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 1, 2010
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
1, 2010, MSCI Inc. (the “Registrant”) released financial information with
respect to its second quarter ended May 31, 2010. 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.
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(d)
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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
1, 2010 containing financial information
for the second quarter ended May 31, 2010.
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Pursuant to the requirements of the
Exchange Act, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
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MSCI Inc.
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Date: July 1,
2010
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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
MSCI
Inc. Reports Second Quarter 2010 Financial Results
New York – July 1, 2010 – MSCI
Inc. (NYSE: MXB), a leading global provider of investment decision support
tools, including indices, portfolio risk and performance analytics and corporate
governance services, today announced results for the second quarter and first
half ended May 31, 2010.
(Note: Percentage
changes are referenced to the comparable period in fiscal year 2009, unless
otherwise noted.)
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·
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Operating
revenues increased 14.4% to $125.2 million in second quarter 2010 and
14.7% to $246.9 million for first half
2010.
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·
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Adjusted
EBITDA2
increased 15.8% to $61.8 million in second quarter 2010 for an Adjusted
EBITDA margin of 49.4%. First half 2010 Adjusted EBITDA grew by 18.9% to
$121.1 million. See Table 11 titled "Reconciliation of Adjusted EBITDA to
Net Income."
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·
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Diluted EPS
for the second quarter 2010 increased 15.8% to $0.22. For the first six
months of 2010, Diluted EPS rose 37.1% to
$0.48.
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·
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Second
quarter 2010 Adjusted EPS1
rose 29.6% to $0.35. First half 2010 Adjusted EPS rose 29.4% to $0.66. See
Table 12 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to
Net Income and EPS."
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Henry A. Fernandez,
Chairman and CEO, said, “We delivered a strong first half of fiscal 2010, with
double digit revenue and Adjusted EBITDA growth in both the first and second
quarters. Our second quarter revenues and Adjusted EBITDA grew 14.4% and 15.8%,
respectively, and our Adjusted EBITDA margin expanded to 49.4%. Demand for our
products has continued to strengthen, as evidenced by our record level of
quarterly new sales and the year-over-year improvement in our retention
rate.”
“At the beginning
of June, we completed our acquisition of RiskMetrics. We are excited to have
begun the work of bringing together two great companies to deliver a suite of
products unmatched in the risk management analytics marketplace. With annualized
revenues of more than $750 million and 2,000 employees worldwide, our increased
scale and scope will enable us to invest more in developing new products and
capabilities for our clients which, in turn, should lead to additional revenue
growth,” added Mr. Fernandez.
Table
1: MSCI Inc. Selected Financial Information (unaudited)
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Three Months
Ended
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Change
from
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Six Months
Ended
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Change
from
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|||||||||||||||||||||
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May
31,
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May
31,
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May
31,
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May
31,
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|||||||||||||||||||||
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In thousands,
except per share data
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2010
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2009
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2009
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2010
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2009
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2009
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Operating
revenues
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$ | 125,170 | $ | 109,375 | 14.4 | % | $ | 246,850 | $ | 215,290 | 14.7 | % | ||||||||||||
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Operating
expenses
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$ | 78,473 | $ | 72,721 | 7.9 | % | $ | 152,896 | $ | 145,852 | 4.8 | % | ||||||||||||
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Net
income
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$ | 24,067 | $ | 19,618 | 22.7 | % | $ | 51,585 | $ | 36,342 | 41.9 | % | ||||||||||||
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%
Margin
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19.2 | % | 17.9 | % | 20.9 | % | 16.9 | % | ||||||||||||||||
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Diluted
EPS
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$ | 0.22 | $ | 0.19 | 15.8 | % | $ | 0.48 | $ | 0.35 | 37.1 | % | ||||||||||||
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Adjusted
EPS1
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$ | 0.35 | $ | 0.27 | 29.6 | % | $ | 0.66 | $ | 0.51 | 29.4 | % | ||||||||||||
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Adjusted
EBITDA2
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$ | 61,834 | $ | 53,392 | 15.8 | % | $ | 121,083 | $ | 101,857 | 18.9 | % | ||||||||||||
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%
Margin
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49.4 | % | 48.8 | % | 49.1 | % | 47.3 | % | ||||||||||||||||
1 Per
share net income before after-tax impact of amortization of intangibles,
founders grant, third party transaction expenses associated with the acquisition
of RiskMetrics and debt repayment expenses. See Table
12 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to
Net Income and EPS" and information about the use of non-GAAP financial
information provided under "Notes Regarding the Use of Non-GAAP Financial
Measures.”
2
Income before interest income, interest expense, other expense (income),
provision for taxes, depreciation, amortization, founders grant and third party
transaction expenses associated with the acquisition of
RiskMetrics. See Table 11 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.”
1 of 14
Summary
of Results for Fiscal Second quarter 2010
Operating
Revenues – See Table 4
Total operating
revenues for the three months ended May 31, 2010 (second quarter 2010) increased
$15.8 million, or 14.4%, to $125.2 million compared to $109.4 million for the
three months ended May 31, 2009 (second quarter 2009). Subscription revenues
increased by 5.6% to $99.5 million while equity index asset based fees rose
68.8% to $25.7 million. Subscription revenue growth resulted from increases in
revenues related to equity index subscriptions and Multi-Asset Class Analytics,
which were up 14.7% and 16.0%, respectively, in second quarter 2010 offset, in
part, by decreases of 8.0% in Equity Portfolio Analytics and 10.8% in Other
Products. Non-recurring subscription revenues
increased $1.6 million to $4.2 million in the quarter. The company recorded
revenue growth in all regions, most notably in EMEA and in Asia
Pacific. Revenue growth from asset managers, asset owners, and
others helped offset declines from broker dealers and hedge
funds.
Equity Indices: Revenues
related to Equity Indices increased $17.4 million, or 27.9%, to $79.9 million in
second quarter 2010 compared to second quarter 2009. Total equity index revenues
grew in all regions and across all client
types. Revenues from equity index subscriptions were up 14.7% to $54.2
million in second quarter 2010, with growth in all
regions and all client types except broker dealers. The increase reflects continued growth in emerging markets, small cap, developed
markets and custom equity index revenues which more than offset a decline in
revenues from derivative structured products linked to our
indices.
Revenues
attributable to equity index asset based fees increased 68.8% to $25.7 million
in second quarter 2010 compared to second quarter 2009, reflecting increases of
77.5% to $20.7 million for ETF asset based fees and 40.2% to $5.0 million for
other asset based fees. The average value of assets in ETFs linked to
MSCI equity indices increased 87.4% to $252.4 billion for second quarter 2010
compared to $134.7 billion for second quarter 2009. As of May 31, 2010, the
value of assets in ETFs linked to MSCI equity indices was $237.6 billion,
representing an increase of $61.7 billion, or 35.1%, from $175.9 billion as of
May 31, 2009. We estimate that the $61.7 billion year-over-year increase in
assets in ETFs linked to MSCI equity indices was attributable to $29.2 billion
of net asset appreciation and $32.5 billion of cash inflows.
