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 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 October
2, 2008, MSCI Inc. (the “Registrant”) released financial information with
respect to its third quarter ended August 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 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 October 2, 2008 containing financial information for the third
quarter ended August 31,
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: October 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 Third Quarter 2008
New
York – October 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 third quarter
and nine months ended August 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 19.5% to a record $110.4 million in third quarter 2008
and 20.6% to $323.5 million for the first nine months of fiscal 2008 (year
to date 2008).
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·
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Adjusted
EBITDA increased 26.9% to a record $51.3 million in third quarter 2008 for
an adjusted EBITDA margin of 46.4% and increased 33.1% to $146.3 million
for an adjusted EBITDA margin of 45.2% for year to date 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 11.7% to
$18.9 million ($0.19 per diluted share) in third quarter 2008 for a net
income margin of 17.1% and decreased 11.8% to $55.4 million for year to
date 2008 for a net income margin of 17.1%. Please see
“Factors Impacting Comparability of Our Financial Results” on page
2.
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Henry A. Fernandez,
Chairman and CEO, said “Our third quarter revenue growth of 19.5% compared to
third quarter 2007 reflects the strong market position of our investment
management tools coupled with our ability to add new clients globally, increase
sales to existing clients, and maintain high client retention rates. We are
particularly pleased to report an adjusted EBITDA margin of 46.4% despite
incurring duplicative expenses to replace Morgan Stanley services. This high
level of profitability highlights the significant operating leverage of our
business. In addition, the strong financial position of the company is evidenced
by our cash balance of approximately $246 million at the end of the
quarter.”
“While our equity
index asset based fees and our equity portfolio analytics revenues were
negatively impacted by the challenging financial market conditions, sales of our
equity index data subscription and multi-asset class portfolio analytics
products remained strong during the third quarter demonstrating the power
of our diversified suite of products and diverse client base worldwide,” added
Mr. Fernandez.
Selected
Financial Information
Table
1
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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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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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||||||||||||||||||
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Operating
revenues
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$110,399 | $92,407 | 19.5 | % | $323,545 | $268,228 | 20.6 | % | ||||||||||||||||
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Operating
expenses
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$72,880 | $59,144 | 23.2 | % | $217,957 | $179,136 | 21.7 | % | ||||||||||||||||
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Net
income
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$18,878 | $21,379 | (11.7 | %) | $55,443 | $62,872 | (11.8 | %) | ||||||||||||||||
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%
Margin
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17.1 | % | 23.1 | % | 17.1 | % | 23.4 | % | ||||||||||||||||
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Diluted
EPS
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$0.19 | $0.25 | (24.0 | %) | $0.55 | $0.75 | (26.7 | %) | ||||||||||||||||
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Operating
expenses excluding founders grant1
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$67,534 | $59,144 | 14.2 | % | $200,939 | $179,136 | 12.2 | % | ||||||||||||||||
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Adjusted
EBITDA2
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$51,258 | $40,401 | 26.9 | % | $146,255 | $109,850 | 33.1 | % | ||||||||||||||||
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%
Margin
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46.4 | % | 43.7 | % | 45.2 | % | 41.0 | % | ||||||||||||||||
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1
Excludes certain equity-based compensation (founders grant) expenses of
$5.3 million and $17.0 million for the three months and nine months ended
August 31, 2008. There was no founders grant expense in the three months
and nine months ended August 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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Factors
Impacting Comparability of Our Financial Results
Net
income and earnings per share (EPS) for third quarter 2008 are not comparable
with third 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.
Summary
of Results for Fiscal Third Quarter 2008
Operating
Revenues
Total operating
revenues for the three months ended August 31, 2008 (third quarter 2008)
increased 19.5% to a record $110.4 million compared to $92.4 million for the
three months ended August 31, 2007 (third 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 21.4% and 10.8%, respectively,
in third quarter 2008. The revenue strength was broad based across all client
types and geographic regions.
Our
Aggregate Retention Rate (as defined below) was unchanged at 92% for third
quarter 2008 compared to third quarter 2007.
In
third quarter 2008, we added 65 net new clients. At August 31, 2008, we had a
total of 3,097 clients, excluding clients that only pay us asset based
fees.
Equity
Indices: Revenues related to Equity Indices increased 24.1% to
$62.0 million in third quarter 2008 compared to the same period in 2007.
Revenues from equity index data subscriptions were up 30.7% to $43.7 million in
third quarter 2008 reflecting growth in subscriptions across all of our MSCI
Global Investable Market Indices products, including developed market, emerging
market and small cap indices and sales of historical index data. The revenue
growth was led by subscriptions to asset managers.
