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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-33812

 

MSCI INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

13-4038723

(State or other jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

7 World Trade Center

250 Greenwich Street, 49th Floor

New York, New York

 

10007

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (212804-3900

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

MSCI

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 20, 2020, there were 82,895,040 shares of the registrant’s common stock, par value $0.01, outstanding.

 

 

 


 

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Part I – Financial Information

 

 

Item 1.

 

Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

43

Item 4.

 

Controls and Procedures

 

44

 

 

 

 

 

 

 

Part II – Other Information

 

 

Item 1.

 

Legal Proceedings

 

45

Item 1A.

 

Risk Factors

 

45

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

Item 3.

 

Defaults Upon Senior Securities

 

45

Item 4.

 

Mine Safety Disclosures

 

45

Item 5.

 

Other Information

 

45

Item 6.

 

Exhibits

 

46

 

2


 

AVAILABLE INFORMATION

MSCI Inc.’s website is www.msci.com. You can access MSCI Inc.’s Investor Relations homepage at http://ir.msci.com. MSCI Inc. makes available free of charge, on or through its Investor Relations homepage, its proxy statements, Annual Reports on Form 10‑K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. MSCI Inc. also makes available, through its Investor Relations homepage, via a link to the SEC’s website, statements of beneficial ownership of MSCI Inc.’s equity securities filed by its directors, officers, 5% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about MSCI Inc.’s corporate governance at http://ir.msci.com/corporate-governance, including copies of the following:

 

Charters for MSCI Inc.’s Audit Committee, Compensation & Talent Management Committee, Nominating and Corporate Governance Committee and Strategy and Finance Committee;

 

Corporate Governance Policies;

 

Procedures for Submission of Ethical or Accounting Related Complaints; and

 

Code of Ethics and Business Conduct.

MSCI Inc.’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer and its Chief Financial Officer. MSCI Inc. will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC on its website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, MSCI Inc., 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, NY 10007; (212) 804-5306. The information on MSCI Inc.’s website is not incorporated by reference into this report or any other report filed or furnished by us with the SEC.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond MSCI’s control and that could materially affect actual results, levels of activity, performance or achievements.

Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in the 2019 Annual Report on Form 10-K filed with the SEC on February 18, 2020 and in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. If any of these risks or uncertainties materialize, or if MSCI’s underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI projected. Any forward-looking statement in this report reflects MSCI’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI’s operations, results of operations, growth strategy and liquidity. MSCI assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law.

3


 

WEBSITE AND SOCIAL MEDIA DISCLOSURE

MSCI Inc. uses its website, including its quarterly updates, blog, podcasts and social media channels, including its corporate Twitter account (@MSCI_Inc) as channels of distribution of company information. The information MSCI Inc. posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following MSCI Inc.’s press releases, quarterly SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about MSCI Inc. when you enroll your email address by visiting the “Email Alerts Subscription” section of its Investor Relations homepage at http://ir.msci.com/email-alerts. The contents of MSCI Inc.’s website, including its quarterly updates, blog, podcasts and social media channels are not, however, incorporated by reference into this report or any other report filed or furnished by us with the SEC.

4


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except per share and share data)

 

 

 

As of

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,302,858

 

 

$

1,506,567

 

Accounts receivable, net of allowances

 

 

429,804

 

 

 

499,268

 

Prepaid income taxes

 

 

63,460

 

 

 

31,590

 

Prepaid and other assets

 

 

46,970

 

 

 

44,352

 

Total current assets

 

 

1,843,092

 

 

 

2,081,777

 

Property, equipment and leasehold improvements, net

 

 

78,965

 

 

 

90,708

 

Right of use assets

 

 

153,727

 

 

 

166,406

 

Goodwill

 

 

1,562,377

 

 

 

1,562,868

 

Intangible assets, net

 

 

240,858

 

 

 

261,487

 

Equity method investment

 

 

190,206

 

 

 

 

Deferred tax assets

 

 

23,773

 

 

 

20,911

 

Other non-current assets

 

 

18,721

 

 

 

20,282

 

Total assets

 

$

4,111,719

 

 

$

4,204,439

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,718

 

 

$

6,498

 

Income taxes payable

 

 

22,039

 

 

 

14,210

 

Accrued compensation and related benefits

 

 

127,605

 

 

 

166,273

 

Other accrued liabilities

 

 

149,005

 

 

 

139,149

 

Deferred revenue

 

 

531,487

 

 

 

574,656

 

Total current liabilities

 

 

834,854

 

 

 

900,786

 

Long-term debt

 

 

3,365,783

 

 

 

3,071,926

 

Long-term operating lease liabilities

 

 

152,812

 

 

 

164,144

 

Deferred tax liabilities

 

 

63,845

 

 

 

66,639

 

Other non-current liabilities

 

 

81,011

 

 

 

77,658

 

Total liabilities

 

 

4,498,305

 

 

 

4,281,153

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock (par value $0.01, 100,000,000 shares authorized; no shares issued)

 

 

 

 

 

 

Common stock (par value $0.01; 750,000,000 common shares authorized; 132,823,285

   and 132,419,412 common shares issued and 83,041,856 and 84,794,930 common

   shares outstanding at September 30, 2020 and December 31, 2019, respectively)

 

 

1,328

 

 

 

1,324

 

Treasury shares, at cost (49,781,429 and 47,624,482 common shares held at September 30, 2020

   and December 31, 2019, respectively)

 

 

(4,177,563

)

 

 

(3,565,784

)

Additional paid in capital

 

 

1,391,837

 

 

 

1,351,031

 

Retained earnings

 

 

2,463,108

 

 

 

2,199,294

 