The value of assets
in ETFs linked to MSCI equity indices at the end of second quarter 2010 rose
0.8%, or $2.0 billion, from the end of first quarter 2010. We estimate that the
increase was attributable to asset inflows of $7.9 billion offset, in part, by
asset depreciation of $5.9 billion. The $7.9 billion of asset inflows was comprised of $7.0 billion of asset inflows into
established ETFs supplemented by $0.9 billion of asset inflows into ETFs
launched over the last twelve months.
The three MSCI
indices with the largest amount of ETF assets linked to them as of May 31, 2010
were the MSCI Emerging Markets, EAFE (an index of stocks in developed markets
outside North America), and US Broad Market Indices. The assets linked to these
indices were $67.5 billion, $35.8 billion, and $13.7 billion,
respectively.
Equity Portfolio Analytics:
Revenues related to Equity Portfolio Analytics products decreased $2.5 million,
or 8.0%, to $29.0 million in second quarter 2010 compared to the same period in
2009 as lower retention rates more than offset new
sales during the last twelve months. Revenue declined 9.8% to $18.9
million for Aegis (our proprietary risk data delivered in a bundle with our
proprietary software platform) and 7.3% to $8.6 million for Models Direct (our
proprietary data delivered directly). These declines were partially offset by an
increase of 20.0% to $1.5 million for Barra on Vendors (our proprietary data
accessed through third party vendors). Revenues
declined across all client types and all regions except Asia
Pacific.
Multi-Asset Class Portfolio
Analytics: Revenues related to Multi-Asset Class Portfolio Analytics
increased $1.5 million, or 16.0%, to $11.1 million in second quarter 2010
compared to the same period in 2009. Sales of BarraOne remained the biggest
driver of growth in this product category. BarraOne revenues rose by 26.9% to
$9.1 million offset, in part, by a 16.3% decline to $2.0 million in revenues
from TotalRisk. TotalRisk is in the process of being
2 of 14
decommissioned,
with its existing users being offered the opportunity to transition to BarraOne.
Revenues rose in all client types except for hedge
funds and across all regions except Asia Pacific.
Other Products: Revenues from
Other Products decreased $0.6 million, or 10.8%, to $5.1 million in second
quarter 2010 compared to second quarter 2009. A decrease of 24.7% to $1.2
million in revenues from fixed income analytics was partially offset by growth
of 3.6% to $3.9 million in energy and commodity analytics products
revenues.
Operating
Expenses – See Table 6
Total operating expenses increased $5.8 million, or
7.9%, to $78.5 million in second quarter 2010 compared to second quarter
2009. Operating
expenses include $5.3 million in third party transaction expenses associated
with MSCI’s acquisition of RiskMetrics Group, Inc. (transaction expenses). These
transaction expenses, which consist of payments made to outside advisors, are
recorded in Selling, general and administrative expense. Excluding the
transaction expenses, operating expenses would have risen by only
0.7%.
Total compensation costs decreased 3.9% to $44.8
million. Excluding founders grant expense, compensation expenses increased 8.8%
to $42.7 million. The increase excluding founders grant expense largely reflects
an increase in headcount of 137, or 17.0%, to 942 employees.
Total founders
grant expense fell by $5.3 million, or 72.2%, to $2.0 million. The drop in
founders grant expense is a result of the vesting of a portion of these awards
on November 14, 2009 at the two-year anniversary of the company’s initial public
offering (IPO). Expenses related to the founders grant awards reflect the
amortization of share based compensation expenses associated with restricted
stock units and options awarded to employees as a one-time grant in connection
with our IPO completed in November 2007, which are being amortized through 2011.
Of the $2.0 million of founders grant expense recorded in second quarter 2010,
$0.7 million was recorded in cost of services and $1.3 million was recorded in
Selling, general and administrative expense.
Total non-compensation expenses excluding depreciation
and amortization increased $9.2 million to $25.9 million, a 54.8%
increase. Excluding transaction expenses, non-compensation costs
excluding depreciation and amortization rose 23.3% to $20.6 million. The
increase excluding transaction expenses largely reflects higher outside
professional costs, information technology expenses, and market data costs.
These increases were partially offset by the elimination of expense allocations
from Morgan Stanley.
Cost of services expense rose by $1.2 million, or 4.1%,
in the second quarter 2010. Within cost of services,
compensation expense including founders grant expense declined by $0.1 million
or 0.3%. Excluding founders grant expense, compensation expense rose by $2.1
million, or 10.8%. The biggest drivers of the change were increases in our IT
and development staffing levels. Non-compensation expenses rose by $1.3 million,
or 18.6%. The biggest driver of the change in non-compensation expenses was a
$1.0 million increase in market data cost.
Selling, general
and administrative expense rose by $6.1 million, or 18.0%. Within Selling,
general and administrative expense, compensation expense including founders
grant expense fell by $1.8 million, or 7.3%. Excluding founders grant expense,
compensation expense rose $1.4 million, or 6.9%. Non-compensation expenses rose
by $7.9 million, or 79.8%. Excluding the impact of $5.3 million of transaction
expenses, non-compensation expenses rose by $2.6 million, or 26.5%, driven by
higher IT spending, occupancy expenses, and higher license and regulatory
fees.
Selling expenses excluding founders grant expense rose
by $0.3 million, or 2.8%, to $11.5 million. General and administrative costs
excluding founders grant expense rose $8.9 million, or 48.5%, to $27.3
million. Excluding founders grant expense and transaction
expenses, general and administrative costs rose by $3.7 million, or
19.9%.
Adjusted
EBITDA – See Table 11
Adjusted EBITDA,
which excludes the impact of founders grant expense and transaction expenses,
was $61.8 million, an increase of 15.8% from second quarter 2009. The Adjusted
EBITDA margin increased to 49.4% in second quarter
3 of 14
2010 from 48.8% in
second quarter 2009. See Table 11 titled “Reconciliation of Adjusted EBITDA to
Net Income” and “Notes Regarding the Use of Non-GAAP Financial Measures”
below.
Other
Expense (Income), Net
Other expense
(income), net was an expense of $8.7 million in second quarter 2010 compared to
an expense of $4.7 million in second quarter 2009. In second quarter 2010, MSCI
elected to repay $297.0 million of its outstanding term loans. As a result, the
company incurred a total of $6.3 million of accelerated interest expense
resulting from the termination of an interest rate swap and the acceleration of
deferred financing and debt discount costs (debt repayment expenses). Excluding
these charges, Other expense (income) was $2.5 million, a decline of $2.2
million, or 47% from second quarter 2009. The decline of Other expense excluding
debt repayment expenses was primarily due to lower interest expense resulting
from lower average outstanding debt and the impact of lower interest rates on
the unhedged portion of our debt. The repayment of debt during the quarter
contributed to a $1.0 million reduction in interest expense.