Revenues
attributable to equity index asset based fees increased 10.8% to $18.3 million
in third 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 $178.3 billion
for third quarter 2008 compared to $155.7 billion for third quarter 2007. As of
August 31, 2008, the value of assets in ETFs linked to MSCI equity indices was
$166.3 billion, representing an increase of $9.8 billion, or 6.3%, from $156.5
billion as of August 31, 2007. The $9.8 billion year-over-year growth in value
of assets in ETFs linked to MSCI equity indices was attributable to $35.1
billion of net asset inflows, offset by $25.3 billion of net asset
depreciation.
Compared to second
quarter 2008, equity index asset based fee revenues were flat as a decline in
asset based revenues for ETFs was offset by an increase in asset based fees for
institutional indexed funds.
Our
ETF asset based revenues declined 1% in the third quarter 2008 compared to
second quarter 2008. The average value of assets in ETFs linked to MSCI equity
indices was $178.3 billion for third quarter 2008 compared to $184.4 billion for
second quarter 2008. At August 31, 2008, the value of assets in ETFs linked to
MSCI equity indices was $166.3 billion representing a decrease of 16.7%, or
$33.3 billion, from $199.6 billion as of May 31, 2008. The $33.3 billion
decrease from May 31, 2008 was attributable to asset outflows of $2.1 billion
and asset depreciation of $31.2 billion. The $2.1 billion of asset outflows was
comprised of $3.4 billion of asset outflows from established ETFs offset in part
by $1.3 billion of asset inflows in ETFs launched over the last twelve
months.
The
three MSCI indices with the largest amount of ETF assets linked to them as of
August 31, 2008 were the MSCI EAFE, Emerging Markets and US Broad Market
Indices. The assets linked to these indices were $40.4 billion, $31.8 billion
and $10.4 billion, respectively.
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Equity Portfolio
Analytics: Revenues related to Equity Portfolio Analytics
products increased 14.3% to $33.7 million in third quarter 2008 compared to the
same period in 2007. The year-over-year increase reflects new subscriptions to
our proprietary equity risk data accessed directly and bundled with
Aegis.
Multi-Asset Class Portfolio
Analytics: Revenues related to Multi-Asset Class Portfolio
Analytics increased 33.8% to $8.9 million in third quarter 2008 compared to the
same period in 2007. BarraOne revenue growth remained strong due to sales to
existing clients as well as new client additions led by orders from asset
managers and asset owners. The EMEA region was particularly strong reflecting
demand for centralized risk reporting tools.
Other Products: Revenues from
Other Products decreased 8.0% to $5.8 million in third quarter 2008 compared to
the same period in 2007. The decline reflects a decrease of 59.0% to $0.7
million in asset based fees from investment products linked to MSCI investable
hedge fund indices offset, in part, by an increase of 17.5% to $3.4 million for
our energy and commodity analytics products and a 3.6% increase to $1.7 million
for fixed income analytics. The decline in investable hedge fund indices
revenues reflects lower asset based fees from investment products linked to
these indices, caused by market depreciation and investor
withdrawals.
Operating
Expenses
Operating expenses
increased 23.2% to $72.9 million in third quarter 2008 compared to third quarter
2007. Excluding expenses related to the founders grant (as described below),
operating expenses increased 14.2% to $67.5 million in third quarter 2008, with
increases in compensation and non-compensation expenses of 19.2% and 9.3%,
respectively. Expenses associated with replacing services currently provided by
Morgan Stanley were $7.8 million (including $0.6 million of
depreciation expense) in third quarter 2008 compared to $5.1 million in second
quarter 2008. The allocation expense for cost of services provided by Morgan
Stanley was $3.9 million in third quarter 2008 compared to $5.8 million in
second quarter 2008 and $7.0 million in third quarter 2007.
Compensation expense
in third quarter 2008 includes $2.4 million of expenses attributable to staff
hired to replace Morgan Stanley services. In addition, the increase compared to
third quarter 2007 reflects higher compensation costs for existing staff and new
hires including personnel hired in emerging market centers. The non-compensation
expense increase reflects expenses of $5.4 million (including
$0.6 million of depreciation expense) related to replacing Morgan Stanley
services, $0.5 million associated with being a public company and $0.6 million
from expenses associated with the July 2008 secondary equity offering. These expenses were offset
by a $3.1 million reduction in the expense allocation from Morgan
Stanley.
The
number of full-time employees increased by 96 to 724 on August 31, 2008 from 628
on August 31, 2007 and by 38 from 686 on May 31, 2008. On August 31, 2008, 120
full-time employees were located in Budapest and Mumbai compared to 56 on August
31, 2007 and 103 on May 31, 2008.
Cost of services
decreased 4.2% to $28.1 million in third quarter 2008 compared to third quarter
2007. Excluding the founders grant, cost of services expenses decreased 9.5% to
$26.6 million in third quarter 2008. Compensation expenses excluding the
founders grant increased 2.1% reflecting higher headcount including new hires in
emerging market centers. Non-compensation expenses decreased 27.6% due largely
to a reduction in the expense allocation from Morgan Stanley and information
technology expenses.