Accumulated other comprehensive loss

 

 

(65,296

)

 

 

(62,579

)

Total shareholders' equity (deficit)

 

 

(386,586

)

 

 

(76,714

)

Total liabilities and shareholders' equity (deficit)

 

$

4,111,719

 

 

$

4,204,439

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

5


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

Operating revenues

 

$

425,333

 

 

$

394,251

 

 

$

1,251,729

 

 

$

1,151,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

70,704

 

 

 

70,486

 

 

 

215,769

 

 

 

224,807

 

Selling and marketing

 

 

52,668

 

 

 

52,107

 

 

 

159,834

 

 

 

159,812

 

Research and development

 

 

24,901

 

 

 

24,310

 

 

 

73,997

 

 

 

71,234

 

General and administrative

 

 

27,613

 

 

 

26,559

 

 

 

86,755

 

 

 

80,434

 

Amortization of intangible assets

 

 

14,333

 

 

 

12,361

 

 

 

42,171

 

 

 

36,167

 

Depreciation and amortization of property, equipment and

   leasehold improvements

 

 

7,494

 

 

 

7,209

 

 

 

22,524

 

 

 

22,464

 

Total operating expenses

 

 

197,713

 

 

 

193,032

 

 

 

601,050

 

 

 

594,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

227,620

 

 

 

201,219

 

 

 

650,679

 

 

 

556,272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(475

)

 

 

(3,673

)

 

 

(4,729

)

 

 

(11,104

)

Interest expense

 

 

37,536

 

 

 

35,922

 

 

 

118,994

 

 

 

107,752

 

Other expense (income)

 

 

1,516

 

 

 

222

 

 

 

45,355

 

 

 

2,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

38,577

 

 

 

32,471

 

 

 

159,620

 

 

 

99,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

189,043

 

 

 

168,748

 

 

 

491,059

 

 

 

456,785

 

Provision for income taxes

 

 

6,685

 

 

 

31,765

 

 

 

45,453

 

 

 

15,920

 

Net income

 

$

182,358

 

 

$

136,983

 

 

$

445,606

 

 

$

440,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per basic common share

 

$

2.18

 

 

$

1.62

 

 

$

5.30

 

 

$

5.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per diluted common share

 

$

2.16

 

 

$

1.60

 

 

$

5.26

 

 

$

5.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding used in computing

   earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

83,602

 

 

 

84,765

 

 

 

84,044

 

 

 

84,591

 

Diluted

 

 

84,479

 

 

 

85,550

 

 

 

84,789

 

 

 

85,533

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

6


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

Net income

 

$

182,358

 

 

$

136,983

 

 

$

445,606

 

 

$

440,865

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

7,058

 

 

 

(5,533

)

 

 

(3,743

)

 

 

(4,853

)

Income tax effect

 

 

(1,124

)

 

 

1,124

 

 

 

965

 

 

 

1,085

 

Foreign currency translation adjustments, net

 

 

5,934

 

 

 

(4,409

)

 

 

(2,778

)

 

 

(3,768

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other post-retirement adjustments

 

 

(245

)

 

 

134

 

 

 

(27

)

 

 

103

 

Income tax effect

 

 

83

 

 

 

(64

)

 

 

88

 

 

 

(34

)

Pension and other post-retirement adjustments, net

 

 

(162

)

 

 

70

 

 

 

61

 

 

 

69

 

Other comprehensive (loss) income, net of tax

 

 

5,772

 

 

 

(4,339

)

 

 

(2,717

)

 

 

(3,699

)

Comprehensive income

 

$

188,130

 

 

$

132,644

 

 

$

442,889

 

 

$

437,166

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

7


 

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

Paid in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

 

 

(unaudited)

 

Balance at December 31, 2019

 

$

1,324

 

 

$

(3,565,784

)

 

$

1,351,031

 

 

$

2,199,294

 

 

$

(62,579

)

 

$

(76,714

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148,125

 

 

 

 

 

 

 

148,125

 

Cumulative-effect adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

631

 

 

 

 

 

 

 

631

 

Dividends declared ($0.68 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,233

)

 

 

 

 

 

 

(59,233

)

Dividends paid in shares

 

 

 

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

 

 

78

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,625

)

 

 

(9,625

)

Common stock issued

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Shares withheld for tax withholding

 

 

 

 

 

 

(47,195

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,195

)

Compensation payable in common stock

 

 

 

 

 

 

 

 

 

 

15,333

 

 

 

 

 

 

 

 

 

 

 

15,333

 

Common stock repurchased and held in treasury

 

 

 

 

 

 

(325,699

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(325,699

)

Common stock issued to Directors and (held in)/released from treasury

 

 

 

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

1,328

 

 

 

(3,938,714

)

 

 

1,366,442

 

 

 

2,288,817

 

 

 

(72,204

)

 

 

(354,331

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

115,123

 

 

 

 

 

 

 

115,123

 

Dividends declared ($0.68 per common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57,360

)

 

 

 

 

 

 

(57,360

)

Dividends paid in shares

 

 

 

 

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

 

 

36

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,136

 

 

 

1,136

 

Shares withheld for tax withholding and exercises

 

 

 

 

 

 

(603

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(603

)

Compensation payable in common stock

 

 

 

 

 

 

 

 

 

 

14,294

 

 

 

 

 

 

 

 

 

 

 

14,294

 

Common stock repurchased and held in treasury

 

 

 

 

 

 

(31,071

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,071

)

Common stock issued to Directors and (held in)/released from treasury

 

 

 

 

 

 

1,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

1,328

 

 

 

(3,968,544

)

 

 

1,380,772

 

 

 

2,346,580