Provision
for Income Taxes
The provision for
income taxes increased 12.4% to $13.9 million in second quarter 2010. The
effective tax rate for second quarter 2010 was 36.6% compared to 38.6% in second
quarter 2009. Our effective tax rate was approximately 1.6% higher, on a net
basis, for the three months ended May 31, 2010 as a result of the transaction
expenses related to the acquisition of RiskMetrics, which are not tax
deductible, offset by the impact of net discrete tax benefits recognized during
the period.
Net
Income and Earnings per Share
Net income
increased 22.7% to $24.1 million in second quarter 2010 from second quarter 2009
and the net income margin increased to 19.2% from 17.9%. Diluted EPS rose 15.8%
to $0.22 from $0.19.
Net income
excluding the after-tax impact of amortization of intangibles, founders grant
expense, transaction expenses and debt repayment expenses totaling $13.3
million, rose 32.3% to $37.3 million in second quarter 2010. Adjusted EPS, which
excludes the after-tax, per share impact of amortization of intangibles,
founders grant expense, transaction expenses and debt repayment expenses
totaling $0.13, rose 29.6% to $0.35 in the second quarter of 2010 from $0.27 in
second quarter 2009. See Table 12 titled "Reconciliation of Adjusted Net Income
and Adjusted EPS to Net Income and EPS."
Summary
of Results for First Half 2010
Operating
Revenues – See Table 5
Total operating
revenues for first half ended May 31, 2010 (first half 2010) increased 14.7% to
$246.9 million compared to $215.3 million for the first half ended May 31, 2009
(first half 2009). Revenue gains in our Equity Indices and Multi-Asset Class
Portfolio Analytics products, which grew by 28.2% and 14.4% respectively, more
than offset declines in our Equity Portfolio Analytics and Other Product areas
of 7.4% and 5.5%, respectively. First half
operating revenues rose in every region and across all client types with the
exception of hedge funds.
Subscription
revenues of $196.2 million rose 5.0% from the first half of 2009 as growth in
equity index subscriptions and Multi Asset Class Analytics product revenues
offset declines in Equity Portfolio Analytics and Other products. Asset based
fees of $50.7 million rose 78.4% from first half of 2009, propelled in large
part by the growth in average assets under management in ETFs linked to our
indices of 87.4% to $252.4 billion.
Operating
Expenses – See Table 7
Operating expenses for first half 2010 increased $7.0
million, or 4.8%, to $152.9 million compared to first half 2009.
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Operating expenses
for first half 2010 include $7.5 million in third party transaction expenses
related to the acquisition of RiskMetrics Group, Inc. These transaction expenses
are recorded in Selling, general and administrative expense.
The $7.0 million
increase reflects increases of $11.7 million in non-compensation expenses and
$0.9 million in depreciation and amortization expense offset, in part, by
decreases of $1.3 million in total compensation expense and $4.3 million in
amortization of intangibles.
Total compensation expense decreased $1.3 million, or
1.4%, to $89.8 million for first half 2010. Excluding founders grant expense, compensation expense
increased $8.1 million, or 10.5%, to $85.7 million. The increase in compensation expense primarily reflects
increases in headcount. These increases were offset by a $9.4 million decrease
in founders grant expense. Non-compensation expense increased $11.7 million, or
32.7%, to $47.6 million. Excluding transaction charges, non compensation
expenses rose by $4.2 million or
11.8%.
Cost of services
increased $1.6 million, or 2.7%, to $59.8 million in first half 2010. The change
was largely due to an increase in compensation cost. Selling, general and
administrative expenses increased to $77.6 million in first half 2010. The
increase reflects $7.5 million of transaction expenses as well as higher
information technology and recruiting expenses.
Adjusted
EBITDA – See Table 11
Adjusted EBITDA,
which excludes the impact of founders grant expense and transaction expenses,
increased 18.9% to $121.1 million for first half 2010 from $101.9 million for
first half 2009. The Adjusted EBITDA margin rose to 49.1% in first half 2010
from 47.3% in first half 2009. See Table 11 titled “Reconciliation of Adjusted
EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP Financial
Measures” below.
Other
Expense (Income), Net
Other expense
(income), net was an expense of $12.2 million in first half 2010 compared to an
expense of $11.1 million in first half 2009. Excluding the impact of the debt
repayment expenses of $6.3 million discussed above, Other expense (income) was
$5.9 million, a decrease of $5.2 million, or 46.9% from first half 2009. The
decline of Other expense excluding debt repayment expenses was primarily due to
lower interest expense resulting from lower average outstanding
debt.
Provision
for Income Taxes
The provision for
income taxes increased 37.2% to $30.2 million in first half 2010. The effective
tax rate for first half 2010 was 36.9% compared to 37.7% in first half 2009. Our
effective tax rate was approximately 0.3% higher for the six months ended May
31, 2010 as a result of the transaction expenses related to the acquisition of
RiskMetrics, which are not tax deductible, offset by the impact of net discrete
tax benefits recognized during the period.
Net
Income
Net income
increased 41.9% to $51.6 million in first half 2010 from $36.3 million in first
half 2009 and the net income margin increased to 20.9% from 16.9%. Diluted EPS
for the first six months of 2010 was $0.48, an increase of 37.1% from first half
2009.
Net income
excluding the after-tax impact of amortization of intangibles, founders grant
expense, transaction expenses and debt repayment expenses totaling $19.5 million
rose 34.6% to $71.1 million from $52.8 million in first half 2009. First half
2010 Adjusted EPS, which excludes the per-share, after-tax impact of
amortization of intangibles, founders grant expense, transaction expenses and
debt repayment expenses totaling $0.18, rose 29.4% to $0.66 from $0.51. See
Table 12 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to Net
Income and EPS."
Acquisition
of RiskMetrics Group, Inc.
5 of 14
On
June 1, 2010, MSCI completed the acquisition of RiskMetrics Group, Inc. In
connection with the acquisition of RiskMetrics, MSCI entered into a senior
secured credit agreement which is comprised of a $1,275.0 million six-year term
loan facility and an undrawn $100.0 million five-year revolving credit facility.
Principal on the term loan facility is expected to be paid at 1.00% per year
plus a portion of MSCI’s excess cash flows (as defined in the agreement and
depending on its leverage ratio), with remaining principal payable in the final
year. Borrowings under the credit facilities bear interest at a rate equal to
the greater of the London Interbank Offered Rate (“LIBOR”), or 1.50%, plus a
margin of 3.25%. In connection with the senior secured credit agreement
described above, MSCI paid $71.1 million on June 1, 2010 to retire its existing
term loan facility plus accrued interest and $0.7 million to retire its interest
rate swap and accrued interest. In
addition to the new loans, MSCI issued approximately 12.6 million shares and has
reserved approximately 4.3 million common shares for outstanding vested and
unvested stock options and restricted stock awards assumed as part of the
acquisition.
