
Table
7a
|
Operating
Expenses by Category excluding Founders Grant
|
||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||
|
Three Months
Ended
|
||||||
|
May
31,
|
||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Cost of
services
|
||||||
|
Compensation
|
$17,584
|
$18,800
|
(6.5%)
|
|||
|
Non-compensation
|
10,540
|
11,541
|
(8.7%)
|
|||
|
Total
|
28,124
|
30,341
|
(7.3%)
|
|||
|
Selling,
general and administrative
|
||||||
|
Compensation
|
19,444
|
14,554
|
33.6%
|
|||
|
Non-compensation
|
13,178
|
10,935
|
20.5%
|
|||
|
Total
|
32,622
|
25,489
|
28.0%
|
|||
|
Amortization
of intangible assets
|
7,125
|
6,265
|
13.7%
|
|||
|
Operating
expenses excluding founders grant
|
67,871
|
62,095
|
9.3%
|
|||
|
Founders
grant
|
6,876
|
-
|
-
|
|||
|
Operating
expenses including founders grant
|
$74,747
|
$62,095
|
20.4%
|
|||
11 of
16
|
|
|
|
www.mscibarra.com
|
Table
7b
|
Operating
Expenses by Category including Founders Grant
|
||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||
|
Three Months
Ended
|
||||||
|
May
31,
|
||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Cost of
services
|
||||||
|
Compensation
|
$17,584
|
$18,800
|
(6.5%)
|
|||
|
Founders
grant
|
1,887
|
-
|
-
|
|||
|
Total
|
19,471
|
18,800
|
3.6%
|
|||
|
Non-compensation
|
10,540
|
11,541
|
(8.7%)
|
|||
|
Total
|
30,011
|
30,341
|
(1.1%)
|
|||
|
Selling,
general and administrative
|
||||||
|
Compensation
|
19,444
|
14,554
|
33.6%
|
|||
|
Founders
grant
|
4,989
|
-
|
-
|
|||
|
Total
|
24,433
|
14,554
|
67.9%
|
|||
|
Non-compensation
|
13,178
|
10,935
|
20.5%
|
|||
|
Total
|
37,611
|
25,489
|
47.6%
|
|||
|
Amortization
of intangible assets
|
7,125
|
6,265
|
13.7%
|
|||
|
Operating
expenses including founders grant
|
$74,747
|
$62,095
|
20.4%
|
|||
Table
8
|
Allocation and
Replacement Expenses Related to Morgan Stanley Services
|
|||||||||
|
Three Months
Ended
|
Three Months
Ended
|
||||||||
|
May
31,
|
February
29,
|
February
28,
|
|||||||
|
Amounts in
thousands
|
2008
|
2007
|
2008
|
2007
|
|||||
|
Morgan Stanley
Services
|
|||||||||
|
Allocation
Expenses
|
$5,760
|
$6,334
|
$6,312
|
$6,462
|
|||||
|
Replacement
Expenses1
|
$5,079
|
-
|
$2,731
|
-
|
|||||
1 Includes founders grant
expenses.
Table
9
|
Reconciliation
of Adjusted EBITDA to Net Income
|
||||||
|
Three Months
Ended
|
||||||
|
May
31,
|
February
29,
|
|||||
|
Amounts in
thousands
|
2008
|
2007
|
2008
|
|||
|
Adjusted
EBITDA
|
$47,971
|
$33,447
|
$47,095
|
|||
|
Less: Founders
Grant expense
|
6,876
|
-
|
4,796
|
|||
|
Less: Depreciation
and amortization
|
522
|
525
|
484
|
|||
|
Less: Amortization
of intangible assets
|
7,125
|
6,265
|
7,125
|
|||
|
Add: Interest
and other income (expense), net
|
(3,063)
|
5,048
|
(5,955)
|
|||
|
Less: Provision
for income taxes
|
11,754
|
11,854
|
10,801
|
|||
|
Net
income
|
$18,631
|
$19,851
|
$17,934
|
|||
12 of
16
|
|
|
|
www.mscibarra.com
|
Table
10
|
MSCI
Inc.