Selling, general and
administrative expenses increased 62.9% to $37.6 million in third quarter 2008
compared to $23.1 million in third quarter 2007. Excluding the founders grant,
selling, general and administrative expenses increased 46.6% to $33.9 million in
third quarter 2008. Compensation expenses excluding the founders grant increased
42.2% to $18.9 million, which was attributable to higher compensation costs for
existing staff and increased staffing levels related to replacing current Morgan
Stanley services which resulted in compensation expenses of $2.4 million.
Non-compensation expenses increased 52.6% to $15.0 million. The increase in
non-compensation expenses includes $5.4 million (including $0.6 million of
depreciation expense) related to replacing services currently provided by Morgan
Stanley, $0.5 million associated with being a public company and $0.6
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million due to
expenses associated with the July 2008 secondary equity offering, offset by
declines in occupancy and professional services expenses.
Selling expenses
increased 14.6% to $11.2 million in third quarter 2008 and general and
administrative expenses increased 98.3% to $26.4 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 $5.3 million in third 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 $5.3
million of founders grant expenses, $1.6 million was recorded in cost of
services and $3.8 million was recorded in selling, general and administrative.
There was no founders grant expense in third quarter 2007.
Interest
Expense (Income) and Other, Net
Interest expense
(income) and other, net was an expense of $7.4 million in third quarter 2008
compared to an expense of $0.3 million in third quarter 2007. The $7.1 million
increase in expense reflects an increase in interest expense due to interest
paid on term loan borrowings under our credit facility and foreign currency
losses offset, in part, by an increase in interest income resulting from higher
cash balances. The foreign currency loss was $3.0 million in third quarter 2008
compared to a loss of $0.4 million in third quarter 2007 primarily reflects the
negative impact of the appreciation of the US dollar on our cash balances held
in currencies other than the US dollar.
Provision
for Income Taxes
The
provision for income taxes decreased 2.3% to $11.3 million in third quarter 2008
as a result of lower pre-tax income. The effective tax rate for third quarter
2008 was 37.4% compared to 35.1% in third quarter 2007. The increase is largely
due to higher state taxes.
Net
Income
Net
income decreased 11.7% to $18.9 million in third quarter 2008 from third quarter
2007 and the net income margin decreased to 17.1% from 23.1%. The decline in net
income primarily reflects higher compensation expense, founders grant expense
incurred in third quarter 2008 and higher interest expense, which were offset,
in part, by the increase in operating revenues. On a diluted per share basis,
the decline was 24.0% which, in addition to the items cited above, also reflects
a higher number of diluted shares in third quarter 2008 compared to third
quarter 2007 due to the additional common shares issued in conjunction with our
November 2007 IPO.
Adjusted
EBITDA
Adjusted EBITDA
increased 26.9% to a record $51.3 million for third quarter 2008 from $40.4
million for third quarter 2007. See Table 9 titled “Reconciliation of Adjusted
EBITDA to Net Income.” The adjusted EBITDA margin increased to 46.4% in third
quarter 2008 from 43.7% in third quarter 2007. The increase reflects the
positive operating leverage in the business.
Summary
of Results for First Nine Months of Fiscal 2008
Operating
Revenues
Total operating
revenues for the nine months ended August 31, 2008 (year to date 2008) increased
20.6% to $323.5 million compared to $268.2 million for the nine months ended
August 31, 2007 (year to date 2007). Double-digit revenue gains were reported in
three of our four product categories. The largest contributor to revenue growth
in terms of dollars was our Equity Indices business which increased $36.5
million or 25.4% year to date 2008 compared to year to date 2007. The 25.4% gain
was comprised of a 24.6% gain in revenues from Equity Index subscriptions and a
27.1% gain in revenues from Equity Index asset based fees compared to year to
date 2007.
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Revenues from our
subscription products grew 19.3% in the aggregate for year to date 2008 to
$267.3 million reflecting increased subscriptions from existing clients and new
clients. Approximately 80% of our new subscriptions during year to date 2008
came from existing clients. On a percentage basis, revenue growth was led by our
Multi-Asset Class Analytics products which increased 65.3% to $25.4 million and
was driven primarily by new subscriptions to BarraOne. Revenues
related to Equity Portfolio Analytics products increased 12.2% to $99.9 million
for the year to date 2008 compared to the same period in 2007.
Revenues from Other
Products decreased 10.7% to $17.7 million for the year to date 2008 compared to
the same period in 2007. The decline reflects a decrease of 50.6% in asset based
fees from investment products linked to MSCI investable hedge fund indices and a
decrease of 22.5% for fixed income analytics offset by a 23.5% increase for our
energy and commodity analytics products.
Our
Aggregate Retention Rate remained at 93% for the year to date 2008 compared to
93% for year to date 2007.