Change
in Ticker Symbol to ‘MSCI’
MSCI Inc. will
change the ticker symbol for its common stock listed on the New York Stock
Exchange to “MSCI” from “MXB,” effective at the start of trading on Tuesday,
July 6, 2010.
Conference
Call Information
Investors will have
the opportunity to listen to MSCI Inc.'s senior management review second quarter
2010 results on Thursday, July 1, 2010 at 11:00 am Eastern Time. To hear the
live event, visit the investor relations section of MSCI's website, http://ir.msci.com/events.cfm,
or dial 1-877-312-9206 within the United States.
International callers dial 1-408-774-4001.
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 7, 2010. To listen to the recording, visit http://ir.msci.com/events.cfm,
or dial 1-800-642-1687 (passcode: 80714875) within the United States.
International callers dial 1-706-645-9291 (passcode: 80714875).
About
MSCI Inc.
MSCI Inc. is a
leading provider of investment decision support tools to investors globally,
including asset managers, banks, hedge funds and pension funds. MSCI Inc.
products and services include indices, portfolio risk and performance analytics,
and governance tools.
The company's
flagship product offerings are: the MSCI indices which include over 120,000
daily indices covering more than 70 countries; Barra portfolio risk and
performance analytics covering global equity and fixed income markets;
RiskMetrics market and credit risk analytics; ISS governance research and
outsourced proxy voting and reporting services; CFRA forensic accounting risk
research, legal/regulatory risk assessment, and due-diligence; and FEA valuation
models and risk management software for the energy and commodities markets. MSCI
Inc. is headquartered in New York, with research and commercial offices around
the world. MXB#IR
For
further information on MSCI Inc. or our products please visit
www.msci.com.
MSCI
Inc. Contact:
|
Edings
Thibault, MSCI, New York
|
+
1.866.447.7874
|
|
For
media inquiries please contact:
|
|
|
Kenny Suarez
| Patrick Clifford, Abernathy MacGregor, New York
|
+
1.212.371.5999
|
|
Sally Todd |
Clare Milton, Penrose Financial, London
|
+
44.20.7786.4888
|
6 of 14
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, 2009 and filed with the Securities and Exchange
Commission (SEC) on January 29, 2010, the Registration Statement on Form S-4, as
amended, filed with the SEC on April 27, 2010 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.
Notes
Regarding the Use of Non-GAAP Financial Measures
MSCI has presented
supplemental non-GAAP financial measures as part of this earnings release. A
reconciliation is provided below that reconciles each non-GAAP financial measure
with the most comparable GAAP measure. The presentation of non-GAAP financial
measures should not be considered as alternative measures for the most directly
comparable GAAP financial measures. These measures are used by management to
monitor the financial performance of the business, inform business decision
making and forecast future results.
Adjusted EBITDA is
defined as net income before provision for income taxes, amortization of
intangible assets, other net expense and income, depreciation and amortization,
founders grant expense and third party transaction costs related to the
acquisition of RiskMetrics.
Adjusted net income
and Adjusted EPS are defined as net income and EPS, respectively, before
provision for founders grant expenses, amortization of intangible assets, third
party transaction costs related to the acquisition of RiskMetrics, and the
accelerated interest expense resulting from the termination of an interest rate
swap and the acceleration of deferred financing and debt discount costs (debt
repayment expenses), as well as for any related tax effects.
We
believe that adjustments related to transaction costs and debt repayment
expenses are useful to management and investors because it allows for an
evaluation of the MSCI’s underlying operating performance by excluding the costs
incurred in connection with the acquisition of RiskMetrics. Additionally, we
believe that adjusting for founders grant expenses and the amortization of
intangible assets may help investors compare our performance to that of other
companies in our industry as we do not believe that other companies in our
industry have as significant a portion of their operating expenses represented
by one-time founders grant expenses and amortization of intangible assets. We
believe that the non-GAAP financial measures presented in this earnings release
facilitate meaningful period-to-period comparisons and provide a baseline for
the evaluation of future results.
Adjusted EBITDA,
Adjusted net income and Adjusted EPS are not defined in the same manner by all
companies and may not be comparable to other similarly titled measures of other
companies.
7 of 14
Table
2: MSCI Inc. Consolidated Statement of Income (unaudited)
|
Three Months
Ended
|
Six Months
Ended
|
|||||||||||||||||||
|
May
31,
|
February
28,
|
May
31,
|
||||||||||||||||||
|
In thousands,
except per share data
|
2010
|
2009
|
2010
|
2010
|
2009
|
|||||||||||||||
|
Operating
revenues
|
$ | 125,170 | $ | 109,375 | $ | 121,680 | $ | 246,850 | $ | 215,290 | ||||||||||
|
Operating
expenses
|
||||||||||||||||||||
|
Cost
of services
|
30,463 | 29,269 | 29,291 | 59,754 | 58,204 | |||||||||||||||
|
Selling,
general and administrative
|
40,177 | 34,052 | 37,461 | 77,638 | 68,768 | |||||||||||||||
|
Amortization
of intangible assets
|
4,277 | 6,428 | 4,278 | 8,555 | 12,857 | |||||||||||||||
|
Depreciation
and amortization of property,
|
3,556 | 2,972 | 3,393 | 6,949 | 6,023 | |||||||||||||||