|
||||
|
Consolidated
Statements of Income (unaudited)
|
||||
|
Six Months
Ended
|
||||
|
May
31,
|
||||
|
Amounts in
thousands, except per share data
|
2008
|
2007
|
||
|
Operating
revenues
|
$213,146
|
$175,821
|
||
|
Operating
expenses
|
||||
|
Cost
of services
|
61,597
|
62,607
|
||
|
Selling,
general and administrative
|
69,161
|
44,453
|
||
|
Amortization
of intangible assets
|
14,250
|
12,531
|
||
|
Total
operating expenses
|
145,008
|
119,591
|
||
|
Operating
income
|
68,138
|
56,230
|
||
|
Interest
income
|
5,880
|
10,586
|
||
|
Interest
expense
|
(15,131)
|
(597)
|
||
|
Other
income
|
233
|
53
|
||
|
Interest
income (expense) and other, net
|
(9,018)
|
10,042
|
||
|
Income before
income taxes
|
59,120
|
66,272
|
||
|
Provision for
income taxes
|
22,555
|
24,779
|
||
|
Net
income
|
$36,565
|
$41,493
|
||
|
Earnings per
basic common share
|
$0.37
|
$0.49
|
||
|
Earnings per
diluted common share
|
$0.36
|
$0.49
|
||
|
Weighted
average shares outstanding used in computing earnings per
share
|
||||
|
Basic
|
100,019
|
83,900
|
||
|
Diluted
|
101,223
|
83,900
|
||
Table
11
|
Operating
Revenues by Product Category
|
||||||
|
Six Months
Ended
|
||||||
|
May
31,
|
May
31,
|
|||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Equity
indices
|
||||||
|
Equity
index subscriptions
|
$80,613
|
$66,343
|
21.5%
|
|||
|
Equity
index asset based fees
|
37,895
|
27,691
|
36.8%
|
|||
|
Equity indices
total
|
118,508
|
94,034
|
26.0%
|
|||
|
Equity
portfolio analytics
|
66,244
|
59,571
|
11.2%
|
|||
|
Multi-asset
class portfolio analytics
|
16,490
|
8,701
|
89.5%
|
|||
|
Other
products
|
11,904
|
13,515
|
(11.9%)
|
|||
|
Total
operating revenues
|
$
213,146
|
$175,821
|
21.2%
|
|||
13 of
16
|
|
|
|
www.mscibarra.com
|
Table
12
|
Operating
Expenses by Category excluding Founders Grant
|
||||||
|
(Compensation
vs. Non-compensation)
|
||||||
|
Six Months
Ended
|
||||||
|
May
31,
|
||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Compensation
|
$73,395
|
$68,729
|
6.8%
|
|||
|
Non-compensation
|
45,691
|
38,331
|
19.2%
|
|||
|
Total
|
119,086
|
107,060
|
11.2%
|
|||
|
Amortization
of intangible assets
|
14,250
|
12,531
|
13.7%
|
|||
|
Operating
expenses excluding Founders Grant
|
133,336
|
119,591
|
11.5%
|
|||
|
Founders
Grant
|
11,672
|
-
|
-
|
|||
|
Operating
expenses including Founders Grant
|
$145,008
|
$119,591
|
21.3%
|
|||
Table
13a
|
Operating
Expenses by Category excluding Founders Grant
|
||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||
|
Six Months
Ended
|
||||||
|
May
31,
|
||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Cost of
services
|
||||||
|
Compensation
|
$36,523
|
$39,906
|
(8.5%)
|
|||
|
Non-compensation
|
21,898
|
22,701
|
(3.5%)
|
|||
|
Total
|
58,421
|
62,607
|
(6.7%)
|
|||
|
Selling,
general and administrative
|
||||||
|
Compensation
|
36,872
|
28,823
|
27.9%
|
|||
|
Non-compensation
|
23,793
|
15,630
|
52.2%
|
|||
|
Total
|
60,665
|
44,453
|
36.5%
|
|||
|
Amortization
of intangible assets
|
14,250
|
12,531
|
13.7%
|
|||
|
Operating
expenses excluding Founders Grant
|
133,336
|
119,591
|
11.5%
|
|||
|
Founders
Grant
|
11,672
|
-
|
-
|
|||
|
Operating
expenses including Founders Grant
|
$145,008
|
$119,591
|
21.3%
|
|||
14 of
16
|
|
|
|
www.mscibarra.com
|
Table
13b
|
Operating
Expenses by Category including Founders Grant
|
||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||
|
Six Months
Ended
|
||||||
|
May
31,
|
||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||
|
Cost of
services
|
||||||
|
Compensation
|
$36,523
|
$39,906
|
(8.5%)
|
|||
|
Founders
grant
|
3,176
|
-
|
-
|
|||
|
Total
|
39,699
|
39,906
|
(0.5%)
|
|||
|
Non-compensation
|
21,898
|
22,701
|
(3.5%)
|
|||
|
Total
|
61,597
|
62,607
|
(1.6%)
|
|||
|
Selling,
general and administrative
|
||||||
|
Compensation
|
36,872
|
28,823
|
27.9%
|
|||
|
Founders
grant
|
8,496
|
-
|
-
|
|||
|
Total
|
45,368
|
28,823
|
57.4%
|
|||
|
Non-compensation
|
23,793
|
15,630
|
52.2%
|
|||
|
Total
|
69,161
|
44,453
|
55.6%
|
|||
|
Amortization
of intangible assets
|
14,250
|
12,531
|
13.7%
|
|||
|
Operating
expenses including Founders Grant
|
$145,008
|
$119,591
|
21.3%
|
|||
Table
14
|
Reconciliation
of Adjusted EBITDA to Net Income
|
||||
|
Six Months
Ended
|
||||
|
May
31,
|
||||
|
Amounts in
thousands
|
2008
|
2007
|
||
|
Adjusted
EBITDA
|
$95,066
|
$69,850
|
||
|
Less: Founders
Grant expense
|
11,672
|
-
|
||
|
Less: Depreciation
and amortization
|
1,006
|
1,089
|
||
|
Less: Amortization
of intangible assets
|
14,250
|
12,531
|
||
|
Add: Interest
income (expense) and other, net
|
(9,018)
|
10,042
|
||
|
Less: Provision
for income taxes
|
22,555
|
24,779
|
||
|
Net
income
|
$36,565
|
$41,493
|
||
15 of
16
|
|
|
|
www.mscibarra.com
|
Notes
Regarding the Use of Non-GAAP Financial Measures
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 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 two to
four years.
16 of 16
Exhibit
99.2
|
|
|
|
www.mscibarra.com
|
Morgan
Stanley to Sell Approximately Half of its Ownership Interest in
MSCI
New York – July 2, 2008 – MSCI
Inc. (NYSE:MXB) announced today that it intends to file shortly a Registration
Statement on Form S-1 for the sale by Morgan Stanley of approximately half of
its 53,038,764.79 share ownership interest in MSCI through the sale of MSCI
class A common stock, par value $0.01 per share. The proposed offering is
consistent with Morgan Stanley’s previous indication that it might sell a
portion of its ownership interest in MSCI and that it may ultimately divest its
entire interest in MSCI.
This announcement is
neither an offer to sell nor a solicitation of an offer to buy shares of class A
common stock. Any offering of these securities will be made only by
means of a prospectus.
MSCI
Inc. Contact:
Lisa Monaco, MSCI,
New York
+1.866.447.7874