In
the nine months of 2008, we added 171 net new clients. At August 31, 2008,
we had a total of 3,097 clients, excluding clients that only pay us asset based
fees.
Operating
Expenses
Operating expenses
for year to date 2008 increased 21.7% to $218.0 million compared to year to date
2007. Excluding the founders grant, operating expenses increased 12.2% to $200.9
million for year to date 2008 with compensation expenses increasing 10.7% and
non-compensation expenses increasing 15.0%. Expenses associated with replacing
services currently provided by Morgan Stanley were $15.5 million in the first
nine months of 2008. The allocation expense for cost of services provided by
Morgan Stanley was $16.0 million for year to date 2008 compared to $19.8 million
for year to date 2007.
Compensation
expenses in the first nine months of 2008 includes $5.5 million of expenses
attributable to staff hired to replace Morgan Stanley services. In addition, the
increase compared to year to date 2007 reflects higher compensation costs for
existing staff and new hires including personnel hired in emerging market
centers. The increase in non-compensation expense reflects $10.1 million
(including $0.6 million of depreciation expense) of expenses related to
replacing Morgan Stanley services, $2.9 million of public company expenses, and
$1.5 million of expenses associated with the May and July 2008 secondary equity
offerings, partially offset by the decline in the expense allocation from Morgan
Stanley of $3.8 million.
Interest
Expense (Income) and Other, Net
Interest expense
(income) and other, net was an expense of $16.3 million for year to date 2008
compared to income of $10.1 million for year to date 2007. The $26.4 million
difference reflects an increase in interest expense due to interest paid on term
loan borrowings under our credit facility, reduction of interest income
resulting from lower cash balances and foreign currency losses. The foreign
currency loss was $3.0 million for year to date 2008 compared to an
insignificant loss for year to date 2007. The foreign currency loss for year to
date 2008 primarily reflects the negative impact of the appreciation of the US
dollar on our cash balances held in currencies other than the US
dollar.
Provision
for Income Taxes
The provision for
income taxes decreased 6.9% to $33.8 million for year to date 2008 compared to
year to date 2007 as a result of lower pre-tax income. The effective tax rate
for year to date 2008 was 37.9% compared to 36.6% for year to date 2007. The
increase is largely due to higher state taxes.
Net
Income
Net
income decreased 11.8% to $55.4 million for year to date 2008 from year to date
2007 and the net income margin decreased to 17.1% from 23.4%. The decline in net
income primarily reflects higher compensation expense, founders grant expense
incurred in year to date 2008, higher interest expense and lower interest
income, which were offset, in part, by the increase in operating revenues. On a
diluted per share basis, the decline was 26.7% which, in addition to the items
cited above, also reflects a higher number of diluted shares for the first nine
months
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of
2008 compared to the first nine months of 2007 due to the additional common
shares issued in conjunction with our November 2007 IPO.
Adjusted
EBITDA
Adjusted EBITDA
increased 33.1% to $146.3 million for year to date 2008 from $109.9 million for
the comparable period in 2007. See Table 14 titled “Reconciliation of Adjusted
EBITDA to Net Income.” The adjusted EBITDA margin increased to 45.2% for year to
date 2008 from 41.0% for year to date 2007. The increase reflects the operating
leverage in the business and disciplined cost management.
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Table
2
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Run Rates and
Other Key Metrics
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As
of
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Change
from
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August
31,
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May
31,
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August
31,
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May
31,
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|||||||||||||||||
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2008
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2007
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2008
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2007
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2008
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||||||||||||||||
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Run Rates1 ($
thousands)
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Subscription
based fees
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Equity
indices
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$169,284 | $136,990 | $161,147 | 23.6 | % | 5.0 | % | |||||||||||||
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Equity
portfolio analytics
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134,172 | 121,475 | 134,509 | 10.5 | % | (0.3 | %) | |||||||||||||
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Multi-asset
class analytics
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34,076 | 27,921 | 33,255 | 22.0 | % | 2.5 | % | |||||||||||||
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Other
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19,243 | 17,053 | 19,315 | 12.8 | % | (0.4 | %) | |||||||||||||
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Subscription
based fees total
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356,775 | 303,439 | 348,226 | 17.6 | % | 2.5 | % | |||||||||||||
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Asset based
fees
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||||||||||||||||||||
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Equity
indices2
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70,172 | 63,201 | 79,358 | 11.0 | % | (11.6 | %) | |||||||||||||
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Hedge
fund indices
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2,681 | 7,238 | 2,684 | (63.0 | %) | (0.1 | %) | |||||||||||||
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Asset based
fees total
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72,853 | 70,439 | 82,042 | 3.4 | % | (11.2 | %) | |||||||||||||
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Total Run
Rate
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$429,628 | $373,878 | $430,268 | 14.9 | % | (0.1 | %) | |||||||||||||
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Subscription
based fees - % Americas
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44 | % | 44 | % | 44 | % | ||||||||||||||
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Subscription
based fees - % non-Americas
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56 | % | 56 | % | 56 | % | ||||||||||||||
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Aggregate
Retention Rate3
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92 | % | 92 | % | 91 | % | ||||||||||||||
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Core Retention
Rate4
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94 | % | 95 | % | 92 | % | ||||||||||||||
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Client
Count5
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3,097 | 2,895 | 3,032 | |||||||||||||||||
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ETF Assets
linked to MSCI indices ($ billions)
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Quarter
end
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$166.3 | $156.5 | $199.6 | |||||||||||||||||
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Quarterly
average
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$178.3 | $155.7 | $184.4 | |||||||||||||||||
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Full-time
employees
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724 | 628 | 686 | |||||||||||||||||
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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.