|
equipment,
and leasehold improvements
|
||||||||||||||||||||
|
Total
operating expenses
|
78,473 | 72,721 | 74,423 | 152,896 | 145,852 | |||||||||||||||
|
Operating
income
|
46,697 | 36,654 | 47,257 | 93,954 | 69,438 | |||||||||||||||
|
Interest
income
|
(343 | ) | (220 | ) | (408 | ) | (751 | ) | (341 | ) | ||||||||||
|
Interest
expense
|
8,991 | 4,904 | 4,436 | 13,427 | 10,542 | |||||||||||||||
|
Other expense
(income)
|
98 | (2 | ) | (608 | ) | (510 | ) | 880 | ||||||||||||
|
Other expense
(income), net
|
8,746 | 4,682 | 3,420 | 12,166 | 11,081 | |||||||||||||||
|
Income before
income taxes
|
37,951 | 31,972 | 43,837 | 81,788 | 58,357 | |||||||||||||||
|
Provision for
income taxes
|
13,884 | 12,354 | 16,319 | 30,203 | 22,015 | |||||||||||||||
|
Net
income
|
$ | 24,067 | $ | 19,618 | $ | 27,518 | $ | 51,585 | $ | 36,342 | ||||||||||
|
Earnings per
basic common share
|
$ | 0.23 | $ | 0.19 | $ | 0.26 | $ | 0.48 | $ | 0.35 | ||||||||||
|
Earnings per
diluted common share
|
$ | 0.22 | $ | 0.19 | $ | 0.26 | $ | 0.48 | $ | 0.35 | ||||||||||
|
Weighted
average shares outstanding used
|
||||||||||||||||||||
|
in
computing earnings per share
|
||||||||||||||||||||
|
Basic
|
105,345 | 100,359 | 105,235 | 105,290 | 100,324 | |||||||||||||||
|
Diluted
|
106,003 | 100,371 | 105,844 | 105,923 | 100,330 | |||||||||||||||
Table
3: MSCI Inc. Selected Balance Sheet Items (unaudited)
|
As
of
|
||||||||
|
May
31,
|
November
30,
|
|||||||
|
In
thousands
|
2010
|
2009
|
||||||
|
Cash and cash
equivalents
|
$ | 152,148 | $ | 176,024 | ||||
|
Short-term
investments
|
$ | 61,399 | $ | 295,304 | ||||
|
Trade
receivables, net of allowances
|
$ | 92,530 | $ | 77,180 | ||||
|
Deferred
revenue
|
$ | 181,906 | $ | 152,944 | ||||
|
Current
maturities of long-term debt
|
$ | 8,245 | $ | 42,088 | ||||
|
Long-term
debt, net of current maturities
|
$ | 62,325 | $ | 337,622 | ||||
8 of 14
Table
4: Second Quarter 2010 Operating Revenues by Product Category
|
Three Months
Ended
|
Change
from
|
|||||||||||||||||||
|
May
31,
|
February
28,
|
May
31,
|
February
28,
|
|||||||||||||||||
|
In
thousands
|
2010
|
2009
|
2010
|
2009
|
2010
|
|||||||||||||||
|
Equity
indices
|
||||||||||||||||||||
|
Equity index
subscriptions
|
$ | 54,222 | $ | 47,282 | $ | 50,175 | 14.7 | % | 8.1 | % | ||||||||||
|
Equity index
asset based fees
|
25,696 | 15,220 | 24,985 | 68.8 | % | 2.8 | % | |||||||||||||
|
Equity
indices total
|
79,918 | 62,502 | 75,160 | 27.9 | % | 6.3 | % | |||||||||||||
|
Equity
portfolio analytics
|
29,041 | 31,582 | 29,983 | (8.0 | %) | (3.1 | %) | |||||||||||||
|
Multi-asset
class portfolio analytics
|
11,107 | 9,572 | 10,845 | 16.0 | % | 2.4 | % | |||||||||||||
|
Other
products
|
5,104 | 5,719 | 5,692 | (10.8 | %) | (10.3 | %) | |||||||||||||
|
Total
operating revenues
|
$ | 125,170 | $ | 109,375 | $ | 121,680 | 14.4 | % | 2.9 | % | ||||||||||
|
Subscriptions
|
99,474 | 94,155 | 96,695 | 5.6 | % | 2.9 | % | |||||||||||||
|
Equity index
asset based fees
|
25,696 | 15,220 | 24,985 | 68.8 | % | 2.8 | % | |||||||||||||
|
Total
operating revenues
|
$ | 125,170 | $ | 109,375 | $ | 121,680 | 14.4 | % | 2.9 | % | ||||||||||
Table
5: First Half 2010 Operating Revenues by Product Category
|
Six Months
Ended
|
||||||||||||
|
May
31,
|
||||||||||||
|
In
thousands
|
2010
|
2009
|
Change
|
|||||||||
|
Equity
indices
|
||||||||||||
|
Equity index
subscriptions
|
$ | 104,397 | $ | 92,549 | 12.8 | % | ||||||
|
Equity index
asset based fees
|
50,681 | 28,402 | 78.4 | % | ||||||||
|
Equity
indices total
|
155,078 | 120,951 | 28.2 | % | ||||||||
|
Equity
portfolio analytics
|
59,024 | 63,722 | (7.4 | %) | ||||||||
|
Multi-asset
class portfolio analytics
|
21,952 | 19,195 | 14.4 | % | ||||||||
|
Other
products
|
10,796 | 11,422 | (5.5 | %) | ||||||||
|
Total
operating revenues
|
$ | 246,850 | $ | 215,290 | 14.7 | % | ||||||
|
Subscriptions
|
196,169 | 186,888 | 5.0 | % | ||||||||
|
Equity index
asset based fees
|
50,681 | 28,402 | 78.4 | % | ||||||||
|
Total
operating revenues
|
$ | 246,850 | $ | 215,290 | 14.7 | % | ||||||
9 of 14
Table
6: Additional Second Quarter 2010 Operating Expense Detail
|
Three Months
Ended
|
Change
from
|
|||||||||||||||||||
|
May
31,
|
February
28,
|
May
31,
|
February
28,
|
|||||||||||||||||
|
In
thousands
|
2010
|
2009
|
2010
|
2009
|
2010
|
|||||||||||||||
|
Cost of
services
|
||||||||||||||||||||
|
Compensation
|
$ | 21,639 | $ | 19,538 | $ | 21,686 | 10.8 | % | (0.2 | %) | ||||||||||
|
Founders
grant
|
715 | 2,892 | 681 | (75.3 | %) | 5.0 | % | |||||||||||||
|
Total
Compensation
|
22,354 | 22,430 | 22,367 | (0.3 | %) | (0.1 | %) | |||||||||||||
|
Non-compensation
|
8,109 | 6,839 | 6,924 | 18.6 | % | 17.1 | % | |||||||||||||
|
Total cost of
services
|
30,463 | 29,269 | 29,291 | 4.1 | % | 4.0 | % | |||||||||||||
|
Selling,
general and administrative
|
||||||||||||||||||||
|
Compensation
|
21,085 | 19,724 | 21,269 | 6.9 | % | (0.9 | %) | |||||||||||||
|
Founders
grant
|
1,325 | 4,446 | 1,390 | (70.2 | %) | (4.7 | %) | |||||||||||||
|
Total
Compensation
|
22,410 | 24,170 | 22,659 | (7.3 | %) | (1.1 | %) | |||||||||||||
|
Transaction
expenses
|
5,264 | 0 | 2,250 |
NA
|
134.0 | % | ||||||||||||||
|
Non-compensation
excl. transaction expenses
|
12,503 | 9,882 | 12,552 | 26.5 | % | (0.4 | %) | |||||||||||||
|
Total
selling, general and administrative
|
40,177 | 34,052 | 37,461 | 18.0 | % | 7.3 | % | |||||||||||||
|
Amortization
of intangible assets
|
4,277 | 6,428 | 4,278 | (33.5 | %) | (0.0 | %) | |||||||||||||
|
Depreciation
and amortization
|
3,556 | 2,972 | 3,393 | 19.7 | % | 4.8 | % | |||||||||||||
|
Total
operating expenses
|