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2Includes
asset based fees for ETFs, institutional indexed 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 August 31,
2008, August 31, 2007, and May 31, 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 clients that only pay us asset based fees. Our
client count includes affiliates, cities and certain business units within
a single organization as separate clients when they separately subscribe
to our products.
|
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Table
3a
|
ETF Assets
linked to MSCI Indices
|
||||||||||||||||||||||||||||
|
(Quarter-End)
|
||||||||||||||||||||||||||||
|
2007
|
2008
|
|||||||||||||||||||||||||||
|
$ in
Billions
|
February
|
May
|
August
|
November
|
February
|
May
|
August
|
|||||||||||||||||||||
|
AUM in ETFs
linked to MSCI Indices
|
$135.4 | $150.2 | $156.5 | $191.7 | $179.2 | $199.6 | $166.3 | |||||||||||||||||||||
|
Sequential
Change ($ Growth in Billions)
|
||||||||||||||||||||||||||||
|
Appreciation/Depreciation
|
$9.8 | $5.9 | $(0.8 | ) | $11.2 | $(15.2 | ) | $9.9 | $(31.2 | ) | ||||||||||||||||||
|
Cash Inflow/
Outflow
|
13.3 | 8.9 | 7.1 | 24.0 | 2.7 | 10.5 | (2.1 | ) | ||||||||||||||||||||
|
Total
Change
|
$23.1 | $14.8 | $6.3 | $35.2 | $(12.5 | ) | $20.4 | $(33.3 | ) | |||||||||||||||||||
|
Source:
Bloomberg and MSCI
|
||||||||||||||||||||||||||||
Table
3b
|
ETF Assets
linked to MSCI Indices
|
||||||||||||||||||||||||||||
|
(Quarterly
Average)
|
||||||||||||||||||||||||||||
|
2007
|
2008
|
|||||||||||||||||||||||||||
|
$ in
Billions
|
February
|
May
|
August
|
November
|
February
|
May
|
August
|
|||||||||||||||||||||
|
AUM in ETFs
linked to MSCI Indices
|
$123.8 | $140.8 | $155.7 | $176.9 | $183.2 | $184.4 | $178.3 | |||||||||||||||||||||
|
Source:
Bloomberg and MSCI
|
||||||||||||||||||||||||||||
Conference
Call Information
Investors will have
the opportunity to listen to MSCI Inc.'s senior management review third quarter
2008 results on Thursday, October 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- 800-580-5730 within the United States.
International callers dial 1- 913-312-0401.
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 9, 2008. To listen to the recording, visit the
investor relations section of www.mscibarra.com, or dial 1-888-203-1112
(passcode: 9414575) within the United States. International callers
dial 1-719-457-0820 (passcode: 9414575).
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 USD 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 research and commercial
offices around the world. Morgan Stanley, a global financial services firm, is
the controlling shareholder of MSCI Inc. MXB#IR
8 of 17
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|
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, 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 third quarter and year to date 2008 are not comparable with
third quarter and year to date 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 third quarter 2008 and year to date 2008 include these
additional shares while these shares were not outstanding in third quarter 2007
and year to date 2007.
Credit
Facility
As
of August 31, 2008, we had borrowings of $407.3 million outstanding under our
credit facility. As of August 31, 2007, we had borrowings of $625.9 million in
the form of a demand note. The note was outstanding only for a portion of third
quarter 2007. Consequently, interest expense (income) and other, net was an
expense for the nine months ended August 31, 2008 compared to income for the
comparable period in 2007.
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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 third quarter and year to date 2008 included
$5.3 million and $17.0 million of founders grant expense,
respectively, compared to $0 for third quarter and year to date
2007.
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Table
4
|
MSCI
Inc.
|
||||||||||||
|
Consolidated
Statements of Income (unaudited)
|
||||||||||||
|
Three Months
Ended
|
||||||||||||
|
August
31,
|
May
31,
|
|||||||||||
|
Amounts in
thousands, except per share data
|
2008
|
2007
|
2008
|
|||||||||
|
Operating
revenues
|
$110,399 | $92,407 | $108,195 | |||||||||
|
Operating
expenses
|
||||||||||||
|
Cost
of services
|
28,131 | 29,354 | 29,935 | |||||||||
|
Selling,
general and administrative
|
37,624 | 23,093 | 38,228 | |||||||||
|
Amortization
of intangible assets
|
7,125 | 6,697 | 7,125 | |||||||||
|
Total
operating expenses
|
72,880 | 59,144 | 75,288 | |||||||||
|
Operating
income
|
37,519 | 33,263 | 32,907 | |||||||||
|
Interest
income
|
(1,843 | ) | (1,125 | ) | (3,508 | ) | ||||||
|
Interest
expense
|
5,991 | 1,259 | 6,668 | |||||||||
|
Other expense
(income)
|
3,224 | 210 | (638 | ) | ||||||||
|
Interest
expense (income) and other, net
|
7,372 | 344 | 2,522 | |||||||||
|
Income before
income taxes
|
30,147 | 32,919 | 30,385 | |||||||||
|
Provision for
income taxes
|
11,269 | 11,540 | 11,754 | |||||||||
|
Net
income
|
$18,878 | $21,379 | $18,631 | |||||||||
|
Earnings per
basic common share
|
$0.19 | $0.25 | $0.19 | |||||||||
|
Earnings per
diluted common share
|
$0.19 | $0.25 | $0.18 | |||||||||
|
Weighted
average shares outstanding used in computing earnings per
share
|
||||||||||||
|
Basic
|
100,052 | 83,900 | 100,026 | |||||||||
|
Diluted
|
101,698 | 83,900 | 101,282 | |||||||||
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|
Table
5
|
Operating
Revenues by Product Category
|
||||||||||||||||||||
|
Three Months
Ended
|
Change
from
|
|||||||||||||||||||
|
August
31,
|
May
31,
|
August
31,
|
May
31,
|
|||||||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
2008
|
2007
|
2008
|
|||||||||||||||
|
Equity
indices
|
||||||||||||||||||||
|
Equity
index subscriptions
|
$43,666 | $33,405 | $41,804 | 30.7 | % | 4.5 | % | |||||||||||||
|
Equity
index asset based fees
|
18,312 | 16,531 | 18,307 | 10.8 | % | 0.0 | % | |||||||||||||
|
Equity indices
total
|
61,978 | 49,936 | 60,111 | 24.1 | % | 3.1 | % | |||||||||||||
|
Equity
portfolio analytics
|
33,659 | 29,452 | 33,902 | 14.3 | % | (0.7 | %) | |||||||||||||
|
Multi-asset
class portfolio analytics
|
8,923 | 6,669 | 8,598 | 33.8 | % | 3.8 | % | |||||||||||||
|
Other
products
|
5,839 | 6,350 | 5,584 | (8.0 | %) | 4.6 | % | |||||||||||||
|
Total
operating revenues
|
$110,399 | $92,407 | $108,195 | 19.5 | % | 2.0 | % | |||||||||||||
Table
6
|
Operating
Expenses by Category excluding Founders Grant
|
|
(Compensation
vs. Non-compensation)
|
|
Three Months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Compensation
|
$37,121 | $31,137 | 19.2 | % | ||||||||
|
Non-compensation
|
23,288 | 21,310 | 9.3 | % | ||||||||
|
Total
|
60,409 | 52,447 | 15.2 | % | ||||||||
|
Amortization
of intangible assets
|
7,125 | 6,697 | 6.4 | % | ||||||||
|
Operating
expenses excluding Founders Grant
|
67,534 | 59,144 | 14.2 | % | ||||||||
|
Founders
Grant
|
5,346 | - | - | |||||||||
|
Operating
expenses including Founders Grant
|
$72,880 | $59,144 | 23.2 | % | ||||||||
Table
7a
|
Operating
Expenses by Category excluding Founders Grant
|
|
(Cost of
Services vs. Selling, General and
Administrative)
|
|
Three Months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$18,222 | $17,842 | 2.1 | % | ||||||||
|
Non-compensation
|
8,334 | 11,512 | (27.6 | %) | ||||||||
|
Total
|
26,556 | 29,354 | (9.5 | %) | ||||||||
|
Selling,
general and administrative
|
||||||||||||
|
Compensation
|
18,899 | 13,295 | 42.2 | % | ||||||||
|
Non-compensation
|
14,954 | 9,798 | 52.6 | % | ||||||||
|
Total
|
33,853 | 23,093 | 46.6 | % | ||||||||
|
Amortization
of intangible assets
|
7,125 | 6,697 | 6.4 | % | ||||||||
|
Operating
expenses excluding founders grant
|