$ | 78,473 | $ | 72,721 | $ | 74,423 | 7.9 | 5.4 | % | |||||||||||
|
Three Months
Ended
|
Change
from
|
|||||||||||||||||||
|
May
31,
|
February
28,
|
May
31,
|
February
28,
|
|||||||||||||||||
|
In
thousands
|
2010 | 2009 | 2010 | 2009 | 2010 | |||||||||||||||
|
Total
founders grant
|
$ | 2,040 | $ | 7,338 | $ | 2,071 | (72.2 | %) | (1.5 | %) | ||||||||||
|
Compensation
excluding founders grant
|
42,724 | 39,262 | 42,955 | 8.8 | % | (0.5 | %) | |||||||||||||
|
Transaction
expenses
|
5,264 | 0 | 2,250 |
NA
|
134.0 | % | ||||||||||||||
|
Non-compensation
excluding transaction expenses
|
20,612 | 16,721 | 19,476 | 23.3 | % | 5.8 | % | |||||||||||||
|
Amortization
of intangible assets
|
4,277 | 6,428 | 4,278 | (33.5 | %) | (0.0 | %) | |||||||||||||
|
Depreciation
and amortization
|
3,556 | 2,972 | 3,393 | 19.7 | % | 4.8 | % | |||||||||||||
|
Total
operating expenses
|
$ | 78,473 | $ | 72,721 | $ | 74,423 | 7.9 | % | 5.4 | % | ||||||||||
10 of
14
Table
7: Additional First Half 2010 Operating Expense Detail
|
Six Months
Ended
|
||||||||||||||||
|
May
31,
|
||||||||||||||||
|
In
thousands
|
2010
|
2009
|
$
Change
|
%
Change
|
||||||||||||
|
Cost of
services
|
||||||||||||||||
|
Compensation
|
$ | 43,324 | $ | 38,790 | $ | 4,534 | 11.7 | % | ||||||||
|
Founders
grant
|
1,397 | 4,937 | (3,540 | ) | (71.7 | %) | ||||||||||
|
Total
Compensation
|
44,721 | 43,727 | 994 | 2.3 | % | |||||||||||
|
Non-compensation
|
15,033 | 14,477 | 556 | 3.8 | % | |||||||||||
|
Total cost of
services
|
59,754 | 58,204 | 1,550 | 2.7 | % | |||||||||||
|
Selling,
general and administrative
|
||||||||||||||||
|
Compensation
|
42,355 | 38,771 | 3,584 | 9.2 | % | |||||||||||
|
Founders
grant
|
2,714 | 8,602 | (5,888 | ) | (68.4 | %) | ||||||||||
|
Total
Compensation
|
45,069 | 47,373 | (2,304 | ) | (4.9 | %) | ||||||||||
|
Transaction
expenses
|
7,514 | 0 | 7,514 |
NA
|
||||||||||||
|
Non-compensation
excl. transaction expenses
|
25,055 | 21,395 | 3,660 | 17.1 | % | |||||||||||
|
Total
selling, general and administrative
|
77,638 | 68,768 | 8,870 | 12.9 | % | |||||||||||
|
Amortization
of intangible assets
|
8,555 | 12,857 | (4,302 | ) | (33.5 | %) | ||||||||||
|
Depreciation
and amortization
|
6,949 | 6,023 | 926 | 15.4 | % | |||||||||||
|
Total
operating expenses
|
$ | 152,896 | $ | 145,852 | $ | 7,044 | 4.8 | % | ||||||||
|
Six Months
Ended
|
||||||||||||||||
|
May
31,
|
||||||||||||||||
|
In
thousands
|
2010 | 2009 |
$
Change
|
%
Change
|
||||||||||||
|
Total
founders grant
|
$ | 4,111 | $ | 13,539 | (9,428 | ) | (69.6 | %) | ||||||||
|
Compensation
excluding founders grant
|
85,679 | 77,561 | 8,118 | 10.5 | % | |||||||||||
|
Transaction
expenses
|
7,514 | 0 | 7,514 |
NA
|
||||||||||||
|
Non-compensation
excluding transaction expenses
|
40,088 | 35,872 | 4,216 | 11.8 | % | |||||||||||
|
Amortization
of intangible assets
|
8,555 | 12,857 | (4,302 | ) | (33.5 | %) | ||||||||||
|
Depreciation
and amortization
|
6,949 | 6,023 | 926 | 15.4 | % | |||||||||||
|
Total
operating expenses
|
$ | 152,896 | $ | 145,852 | $ | 7,044 | 4.8 | % | ||||||||
11 of
14
Table
8: Key Operating Metrics
|
As of or For
the Quarter Ended
|
Change
from
|
|||||||||||||||||||
|
May
|
February
|
May
|
February
|
|||||||||||||||||
|
Dollars in
thousands
|
2010
|
2009
|
2010
|
2009
|
2010
|
|||||||||||||||
|
Run Rates
1
|
||||||||||||||||||||
|
Equity
indices
|
||||||||||||||||||||
|
Equity index
subscriptions
|
$ | 202,101 | $ | 178,634 | $ | 191,862 | 13.1 | % | 5.3 | % | ||||||||||
|
Equity index
asset based fees 2
|
91,977 | 68,892 | 94,033 | 33.5 | % | (2.2 | %) | |||||||||||||
|
Equity
Indices total
|
294,078 | 247,526 | 285,895 | 18.8 | % | 2.9 | % | |||||||||||||
|
Equity
portfolio analytics
|
118,064 | 126,344 | 119,046 | (6.6 | %) | (0.8 | %) | |||||||||||||
|
Multi-asset
class analytics
|
42,145 | 37,194 | 41,142 | 13.3 | % | 2.4 | % | |||||||||||||
|
Other
Products
|
||||||||||||||||||||
|
Energy and
commodity analytics
|
15,340 | 14,863 | 15,671 | 3.2 | % | (2.1 | %) | |||||||||||||
|
Other 3
|
4,598 | 6,749 | 4,829 | (31.9 | %) | (4.8 | %) | |||||||||||||
|
Other
Products total
|
19,938 | 21,612 | 20,500 | (7.7 | %) | (2.7 | %) | |||||||||||||
|
Total Run
Rate
|
$ | 474,225 | $ | 432,676 | $ | 466,583 | 9.6 | % | 1.6 | % | ||||||||||
|
Subscription
total
|
382,248 | 362,784 | 372,550 | 5.4 | % | 2.6 | % | |||||||||||||
|
Asset based
fees total
|
91,977 | 69,892 | 94,033 | 31.6 | % | (2.2 | %) | |||||||||||||
|
Total Run
Rate
|
$ | 474,225 | $ | 432,676 | $ | 466,583 | 9.6 | % | 1.6 | % | ||||||||||
|
Subscription
Run Rate by region
|
||||||||||||||||||||
|
%
Americas
|
43.9 | % | 43.9 | % | 43.7 | % | ||||||||||||||
|
%
non-Americas
|
56.1 | % | 56.1 | % | 56.4 | % | ||||||||||||||
|
Subscription
Run Rate by client type
|
||||||||||||||||||||
|
%
Asset Managers
|
60.8 | % | 61.4 | % | 61.0 | % | ||||||||||||||
|
%
Broker Dealers
|
11.7 | % | 12.2 | % | 11.7 | % | ||||||||||||||
|
%
Hedge Funds
|
5.2 | % | 6.0 | % | 5.4 | % | ||||||||||||||
|
%
Asset Owners
|
6.2 | % | 6.1 | % | 6.2 | % | ||||||||||||||
|
%
Others
|
16.1 | % | 14.4 | % | 15.7 | % | ||||||||||||||
|
New Recurring
Subscription Sales
|
$ | 21,936 | $ | 14,286 | $ | 17,717 | 53.5 | % | 23.8 | % | ||||||||||
|
Subscription
Cancellations
|
$ | (9,932 | ) | $ | (10,913 | ) | $ | (7,161 | ) | (9.0 | %) | 38.7 | % | |||||||
|
Net New
Recurring Subscription Sales
|
$ | 12,004 | $ | 3,373 | $ | 10,556 | 255.9 | % | 13.7 | % | ||||||||||
|
Non-Recurring
Sales
|
$ | 3,730 | $ | 1,328 | $ | 1,168 | 180.9 | % | 219.4 | % | ||||||||||
|
Client count
4
|
3,203 | 3,080 | 3,153 | 4.0 | % | 1.6 | % | |||||||||||||
|
Employees
|