67,534 | 59,144 | 14.2 | % | ||||||||
|
Founders
grant
|
5,346 | - | - | |||||||||
|
Operating
expenses including founders grant
|
$72,880 | $59,144 | 23.2 | % | ||||||||
12 of
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|
Table
7b
|
Operating
Expenses by Category including Founders Grant
|
||||||||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||||||||
|
Three Months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$18,222 | $17,842 | 2.1 | % | ||||||||
|
Founders
grant
|
1,575 | - | - | |||||||||
|
Total
|
19,797 | 17,842 | 11.0 | % | ||||||||
|
Non-compensation
|
8,334 | 11,512 | (27.6 | %) | ||||||||
|
Total
|
28,131 | 29,354 | (4.2 | %) | ||||||||
|
Selling,
general and administrative
|
||||||||||||
|
Compensation
|
18,899 | 13,295 | 42.2 | % | ||||||||
|
Founders
grant
|
3,771 | - | - | |||||||||
|
Total
|
22,670 | 13,295 | 70.5 | % | ||||||||
|
Non-compensation
|
14,954 | 9,798 | 52.6 | % | ||||||||
|
Total
|
37,624 | 23,093 | 62.9 | % | ||||||||
|
Amortization
of intangible assets
|
7,125 | 6,697 | 6.4 | % | ||||||||
|
Operating
expenses including founders grant
|
$72,880 | $59,144 | 23.2 | % | ||||||||
Table
8
|
Allocation and
Replacement Expenses Related to Morgan Stanley Services
|
||||||||||||||||
|
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
|
August
31,
|
August
31,
|
|||||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
Morgan Stanley
Services
|
||||||||||||||||
|
Allocation
Expenses
|
$3,928 | $7,011 | $16,008 | $19,806 | ||||||||||||
|
Replacement
Expenses1
|
7,783 | - | 15,546 | - | ||||||||||||
|
Total
|
$11,711 | $7,011 | $31,554 | $19,806 | ||||||||||||
|
1
Includes depreciation
|
||||||||||||||||
Table
9
|
Reconciliation
of Adjusted EBITDA to Net Income
|
||||||||||||
|
Three Months
Ended
|
||||||||||||
|
August
31,
|
May
31,
|
|||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
2008
|
|||||||||
|
Adjusted
EBITDA
|
$51,258 | $40,401 | $47,430 | |||||||||
|
Less: Founders
Grant expense
|
5,346 | - | 6,876 | |||||||||
|
Less: Depreciation
and amortization
|
1,268 | 441 | 522 | |||||||||
|
Less: Amortization
of intangible assets
|
7,125 | 6,697 | 7,125 | |||||||||
|
Less: Interest
expense (income) and other, net
|
7,372 | 344 | 2,522 | |||||||||
|
Less: Provision
for income taxes
|
11,269 | 11,540 | 11,754 | |||||||||
|
Net
income
|
$18,878 | $21,379 | $18,631 | |||||||||
13 of
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|
Table
10
|
MSCI
Inc.
|
||||||||
|
Consolidated
Statements of Income (unaudited)
|
||||||||
|
Nine months
Ended
|
||||||||
|
August
31,
|
||||||||
|
Amounts in
thousands, except per share data
|
2008
|
2007
|
||||||
|
Operating
revenues
|
$323,545 | $268,228 | ||||||
|
Operating
expenses
|
||||||||
|
Cost
of services
|
89,222 | 91,968 | ||||||
|
Selling,
general and administrative
|
107,360 | 67,940 | ||||||
|
Amortization
of intangible assets
|
21,375 | 19,228 | ||||||
|
Total
operating expenses
|
217,957 | 179,136 | ||||||
|
Operating
income
|
105,588 | 89,092 | ||||||
|
Interest
income
|
(7,723 | ) | (11,711 | ) | ||||
|
Interest
expense
|
21,122 | 1,856 | ||||||
|
Other expense
(income)
|
2,922 | (244 | ) | |||||
|
Interest
expense (income) and other, net
|
16,321 | (10,099 | ) | |||||
|
Income before
income taxes
|
89,267 | 99,191 | ||||||
|
Provision for
income taxes
|
33,824 | 36,319 | ||||||
|
Net
income
|
$55,443 | $62,872 | ||||||
|
Earnings per
basic common share
|
$0.55 | $0.75 | ||||||
|
Earnings per
diluted common share
|
$0.55 | $0.75 | ||||||
|
Weighted
average shares outstanding used in computing earnings per
share
|
||||||||
|
Basic
|
100,020 | 83,900 | ||||||
|
Diluted
|
101,236 | 83,900 | ||||||
Table
11
|
Operating
Revenues by Product Category
|
||||||||||||
|
Nine months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Equity
indices
|
||||||||||||
|
Equity
index subscriptions
|