942 | 805 | 918 | 17.0 | % | 2.6 | % | |||||||||||||
|
%
Employees by location
|
||||||||||||||||||||
|
Developed
Market Centers
|
52 | % | 65 | % | 54 | % | ||||||||||||||
|
Emerging
Market Centers
|
48 | % | 35 | % | 46 | % | ||||||||||||||
1 The
run rate at a particular point in time represents the forward-looking fees for
the next 12 months from all subscriptions and investment product licenses we
currently provide to our clients under renewable contracts assuming all
contracts that come up for renewal are renewed and assuming then-current
exchange rates. For any license whose fees are linked to an investment product’s
assets or trading volume, the run rate calculation reflects an annualization of
the most recent periodic fee earned under such license. The run rate does not
include fees associated with “one-time” and other non-recurring transactions. In
addition, we remove from the run rate the fees associated with any subscription
or investment product license agreement with respect to which we have received a
notice of termination or non-renewal during the period and we have determined
that such notice evidences the client's final decision to terminate or not renew
the applicable subscription or agreement, even though the notice is not
effective until a later date.
2 Includes
asset based fees for ETFs, institutional and retail indexed funds, transaction
volume-based fees for futures and options traded on certain MSCI indices and
other structured products.
3
Includes run rate related to subscriptions to fixed income analytics and, for
quarter ended May 2009, to investable hedge fund index asset based
fees.
4 The
client count excludes clients that pay only asset based fees. Our client count
includes affiliates, cities and certain business units within a single
organization as distinct clients when they separately subscribe to our
products.
12 of
14
Table
9: Supplemental Operating Metrics
|
Recurring
Subscription Sales1
& Subscription Cancellations
|
||||||||||||||||||||||||||||||||
|
2009
|
2010
|
|||||||||||||||||||||||||||||||
|
February
|
May
|
August
|
November
|
February
|
May
|
2009
YTD
|
2010
YTD
|
|||||||||||||||||||||||||
|
New Recurring
Subscription Sales
|
$ | 10,770 | $ | 14,286 | $ | 15,524 | $ | 16,123 | $ | 17,717 | $ | 21,936 | $ | 25,056 | $ | 39,653 | ||||||||||||||||
|
Subscription
Cancellations
|
(8,187 | ) | (10,913 | ) | (17,175 | ) | (16,312 | ) | (7,161 | ) | (9,932 | ) | (19,100 | ) | (17,093 | ) | ||||||||||||||||
|
Net New
Recurring Subscription Sales
|
$ | 2,583 | $ | 3,373 | $ | (1,651 | ) | $ | (189 | ) | $ | 10,556 | $ | 12,004 | $ | 5,956 | $ | 22,560 | ||||||||||||||
|
1 This does
not include non-recurring sales.
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Retention
Rates
| 2009 | 2010 | |||||||||||||||||||||||||||||||
|
February
|
May
|
August
|
November
|
February
|
May
|
2009
YTD
|
2010
YTD
|
|||||||||||||||||||||||||
|
Aggregate
Retention Rate 1
|
||||||||||||||||||||||||||||||||
|
Equity
indices
|
94.9 | % | 92.8 | % | 91.4 | % | 88.6 | % | 94.9 | % | 92.9 | % | 93.9 | % | 93.9 | % | ||||||||||||||||
|
Equity
portfolio analytics
|
86.2 | % | 82.0 | % | 67.6 | % | 78.9 | % | 92.2 | % | 84.5 | % | 84.1 | % | 88.4 | % | ||||||||||||||||
|
Multi-asset
class analytics
|
92.0 | % | 83.2 | % | 73.9 | % | 60.0 | % | 82.7 | % | 89.1 | % | 87.6 | % | 85.9 | % | ||||||||||||||||
|
Other
products
|
83.3 | % | 88.3 | % | 84.2 | % | 77.7 | % | 85.8 | % | 81.3 | % | 85.8 | % | 83.5 | % | ||||||||||||||||
|
Total
aggregate retention
|
90.8 | % | 87.7 | % | 80.6 | % | 81.6 | % | 92.2 | % | 89.1 | % | 89.2 | % | 90.6 | % | ||||||||||||||||
|
Core
Retention Rate 2
|
||||||||||||||||||||||||||||||||
|
Equity
indices
|
95.0 | % | 93.2 | % | 92.2 | % | 89.2 | % | 95.7 | % | 93.4 | % | 94.1 | % | 94.6 | % | ||||||||||||||||
|
Equity
portfolio analytics
|
87.4 | % | 83.5 | % | 68.9 | % | 79.2 | % | 93.7 | % | 86.4 | % | 85.4 | % | 90.1 | % | ||||||||||||||||
|
Multi-asset
class analytics
|
92.0 | % | 93.7 | % | 77.5 | % | 65.6 | % | 89.5 | % | 93.5 | % | 92.8 | % | 91.5 | % | ||||||||||||||||
|
Other
products
|
84.0 | % | 89.6 | % | 86.1 | % | 81.7 | % | 88.6 | % | 81.3 | % | 86.8 | % | 85.0 | % | ||||||||||||||||
|
Total core
retention
|
91.3 | % | 89.5 | % | 81.9 | % | 82.8 | % | 94.0 | % | 90.5 | % | 90.4 | % | 92.2 | % | ||||||||||||||||
1 The
quarterly Aggregate Retention Rates are calculated by annualizing the
cancellations for which we have received a notice of termination or non-renewal
during the quarter and we have determined that such notice evidences the
client’s final decision to terminate or not renew the applicable subscription or
agreement, even though such notice is not effective until a later date. This
annualized cancellation figure is then divided by the subscription Run Rate at
the beginning of the year to calculate a cancellation rate. This cancellation
rate is then subtracted from 100% to derive the annualized Retention Rate for
the quarter. The Aggregate Retention Rate is computed on a
product-by-product basis. Therefore, if a client reduces the number of products
to which it subscribes or switches between our products, we treat it as a
cancellation. In addition, we treat any reduction in fees resulting from
renegotiated contracts as a cancellation in the calculation to the extent of the
reduction. Aggregate Retention Rates are generally higher during the first
three fiscal quarters and lower in the fourth fiscal quarter. For the
calculation of the Core Retention Rate the same methodology is used except the
amount of cancellations in the quarter is reduced by the amount of product
swaps.
2 Our
Core Retention Rate is calculated similarly to our Aggregate Retention Rate
except that the Core Retention Rate does not treat switches between our products
as a cancellation.
Table
10: ETF Assets Linked to MSCI Indices
|
2009
|
2010
|
|||||||||||||||||||||||
|
In
Billions
|
February
|
May
|
August
|
November
|
February
|
May
|
||||||||||||||||||
|
Quarterly
Average AUM in ETFs linked to MSCI Indices
|
$ | 126.4 | $ | 134.7 | $ | 180.3 | $ | 216.8 | $ | 239.6 | $ | 252.4 | ||||||||||||
|
Quarter-End
AUM in ETFs linked to MSCI Indices
|
$ | 107.8 | $ | 175.9 | $ | 199.2 | $ | 234.2 | $ | 235.6 | $ | 237.6 | ||||||||||||
|
Sequential
Change ($ Growth in Billions)
|
||||||||||||||||||||||||
|
Appreciation/Depreciation
|
$ | (13.6 | ) | $ | 42.2 | $ | 20.1 | $ | 18.0 | $ | (3.0 | ) | $ | (5.9 | ) | |||||||||
|
Cash Inflow /
Outflow
|
2.4 | 25.9 | 3.2 | 17.0 | 4.4 | 7.9 | ||||||||||||||||||
|
Total
Change
|
$ | (11.2 | ) | $ | 68.1 | $ | 23.3 | $ | 35.0 | $ | 1.4 | $ | 2.0 | |||||||||||
|
Source:
Bloomberg and MSCI
|
13 of
14
Table
11: Reconciliation of Adjusted EBITDA to Net Income
|
Three Months
Ended
|
Six Months
Ended
|
|||||||||||||||||||
|
May
31,
|
February
28,
|
May
31,
|
||||||||||||||||||
|
In
thousands
|
2010
|
2009
|
2010
|
2010
|
2009
|
|||||||||||||||
|
GAAP - Net
income
|
$ | 24,067 | $ | 19,618 | $ | 27,518 | $ | 51,585 | $ | 36,342 | ||||||||||
|
Provision for
income taxes
|
13,884 | 12,354 | 16,319 | 30,203 | 22,015 | |||||||||||||||
|
Other expense
(income), net
|
8,746 | 4,682 | 3,420 | 12,166 | 11,081 | |||||||||||||||
|
Amortization
of intangible assets
|
4,277 | 6,428 | 4,278 | 8,555 | 12,857 | |||||||||||||||
|
Depreciation
and amortization
|
3,556 | 2,972 | 3,393 | 6,949 | 6,023 | |||||||||||||||
|
Founders
grant expense
|
2,040 | 7,338 | 2,071 | 4,111 | 13,539 | |||||||||||||||
|
Transaction
expenses
|
5,264 | 0 | 2,250 | 7,514 | 0 | |||||||||||||||
|
Adjusted
EBITDA
|
$ | 61,834 | $ | 53,392 | $ | 59,249 | $ | 121,083 | $ | 101,857 | ||||||||||
Table
12: Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and
EPS
|
Three Months
Ended
|
Six Months
Ended
|
|||||||||||||||||||
|
May
31,
|
February
28,
|
May
31,
|
||||||||||||||||||
|
2010
|
2009
|
2010
|
2010
|
2009
|
||||||||||||||||
|
GAAP - Net
income
|
$ | 24,067 | $ | 19,618 | $ | 27,518 | $ | 51,585 | $ | 36,342 | ||||||||||
|
Plus:
Founders grant expense
|
2,040 | 7,338 | 2,071 | 4,111 | 13,539 | |||||||||||||||
|
Plus:
Amortization of intangible assets
|
4,277 | 6,428 | 4,278 | 8,555 | 12,857 | |||||||||||||||
|
Plus:
Transaction costs
|
5,264 | 0 | 2,250 | 7,514 | 0 | |||||||||||||||
|
Plus: Debt
repayment expenses
|
6,280 | 0 | 0 | 6,280 | 0 | |||||||||||||||
|
Less: Income
tax effect1
|
(4,610 | ) | (5,176 | ) | (2,324 | ) | (6,934 | ) | (9,924 | ) | ||||||||||
|
Adjusted net
income
|
$ | 37,318 | $ | 28,208 | $ | 33,793 | $ | 71,111 | $ | 52,814 | ||||||||||
|
GAAP -
EPS
|
$ | 0.22 | $ | 0.19 | $ | 0.26 | $ | 0.48 | $ | 0.35 | ||||||||||
|
Plus:
Founders grant expense
|
0.02 | 0.07 | 0.02 | 0.04 | 0.13 | |||||||||||||||
|
Plus:
Amortization of intangible assets
|
0.04 | 0.06 | 0.04 | 0.08 | 0.13 | |||||||||||||||
|
Plus:
Transaction costs
|
0.05 | 0.00 | 0.02 | 0.07 | 0.00 | |||||||||||||||
|
Plus: Debt
repayment expenses
|
0.06 | 0.00 | 0.00 | 0.06 | 0.00 | |||||||||||||||
|
Less: Income
tax effect1
|
(0.04 | ) | (0.05 | ) | (0.03 | ) | (0.07 | ) | (0.10 | ) | ||||||||||
|
Adjusted
EPS - diluted
|
$ | 0.35 | $ | 0.27 | $ | 0.31 | $ | 0.66 | $ | 0.51 | ||||||||||
|
Diluted
Shares
|
106,003 | 100,371 | 105,844 | 105,923 | 100,330 | |||||||||||||||
1For the purposes
of calculating Adjusted EPS, founders grant expense, amortization of intangible
assets and debt repayment expenses during the current fiscal year are assumed to
be taxed at the first half 2010 effective tax rate excluding discrete items of
36.6% For the prior year, the effective rate is assumed to be 37.6%,
which was the 2009 effective tax rate, excluding discrete
items. No tax adjustments are made for transaction
expenses.
14 of
14