$124,279 | $99,748 | 24.6 | % | ||||||||
|
Equity
index asset based fees
|
56,207 | 44,222 | 27.1 | % | ||||||||
|
Equity indices
total
|
180,486 | 143,970 | 25.4 | % | ||||||||
|
Equity
portfolio analytics
|
99,903 | 89,023 | 12.2 | % | ||||||||
|
Multi-asset
class portfolio analytics
|
25,413 | 15,370 | 65.3 | % | ||||||||
|
Other
products
|
17,743 | 19,865 | (10.7 | %) | ||||||||
|
Total
operating revenues
|
323,545 | 268,228 | 20.6 | % | ||||||||
14 of
17
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|
Table
12
|
Operating
Expenses by Category excluding Founders Grant
|
||||||||||||
|
(Compensation
vs. Non-compensation)
|
||||||||||||
|
Nine months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Compensation
|
$110,516 | $99,866 | 10.7 | % | ||||||||
|
Non-compensation
|
69,048 | 60,042 | 15.0 | % | ||||||||
|
Total
|
179,564 | 159,908 | 12.3 | % | ||||||||
|
Amortization
of intangible assets
|
21,375 | 19,228 | 11.2 | % | ||||||||
|
Operating
expenses excluding Founders Grant
|
200,939 | 179,136 | 12.2 | % | ||||||||
|
Founders
Grant
|
17,018 | - | - | |||||||||
|
Operating
expenses including Founders Grant
|
$217,957 | $179,136 | 21.7 | % | ||||||||
Table
13a
|
Operating
Expenses by Category excluding Founders Grant
|
||||||||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||||||||
|
Nine months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$54,745 | $57,748 | (5.2 | %) | ||||||||
|
Non-compensation
|
29,726 | 34,220 | (13.1 | %) | ||||||||
|
Total
|
84,471 | 91,968 | (8.2 | %) | ||||||||
|
Selling,
general and administrative
|
||||||||||||
|
Compensation
|
55,771 | 42,118 | 32.4 | % | ||||||||
|
Non-compensation
|
39,322 | 25,822 | 52.3 | % | ||||||||
|
Total
|
95,093 | 67,940 | 40.0 | % | ||||||||
|
Amortization
of intangible assets
|
21,375 | 19,228 | 11.2 | % | ||||||||
|
Operating
expenses excluding Founders Grant
|
200,939 | 179,136 | 12.2 | % | ||||||||
|
Founders
Grant
|
17,018 | - | - | |||||||||
|
Operating
expenses including Founders Grant
|
$217,957 | $179,136 | 21.7 | % | ||||||||
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Table
13b
|
Operating
Expenses by Category including Founders Grant
|
||||||||||||
|
(Cost of
Services vs. Selling, General and Administrative)
|
||||||||||||
|
Nine months
Ended
|
||||||||||||
|
August
31,
|
||||||||||||
|
Amounts in
thousands
|
2008
|
2007
|
Change
|
|||||||||
|
Cost of
services
|
||||||||||||
|
Compensation
|
$54,745 | $57,748 | (5.2 | %) | ||||||||
|
Founders
grant
|
4,751 | - | - | |||||||||
|
Total
|
59,496 | 57,748 | 3.0 | % | ||||||||
|
Non-compensation
|
29,726 | 34,220 | (13.1 | %) | ||||||||
|
Total
|
89,222 | 91,968 | (3.0 | %) | ||||||||
|
Selling,
general and administrative
|
||||||||||||
|
Compensation
|
55,771 | 42,118 | 32.4 | % | ||||||||
|
Founders
grant
|
12,267 | - | - | |||||||||
|
Total
|
68,038 | 42,118 | 61.5 | % | ||||||||
|
Non-compensation
|
39,322 | 25,822 | 52.3 | % | ||||||||
|
Total
|
107,360 | 67,940 | 58.0 | % | ||||||||
|
Amortization
of intangible assets
|
21,375 | 19,228 | 11.2 | % | ||||||||
|
Operating
expenses including Founders Grant
|
$217,957 | $179,136 | 21.7 | % | ||||||||
Table
14
|
Reconciliation
of Adjusted EBITDA to Net Income
|
||||||||
|
Nine months
Ended
|
||||||||
|
August
31,
|
||||||||
|
Amounts in
thousands
|
2008
|
2007
|
||||||
|
Adjusted
EBITDA
|
$146,255 | $109,850 | ||||||
|
Less: Founders
Grant expense
|
17,018 | - | ||||||
|
Less: Depreciation
and amortization
|
2,274 | 1,530 | ||||||
|
Less: Amortization
of intangible assets
|
21,375 | 19,228 | ||||||
|
Less: Interest
expense (income) and other, net
|
16,321 | (10,099 | ) | |||||
|
Less: Provision
for income taxes
|
33,824 | 36,319 | ||||||
|
Net
income
|
$55,443 | $62,872 | ||||||
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|
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.
17 of 17